COVID-19: Local government finance Contents

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Summary

Despite receiving additional funding during Covid, many local authorities are in a precarious financial situation and will experience long-term financial effects from the pandemic. Many expect to make cuts to their budgets for local services in 2021–22. Typical council tax bills will rise by an average of 4.3% across England in 2021–22, meaning that local people could be paying more for less.

The government does not have sufficient information about how these financial pressures will impact on local services. Despite this in many respects, the Ministry of Housing, Communities & Local Government has acted effectively to stave off widespread financial failure within the sector despite the unprecedented impacts of the pandemic in the short term. Regular submission of financial data by local authorities has given the Department a timely evidence base to support local authorities, the £9.7 billion of increased costs and lost income faced by local authorities to December 2020 were nearly matched by the £9.1 billion of government support provided. However, there are still lessons that the Department and the rest of government need to learn from the experience of the pandemic to ensure the financial sustainability of the sector and discussion between local authorities and the Department when a council is in serious financial difficulty are still behind closed doors. The Government should be more transparent with the National Audit Office about the level of financial stress in councils and the potential for Section 114 notices to enable better scrutiny of these issues which hit taxpayers and service users hard if a council fails financially.

While the Department has worked well with local authorities, it was not sufficiently prepared for the financial impacts of the pandemic. Across government, support schemes have not always been designed with sufficient knowledge or consideration of local government finance, which can create confusion and excessive bureaucracy. Crucially, uncertainty about government funding and support has hindered local authority financial planning for the year ahead and been a driver for cost cutting. Despite the Department’s detailed work in earlier years, longer-term reform of local government finance has been delayed twice, first by Brexit and now by the pandemic, and reform to adult social care remains undelivered. Even if the sector’s current financial situation is stabilised, there is a looming problem in local government finance that needs a structural solution which needs to take account of the impacts of the pandemic.