LGC survey shows scale of shortfall of government funding

Analysis of information from more than 50 councils on how the outbreak is impacting their financial position suggests the £1.6bn funding so far promised by ministers will only cover a quarter of the estimated financial impact of the crisis for councils with social care responsibilities.

Overall the 51 councils in our sample reported a projected shortfall of £1.4bn in 2020-21.

Among the 32 councils that provided a full breakdown to LGC, lost income was by far the greater pressure, accounting for 64% of the impact.

Will Godfrey, chief executive of Bath & North East Somerset Council, told LGC the income lost forecast by the council included £7m from car parking while its £16.5m of income from commercial estate was also at risk as tenants seek new terms or go into liquidation. Altogether the council is forecasting a deficit of £40m on its £120m budget as a result of the coronavirus outbreak.

The largest shortfalls were reported by city councils (see table). Although, as the largest unitary council in England it was unsurprising that Birmingham City Council was forecasting the largest shortfall, at £222.5m, this was more than double the £107m reported by Leeds City Council, the next largest.

In its response to the government Birmingham warned that without additional funding “service delivery will be unsustainable in the medium term”.

Many other returns to government seen by LGC contained similar warnings.

Bradford City MDC, which reported a financial impact of £59m compared with funding from government of £15.8m, is forecasting additional expenditure on adult social care of £11.5m, including a 5% uplift to providers, and a £20m shortfall on council tax collection. The West Yorkshire council is also predicting £15m lost income from sales, fees and charges much of which is driven by the closure of theatres and sports venues.

Director of finance and IT Chris Chapman told LGC the council could quickly get to the point where “we are no longer going to be able to live within our current means”. He said this could lead to the issuing of a section 114 notice, which councils issue when they fear not being able to balance their budgets and lead to severe restrictions on spending.

“I should be looking at things we can stop doing but a lot of the non-statutory services are already closed,” he said.

In its return Lincoln City Council told the government the £67,000 it had received would not even cover one week of its lost parking income and using its reserves would leave the council in an “unsustainable financial position”.

The government did though announce £3.5bn of cash flow support for councils yesterday, by bringing forward the payment of £850m of social care grants and deferring the £2.6bn councils are due to pay to government over the next three months.

Councils assumptions in making their forecast ranged from Mole Valley, which said it had submitted its return based on the “current situation lasting for 2 months, and a return to complete ‘normality’” and Leicester City Council which assumed the impact felt in April was replicated throughout the year.

Of course, councils are having to give estimates for the rest of the year, which are difficult to make because nobody knows how quickly the recovery of revenue will be. But information on the government’s third tranche of money to local authorities indicates a shortfall of funding of at least £2.7 billion this year alone. However, detail of the government support for loss of income has yet to be seen. It has promised 75% of losses above the first 5%, though that is for sales, fees and lost charges. The economic impact of mass unemployment when the furlough scheme ends is likely to exacerbate losses of rent and council tax.

Martin Wicks

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