Local authorities running out of money as COVID costs mount

2 July 2020: English councils have warned that £6bn more funding may be needed to keep operating through the rest of the financial year.

Data collected by the Ministry for Housing, Communities & Local Government (MHCLG) from 339 local authorities in England indicates that councils expect lost income and additional expenditure as a consequence of the coronavirus pandemic to amount to a total of £9.4bn.

Many councils are warning that they may not be able to continue operating without further infusions of cash from central government. Although £3.2bn has been provided by central government to date, this has only covered lost income and additional expenditure incurred up to the end of May 2020, with councils forecasting a further impact of £6.2bn over the remainder of the financial year.

Table 1 – English local authorities: financial impact of the coronavirus pandemic

 March
2020
£bn
April & May
2020
£bn
Forecast to
March 2023
£bn

Total
£bn
Lost income  0.17 1.82 3.70 5.69
Additional expenditure 0.08 1.17 2.46 3.71
Total covid-19 impact 0.25 2.99 6.16 9.40

Source: Ministry of Housing, Communities & Local Government, ‘Local authority COVID-19 financial impact monitoring information’.

Lost income is expected to reach in order of £5.7bn overall, while additional expenses are forecast to reach around £3.7bn. Further detail is provided in Table 2 and Table 3 below. 

With no additional funding as yet forthcoming, councils have been using their reserves to cover shortfalls during June. A number of local authorities are now discussing the possibility that that they may have to issue s114 ‘bankruptcy’ notices, which would require them to freeze all non-statutory expenditures, severely affecting local services.

The Chancellor is expected to announce further financial measures when he updates the nation next week and councils are hoping this will include more funding from central government in line with the encouragement they received at the outset of the lockdown to “do whatever it takes”.

Alison Ring, director for public sector at ICAEW, commented: “These numbers from English local authorities highlight just how severe the financial impact of the coronavirus pandemic has been. The £3.2bn in additional funding from central government announced so far is only a third of the estimated total of £9.4bn in lost income and additional expenditure expected to be incurred.

There is a risk that without clarity on further funding that some councils will start issuing s114 ‘bankruptcy’ notices. This would significantly reduce spending by local authorities at the same time that local economies need every bit of help they can get if they are to fully recover.”

Table 2 – English local authorities: lost income

 March 2020
£bn
April & May 2020
£bn
Forecast to
March 2021
£bn

Total
£bn
Business rates  0.03 0.44 0.72 1.19
Council tax 0.02 0.48 1.21 1.71
Sales fees and charges 0.08 0.65 1.15 1.88
Commercial income 0.03 0.17 0.45 0.65
Other 0.01 0.08 0.17 0.26
Lost income 0.17 1.82 3.70 5.69

Source: Ministry of Housing, Communities & Local Government, ‘Local authority COVID-19 financial impact monitoring information’.

Table 3 – English local authorities: additional expenditure

 March
2020
£bn
April & May 2020
£bn
Forecast to
March 2021
£bn

Total
£bn
Adult social care  0.03 0.50 0.97 0.50
Children’s social care 0.00 0.08 0.22 0.30
Housing (excluding HRA) 0.01 0.06 0.12 0.19
Environment and regulatory services 0.01 0.09 0.11 0.21
Finance & corporate services 0.01 0.08 0.11 0.20
Other service areas 0.02 0.36 0.93 1.31
Additional expenditure 0.08 1.17 2.46 3.71

Source: Ministry of Housing, Communities & Local Government, ‘Local authority COVID-19 financial impact monitoring information’.

This article was originally published by ICAEW.

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