Warning of pandemic financial pressures on councils

FINANCIAL pressures on councils as a result of the Covid-19 pandemic will continue into the next year “and beyond”, it has been suggested.

A new report by the Institute for Fiscal Studies (IFS) indicates that the crisis is pushing up councils’ spending and reducing their locally sourced incomes by billions of pounds.

The document, produced by IFS researchers and funded by the Economic and Social Research Council and the Local Government Association, suggests that councils’ forecasts of the spending and non-tax income pressures resulting from the crisis will exceed the additional funding made available this year by around £2 billion.

Researchers also warn that large falls in council tax and business rates revenues will hit councils’ spending capacity next year.

They say the drop will leave some councils facing a “difficult choice” between depleting their reserves to low and potentially risky levels or cutting spending on important local services.

The IFS has urged the government to provide additional support or financial flexibility to councils to help support them as they face the impact of the Covid-19 crisis.

Kate Ogden, a research economist at IFS and an author of the report, said that more targeted support for councils should be considered.

She said: “Just how much the Covid-19 crisis will cost councils this year is highly uncertain, but councils’ current forecasts imply around £2 billion of unfunded spending and non-tax income pressures.

“And while drawdowns from reserves may be sufficient to address these for many councils, high pressures or low reserves mean this will unlikely be enough for all.

“Uncertain and highly variable pressures across councils mean it may be difficult and costly for the government to address this problem by further increases in general grant funding alone. More targeted support should therefore be considered too.”

David Phillips, an associate director at IFS and another author of the report, said: “Even if more funding or flexibilities are forthcoming this year, councils will still not be out of the Covid-19 woods.

“Pressures will continue into next year and beyond, not least because shortfalls in council tax and business rates collections will have to be reflected in councils’ main accounts.”