Council funding gap widens to £7.4 billion

Between March and June, councils have incurred £4.8 billion of extra cost pressures and income losses as a result of the coronavirus pandemic.

A survey from the Local Government Association has revealed that the latest figures, which show that the estimated financial challenge councils face as a result of the pandemic will reach £10.9 billion.

The government has provided £3.2 billion of emergency funding to councils and CCGs have provided funding of £300 million which has helped meet some of the pressures so far - leaving councils facing a funding gap of £7.4 billion.

The government has indicated it is working on a comprehensive plan to address the ongoing financial challenges councils face this financial year. As it holds its virtual Annual Conference, the Local Government Association is calling for the government to urgently bring forward details of its comprehensive plan to ensure the financial sustainability of councils this year and next.

The LGA is urging the government to ensure it address three key elements of the pressures facing councils: all additional costs councils are set to incur result of the pandemic must be met in full; a guarantee that councils will be compensated for all lost income from fees and charges and other sources; and the government will need to provide a solution to cover councils for losses of local taxation which will hit councils’ council tax and business rates collection funds next year.

Without this, the LGA is warning that councils will have to take measures in anticipation of future funding shortfalls. This could mean in-year cuts to vital local services that are supporting communities through this crisis and crucial to the national recovery.

The scale of the economic, environmental and community challenges that we will face as a result of the pandemic cannot be under-estimated. Councils want to grasp this once-in-a-lifetime opportunity to not just recover from this crisis but to go further and address the stark inequalities the virus has exposed, develop a green recovery, address skills gaps and rebuild the economy so that it benefits everyone.

The LGA’s new discussion paper Re-thinking Local sets out how, with the right funding and powers, councils can be empowered to support the unprecedented social and economic challenge we face as a result of coronavirus.

James Jamieson, LGA chairman, said: “Councils are leading local communities through the coronavirus crisis. They continue to work all day and night to protect the most vulnerable, support local businesses and try and keep normal services running. As this new analysis shows, they continue to face unsustainable finance pressures. Not only do councils need to be fully funded to help our communities beat this virus now but also to help support the nation as we look towards the next phase.

“Councils have a legal duty to balance their budgets each year. Further funding and flexibilities are now urgent if councils are to have the certainty they need to avoid taking steps, such as in-year cuts to local services, to cope with funding shortfalls. We are already starting to see this being borne out in towns halls of all political colours across the country. The government has shown a firm commitment to fully understanding the financial pressures councils are facing as a result of Covid-19 and we are pleased it is working on a comprehensive plan to address these this financial year. We urge the government to bring forward details as soon as possible.”