Almost all English councils are planning to slash budgets this year in the wake of Covid-19, including through reviewing adult care packages and increasing service user charges, the public spending watchdog has found.
The National Audit Office (NAO) report on local government finance during the pandemic found 94% of councils with social services responsibilities expected to reduce service budgets in 2021-22. Over half (53%) said they did not expect their finances to recover to their pre-pandemic position until 2023-24.
Some councils said that service users would be affected by reduced staffing levels and general efficiencies, which would ultimately reduce the level of service an authority could provide over time. In other cases, authorities indicated that specific savings or income-generation measures would directly affect service users, including reviews to care packages and increased client contributions.
Significant ‘funding gap’
The report also revealed a ‘funding gap’ for 2020-21 between forecast pressures and estimated funding to deal with them. Among all groups of councils (county councils, unitary authorities, London boroughs, Metropolitan districts), more than half said they were under-funded, with London boroughs most badly hit. One in five authorities in the capital said they faced funding gaps of at least 2.5%.
Across the whole sector, the NAO calculated there was a £600m funding gap arising from Covid, with £9.1bn in government support more than cancelled out by £9.7bn in cost pressures.
Almost half of councils with social services responsibilities (46%) said they had dipped into their reserves, or planned to, to address Covid-19 pressures in 2020-21.
The NAO’s analysis of Ministry of Housing, Communities and Local Government (MHCLG) data found that 14% of unitary authorities, 8% of metropolitan districts and 4% of counties were at “high risk” in relation to their finances, while 3% of London boroughs were in this category and the same proportion were deemed to be at “acute risk”.
The latter group is likely to include Croydon council, which issued a notice in November 2020, renewed in December 2020, stating that it was at risk of breaching its legal obligation to balance its budget, meaning that it could only spend money on essential services, such as meeting its social care duties.
The MHCLG recently acceded to Croydon’s request for a loan to help it balance its budget, providing £70m in 2020-21 and £50m in 2021-22, which will enable Croydon to remove its so-called section 114 notice and resume spending on non-essential services. The loan, which enables the council to use money allocated for capital expenditure on day-to-day spending, is conditional on the council delivering on an agreed improvement plan.
The MHCLG has also agreed similar capitalisation directions – though of much lower value – for Bexley, Luton, Peterborough and Wirral councils.
‘Authorities’ finances have been scarred’
NAO head Gareth Davies said: “Government’s support to local authorities during the COVID-19 pandemic has averted system-wide financial failure. Nonetheless, the financial position of the sector remains a concern and authorities are setting budgets for 2021-2022 with limited confidence.
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“Authorities’ finances have been scarred and won’t simply bounce back quickly. Government needs a plan to help the sector recover from the pandemic and also to address the longstanding need for financial reform in the sector.”
The NAO recommended that the government should assess authorities’ 2021-22 budgets to understand the impact on service budgets and the implications for service users, other service providers and long-term value for money, and use this to inform in-year and future funding decisions.
Significant problems predate Covid
In response to the report, David Williams, chairman of the County Councils Network (CCN), said that while the government’s support to councils during the pandemic has been significant, the CCN had long warned of the impact of a funding gap of £1.4bn which pre-dated coronavirus.
“Before the pandemic, councils were facing huge pressures in delivering adult social care, with local authorities projected to be spending £6bn more per year in 2025 compared to 2015.
“Faced with a rise in demand and a drop in grant funding, many councils have had to raise charges or tighten eligibility, we are acutely aware of how tough these decisions are on some people, and this is why we have argued strongly for the swift publication of a funding solution for adult social care,” he said.