Published:

38 comments

If you have tears, prepare to shed them now. The lockdown has resulted in a shortfall of council founding due to a collapse in revenue from parking and traffic fines.

Cllr Richard Watts, the Leader of Islington Council and the Local Government Association’s resource chairman, has written to Robert Jenrick, the Housing, Communities and Local Government Secretary, to highlight this concern. Cllr Watts said the “income base is collapsing” for councils, with leisure centres shut, public transport cut, and parking fees not coming in, as well as lower business rates being collected.

He adds:

“This loss of income represents a real reduction in the resources available to councils to fund services and will mean that, in the absence of any compensation, the balanced budgets set by councils will not be deliverable…

“We would like to urge you and the Chancellor of the Exchequer to set out in a clear joint letter of intent that the government is still willing to do whatever it takes and provide further funding to councils up front.”

Then he called for a “commitment to compensate [councils] fully for costs, net loss of income and savings that cannot be delivered as a result of this crisis, so that they can continue to focus on delivering the response to the greatest challenge the UK and the world have seen in decades, as opposed to worrying about whether they need to start rationing because no further support might be forthcoming”.

The demand strikes me as complete fantasy. A severe economic recession is regarded as a virtual certainty. Most of those in the private sector are already taking a significant hit on their incomes. Tax revenues will surely fall sharply. Public Borrowing can not be increased by an unlimited amount – it relies on people being willing to lend money to the Government. Maxing out the credit card just delays facing reality. The notion that, in this context, local government should be compensated “fully” – that its spending should increase as if nothing had happened is not credible.

Fees and charges is a sensitive subject for council finances – especially for parking. The LGA’s public statement avoids mentioning it – offering instead the examples of leisure centres (which absurdly are often municipally owned and managed) and revenue from planning applications.

Councils are not supposed to make a profit from parking charges but they do make a “surplus” of a billion pounds a year. The money is meant to be spent on managing the parking service and paying for road improvements. But even the dogs in the street know it is a huge money-spinner for councils. “Flexibility” is shown by the bureaucrats as to what it is spent on. To pretend otherwise is akin to accepting that National Insurance contributions are a genuine insurance scheme. It is still a bit awkward for councils to complain about the revenue from all the fines collapsing, when for years they have been making pious declarations about how there is no financial motive behind them and it is all purely for traffic management.

It should also be noted that councils were already being given a real terms funding increase from the taxpayer this year – even before the extra funding that has been allocated due to the coronavirus. Measuring it is a complicated matter. For instance, if a school converts to academy status then it is funded directly, rather than the money being passed via a local authority. Thus the change can be presented as being a cut in council funding – which is misleading. Also, there has been a trend in recent years for the Revenue Support Grant – the main grant from central government to local authorities – to fall. But that has been offset by councils being able to retain a higher share of Business Rates (or, for poorer areas, to have a higher redistribution of Business rates from elsewhere.) There are all sorts of other grants as well – such as the New Homes Bonus.

Then there is the Council Tax – which is recent years, councils have been allowed to increase well above the inflation rate without being obliged to consult their residents via a referendum.

To try and find the upshot of all this, the Government offer a measure called “spending power” – the funding combining Business Rates, Government grants, and the Council Tax if councils increase by the maximum allowed without a referendum. In February, the Government announced “the biggest increase in councils’ spending power for a decade”. It said:

“Councils in England will have access to a share of £49.2 billion in 2020 to 2021, an increase of £2.9 billion or 4.4 per cent in real-terms. The settlement will give councils access to a £1.5 billion boost for social care funding and ensures, on average, residents can expect to see the lowest increase in council tax bills since 2016. The final settlement also incentivises local economic growth, with £40 million to be redistributed to councils following increased growth in business rates income.”

On March 19th came news of an extra £2.9 billion:

“£1.6 billion will go to local authorities to help them respond to other coronavirus (COVID-19) pressures across all the services they deliver. This includes increasing support for the adult social care workforce and for services helping the most vulnerable, including homeless people. £1.3 billion will be used to enhance the NHS discharge process so patients who no longer need urgent treatment can return home safely and quickly. The funding will cover the follow-on care costs for adults in social care, or people who need additional support, when they are out of hospital and back in their homes, community settings, or care settings.”

Then on Saturday, the Government disclosed that even more money was being provided, another £1.6 billion:

“This extra £1.6 billion takes the total given to councils to help their communities through this crisis to over £3.2 billion, an unprecedented level of additional financial support in recent times. The funding will mean councils can continue to provide essential services and support to those who need it most.”

No doubt Cllr Watts will keep asking for more. It may well be that even this extra money does not “fully” compensate councils. But would it not be reasonable for councils to take some responsibility for themselves? Last week the Taxpayers Alliance reported:

“At least 2,667 people employed by local authorities in 2018-19 received more than £100,000, an increase of 226 on 2017-18. 667 received over £150,000, 60 more than the previous year. The average number of employees who received over £100,000 in total remuneration per local authority is 6.9. This is up by one person per council on last year’s average. The average number receiving over £150,000 is 1.7 employees per council.”

The response from the “sector” was that these high salaries are justified as they provide such high calibre and innovative managers. But if the only idea they come up with when faced with extra costs or reduced revenue is that central Government “fully compensate” them, are they really providing such good value for money?

The longer the lockdown continues, the greater the pressure on council finances will be. Some who have managed to keep up their Council Tax payments thus far will run out of money and fall into arrears. It is realistic for councils to face up to and assess such challenges. What is delusional is expecting others to pick up the entire bill.

38 comments for: Will town halls run out of money?

Leave a Reply

You must be logged in to post a comment.