IFS calls for targeted support for councils worst-hit financially by coronavirus

A report from the Institute for Fiscal Studies (IFS) released today said councils faced a shortfall of £2bn even after cash already given by the Government to support them through the pandemic, as council tax and business rate income fell away.

And while it would cost the Treasury up to £4bn to protect the majority of councils, for just a quarter of that interventions could be targeted at those who need it most.

Researchers funded by the Economic and Social Research Council and the Local Government Association say some councils face a “difficult choice” between depleting their reserves to low and potentially risky levels or cutting spending on important local services.

Kate Ogden, a research economist at IFS and an author of the report, said: “Just how much the Covid-19 crisis will cost councils this year is highly uncertain, but councils’ current forecasts imply around £2bn of unfunded spending and non-tax income pressures.

“And while drawdowns from reserves may be sufficient to address these for many councils, particularly high pressures or low reserves mean this will unlikely be enough for all.

“Uncertain and highly variable pressures across councils mean it may be difficult and costly for the Government to address this problem by further increases in general grant funding alone. More targeted support should therefore be considered too.”

Throughout the pandemic councils have taken on the responsibility to house rough sleepers, support those shielding at home, and help with the testing, tracing and control of Covid-19 outbreaks.

Income streams, such as in private businesses, have been hit.

And the Government has already committed an extra £5.2bn to the cause.

But David Phillips, an associate director at IFS and another author of the report, said that the Government will need to assess further the financial pressures placed on councils.

He said: “Even if more funding or flexibilities are forthcoming this year, councils will still not be out of the Covid-19 woods.

“Financial pressures will continue into next year and beyond, not least because shortfalls in council tax and business rates collections will have to be reflected in councils’ main accounts.

“In the upcoming Spending Review, the Government will therefore need to assess these pressures.

“It must ensure that the resources made available to local Government are consistent with its expectations of the range and quality of services councils should provide as well as the role it sees them playing in the social and economic recovery from the Covid-19 crisis.”

While James Jamieson, chairman of the Local Government Association, said that councils must be able to lead their communities out of the crisis.

He said: “The funding already received from Government has been a positive step and recognises the crucial role councils have played in keeping the country going throughout the Covid-19 pandemic.

“This independent research shows that there remain un-met funding pressures though. The LGA therefore reiterates its call for the Government to meet all extra cost pressures and income losses in full so that councils aren’t faced with making tough decisions on in-year cuts to services to meet their legal duty to set a balanced budget.

“Councils need to be able to lead their communities out of this crisis and support recovery, but they cannot do this successfully and also address pressures in social care if they are having to focus on addressing budget cuts.

“The LGA wants to continue working with Government on the further measures and funding needed to protect local council services.”

A spokesperson for the Ministry of Housing, Communities, and Local Government said: “We’re giving councils unprecedented support during the pandemic to tackle the pressures they have told us they’re facing. This includes £4.3bn funding, compensation for irrecoverable income losses and a scheme allowing them to spread their tax deficits.

“For relevant losses of sales, fees and charges, over and above the first 5 per cent of planned income, we’re covering 75p in the pound for revenue they haven’t been able to generate in areas including parking fees and museum entry. For many councils, this will be a significant portion of their income lost as result of the pandemic.”

“We will continue to work closely with councils as they support their communities through the pandemic and if any are concerned about their future financial position they should contact MHCLG.”