We estimate that over 95 per cent of councils’ 2020/21 core spending power is subject to one source of uncertainty or another ahead of 2021/22. It is therefore imperative for the Government to think creatively about how to provide more certainty to councils in the absence of a multi-year Spending Review. One way of doing so would be for the Government to commit, explicitly and in principle, to 2021/22 funding being a real-terms floor beyond which funding will not be reduced in this Parliament for any individual council.
The Institute for Fiscal Studies (IFS) has independently reviewed the future funding outlook for councils prior to the Spending Review, including ‘business as usual’ pressures, cost impacts of the pandemic that might be permanent and the potential long-term impact of the economic changes on local income, such as local taxes, sales, fees and charges.
As part of its analysis, the IFS estimates that councils face cost pressures of over £5 billion in 2021/22 in comparison to the 2019/20 starting point. This includes £1.3 billion of ongoing COVID-19 cost pressures and income losses in 2021/22:
- Adult Social Care COVID-19 future spending pressure: £533 million
- Public Health COVID-19 future spending pressure: £148 million
- Future non-tax income losses due to COVID-19: £634 million
Resources are also needed to stabilise the adult social care provider market. With an assumption about future income available to local authorities, based on a 2 per cent increase in council tax and an assumption that grants will increase in line with inflation, this led the IFS to estimate a £4 billion funding gap in 2020/21.
This included the impact of 2020/21 local taxation losses which will hit council and central government budgets from 2021/22 onwards, currently estimated to be £3.1 billion although it is not clear if some of this may be recovered from taxpayers at a later date. The Government has committed to announcing how those losses will be shared between central and local government at the Spending Review. It has also just laid regulations that will allow local authorities to spread the deficit over a three-year period rather than one year.
Councils need a stable financial foundation to build on in order to deliver on their and national government’s priorities. We are calling on the Government to provide an additional £8.7 billion in core funding in 2021/22, made up of the £4 billion funding gap (as highlighted above) to sustain 2019/20 service levels (already assuming annual inflationary increases to grants and 2 per cent annual council tax increases), £1.8 billion to deal with other quantifiable pressures to stabilise the sector and £2.9 billion of other core funding requirements to help councils improve their core service offer.