Councils in most affluent areas ‘could face biggest hit’
COUNCILS IN more affluent areas could face the biggest shortterm financial hit as a result of the coronavirus pandemic, it has been suggested.
In a report published by the Institute for Fiscal Studies (IFS), researchers indicate that the locally generated incomes of councils are more likely to be affected than their spending due to the crisis.
They outline that income from local taxes – council tax and business rates – and especially sales, fees, charges and commercial activities will all be hit by the economic effects of lockdown and social distancing.
And with councils in more affluent areas tending to be more dependent on those income streams, they could be harder hit, the report concludes.
Last month revealed fears by the region’s town halls leaders that many would be forced to effectively declare bankruptcy because of the toll the pandemic has taken on their finances.
An additional £3.2bn of general-purpose funding has been set out by the Government for English councils to help support them through the coronavirus crisis, with the IFS estimating that this will increase their budgets by just over five per cent on average. However, researchers suggest that the Government should consider relaxing the rules which prevent councils from borrowing to cover day-to-day spending.
Kate Ogden, IFS research economist said: “The fact that councils are facing unprecedented spending pressures and declines in income is not surprising. But given that Covid-19 itself is hitting more deprived communities and families the hardest, what may be surprising is that it is councils serving more affluent areas that are likely to see the biggest shortterm financial hit.
“This is because they rely more on revenue streams, such as local taxes and sales, fees and charges, that are likely to be hit especially hard by lockdown and the wider economic effects of the crisis.
“Where councils serving more deprived areas look more at risk is the vulnerability of their residents to the impacts of the crisis on health and wellbeing given high pre-existing prevalence of mental ill-health, housing difficulties, interactions with children’s services and child poverty.
“This is likely to push up their spending needs into the longer term.”
David Phillips, an associate director at IFS who also helped author the report, said: “The Government should bear the complex patterns of risk and resilience our report finds in mind when deciding its next steps with local government funding. Big differences in financial risk and significant variation in the reserves councils hold mean the Government should also consider temporarily relaxing the rules that prevent councils from borrowing to cover day-to-day spending.”