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Councils to cut services as tax bills rise after Covid-19

The Public Accounts Committee says that the impact of the pandemic risks leading to reductions in services for local people even as council tax rises, meaning that local people could be paying more for less.

The committee found that the Ministry of Housing, Communities and Local Government (MHCLG) over-optimism about the resilience of local government is not matched by the reality.

The long-term systemic funding issues in local government means that sector representatives are clear that most councils will not be able to manage solely using reserves.

The pandemic caused sudden and severe drops in local authority income, which the department had to respond to urgently. Local authorities had to deliver new programmes and services alongside increased costs in delivering existing ones.

However, the national pandemic emergency plan did not cover local government finance and understanding across Whitehall of what local authorities could deliver was patchy.

Uncertainty about government funding and support has hindered local authority financial planning for the year ahead and been a driver for cost-cutting.

Longer-term reform of local government finance has been delayed twice, first by Brexit and now by the pandemic, and reform to adult social care remains undelivered.

When a council fails financially it hits taxpayers and service users hard. Yet, as the committee has repeatedly highlighted, discussions between local authorities and the Department when a council is in serious financial difficulty are still behind closed doors.

The Committee says the government must be more transparent about the financial stress facing the sector and to avert the potential for councils effectively going bust.

Even if the sector’s current financial situation is stabilised, there is a looming problem in local government finance that needs a structural solution that now also takes account of the impacts of the pandemic.

silver-and-gold-colored coin

Meg Hillier, chair of the Public Accounts Committee, said: ‘The national pandemic has thrown up many challenges for local councils, not least that parts of Whitehall did not always work with them when drawing up national schemes.

‘MHCLG did step up to stave off a wave of council bankruptcies as a result of the pandemic but the long-term health of the sector is still precarious.

‘The over-optimism about the resilience of the sector is very concerning. MHCLG needs to be a better champion for local government within Whitehall.

‘MHCLG’s inability to properly collect or share information means that it had to quickly set up a system to do this.

‘That councils could deliver quickly is a credit to local finance teams but begs the question of why this was not in place before the pandemic and underlines the committee’s long-standing concerns about the department’s knowledge of the sector’s financial challenges.’

Responding to the report, cllr Sharon Taylor, chair of the Local Government Association’s Resources Board, said:

‘Many councils were in a difficult financial position before the pandemic after a decade of central government funding reductions.

‘The Committee is right to recognise that the government has provided a significant financial package of support to cover cost pressures and some of the income losses incurred as a result of Covid-19.

‘This support will need to be kept under review and we continue to call on the government to meet – in full – all cost pressures and income losses incurred by councils as a result of the pandemic.

‘Councils continue to face significant demand pressures on day-to-day services and income losses, such as from local taxation, fees and charges.

‘We agree with the Committee that the forthcoming Spending Review needs to provide councils with a multi-year settlement that puts local government funding on a long-term sustainable footing.

‘This will enable them to more efficiently plan how to provide the local services our communities rely on and which have proved so vital during the pandemic.

‘Investment in local services will be vital to our national economic and social recovery.

‘With the right funding and freedoms, councils can help the government achieve its ambitions to level up, drive improvements in public health, boost local economic growth, revive town and city centres, build more homes, fix our roads, improve the life chances of children and young people, and equip people with the skills they need to succeed so no one is left behind.’

Photo Credit – Steve Smith

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