COVID-19 funding for local government in 2021/22 consultation

The Local Government Association (LGA) welcomes the opportunity to respond to the Government’s consultation on aspects of the COVID-19 funding for local government in 2021/22.

The LGA is here to support, promote and improve local government. Throughout the COVID-19 crisis, the LGA has consistently highlighted the financial pressures of the pandemic on local government and continues to make the case that the Government should cover the full impact of the crisis.

This response has been approved by members of the LGA Resources Board.

Before the financial challenges of the COVID-19 crisis, local government went into this pandemic with the prospect of an £8 billion funding gap and pressures growing on increasingly fragile services that supported the most vulnerable, such as children’s services, adult social care, and homelessness support. These pressures will be made more significant by the lasting impact of COVID-19.

Despite these unresolved issues, at a time of national crisis, councils put their local leadership role first. They moved at pace, used innovative approaches and worked flexibly to set up completely new services to support the most vulnerable, reshaped and redesigned services such as waste collection to keep them going virtually unaffected, and were central to the economic support provided to residents and businesses. Central Government and local communities trusted them, and they delivered.

No other body understands local areas better than councils. The highly-valued services local government delivers – including public health, adult social care, children’s services, homelessness support, provision for the vulnerable and those in financial hardship – have been crucial to the initial COVID-19 response by protecting lives and livelihoods.

Local authorities welcome the COVID-19 funding package for local government in 2021/22. It sends an important signal that the Government recognises the financial challenges facing the sector and shows understanding that these pressures will continue well beyond 2020.

It is vital that the input of councils in facilitating the roll-out of the vaccines, supporting test & trace, delivering economic support and other valuable work continues to be recognised as a new burden with cost and income implications that must be funded.

The latest figures from the COVID monitoring survey put the financial impact of COVID-19 on local authorities at an estimated £9.7 billion for 2020/21, with a further £2.8 billion of lost income from council tax and business rates.

However, these figures were reported before the rapid spread of the new strain was known. With the new COVID-19 strain up to an estimated 70% more likely to be passed on, stringent lockdowns are likely to continue – at the time of writing, the country is under a national lockdown similar to the one set out at the start of the pandemic. This is a significantly different set of circumstances to when the funding package was set out.

When the country was under the national lockdown in the first half of 2020, councils’ monthly financial pressures (excluding lost tax income) were worth £1.0 billion. If this monthly financial pressure returned in the final three months of 2020/21 instead of pre-lockdown council forecasts, the in-year financial challenge (excluding lost tax income) would increase by a further £1.1 billion to a total of £10.8 billion. Taking into account the funding that has already been announced for 2020/21, we estimate that up to a further £2.6 billion is needed to cover the impact on councils in full if 2021 national lockdown measures deliver a similar financial impact to the national lockdown in 2020. The Government must address the remaining financial pressures in 2020/21 with a further funding package.

Given the impacts of the new strain, including much tighter lockdowns, the Government must also revisit the COVID-19 funding package for 2021/22 and work with the local government sector to consider if the size of each funding stream is fit for purpose in this new set of circumstances.

For example, councils that are due to run elections this year will incur additional costs to prepare and administer them. The Government should provide funding in addition to the £1.55 billion grant to assist local councils with the additional cost of elections.

The Government’s pledge to compensate for 75 per cent of irrecoverable council tax and business rates income from 2020/21 is encouraging, particularly as income from these two local taxes accounts for over 80 per cent of Core Spending Power this year. Recently, the Valuation Office Agency (VOA) has been reviewing their valuation methodology regarding material change of circumstances (MCC) appeals due to COVID-19. We would like the Government to explicitly confirm that any losses arising from these appeals are also in the scope of the compensation scheme methodology as set out.

It should be noted that the remaining 25 per cent of irrecoverable council tax and business rates not compensated by the scheme is a considerable amount. Based on the estimated benefit of the scheme included in the consultation, local government could still face a loss of more than £250 million which any changes to valuations, referred to above, would increase. The consultation offers no specific questions relating to the calculation and methodology of the scheme.

Furthermore, while the local tax income guarantee is welcome in recognising the irrecoverable loses in 2020/21, it does not address the impact in 2021/22 and over the medium term including reduced and lower than expected council tax bases. With debt recovery and enforcement activities limited due to the impact of the pandemic, limits on activities and pressures on court time, the ability of councils to recovery debts and secure income as they usually would has been restricted. Consequently, the Government should consider providing councils with further support to recognise these challenges on the medium-term impact and the limits to recovery and enforcement.

The extension of the sales, fees, and charges compensation scheme is an important recognition of the ongoing impact of this pandemic. Extending the scheme to fund a portion of councils lost income from fees and charges during the early part of the next year provides some much-needed stability but will need to be kept under review and should be extended to cover losses for the full financial year. As with the tax compensation scheme, councils are left to bridge the remainder of the funding gap. Recent analysis suggests councils will receive around £1 billion of compensation from the scheme in 2020/21, this represents only half of the income losses from sales, fees, and charges councils are projecting in 2020/21.

In addition to lost income from sales, fees, and charges, councils also estimate £0.5 billion of losses in commercial income. The Government has not announced any compensation scheme for lost commercial income, meaning the burden is falling fully on councils.

It is vital that the Government guarantees the financial challenge facing councils as a result of COVID-19 will be met in full, including funding for cost pressures and full compensation for lost income and local tax losses.

Question 1: Do you agree with our proposed approach to distributing the £670m of local council tax support grant? If not, why, and do you have an alternative proposal?

We are supportive of the additional funding for councils to help their residents most in need of financial support. The £500 million hardship fund which provided council tax relief for vulnerable households in 2020/21 was extremely important. It allowed councils to support their residents during financial difficulty.

We also welcome that the £670 million local council tax support (LCTS) grant recognises the increased costs of providing local council tax support and that the funding is unringfenced, allowing councils to use any funding not required to pay increased LCTS costs according to local needs and priorities.

Considering the funding is intended to pay for additional council tax support people are entitled to and apply for, it will be important to closely monitor the increase in LCTS claims. This could be done through the COVID monitoring survey, which we provide more detail on in our response to question 4. The Government should also consider if additional resources may be needed in-year to help councils provide council tax support to households affected.

However, there has been no information on how the grant quantum of £670 million was determined. We are concerned whether this is sufficient to provide effective financial support to vulnerable people, particularly considering the impact of recent events and the expectation that councils will raise council tax by up to 5 per cent next year to receive their projected increases in spending power.

Our members appreciate indicative allocations and methodology note issued in advance of the consultation response deadline. The transparency allows for an informed consideration of the proposals. We would direct you to responses of our member councils on the specifics of distribution of the grant.

Question 2 – Do you agree that we should use 2020-21 budgeted income as a baseline for the SFC scheme? If not, we welcome alternative proposals.

Question 3 – Do you agree that we should use a quarter of 2020-21 baseline budgets to assess SFC losses? If not, we welcome alternative proposals.

Considering it is difficult to estimate a 2021/22 pre-COVID budget to base any Sales, Fees, and Charges compensation scheme on, we support the use of a quarter of the pre-pandemic 2020/21 base.

We appreciate the Government is monitoring the ongoing financial impact of COVID-19 on local government; however, the sector needs certainty on compensation schemes in order to effectively deliver vital services.

We have consistently called on the Government to guarantee the full financial impact of the pandemic will be covered. It should be noted that the compensation scheme of losses due to COVID-19 still leaves councils with a substantial gap in their sales, fees, and charges income. In line with our calls for 2020/21, this means that all sales, fees, and charges lost due to the pandemic in the full year of 2021/22 should be covered by the Government, not merely 75 per cent of the first quarter (itself only applicable after a 5 per cent deductible).

Question 4 – Do you have views for how we ask local authorities to report their COVID-related pressures in 2021-22? Do you have a view on the frequency of the collection cycle in 2021-22?  We welcome your views and alternative proposals on the above.

The COVID-related pressures survey has been extremely useful in understanding the scale of financial pressures local authorities are facing. The information has helped stakeholders and government departments to make the case for the financial impact of the crisis.

We are keen for this financial reporting to continue and appreciate the reference in the consultation document to capacity concerns in councils. The Government should recognise the significant administrative pressure on local government to report the management of multiple grants across a variety of government departments, and where possible harmonise reporting in order to reduce the administrative burden. It is important the Government tracks current levels of capacity in local government, including through this consultation, in order to not overburden staff and ensure key service delivery is unaffected, particularly closer to financial year end.

Considering the pace of change in circumstances under which local government operates currently, we would encourage the continuation of regular, monthly, data collection – if local government capacity allows. This will inform the Government’s assessment of how much more support the sector needs and will continue to aid sector led improvement.

Given the proximity to the beginning of financial year 2021/22, and as councils confirm their budgets, we think the survey should include estimates of the 2021/22 full year financial impact. This will give a real sense of the challenges councils are still expecting to face, and help the Government revisit the sufficiency of the 2021/22 COVID-19 funding package.

As survey monitoring moves into 2021/22, it would be useful to reflect how councils are allocating the COVID-19 expenditure pressures grant among service areas and administering the local council tax support grant. When the survey asks for 2021/22 estimates, it would seem logical to replace the 2020/21 COVID expenditure funding in question A1 with the expenditure funding councils receive in 2021/22. Similarly, for section E to reflect questions on the administration of the local council tax support grant for 2021/22.

To date, there has been no question in the survey of the potential financial impact councils have experienced with the vaccine rollout. Local government is playing a vital role in helping the health sector administer the vaccine, and information on any financial impact faced by local authorities in supporting vaccine rollout will be important to capture.

We think the survey broadly covers the main aspects of the financial impact and maintaining the survey in its current form assists with comparisons between individual survey rounds. We would encourage the Government to continue to work with local government to pick up any emerging additional spend/ loss of income areas.

We appreciate the Government’s ongoing adjustments to guidance in the monitoring survey to make sure the reporting of data is as accurate as possible. However, as recent evidence of ensuring councils report additional expenditure gross of all funding received suggests, clear guidance is needed. The Annex included in section B was a positive step, and we suggest working more closely with the teams who complete the survey in order to assess where guidance needs to be added or tightened.