COVID-19 has reduced local authority revenues while increasing the financial strain
On recent sunny weekends Bath’s famous Roman pools and saunas would expect to enjoy a boost in visitors. Bath and North East Somerset Council expected the city’s ancient baths, museums and galleries to generate revenues of £9.6m in 2020. The usual summer tourist peak is fast approaching. Since COVID-19 lockdown and social distancing, the local authority expects to suffer a £40m shortfall from its £120 annual budget.
Councils across the UK are suffering severe revenue shortfalls. Local authorities faced budget challenges before the pandemic, but since lockdown and social distancing, that challenge has suddenly become serious.
Traditional revenue streams have fallen away, such as rents from shops and local businesses, entrance fees for leisure facilities, festivals and attractions, bonuses for building new houses, taxes from local airports, as well as funding from road tolls, fines and parking tickets.
While at the same time financial outflows have dramatically increased. Costs have increased for running care homes, sourcing essential supplies, redeploying staff, installing signage in public places, delivering food parcels, and coping with the costs of burying the dead. Bath local authority expects to spend £500,000 each week just on protective kit.
Medium term plans
The worst could still be yet to come, as the economic downturn anticipated after lockdown will continue local authorities’ financial travails. Local authorities can only borrow within their limits. The financial challenge facing them will see them return to their Medium Term Financial Strategy (MTFS), to consider how to meet their 2020/21 budgets without breaking the law by going into deficit.
The latest guidance paper from the Local Government Association (LGA) provides a starting point for local finance portfolio holders and their Section 151 officers (i.e. chief financial officers) to begin their planning.
“The most effective response to uncertainty and risk is prior planning which provides a clear strategic direction, whilst remaining flexible enough to adapt to changing circumstances. This can be achieved by the construction of various scenarios, each with differing but clearly identified assumptions, of what the coming months and years may look like for the council, its key partners and wider local community.”
The government has made a series of announcements which it says should reduce short-term pressure on local authorities’ cashflow. Central government’s budget has committed to providing local authorities in England with £500 million to support economically vulnerable individuals and households.
Arrangements already in place also include additional grant funding, the upfront payment of some grants previously paid in instalments and allowing local authorities to postpone business rates payments to central government, the LGA paper points out.
“Additional funding has already been made available, though this is unlikely to be sufficient as the crisis continues,” the LGA paper said. “Given this, it is essential that senior councillors focus on the likely impact that the crisis, and its aftermath, will have on income levels both now and potentially into the future.”
While proposals for the medium-term are lacking, compensation could be a moving picture during the months ahead. The LGA’s paper highlighted Section 155 of the Local Government and Housing Act 1989, known as the Bellwin scheme. This enables government to reimburse additional crisis costs sustained by local authorities in the immediate phase of a government-designated emergency.
Reset, not return
While funding into the medium term remains uncertain, financial resilience could require more flexibility and tough reappraisals of budgeting and priorities. The pandemic and its effects will change local communities, potentially affecting demand for council services and re-shaping local authorities’ own workforces and the way their deliver services in the longer term.
New ways to generate revenue and save on costs will be highly in demand, once the immediate requirements of supporting local people have been met and mastered. Before lockdown, some local authorities were already pushing a commercialisation agenda to increase revenues, developing dynamic pricing, levering more value against spend, and making local authorities’ services more competitive in the commercial marketplace.
Clearly, circumstances have changed. Some business models have adapted better than others, so local authorities have plenty to look at when deciding which to avoid and what to copy and emulate. Local authorities have assets lying idle so fresh thinking and innovation are needed.
Digital transformation was already happening before COVID-19 and the pandemic has accelerated that drive, with lessons from the pandemic providing a reset rather than a return to normal. Better technology, more remote working, less claimed mileage driven, and less reliance on office space and other building assets will all help cut costs, and hopefully open the door to new revenue streams.
Published Date 17th June 2020
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