Coronavirus Cost Councils The Same As Five Years Of Austerity. Now, They Could Go Bust

It’s estimated local authorities need £6bn in emergency funds to stay afloat.

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Throughout the coronavirus pandemic, councils have been at the forefront of tackling the crisis, supplying PPE to care homes, feeding the most vulnerable families and finding rough sleepers safe accommodation.

But all this costs money – millions, in fact. At the same time, town halls have been facing huge losses in income from things like council tax, business rates and nursery fees as the financial impact of lockdown hits the public.

It has left many local authorities in a hugely precarious financial position, with deficits of tens of millions and an impossible choice – between cutting services or going bust.

Now, council leaders are demanding more support from the government. Redbridge Council has launched a petition urging ministers to “honour their promise” to properly compensate councils for the services they have provided during the pandemic.

A study from the Centre for Progressive Policy warned that eight out of 10 county councils in England do not have sufficient funds to ward off the financial impact of Covid-19.

Without “full financial support” from the government, deprived authorities will be hit hardest by this, researchers said – the effects of which will be compounded by the preceding decade of austerity.

The government has given councils £3.2bn in emergency funding to tackle the costs of Covid-19 – but the Local Government Association has estimated that local authorities could actually need nearly twice that.

Labour leader Kier Starmer said the government must take responsibility and plug the funding gap from coronavirus. Otherwise, council leaders face a choice “between cutting core services or facing bankruptcy under Section 114 notices”, he said.

A BBC investigation found that five local authorities have already warned they may be forced to issue one of these notices.

“Either outcome will harm local communities and mean local services can’t reopen. That will drive up poverty.”

Leeds City Council has already warned that there is a “very real threat of big cuts to council services”, with the local authority having accumulated almost £200m of coronavirus costs in recent months.

It’s a warning that has been echoed by Manchester City Council. According to the Manchester Evening News, the council’s treasurer has warned it could be forced to issue a Section 114 “bankruptcy” notice later this year without additional help from government ministers.

For mayor of Hackney Philip Glanville, councils are facing a “perfect storm” created by coronavirus costs and a lack of clarity from the government about further financial support.

Hackney Town Hall
Hackney Town Hall
Nicola Ferrari via Getty Images

Hackney Council has generated costs of £71m this financial year due to coronavirus, made up of £27m in additional spending and £44m in lost income.

“To put that in perspective, the entire loss of funding during a decade of austerity was £140m,” Glanville said. “So we’ve got the equivalent of half a decade of austerity in one year.”

Even with the £17.7m the government has given the council in emergency funding, it is still facing a shortfall of more than £50m, with local authorities legally required to balance their budgets each financial year.

Additional spending has come from extra support for the care system, PPE and the humanitarian response, Glanville said, with the council helping feed thousands of households a week.

“Then in terms of loss of income, it’s everything from nursery fees, leisure centres, parking, business rates, defaulting in council tax and council rents.”

Glanville said Hackney Council isn’t talking about cutting services if the government doesn’t help plug its Covid-19 funding gap.

“We are taking a long-term look at how we can support our levels of spending and find other solutions short of cuts,” he cautioned.

“But there’s a big fear that services that people have relied on during this crisis are suddenly going to get cut and you will see the key worker heroes under real pressure going into next year. And I just don’t think that’s acceptable.

“I think all of us – including the government – thought that this would be a first quarter crisis and then we would bounce back.

“But we’re two weeks away from the end of June [...] and there’s no sense of these financial pressures improving. If anything, we’re having to continue to offer further support – more discretionary support to local businesses, more discretionary support to our tenants – and continuing to do the work with rough sleepers and voluntary sector organisations.”

County Hall in Maidstone, Kent.
County Hall in Maidstone, Kent.

The government must “make good” the financial positions of councils this year, without continuing austerity or cutting funding next year,” he added.

There are a “lot of uncertainties” for councils at the moment, said Roger Gough, leader of Kent County Council.

The financial impact of the coronavirus outbreak on the local authority has been around £118m, with its annual budget standing at £1.06bn.

Even with the council receiving £67m in emergency funding, it still needs to find a way to balance its £51m funding gap.

For the first time in the 15 years Gough has been a county councillor, the council is having to reset its annual budget mid-year.

“We know there is a problem,” he said. “We know the nature of the problem. But we’re not yet clear entirely of the scale of it, because it depends on what the government comes back with.”

The council is pushing on the government “very, very hard” for further financial support.

If it doesn’t get another cash injection, it could be incredibly difficult for the council to balance its books when it reviews its budget in September.

“Trying to make savings in-year is actually quite a difficult process,” Gough said. “Normally if you’re going to do something, like introduce a charge on a particular service, it takes time. You don’t just do it.

“By the time we reach September, we will be halfway through the financial year.

“So any really big structural changes will barely, if at all, take effect during this financial year anyway. What you have to look for at that stage, is one-off decisions,” he said.

“So it would have to be a set of, by and large, relatively short-term measures that we would have to take. But clearly it is a concern.”

Royal Liver Building in Liverpool
Royal Liver Building in Liverpool
benkrut via Getty Images

Like Hackney and Kent, Liverpool City Council is facing a significant deficit due to Covid-19, with councillors currently facing the task of balancing a £56m gap in its annual budget.

In a letter to ministers in April, mayor of Liverpool Joe Anderson warned that if the government did not cover the costs of Covid-19, it would be “devastating for public services affecting every walk of life across the country”.

But as a city, Liverpool has gone one step further in trying to tackle its coronavirus-related economic woes, submitting a proposal to the government it is calling “the UK’s first fully-costed post-Covid recovery strategy”.

The plan, which has been co-signed by Anderson and metro mayor Steve Rotherham, and backed by figures in the city’s commercial, financial and legal sectors, focuses on four main pillars – innovation, housing, employment and “creative and visitor”.

It is hoped that £467m in financial support for the recovery plan from the government would inject £1.4bn into the economy, create more than 25,500 jobs and provide another 12,000 roles in construction.

“The Covid-19 lockdown has left cities like Liverpool in a state of economic paralysis [with] the option of doing two things – wait for events to unfold or take action. Liverpool has acted,” Anderson said.

“This recovery plan is a blueprint for a new Liverpool. Forged by ambition and confidence to be innovative in how we create new skills, new homes and new jobs, and it has the weight of the entire city behind it.”

Simon Clarke, the minister for local government, said the government was working “on a comprehensive plan to ensure councils’ financial sustainability over the financial year ahead”.

“We’re giving councils an unprecedented package of support, including £3.2 billion non-ringfenced emergency funding, to tackle the pressures they have told us they’re facing,” he said.

“This is part of a wider package of support from across government for local communities and businesses – totalling over £27 billion - including grants, business rate relief and for local transport.

“We are working on a comprehensive plan to ensure councils’ financial sustainability over the financial year ahead – we will continue to work closely with them to ensure they are managing their costs and we have a collective understanding of the costs they are facing.”

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