The funding crisis facing councils

  • By London Councils

Local government has been at the forefront of the response to Covid-19, demonstrating its vital role in the social and economic fabric of communities across the country. However, the pandemic has put councils’ financial survival in doubt.

While we welcome the emergency financial support so far provided, we now urge the government to secure the immediate financial position by fully compensating councils for the financial impact of the pandemic to date, including support for lost Council Tax and Business Rates.

We estimate the shortfall in 2020-21 to be around £300m, most of which will be remunerated through collection fund compensation schemes from central government. We also foresee lasting effects on reduced council tax and business rates income in the short to medium term. Without certainty around this funding councils will have to make short-term emergency spending cuts which will undermine longer-term recovery.

We therefore urge government to provide clarity on financial support for the remainder of the pandemic, as we return gradually to normality. We are also calling on the government to create as much certainty as possible for the remainder of this parliament by:

  • Ensuring councils are adequately resourced to fulfil their new and existing roles and in managing the on-going pandemic and associated social distancing in future years
  • Helping London boroughs close their budget gaps through annual above-inflation increases that also take account of underlying demand pressures in key services, including:
    • Social Care (which requires an additional £430 million)
    • Public health (£130 million)
    • Homelessness (£200 million)
    • High needs education funding (£300 million)
    • Supporting people with no recourse to public funds (£50 million).

To ensure long-term financial sustainability, the government should work with councils to resolve key issues including service devolution, social care, business rates reform and new funding sources. We should build a new settlement to underpin the long-term funding of local government, including new sources of revenue and greater fiscal devolution.

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