Boroughs warn of £1.4bn funding gap due to pandemic pressures

  • By JackGraves

Local services in the capital face a £1.4 billion funding black hole this year due to the impact of Covid-19, London boroughs have warned.

The Covid-19 pandemic has “played havoc” with council finances, as spending on key services skyrockets while income has plummeted.

London boroughs’ latest estimate of the overall financial impact of Covid-19 will exceed £2 billion this year – up from £1.9 billion last month. Boroughs have received £587 million in emergency funding from the government, leaving a £1.4 billion gap.

The estimated additional expenditure required because of the virus has increased by £130 million since June, largely due to rising demand for adult social care and homelessness and rough sleeping services.

Boroughs anticipate income losses of over £1.1 billion. Almost half (£460 million) will come from lost fees and charges income. The full detail of the compensation scheme announced by government in July is yet to appear, but boroughs believe it will only cover around half of these losses.

With no government plan for addressing lost Housing Revenue Account, commercial and other income – which are estimated to total almost £200 million for London boroughs this year – and the government not confirming the extent of support for lost council tax and business rates income until the Comprehensive Spending Review, boroughs face huge uncertainty and the prospect of extremely tough budget decisions for next year.

Cllr Peter John OBE, Chair of London Councils, said:

“Boroughs have played a crucial role in London’s response to Covid-19.

“We’re proud that we helped more than 5,000 rough sleepers into emergency accommodation, delivered more than 80,000 food parcels to vulnerable residents, and secured millions of items of PPE for use in our local communities. All this work has been essential for keeping Londoners safe and slowing the spread of the virus.

“However, the pandemic has played havoc with our finances. In March the government assured councils that it would do ‘whatever is necessary’ to support our efforts to help residents and businesses through the pandemic. But the extra money provided so far is not nearly enough to cover our costs. Boroughs are instead left facing a massive £1.4 billion shortfall.

“We’re extremely concerned about the implications for London’s local services, which so many Londoners rely on, and the capital’s post-pandemic recovery. The government must move quicker to stabilise council finances and to commit to long-term, sustainable funding for the sector as part of its upcoming Comprehensive Spending Review.”

London Councils has analysed the boroughs’ latest financial data, which is submitted to the government on a monthly basis. The boroughs’ returns for July reveal:

•             The financial impact of Covid-19 across London boroughs in 2020-21 is forecast to be £2billion; comprising £1.1 billion in lost income and £900 million in increased expenditure.

•             London boroughs have so far received £587 million in emergency funding from the government.

•             The estimated funding gap for 2020-21 is therefore £1.4 billion across London boroughs.

•             Nearly half of the estimated increased spending will be on adult social care (£275 million) and planned savings that will not now be achieved (£151 million).

•             Since June, estimated expenditure pressures for 2020-21 have gone up by £130 million. This is driven by increased demand and market pressures in adult social care (up £57 million); public health (up £33 million – largely due to boroughs’ support for Test & Trace activity); homelessness and rough sleeping (up £24 million); and leisure services (up £11 million).

•             Around £460 million of income losses relate to lost sales, fees & charges income. Boroughs are awaiting details of the sales, fees and charges co-payment scheme (announced by the government in July).