COVID-19 and councils' finances: understanding risks and impacts and improving policy

Lead Research Organisation: Institute for Fiscal Studies
Department Name: IFS Research Team

Abstract

Councils are on the front line of the coronavirus crisis, being responsible for key services like social care and homelessness prevention and facing revenues falling due to lockdown. Government has provided them with billions of additional funding, but more may be required.

A key challenge is ensuring this is allocated appropriately. Without such targeting, either more than is needed across the sector has to be provided or the most exposed and least resilient councils could run out of money or be unable to maintain services. Councils also need to understand how their residents are being differentially affected by the crisis.

To help address these issues, we will analyse:

1. A suite of ex-ante indicators of the population and financial risks facing different English councils and their potential financial resilience, and publish the compiled data:
2. Actual changes in residents' incomes and spending, council tax payments and problems, and benefit claims by local area across the UK, which will provide evidence on how key risks are crystallising;
3. How different English councils' spending and revenues are changing during the course of the crisis, and the extent to which this corresponds to the aforementioned ex-ante and real-time indicators;

We are having frequent discussions with central and local government, and the new research proposed here would directly feed into this - and inform wider public and political debate -, allowing us to help policymakers ensure councils have the funding and flexibility so that vital services can continue to operate and meet new demands
 
Description A full summary of Key Findings of this award will be provided at completion but Key Findings to date include:
- The exposure of different councils to different types of financial risks associated with COVID-19 varies given significant variation in reliance on different income streams, and different socio-economic characteristics of populations. Broadly speaking, urban and relatively more affluent areas are exposed more to income risks and more deprived areas more exposed to expenditure risks, especially in the medium term (given pre-existing population vulnerabilities). Financial resilience also varies significantly and although councils with riskier financial profiles also tend to have greater financial resilience (e.g. higher reserves), this is not always the case. The potential for highly variable impacts and highly variable resilience suggests that rather than providing funding upfront based on generic formulas, the government should (and since has) provided compensation based on actual estimated impacts, and provide borrowing powers for councils if necessary to bridge the gap.
- While more affluent areas rely more on risky income streams, risks for council tax at least have actually crystallised more for deprived areas, with bigger increases in non-payment and claims for means-tested council tax discounts. This is despite the fact that there are fewer jobs in locked-down sectors in more deprived areas - with some exceptions in London and major cities like Liverpool and Manchester. As a result of this, overall impacts of reduced council tax collections are broadly similar between more affluent and more deprived areas (i.e. the bigger falls in collections offset the lower reliance on council tax among more deprived areas).
- London has been particularly hard hit across a range of measures which will have implications for local government - including employment, consumer spending and footfall, commuting, and council tax payment. However, employment and incomes remain lower in most of the North and Midlands, meaning COVID-19 is complicated rather than overturning the logic of the 'levelling up' agenda.
- Financial pressures resulting from COVID-19 are likely to be somewhat higher than funding received in 2020-21, but most LAs have more than sufficient reserves to address this gap. The additional funding for 2021-22 will likely be sufficient to meet additional financial pressures if COVID largely abates by the summer. But a funding gap could re-emerge and widen from 2022-23 onwards given both underlying spending pressures and long-term impacts of COVID on spending needs.
Exploitation Route We provide an assessment of potential impact in the Narrative Summary. As this project is ongoing we will provide an assessment of ways in which work can be taken forward once the project is completed.
Sectors Government, Democracy and Justice

 
Description A full narrative summary will be provided at the conclusion of the Award. At this stage we note several potential impacts of our work. First, our work has potentially informed government policy. We communicated with MHCLG in the preparation of this project and our Risk and Resilience Dashboard, kept them up to date with each stage of our work, and discussed both data and findings in meetings in August, September and November 2020 and January 2021. Some of the policies that have been adopted - such as providing a proportion of support as compensation of estimated losses rather than as upfront grants, and provision of borrowing powers to councils with particular financial difficulties - have been consistent with recommendations made in our reports. And our independent reports are an authoritative source government can cite in order to justify these kinds of policies. Second, our work has informed local government. In particular, our partnership with the LGA, which was facilitated via our ESRC-funded work, fed directly into their engagement and Spending Review submissions, and has been used by LA officials in their discussions with councillors on the financial impacts of the COVID-19 crisis. By speaking at multiple conferences and holding our own event as part of the Festival of Social Science, we have reached hundreds of officials and councillors - providing information on the broader economic, fiscal and policy outlook, as well as how the impact of the COVID-19 crisis is differing across different spaces. Third, we have helped support parliamentary scrutiny of both central and local government, giving evidence to the HCLG committee's inquiry on Local Government and the 2020 Spending Review. We provided the main independent input into this inquiry, with other participants being representations of local government or their financial staff. Fourth, our work has informed media coverage and public debate about the financial impacts of the COVID-19 crisis on local government. Overall, in 2020, the IFS received over 1,000 mentions for articles covering 'local government', 'councils' or 'local authorities' in print and online outlets. The organisation also provided multiple broadcast interviews for national radio stations. Over the year our work and commentary in this field generated front page stories, including in The Guardian in July ('Councils lose millions after virus hits investments'), as well as prominent stories in the Daily Telegraph, Independent, Mirror, Financial Times, and in the regional, local and specialist press. We have continued to inform coverage in 2021, with our figures breaking down council tax forecasts and outturns for each LA being covered by multiple regional papers via the Press Association: illustrating the impact of the COVID-19 crisis on councils' finances in every part of England. This builds on the use of our Risk and Resilience Dashboard by the media to highlight particular financial risks for different councils (e.g. Croydon).
First Year Of Impact 2020
Sector Government, Democracy and Justice
Impact Types Policy & public services

 
Description Citation in Local Government Association Spending Review Submission
Geographic Reach National 
Policy Influence Type Citation in other policy documents
URL https://www.local.gov.uk/publications/re-thinking-public-finances
 
Description Collaboration with the Local Government Association 
Organisation Local Government Association
Country United Kingdom 
Sector Public 
PI Contribution Building on the work undertaken and planned as part of our ESRC award, we have collaborated with the Local Government Association (LGA) to examine the short and medium term impacts of the COVID-19 crisis on local government revenues and spending, and local economic outcomes (e.g. spending, income, etc.). Our contribution has been to: undertake the analysis, utilising the data provided by the LGA, in conjunction with the data sourced and utilised as part of our ESRC funded work (including local socio-economic and financial data, from USoc and from Money Dashboard); write-up and disseminate findings; and engage with the LGA and local government sector more generally both in the production of analysis and dissemination of findings.
Collaborator Contribution Sharing of data on councils' forecasts for the revenue and spending impacts of the COVID-19 crisis. Advice and feedback on analysis. Co-funding of the reports produced as part of this partnership.
Impact [To insert]
Start Year 2020
 
Description 'Pandemic patterns: research reveals a diversity of effects on local government finances', Room 151 magazine, July 2020 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Policymakers/politicians
Results and Impact Kate Ogden (2020), 'Pandemic patterns: research reveals a diversity of effects on local government finances', Room 151 magazine, July 2020
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020) Interviews, COVID and local government funding for LBC (August 2020), Times Radio (August 2020) and Bloomberg Radio (September 2020) 
Form Of Engagement Activity A press release, press conference or response to a media enquiry/interview
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact David Phillips (2020) Interviews, COVID and local government funding for LBC (August 2020), Times Radio (August 2020) and Bloomberg Radio (September 2020)
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020), 'COVID-19 and councils: impacts, responses and recovery', Festival of Social Science, 9th November 2020David Phillips (2020), 'COVID-19 and councils: impacts, responses and recovery', Festival of Social Science, 9th November 2020 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact David Phillips (2020), 'COVID-19 and councils: impacts, responses and recovery', Festival of Social Science, 9th November 2020

Online event with main presentation by IFS researchers and panel discussion with representatives from local government - aimed at providing an non-technical summary of the fiscal and local economic impacts of COVID for councillors, LA staff and interested members of the public.
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020), 'COVID-19 and local government funding: risk, resilience and responses', July 2020. Presentation at the GovTech webinar on COVID-19 and local government funding on 16^th July. 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Policymakers/politicians
Results and Impact Presentation at the GovTech webinar on COVID-19 and local government funding on 16^th July 2020.
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020), 'Councils stare into a highly uncertain financial future', The MJ Magazine, October 2020 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Media (as a channel to the public)
Results and Impact David Phillips (2020), 'Councils stare into a highly uncertain financial future', The MJ Magazine, October 2020
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020), 'The fiscal impacts of Covid-19 on local government', June 2020. Presentation at a CIPFA webinar on COVID-19 and public finances on 18^th June. 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Policymakers/politicians
Results and Impact Presentation at a CIPFA webinar on COVID-19 and public finances
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020), 'The medium-term funding outlook', District Councils Network, 14th October 2020 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Industry/Business
Results and Impact David Phillips (2020), 'The medium-term funding outlook', District Councils Network, 14th October 2020
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020), 'The medium-term funding outlook', Social Impact Investors Group, 18th November 2020 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Industry/Business
Results and Impact David Phillips (2020), 'The medium-term funding outlook', Social Impact Investors Group, 18th November 2020
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2020), 'The outlook for public sector finances and funding', Central and Local Government Finance Conference, 14th October 2020 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Policymakers/politicians
Results and Impact David Phillips (2020), 'The outlook for public sector finances and funding', Central and Local Government Finance Conference, 14th October 2020
Year(s) Of Engagement Activity 2020
 
Description David Phillips (2021), 'COVID, finance reform and funding outlook: some issues for District Councils", APPG for Distict Councils, 23rd February 2021 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Policymakers/politicians
Results and Impact David Phillips (2021), 'COVID, finance reform and funding outlook: some issues for District Councils", APPG for Distict Councils, 23rd February 2021
Year(s) Of Engagement Activity 2021
 
Description David Phillips (2021), 'Local government funding and fiscal devolution', MHCLG/BEIS Local Growth Unit Seminar, 21st January 2021 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Industry/Business
Results and Impact David Phillips (2021), 'Local government funding and fiscal devolution', MHCLG/BEIS Local Growth Unit Seminar, 21st January 2021
Year(s) Of Engagement Activity 2021
 
Description Kate Ogden & David Phillips (2020), 'Spending Review 2020 and council funding: COVID and (kicked) cans', LGA Finance Conference, 12th January 2021 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact Kate Ogden & David Phillips (2020), 'Spending Review 2020 and council funding: COVID and (kicked) cans', LGA Finance Conference, 12th January 2021
Year(s) Of Engagement Activity 2021
 
Description Kate Ogden (2020) 'The fiscal impacts of Covid-19 on local government', Sheffield City Region, 23 July 2020 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Policymakers/politicians
Results and Impact Kate Ogden (2020) 'The fiscal impacts of Covid-19 on local government', Sheffield City Region, 23 July 2020
Year(s) Of Engagement Activity 2020
 
Description Kate Ogden (2021), 'The uneven impact of COVID-19 on council tax revenues', Public Finance Magazine, February 2021 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Media (as a channel to the public)
Results and Impact Kate Ogden (2021), 'The uneven impact of COVID-19 on council tax revenues', Public Finance Magazine, February 2021
Year(s) Of Engagement Activity 2020
 
Description Local Government Dashboard, Kate Ogden and David Phillips 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Media (as a channel to the public)
Results and Impact Local Government Dashboard
Year(s) Of Engagement Activity 2020