Councils call for ‘income guarantee’ to help with coronavirus

Leaders of England’s largest councils have called on the government to introduce a ‘£5 billion income guarantee’ for local authorities to prevent them having to declare insolvency during the coronavirus pandemic.

The County Councils Network (CCN), which represents 36 county and unitary local authorities in England, says that a severe uncertainty on future income, including council tax payments, coupled with growing cost pressures, is contributing to councils’ fears they may have no choice but to issue a section 114 notice. This would mean these councils suspending non-essential expenditure and implementing in-year cutbacks to services, including those aimed at fighting the spread of coronavirus.

Council leaders have initially estimated lost income pressures of £430 million from fees, charges and other income. Separately, these councils also face further income pressures from non-payment of council tax and business rates, which could reach £2.4 billion for these councils alone if non-payment rates of council tax reach 20 per cent this year.

Income from council tax forms the majority of county authorities’ income in normal times – 56 per cent on average for the 36 councils.

The CCN is calling on the government to work with councils to design a comprehensive strategy to protect council finances over the coming months to protect against potential loses. Alongside emergency funding for additional costs, this should include an income guarantee, backed by the Treasury and initially set at £5 billion, to be available to compensate councils for their lost income from council tax, business rates, fees and charges and other non-commercial income.

This would provide councils with similar financial protection as businesses and the health service. In March, ministers completely wrote off £13 billion of historic NHS debt due to the pandemic, despite this pre-dating the crisis.

Unlike the NHS, councils cannot legally run deficits and must deliver a balanced budget. If a council projects they will be unable to do this, they must by law issue a section 114 notice, suspending all non-essential expenditure and beginning huge cost-saving programmes.

County leaders say that the matter is urgent, and they have a duty to consider their authority’s financial sustainability now across the financial year, rather than wait for one-off injections of funding or verbal reassurances of further support. An income guarantee would reduce risks in council budget projections and help prevent councils having to issue section 114 notices.

David Williams, chairman of the County Councils Network, said: “The government is alive to the financial challenges facing councils as we battle coronavirus on the frontline in our communities. The grant funding provided so far is very welcome and provides vital resources to meet immediate cost pressures, recognising that councils have done much of the heavy lifting during this pandemic, from protecting the vulnerable and taking the strain off the NHS.

“The government has given comprehensive protection to the health service and businesses and we want to work with government to deliver the same for councils. However welcome one-off injections of resources have been, councils cannot budget on verbal reassurances alone and therefore now is the time for the government to step forward with firmer financial guarantees to stem fears that councils will have to declare insolvency.

“By setting out an initial guarantee of £5 billion, this will provide councils with the confidence and means that they need to spend what is required to defeat the spread of the virus, save lives and support private enterprise to drive the economic recovery. CCN is committed to working with ministers to design a comprehensive package of support, ensuring the best possible data and validation of our financial pressures to reassure government they are only funding genuine costs and lost income resulting from the crisis.”