Local Government funding and the pandemic

By Peter Warrington

Here I briefly look at local government funding through and prior to the pandemic, and whether Government support for local authorities, for example in the form of emergency grants, has been enough.

I decided to look into this as a result of Jade Uko of the FSB’s response where they express an opinion that Local Government responses have “not been resourced properly” and that “national government have not been so aware of the kind of local support needed and the acute funding challenges local authorities face.

Local Governments in England are mainly funded through a combination of Government grants, council tax and retained business rates (levied on business premises, most of which is sent to the national treasury).

Of this:

“In 2018/19, local authorities in England received 31% of their funding from government grants, 52% from council tax, and 17% from retained business rates”

“Local authorities cannot borrow to finance day-to-day spending”

“Local authority ‘spending power’ – that is, the amount of money local authorities have to spend from government grants, council tax, and business rates – has fallen by 18% since 2010.

This is because largely because of reductions in central government grants, which have been the most sharply cut component of local government revenue since 2009/10. Central government grants – including retained business rates – were cut 38% in real-terms between 2009/10 and 2018/19, from £34.6bn to £24.8bn in cash terms”¹

National government did however provide emergency grant funding in response to the COVID crisis, providing a total of £7.9 billion in emergency grant funding as of March 2021.²

The Local Government Chronicle however reported in April 2020 that analysis of information from councils suggests “the £1.6bn funding so far promised by ministers will only cover a quarter of the estimated financial impact of the crisis for councils with social care responsibilities … For districts, which are being hit particularly hard due to their reliance on sources of other income such as car parking and leisure centres, the money received from government covers just 0.4% of the financial impact. … Overall the 51 councils in our sample reported a projected shortfall of £1.4bn in 2020-21.³”

The National Audit Office in March 2021 published a report that found “while effective action from government has assisted local authorities in surviving financially during the COVID-19 pandemic, many authorities face significant funding gaps and the financial outlook for the sector is concerning.”

Despite funding, it finds “75% of local authorities have a reported gap between their financial pressures and the NAO’s estimate of financial support from government” and that “Some 26% of single tier and county councils (local authorities with social care responsibilities) that responded to a NAO survey said they were forecasting a year end material overspend relative to their budget.”

It concludes that some Las are “at risk of financial failure”, that 94% of single tier councils are expected to reduce service budgets⁴ and that the Government’s “incremental approach to the provision of funding in-year does not support good financial planning”.⁵

Some brief conclusions

This would suggest that local government funding in the form of government grants has historically already been cut by national government, meaning that local governments were less financially prepared to provide support during the pandemic.

While the Government has introduced a total of £7.9 billion in emergency grant funding to support councils during the pandemic, this has not been enough to ensure that all councils are not at risk of financial failure.

It also means that we can expect cuts to local government services as a result of funding shortfalls because of the pandemic.