COVID-19: Councils need more money to survive in the longer term

By Andrew Burns | 07 April 2020

‘Spend what you need to spend and we will reimburse you’ has been the consistent message from ministers to councils since the coronavirus outbreak took hold.

All councils are doing what they can to heed that advice, for example by paying out the grants to businesses announced by the chancellor before they received the funding from government.

Councils have responded swiftly and flexibly to get their governance and key decision-making arrangements in place, while getting financial support packages out to business.

They have also been at the forefront of the response in supporting vulnerable members of the community, keeping key services going (including keeping many social care providers afloat) while managing their own cash flow.

This has been done while delivering remotely at scale for the first time, and with fewer resources due to staff who are sick or self-isolating.

The scale and pace of the initial government response has been impressive, especially in its support for business. I think we can be optimistic that government will cover the short-term costs incurred by councils, but what about the longer term?

To ensure their resilience and survival, councils have already started asking themselves what this means for the 2020/21 budgets that were set in February.

Chief finance officers (CFOs) will be trying to answer key questions - ‘what are our cost pressures; what are our income losses likely to be; can we still deliver our planned savings programmes; how can we project these forward and how long do we think this is going to last?’

They will be looking at March and April figures and into the first quarter of the new financial year and trying to quantify what it means. Then making assumptions for six and 12 months ahead, and stress testing them to assess a range of possible outcomes.

Beyond 2020/21, many savings and income proposals will already be at risk, so medium-term financial plans will also need revisiting.

Most councils will have transformation programmes featuring digital delivery, new processes and IT investments intended to save money. Many will assume income growth (from additional housing, business rates and commercial investments) to support service delivery.

While most councils have reasonable reserves, some will be less resilient, with many asking ‘how close does this take us towards Section 114 territory?’

CIPFA has already been asked whether the Government should suspend the legislative and professional guidance for CFOs (Section 151 officers) that require councils to issue s.114 notices. Bring in spending controls when councils are being encouraged to spend freely to support local communities could do more harm than good.

Before getting into s.114 territory, CFOs should be looking at mitigating actions to get costs under control, such as reducing spending in ‘non-essential’ areas or by increasing income.

Options would normally include cutting the volume or level of services provided to a statutory minimum, seeking to negotiate reductions in the prices paid to suppliers, restrictions/freezes on recruitment, delaying the implementation of IT investments, and generating additional income from increased or new charges for services.

However, these mitigating actions during the coronavirus crisis are likely to have a negative impact on services, staff and communities, jeopardising the delivery of support to the vulnerable to stay safe, protect the NHS and save lives.

Some will argue that councils should draw on their reserves. In the very short term, that might have a part to play. But the size, scale and nature of the financial risks and uncertainties posed by councils’ response to the coronavirus would suggest that significant increases in reserves are needed, rather than reductions.

The only real answer, in these extraordinary circumstances, is for significant additional, direct and speedy support from government to councils. Councils are best placed to determine how to use that money, alongside existing resources, to support the most vulnerable individuals, local communities and businesses.

The £1.6bn grant paid to councils for COVID-19 pressures, paid on 27 March, is welcome and necessary, but clearly insufficient.

Compared with the sums already announced to support businesses and the NHS (including the £13bn write-off of debts for NHS trusts), the critical support needed to enable local government to continue to deliver could be secured by a relatively smaller sum in comparison. A sum nearer to the £4bn identified recently by the LGA to properly fund social care would be a good start.

Councils involved in their local resilience forums planning for civil contingencies will be used to the ‘respond, recovery and then business as usual’ phases following major crises and emergencies.

However, it is hard to think that business as usual could be anything like what we had before COVID-19.

After coronavirus, will the public accept a return to the previous inadequate levels of support for social care and Universal Credit?

The ‘levelling up’ agenda and climate sustainability might have been crowded out of the current news cycle, but they have not gone away.

So, as well as dealing with the immediate crisis, we should be rethinking, renewing and re-positioning our arguments for a proper debate on the functions, form and funding of local government.

Coronavirus has already shown us what the best local leaders already knew - to improve outcomes, we need multi-agency, integrated, preventive approaches, shaped around local needs and assets.

The best way to do that is by properly funding local government and letting democratically elected leaders decide on local priorities - not by throwing isolated pots of money at individual services, projects or programmes.

Let’s not lose sight of the ambition for significant fiscal devolution, so that we can better match the levels of taxation needed to fund the resilient and responsive local services that citizens will expect after COVID-19.

Andrew Burns is associate director at CIPFA

Coronavirus cash is not enough to cover costs of crisis

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