Income losses and lack of data hamper Whitehall’s support of councils in the pandemic

MPs point to problematic information and the loss of income as major obstacles for local government finances after Covid-19 hit.

A report from MPs underlines what many local government finance chiefs already know: when the pandemic crashed across Britain last year it hit local government finances hard.

Councils had to implement and deliver waves of government aid to individuals and businesses. But the loss of income, added to long-standing funding issues, was telling, according to a report from the House of Commons public accounts committee (PAC).

The report notes: “Local authorities went into the pandemic with 82.6% of their (non-education) income, such as council tax, retained business rates and car parking charges, dependent to some extent on local conditions.”

Emergency funding came in March and April last year but, as many finance chiefs told Room151, the government was slow to grasp the implications of income losses. The PAC notes it was July before MHCLG published principles for dealing with those.

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“Failure”

According to Richard Harbord, a Room151 columnist and former chief executive of Boston Borough Council, confronting the loss of income was the big pandemic finance issue. And even when funding was made available, it did not resolve the problem.

“The failure was undoubtedly the failure to compensate properly for loss of income,” Harbord says.

“There were so many rules and conditions around this that I think many authorities failed to get all the help they should.”

A National Audit Office report  in March revealed local government had costs and lost income pressures of £9.7bn as a result of the pandemic, while Whitehall has announced £7.9bn in extra support.

The NAO estimates lost income amounts to £2.8bn, of which car parking charges alone could account for £695m and £555m from facilities like leisure centres. Commercial income (not covered by Whitehall support) may amount to another £500m.

The PAC says Whitehall needed more information to understand the position of local government finance in the face of a national emergency. Add to that the fact that local government was not included in pandemic plans and the result was “over-optimism” about local councils and their ability to withstand the pressures of a shock event.

That should not be a surprise. MHCLG collected local government financial information annually, the PAC reports. “This approach could not provide information quickly enough to navigate a fast-moving and unprecedented pandemic.”

Improvements have been made. The NAO has praised MHCLG’s efforts to improve information gathering through a monthly survey of financial pressures, but the PAC calls for further measures asking the department to improve collection of data.
Not everyone is convinced monthly reporting is the answer. Adrian Jenkins, an expert analyst of council finances with Pixel Financial Management, says the “burden” is “considerable”.

“But a better understanding of the financial position of local authorities, and the resources that they have available, would be a step forward, with or without a pandemic,” he adds.

Structural

The call for data underlines a broad point about the PAC’s report: problems for local government during the pandemic were underlined by long-term structural problems: The local government settlement remains on an annual basis, unsuited to long-term financial planning; a review of funding has been delayed twice, the funding of social care remains unresolved.

Sharon Taylor, chair of the Local Government Association’s resources board, agrees. “Councils continue to face significant demand pressures on day-to-day services and income losses, such as from local taxation, fees and charges. We agree with the committee that the forthcoming spending review needs to provide councils with a multi-year settlement that puts local government funding on a long-term sustainable footing.

“This will enable them to more efficiently plan how to provide the local services our communities rely on and which have proved so vital during the pandemic.”

Jenkins adds: “MHCLG and the Treasury urgently need to find a way of giving local authorities greater certainty about their future funding levels, even if the full reform package cannot be implemented.  Without it, local government will not be able to manage its services effectively, or deliver the response to the pandemic that the government wants.”

The impact of the pandemic is significant. Despite all the extra funding, the PAC forecasts local government faces having to cut services during the current year, 2021-22.

Lessons

The committee calls for Whitehall to use lessons from the pandemic to prepare a better plan for local government in the event of emergencies; improve data collection and “oversight” of financial risk; set out a plan to improve and maintain understanding of the “operational realities” of local government; ensure the long-term effects of the pandemic are considered as part of the coming spending review.

But it is worth revisiting the PAC big concern: why Whitehall did not know more about local government’s disposition before the pandemic hit.

“MHCLG’s inability to properly collect or share information means that it had to quickly set up a system to do this,” says Meg Hillier, chair of the PAC. “That councils could deliver quickly is a credit to local government finance teams but begs the question of why this was not in place before the pandemic and underlines the committee’s long-standing concerns about the department’s knowledge of the sector’s financial challenges.”

She adds: “MHCLG needs to be a better champion for local government within Whitehall.”

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