Coronavirus: Support for local government

This is a fast-moving issue and should be read as correct at the date of publication (04.05.20).

Coronavirus and support for local government: “Whatever is necessary”.

The Government has made
several sources of financial support available to local authorities in the wake
of the coronavirus outbreak.

The Secretary of State for Housing, Communities and Local Government, Robert Jenrick said the Government would give councils “the resources they need to do the job,” in order to protect vulnerable people and local economies.

Financial support to
date includes general support to local authorities to assist them with
providing services, and funding to compensate for loss of income due to lockdown
restrictions.

What Government support has there been so far?

The Ministry of Housing, Communities and Local Government (MHCLG) has made a number of financial commitments to assist local authorities’ cashflow and supplement their funding during the pandemic.

To date, these include:

• 11 March 2020: A £500m ‘hardship fund’ for residents struggling to pay council tax bills. This funding is to be allocated to residents currently benefitting from local council tax support schemes. Government guidance was published on 24 March, and additional guidance on 16 April.
• 19 March 2020: £1.6bn additional funding made available to local authorities. £1.4bn of this funding was allocated via the adult social care needs formula. The remaining £200m was allocated in line with each councils’ Settlement Funding Assessment. The Institute for Fiscal Studies has argued that the impact of the virus on different councils, “may not reflect historical differences in social care spending needs.” As a result, the formulas used to allocate funding are “out of date”.
• 25 March 2020: £1.8bn grants paid to local authorities in advance. This followed the Chancellor’s announcement of widespread exemption from business rates for 2020-21. Normally, business rates relief would be applied first, and local authorities would seek reimbursement after it had been applied.
• 1 April 2020: £12bn funding for business rates grants transferred to local authorities. These funds will be distributed under the Business Rates Grants schemes (see Coronavirus: Support for businesses).
• 16 April 2020: Councils will be allowed to defer £2.6bn in business rates payments to central government from April to June 2020. This is in respect of the ‘central share’ of business rates.
• 16 April 2020: £850m in central government social care grants for both children and adults, from April to June 2020. This was paid up front in April.
• 18 April 2020: A second £1.6bn of additional funding for local government. This is to be distributed on a different basis from the funding announced on 19 March, with district councils receiving a considerably larger share of the 18 April funds.
• 2 May 2020: A further discretionary fund of £617m to be made available for grants to businesses that do not qualify for the Small Business Grant scheme and the retail grant scheme.

The two amounts of £1.6bn, announced on 19 March and 18
April, constitute additional funding, whilst the 2 May funding is an
addition to the Small Business Grant scheme funding, which is funnelled through
local authorities. The other amounts in the list above represent existing
funding made available on an earlier timescale.  

How are local authorities losing revenue?

Local authorities have expressed
strong concerns about revenue losses due to the lockdown. The main concerns
include:

• Council tax: Responding to residents’ financial difficulties, a number of local authorities have announced ‘council tax holidays.’ Councils can accept ten monthly instalments from June to March, instead of the normal pattern of April to January. This builds in a delay in revenue for authorities, but the payments are being rescheduled rather than cancelled.
• Commercial property: Businesses with little or no turnover may be unable to pay rent. Many local authorities have substantial property holdings and are financially exposed if rents on those properties go unpaid.
• Other commercial income: Local authority income from sources such as car parks and leisure centres has fallen dramatically during the lockdown. This is a significant source of income for district councils in particular.
• Lost grant/local income: Local authorities may have budgeted for income from the New Homes Bonus or business rate retention. This cannot now be relied upon as property construction may be paused or abandoned.
• Business rates: The Chancellor has instituted schemes that have the effect of removing liability for business rates from many businesses. However, the Government has committed to reimbursing local authorities for any revenue lost as a result of those schemes (see Business rates).

Local authorities had forecast collecting around £26bn in business rates in 2020-21. Now, around 40% of this sum will be paid to them by the Government.

Concerns for the immediate future

Despite these support packages, significant concerns remain. The Local Government Chronicle has suggested a total shortfall in revenue for all local authorities of around £9bn might arise in 2020-21. The representative bodies SIGOMA and the County Councils’ Network estimate £4bn. One leading local finance officer has suggested that the total support needed may be above £10bn.

Ongoing shortages of funds could lead to chief finance
officers issuing ‘section 114 notices,’ indicating they would be unable to
balance their budgets in 2020-21. Faced with this eventuality, the Government
is likely to face increased lobbying from the sector for further funds
throughout 2020.

Further reading

Business rates, House of Commons Library

Coronavirus: Businesses without premises and the Small Business Grant Scheme, House of Commons Library.

Image by edar from Pixabay

About the author: Mark Sandford is a researcher at
the House of Commons Library, specialising in local government.