On Thursday the Housing, Communities and Local Government Secretary, Robert Jenrick, announced a further support package to help councils respond to Covid-19.
Councils in England will receive a further £500 million to respond to spending pressures they are facing. The government has recognised that councils are best placed to decide how to meet pressures in their local area, and therefore the funding has not been ringfenced. Individual allocations have yet to be confirmed, but a subsequent letter from the Minister of State, Simon Clarke, made clear that this would focus on spending needs alone, rather than income losses, as was the case in the last disbursement announced by government.
Income losses will be dealt with by a separate mechanism. Where losses are more than 5% of a council's planned income from sales,fees and charges (SFC), the government will cover them for 75p in every pound lost.
Thirdly, the government is also bringing in changes so that councils can spread their tax deficit over three years rather than the usual one year.
Any additional funding and measures to relieve immediate pressure are, of course, welcome. Nonetheless, the concern remains that this still leaves councils, including KCC exposed to significant financial risk.
In terms of support for the financial pressures faced by councils, the first two tranches of government funding totalled £3.2bn, compared with the current £500m tranche. KCC's share of the first two tranches was £67m, compared with our forecast additional spending of £96.6m and loss of income of £21m for this financial year. On the basis of the allocation of the first two tranches, KCC might expect its share of the new allocation to be in the £8 -12m range, still leaving a big shortfall.
It is not yet clear how the compensation of 75p in the £ on losses of income on SFC above 5% of total planned income will operate. It does suggest that KCC would have to absorb this before receiving any compensation for losses. This may not be as material for County Councils as it would be for Districts and Unitaries, however the amounts for KCC are significant – as a total as an indication, our total SFC in the 2018-19 outturn was £156.6 million. We will need to look at the full year effect before being certain as to whether the 5% trigger will be reached.
At this stage there is no funding attached to the provision to deal with council tax and business rate collection losses over three years. In the short run, the pressure would be deferred, and a deficit recorded in the collection fund which could be carried over into years two and three. The announcement says that funding will be considered "in the next Spending Review." The government appears to be deferring a decision on this and relying on a strong economic recovery which will see council tax receipts increasing. If losses from council tax and business rates are not cash backed, there could be a viability issue for councils with inadequate reserves to cover short term pressures.
While this does represent some additional support for the sector, it is highly doubtful whether this can meet the pressures incurred in year, and many key decisions are deferred until the spending round and greater clarity over the speed of economic recovery. Local government still does not have certainty in relation to its financial position as we emerge from the immediate impact of Covid-19. The County Council will be considering a revised 2020-21 budget at our meeting on 10 September.
Interest in this issue has remained strong, and you can find an article in the Huffington Post, which includes an interview that I gave, here.
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