Majority of councils facing significant funding gaps

A new report from the National Audit Office has warned that some local councils in England are at risk of financial failure amid a £605 million funding shortfall.

Local authorities in England have made a major contribution to the nation’s response to the coronavirus pandemic, working to protect local communities and businesses, while continuing to deliver existing services. In the process, local authorities have reported combined cost pressures and income losses (excluding tax losses) of £9.7 billion, equal to 17.6 per cent of their total spend in the year before.

The NAO reports that local authorities now forecast that the  pandemic will create £6.9 billion of additional costs in 2020-2021 because of the need to deliver new services and the increased cost of delivering some existing services. There have also been fewer opportunities to deliver savings programmes.

Authorities expect to lose £695 million alone from reduced car parking income, and £554 million income from facilities such as leisure centres, theatres and museums that they run. Further losses of £1.3 billion in council tax and £1.6 billion in business rates are expected but will not affect budgets until 2021-2022.

Alongside other departments, the Ministry for Housing, Communities and Local Government has so far announced £7.9 billion in grant funding to address the pressures facing the sector. The NAO estimates that authorities will also receive £1.23 billion in compensation for lost sales, fees and charges income.

Despite this, 75 per cent of local authorities have a reported gap between their financial pressures and the NAO’s estimate of financial support from government. In some case these gaps are substantial; 30 per cent of authorities have reported funding gaps equivalent to more than five per cent of their spending last year.

Overall, 94 per cent of single tier and county councils and 81 per cent of district councils who responded to the NAO’s survey expected to reduce service budgets in 2021-2022. Examples, provided by local authorities, of how this could impact services included reviews of adult social care and special educational needs packages; the closure of, or restricting the opening hours, of libraries, information centres and theatres; and reductions in subsidies and grants.

The NAO recommends that the government clearly communicates whether the sector is likely to receive further funding or support. In addition, it should look for ways to reduce financial uncertainty in local authority budget-setting processes.

Gareth Davies, head of the NAO, said: “Government’s support to local authorities during the Covid-19 pandemic has averted system-wide financial failure. Nonetheless, the financial position of the sector remains a concern and authorities are setting budgets for 2021-2022 with limited confidence. Authorities’ finances have been scarred and won’t simply bounce back quickly. Government needs a plan to help the sector recover from the pandemic and also to address the longstanding need for financial reform in the sector.”