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IFS warns of councils’ £2.2bn shortfall following Covid

The Institute of Fiscal Studies (IFS) has warned that without extra funding, councils could see themselves struggling to fund and maintain public services.

An extra £5.2bn has already been given to councils across England, including £3.6bn general purpose grant funding and £600m ringfenced for infection control in adult social care services, to deal with extra pressures brought about by the Coronavirus pandemic.

However, with £4.4bn more spent this year than expected and losses of £2.8bn, councils will be left with a £2bn funding deficit.

The IFS also expressed concerns that the financial effects of Covid-19 could continue into 2021/22 with council tax and business rates down significantly.

Some councils may have to use their deployable reserves, a sum of over £3.3bn spread across all councils, to balance their books, but the IFS claims that up to 40% of councils still wouldn’t be able to even if they exhausted their reserves.

Measures are looking to be introduced in order to avoid hardship, such as the relaxing of rules that prevent councils from borrowing money for day-to-day running costs.

The only other alternatives, are for the Government to either provide even more funding for councils to stay afloat, or for less essential services to be cut.

Cllr James Jamieson, chairman of the Local Government Association, said:

“Councils need to be able to lead their communities out of this crisis and support recovery, but they cannot do this successfully and also address pressures in social care if they are having to focus on addressing budget cuts.”

Cllr Richard Watts, Chair of the Local Government Association’s Resources Board, said:

“Emergency government funding provided to councils has helped them in dealing with the impact of COVID-19 in recent months. Further funding and financial flexibilities are now needed to help councils meet a shortfall which we estimate could reach at least a further £6 billion this year.

He added:

“We are pleased that the Government has indicated it is working on a comprehensive plan to address the ongoing financial challenges councils face this financial year as they lead communities through the pandemic. We urge the Government to bring forward details of this plan as soon as possible.

“This is vital if councils are to avoid taking measures, such as in-year cuts to local services, to cope with funding shortfalls and meet the legal duty to balance their budgets.”


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