COVID-19 and English council funding: what is the medium-term outlook?

This report from UK think tank looks at the longer shadow on councils’ finances of covid-19.

The COVID-19 crisis is having immediate effects on councils’ budgets as a result of increases in spending on local services and reductions in income from sales, fees and charges (SFCs) and commercial activities. However, the crisis will cast a longer shadow on councils’ finances. First, reductions in council tax and business rates revenues collected this year will feed through to budgets over the next three years. Second, some COVID-19-related spending pressures and reductions in revenues are likely to persist, and indeed could grow in a few cases. This report considers how councils’ revenues and spending needs may evolve over the period to 2024–25, accounting for both the impact of COVID-19 and the pre-COVID funding outlook.

It is important to note up front that the next few years are particularly uncertain economically and fiscally. How high will unemployment rise, how quickly and fully will the economy recover, and what will this mean for councils’ revenues? To what extent will changes in service provision made in an effort to control the COVID-19 epidemic continue, and what will this imply for service delivery costs? Definitive answers to these key questions are lacking. And even putting the COVID-19 crisis to one side, changes in service demands and costs would be uncertain, given the range of factors that influence them, including trends in ill health, income, wages and productivity. We therefore look at a number of scenarios for the financial pressures councils could face (lower, middle and upper), drawing on councils’ own forecasts, scenarios from the Office for Budget Responsibility (OBR) and other sources. We also highlight a number of issues we feel unable to analyse quantitatively that local and national government may wish to consider when developing plans for the next few years.

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