The future of local government: Tightening the budget belt once again
As we ease out of lockdown, we are cautiously hopeful that the worst of the pandemic is behind us.
Yet many local government finance directors are looking at their accounts in alarm.
“The crisis of the pandemic has had a severe financial impact on most, if not all councils.” says Nick Hill, founder of Public Sector Digital Transformation Forum. “Promises of financial support from Central Government have not been completely honoured and the actual financial situation of many councils has finally surfaced as a result of Covid-19 spending”.
So what steps should leaders be taking to rebuild finances? And is there any good news to come from the catastrophe for local government?
The pandemic effect
In the first months of lockdown, councils were given £3.2 bn plus an extra £600 million for infection control in care homes.
But income from business rates and council tax has plummeted, and the costs of adult social care and other services have soared. Local authorities are now facing an £11 bn funding challenge in 2020/21.
In June, Cllr Richard Watts of the Local Government Association (LGA), warned of “spending blocks and in-year cuts to the vital local services that are supporting communities through this crisis and the national effort to beat this deadly disease”.
He added: “Some councils have warned that they will soon face the prospect of Section 114 reports [bankruptcy].”
The County Councils Network (CCN) echoed this, calling for both emergency funding and a government-backed “income guarantee” over the next five years.
Recession and austerity
In many ways, the pandemic simply accelerated the trend started by years of austerity following the 2008 financial crash.
A 2018 report from the National Audit Office (NAO) found that council budgets had been halved, with many dipping into reserves to meet the growing demand for adult social care.
Councils had experienced job losses and pay freezes. Museums, libraries and waste services were among the many services that suffered cuts.
The NAO warned that 10% of councils could exhaust their reserves within three years. So the sector was already in a precarious situation when Covid-19 hit the UK.
Government Spending Review
During lockdown, the Government borrowed a record amount to shore up the economy: £35.5bn in June alone, roughly five times that of June 2019.
As Chancellor Rishi Sunak launched the 2020 Government Spending Review this week, he warned of cuts to public services.
Adult social care is, as ever, facing a huge shortfall. But just about every area could be affected: leisure centres, for example, need an estimated £800m to survive.
In its ‘Rethinking Local’ plan published in June, the LGA called on the Government to rebuild communities by devolving power to local authorities and providing them with funding certainty.
It advocates a stronger working relationship between central and local government, a better funding model for adult social care, and greater investment in services and infrastructure.
Rebuilding the economy
The funding review will be published in the autumn. What steps can councils take now to strengthen their finances?
Clearly, they need to increase cost-effectiveness wherever possible – without adverse effect on hard-hit communities and individuals.
Reducing bloated policy making is essential, as is changing the culture of risk aversion that has given councils a reputation for inefficiency.
Another crucial step is continuing the process of innovation and digitisation that the pandemic has accelerated.
Calderdale Council, for example, had already introduced a chatbot with the support of Connect Assist. When lockdown began, it reconfigured this digital assistant to answer straightforward questions, freeing up staff for trickier queries.
The good news
While local authorities are in for some tough times, there is reason to hope. The pandemic demonstrated how committed and agile the sector can be when crisis strikes.
In fact, many local authorities are using the crisis as a catalyst for change. Gartner identified that two years of transformation took place in the first two months of Lockdown. Many councils have transformed, procured and delivered projects in an agile way, identifying that the capability is there.
And while council workers were sadly not rewarded with pay rises, they have won the appreciation of the communities they serve. Trust in local authorities rose 12 percentage points between February and June 2020 to 71%; and 75% of people are satisfied with how local services are run.
“There is no doubt that there will need to be re-structuring, new operating models and a special focus on care and health, but local councils have demonstrated that there is a willingness and capability for change.” – Nick Hill, founder of Public Sector Digital Transformation Forum
While lockdown may be easing, there’s no let-up for councils. They must continue to think outside the box, maximise their resources, and push Government for what they need.
After all, it’s the wellbeing of communities that is at stake.