Richard Derecki: Will Sunak be Scrooge or Santa to London’s cash-strapped councils?

Richard Derecki: Will Sunak be Scrooge or Santa to London’s cash-strapped councils?

High on the self-isolating Prime Minister’s list of conference calls this week will be discussions with his Chancellor Rishi Sunak to agree the shape of the forthcoming Spending Review, due next Wednesday. Given the extreme levels of uncertainty about the economy next year, only multi-year NHS and schools’ resource settlements will be fully funded, as will priority infrastructure projects. Most government departments’ resource and capital spending will only be set for one year, bringing further anxiety for local authority finance directors as they struggle to project what damage the pandemic is doing to their budgets.

This is certain true in the capital. A recent paper presented to the executive of London Councils, which represents the city’s 33 local authorities, set out early estimates of the likely financial impact on the boroughs of London’s move into Tier 2 Covid restrictions and the subsequent four-week national lockdown. The report details the significant sums already provided by central government across three main areas: emergency general funding which was not ringfenced; targeted grants; and partial compensation for the loss of sales, fees and charges which local authorities ordinarily accrue.

The Ministry of Housing, Communities and Local Government estimates that over the year as a whole around £1.3 billion in support will have been provided to London. However, the London Councils report finds that this goes only some of the way to meeting the estimated total impact of Covid in terms of additional expenditure and loss of income. It puts that at around £2 billion, leaving a shortfall of more than £700 million.

These estimates though were put together in September, which means the further costs arising from moving into Tier 2 and then into national lockdown have not yet been fully calculated. Given the uncertainty of how the second wave will develop and its impact on council budget lines, London Councils also produce costed scenarios based on different assumptions about the scale of the second wave. They calculate that, even allowing for the further central government support already announced, the overall shortfall for the full financial year might rise to £1.1 billion. And that figure will be higher still if the lockdown is extended through December.

All eyes then on the Spending Review announcements due on 25 November to see whether the Chancellor is going to provide additional means for councils to address these huge shortfalls or if they will be forced to manage on their own.

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Categories: Analysis

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