Precarious council finances drive cuts in local public services

Council finances have for many years been in a precarious state: years of austerity have compounded a funding model already made exceptionally difficult by central control over business rates and an inability to raise council tax by much more than the rate of inflation, despite inflation-busting demographic pressures in areas such as adult social care

Residents generally believe that their council tax funds council activities. In my district it’s actually about a third: the rest is made up through one-off grants (like the New Homes Bonus) and especially fees and charges – essentially off-street parking, income from leisure activities and fees for planning and licensing. Many councils have also made up for the missing council tax by investment in commercial or residential property which has provided important income streams.

County councils have different funding models but are subject to escalating demographic pressures over social care. Unitary councils, metropolitan authorities and London boroughs essentially provide the services of both counties and districts and so combine the funding pressures.

At one point in the first lockdown my district was losing £150,000 a week as car parks emptied and leisure services were closed. There was limited respite over the summer and autumn but no return to form.

The government appeared to promise that no council would be out of pocket as a result of COVID-19 – and that councils should get on with the battle against the pandemic without worrying. But this promise morphed into an undertaking that expenditure on COVID-19 measures would be fully compensated rather than income lost as a result of the pandemic.

There has been some welcome cash but this, especially for districts, has largely dried up.

Monthly returns from councils to MHCLG estimate cost pressures and non-tax income losses for 2020/2021 at around £8.2bn, of which £2.8bn is lost sales, fees and charges. Once government support is taken into account, there is still a budget pressure of £1.1bn.

There are also £3.1bn losses from reduced business rates and council tax.

On the ground this means two things:

First: councils have had to take early action this year to manage the losses currently being incurred: this means dipping into reserves, which in many cases have been running at minimal levels as a result of an already stressed business model before COVID-19 even started. It has also meant in-year cuts in services and some asset sales (but this is not the time to sell off assets in quantity).

Second: councils are having to plan for an uncertain future. Will there be more government funding? What is the impact of the second lockdown? When will the pandemic actually end?

This level of uncertainty is unprecedented. Councils now cannot avoid service changes and cuts in what hitherto were unpalatable areas (eg waste collection) as well as wholesale reorganisation. But it also means contingency planning, basically having cuts and savings in the back pocket in areas which are beyond unpalatable. 

Politically this is a challenge when residents believe that council tax pays for everything.