Local government may struggle without a bailout

By Zoe Billingham | 07 April 2020

Four weeks ago I found myself glued to the chancellor’s Budget speech. It was a first for Rishi Sunak as chancellor and for the new government. Originally intended as the post-Brexit budget, detailing the government’s commitment to levelling up, it was overtaken by coronavirus and additional announcements of support.  However, the government’s promise to do ‘whatever it takes to support the economy’ will now likely need to go further, to prevent councils up and down the country becoming effectively insolvent.

While the crisis has been unfolding, there has been surprisingly scant reference to the perfect storm facing local government. Local government’s capacity to coordinate and deliver a response on the ground has been hollowed out as a result of a 40% cut in spending on non-statutory services over the past decade. Preventative spend in areas that would help boost resilience has been falling, including an 8% decrease in local public health spending between 2013/14 and 2017/18. Meanwhile demand for services, and in particular adult social care, continues to rise. And just as local government is tasked to raise more revenues locally, a pandemic hits, undermining many of its key revenue streams.
 

Local government is doing its utmost to respond to this crisis. As well as helping to coordinate a huge community response, it is playing a critical role in delivering the evolving demands of key services including in housing, schools and social care. The homeless are being housed, classrooms are being kept open for those in most need, while adult social care is in overdrive, helping to keep people out of hospital and bringing them back into the community after time spent in NHS care. Children’s social services are also under increased pressure and have been calls for additional support to safeguard vulnerable children who can move out of reach in these testing times.

Within the sweeping measures of support for the economy announced in the last month, a number have provided relief for local government. The most direct forms of support include an additional £1.6 billion of funding for services, business rate relief offered to retail, leisure and hospitality businesses, to be reimbursed by central government, and a £500 million Hardship Fund to provide council tax relief. Many other measures that have been announced so far indirectly benefit local government finances. By helping businesses stay afloat with grants and loans whilst supporting wages, some business rate revenue will be protected and more people will be able to continue to pay their council tax bills.

Despite these measures, the current level of support is unlikely to be sufficient to stop some councils needing a central government bailout. With economic hardship increasing, some councils are expecting reductions in income from council tax, mainly in anticipation of increases in non-payment. Business rate revenues, usually retained by councils, are exposed to business failures. The strain is also being felt in the less publicised area of sales, fees and charges (SFCs). In 2017/18 local government raised £12.7 billion from SFCs alone. Whilst far from popular ways of raising money, car parks and congestion charges provide essential revenue for cash-strapped councils and yet are currently suspended in many areas across the country.

As it stands, some councils may to struggle to avoid effective insolvency in this crisis. And while a pandemic was never going to be a forecastable event, after a decade of deep cuts, many places no longer have adequate reserves to dip into in times of need. All eyes will turn back to Rishi Sunak in the months ahead to see how far government will go to support its vital local partners, crucial to the coronavirus response and far beyond.

 

Zoë Billingham is head of Policy at the Centre for Progressive Policy
 

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