Press Release: Effective bankruptcy threatens eight out of ten local authorities despite government Covid-19 support

The Centre for Progressive Policy (CPP) today publishes figures highlighting that most upper tier local authorities face Covid-19-related costs that are greater than the funds available to them to respond to the crisis. Unless government financially supports councils fully through Covid-19 – leaving them in at least a net-neutral position after the crisis – councils up and down the country will be forced to make further service cuts. The strain on local government finance will be hardest felt by the most deprived communities and puts the government’s levelling-up agenda at risk.

CPP analysis of local government unallocated reserves on the eve of the crisis shows that, despite emergency non-ringfenced Covid-19 funding, 131 upper tier councils (of 151 in England) do not have sufficient funds to make up for projected increased costs and reduced income due to Covid-19. This includes 18 (of the 19) upper tier authorities which significantly feature former red wall constituencies.

In addition to the £3.2bn already provided in emergency funding to local authorities by central government, the Local Government Association has said that a further £6bn2 will be needed to respond to Covid-19 alone. Without this further funding and accounting for the £2.6bn of existing unallocated reserves held by upper tier local authorities on the eve of the crisis (forecast March 2019/20), over 80% of upper tier councils effectively face bankruptcy.

Without additional government support, deprived local authorities will be hit hardest. The proportionate cost of funding any financial gaps caused by Covid-19 will be higher in more deprived areas. Without further financial support this will lead to a larger reduction in services in the places that need them the most. The ability to raise funds locally is already limited and local authorities are legally required to balance their books within a financial year. Unlike central government, they are not permitted to run budget deficits.

Local authorities face an unprecedented simultaneous increase in costs and reduction in income. Councils are dealing with increased demand for existing services, particularly in social care, whilst delivering new government schemes to support businesses and communities. On the income side, council tax receipts and business rate revenues have fallen in addition to reduced revenue from sales, fees and charges as a result of the crisis. Government has moved fast with a range of support, but it now needs to go further.

As a result, CPP is calling for:

  • The government to recommit its full financial support to councils coping with the increased costs and reduced revenues caused by Covid-19. It is anticipated that a further £6bn will be needed this financial year. Following a decade of hollowing out local government finance, the Chancellor must first shore up local authorities to make the impact of Covid-19 net neutral, and then urgently return to its levelling up agenda.
  • Deprivation and need to be the default criteria for the distribution of any further funds to protect the most deprived communities.
  • Local government needs to be recognised as central to the levelling up agenda. Once Covid-19 costs have been met, central government has multiple opportunities to do so including through i) HM Treasury Green Book review, ii) Shared Prosperity Fund distribution, iii) Stronger Towns Fund and iv) Fair Funding Review. These opportunities will allow local areas to drive inclusive recoveries.

Comment by Zoë Billingham, Head of Policy and Engagement, Centre for Progressive Policy

“The Covid-19 crisis has exposed existing financial problems faced by local government and deepened them. As a result, local authorities are starting to make very difficult decisions about service reductions that are already at their limit after a decade of austerity.

And as it stands, more deprived local authorities are set to lose. Allocating local Covid-19 funding by need during this crisis matters.

The government should lend its full support to local authorities during this crisis, so that decisions can be made about the longer-term funding of local government and how it will level up the country.”

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Note to the editors: 

  1. The working paper can be found online at www.progressive-policy.net/publications 
  2. The analysis is based on the most up to date public MHCLG data which is forecast to March 2019/20.
  3. The 151 upper tier local authorities in England referred to in this report comprise 33 London boroughs, 36 metropolitan boroughs, 56 unitary authorities and 26 counties.
  4. About CPP: The Centre for Progressive Policy is a think tank committed to making inclusive economic growth a reality. By working with national and local partners, our aim is to devise effective, pragmatic policy solutions to drive productivity and shared prosperity in the UK. Inclusive growth is one of the most urgent questions facing advanced economies where stagnant real wages are squeezing living standards and wealth is increasingly concentrated. CPP believes that a new approach to growth is needed, harnessing the best of central and local government to shape the national economic environment and build on the assets and opportunities of place. The Centre for Progressive Policy is fully funded by Lord David Sainsbury, as part of his work on public policy. 
  5. For more information on the Centre for Progressive Policy, please see www.progressive-policy.net or follow @CentreProPolicy
  6. For interview requests contact Thomas Hauschildt, Communications Manager, Centre for Progressive Policy: THauschildt@progressive-policy.net