Ministers pledge £500m for councils to make up for lost income in lockdown

The UK Government will hand over £500 million in funding to boost local authority spending power and reduce councils’ cash shortfall driven by the Covid-19 crisis.

Housing Secretary Robert Jenrick announced plans to help councils build breathing space into their budgets, stating that central government will also reimburse them for income lost during the pandemic, with an allowance for council tax debt to be repaid over three years instead of one – something public finance experts said “kicks the problem into the long grass”.

If a council’s losses are valued at more than five per cent of its planned income from sales, fees and charges, the Government will compensate them for 75p per pound lost. In a statement the Government said the funding would “shield authorities from the worst losses” and cover drastically cut income from car parks and museums.

Jenrick said: “Councils are playing a huge part in supporting their communities during this pandemic. From supporting the most vulnerable and keeping vital services running to operating local track and trace, council workers have been at the forefront of this great national effort and are the unsung heroes of this pandemic.

This autumn’s budget will be the toughest they have ever experienced

“Today I am providing a further package of support that takes our support for councils during this pandemic to £4.3 billion to help meet the immediate pressures councils are facing. I know that the loss of revenue from car parks and leisure centres has created huge difficulties, so I am introducing a new scheme to help cover these losses.

“This government will continue to stand shoulder to shoulder with councils and communities as we recover from this pandemic as we renew our commitment to unite and level up the country.”

The £500m funding will not be ringfenced, allowing councils to spend the money how they see fit.

And giving them longer to cover tax deficits will place local authorities under less cash flow pressure – meaning they can be more flexible with council tax payers in how they arrange to pay back arrears.

But Rob Whiteman, CEO of the Chartered Institute of Public Finance and Accountancy (CIPFA), said the support does not go far enough – leaving a £1.2 billion financial gap for councils.

He said: “Throughout the pandemic councils have acted in good faith, doing whatever it takes to beat Covid-19 in their communities. While the announcement of £500m additional funding is of course welcome news for councils, this does not cover the full extent of the costs they are incurring this year as a result of the pandemic, particularly cost pressures felt in social care.

“Covering 75 per cent of income losses from fees and charges leaves a significant £0.8bn financial gap. A further challenge is lost income from council tax and business rates. Deferring this over three years rather than funding the loss kicks the problem into the long grass, but is nonetheless welcome to avoid pressure on council tax calculations now.”

Whiteman added that while the Government has committed to addressing some of these challenges in the next Spending Review, it’s clear that over time ministers have “moved away from an initial vow to support local authorities in full, to promising future attention in the context of ‘burden sharing’.”

This autumn’s budget where councils plan for 2021-22 will be “the toughest they have ever experienced”, the CEO added, with residents likely to feel the effects when they try to access services.

The announcement comes after the Local Government Association (LGA) released figures painting a concerning picture for local authorities – predicting a loss of £10.9bn during the pandemic, with the funding gap sitting at £7.4bn so far. It could mean cuts to vital local services that are crucial to the post-crisis recovery effort, the organisation warned.

We've announced a major new support package to help councils respond to coronavirus, as part of a comprehensive plan to ensure councils’ financial sustainability for the future: https://t.co/xmG1WlRjbb

— Department for Levelling Up, Housing & Communities (@luhc) July 2, 2020

And last month the LGA asked the UK Government to suspend the no recourse to public funds policy (NRPF) to reduce financial pressure on councils and enable them to support vulnerable people through the crisis.

High numbers of people with no recourse to public funds — who are unable to claim benefits due to their immigration status — were turning to local authorities for support as a result of pandemic job losses, the body said, and it’s driving concern that thousands could be made homeless in the months to come – because councils can’t legally house them using the emergency rough sleeping funding distributed from central government.

Local authorities have been supporting people with NRPF through the crisis but say there isn’t enough cash to stop those who were sleeping rough from returning to the streets. Government policy states that it is up to the discretion of individual councils whether they support people who are NRPF.