Councils in England face a £2bn “perfect storm” over the next few months and will be forced to cut services if the government does not meet the cost of soaring Covid-19 spending, the Institute for Fiscal Studies thinktank has warned.
Patrick Butler www.theguardian.com
Without additional financial support, councils “face a difficult choice between depleting their reserves to low and potentially risky levels or cutting spending on important local services”, the IFS said.
Although the government has so far provided £5.2bn in extra funds, councils expect to spend £4.4bn more than expected on the pandemic this year, as well as £2.8bn in losses from fees and charges, leaving them with a £2bn shortfall.
Even if the government offers additional support this year, the crisis facing local government is likely to continue into 2021-22 when collapsing council tax and business rates collection since lockdown start to feed into council budgets, it added.
David Phillips, an associate director at IFS, said: “Even if more funding or flexibilities are forthcoming this year, councils will still not be out of the Covid-19 woods.”
Although the simplest way of preventing cuts would be for ministers to provide more grant funding, they could also consider relaxing rules that prevent councils from borrowing money to fund day-to-day services, the IFS said. “This would help spread the pressure over several years and mean councils could avoid needing to make immediate cuts to balance their budgets.”
Although English councils collectively have around £3.3bn of available reserves, the amounts vary widely between authorities. The IFS estimates that around 40% of councils would still be unable to balance their books even if they spent all their reserves.
Cllr James Jamieson, chairman of the Local Government Association, which co-funded the study, called for the government to meet all extra cost pressures and income losses in full “so that councils aren’t faced with making tough decisions on in-year cuts to services to meet their legal duty to set a balanced budget”.
He added: “Councils need to be able to lead their communities out of this crisis and support recovery, but they cannot do this successfully and also address pressures in social care if they are having to focus on addressing budget cuts.”
A government spokesperson said: “We’re giving councils unprecedented support during the pandemic to tackle the pressures they have told us they’re facing. This includes £4.3bn funding, compensation for irrecoverable income losses, and a scheme allowing them to spread their tax deficits.”