Opinion: Trouble ahead for local government

Amid rising costs and falling income due to the coronavirus pandemic, Richard Dawson asks if the roots of local government’s financial woes go deeper

Local government is the unsung hero of this pandemic.

Working closely with hospital trusts and police constabularies, providing core services such as social care, education, planning and waste disposal, rolling out coronavirus business support and financial assistance schemes – it is impossible to imagine our response to this crisis without local government.

This centrality, however, comes at a cost now thought to be in the region of £10.9 billion, according to the Local Government Association (LGA).

Already, the Government has provided £3.2 billion of emergency funding to councils to alleviate some of the immediate pressures, with another £300 million coming from clinical commissioning groups (CCGs).

That still leaves a potential funding gap of £7.4 billion, which, if not addressed, could jeopardise both the local and national recovery effort.

If a new settlement cannot be reached, councils will be forced to strip back vital services and cut staffing levels at the precise moment both are needed most.

While the pandemic has exacerbated financial challenges, to say that it is the root cause of what is now a council funding crisis does not tell the whole story.

For many years now, councils have been saying that they do not have enough resources to provide the services their communities need.

Since 2010, Newcastle City Council has had to make £327 million in savings because of funding cuts and increased cost pressures. It’s a similar story elsewhere in the country.

This crisis stems from changes to the local government funding model since 2010.

Councils are traditionally funded through a combination of central Government grants and revenues from council tax, business rates and local fees and charges.

By some estimates, the proportion that comes from central Government has been cut by more than half over the last decade.

At the same time, the proportion of business rates that councils retain has increased, but this does not make up for the core funding shortfall.

People often say austerity hit local government hardest, and when you look at departmental expenditure over the last decade, it’s hard to disagree.

What this meant is that, going into the coronavirus crisis, councils had to expand their services without having the cash to do so.

To compound the issue, councils are also facing a massive loss of commercial income due to the lockdown and its after-effects.

Over the last four years, local authorities invested £7.6 billion in commercial property such as retail parks, office blocks, leisure centres and airports and are now facing a £624 million loss as these spaces have been deserted.

Paradoxically, the commercial investments councils made to find alternative sources of income and protect services could now be their downfall.

Taken together, the withdrawal of core funding from central Government and a collapse of commercial revenue streams mean that local authorities have little room for manoeuvre and will need more support.

The LGA is calling on Boris Johnson to provide full funding to councils for both the £4.4 billion in additional costs incurred this financial year and the £6.5 billion loss of income from fees and charges, council tax and business rates over the same period.

Newcastle City Council leader, Councillor Nick Forbes, who is also Labour chair of the LGA, says the Government is falling short of its “whatever it takes” commitment when it comes to local government funding.

He says: “Our initial estimates show that the authority I lead, Newcastle, will have to find over £27 million to make up the funding shortfall.

“Every one of our key workers should be celebrated and not worried about their jobs – make no mistake about it, that is the reality facing many councils up and down the land who are being made to pay for this national crisis.

“Ministers appear oblivious to the challenges local authorities face on the ground.

“We will do everything we can to protect our staff and communities, but let’s be realistic we have six months to find millions of pounds in savings this year with no indication that further support from the Government is coming.

“Local government is at the forefront of this pandemic and the recovery from it and so when will this Government show it the respect and give us the support we need?”