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Coronavirus: Councils will not be bankrupted - but want government help

Our councils will not be bankrupted by the effects of the coronavirus, according to the results of an investigation by the BBC's Shared Data Unit.
Peterborough Town Hall
Peterborough City Council town hall. Photo: John Baker

But there is a warning that more government funding will be needed as the full extent of the financial burden of the coronavirus pandemic emerges - or there is a risk of biting deep into council reserves.

Peterborough City Council has so far received £10.97million for emergency grant funding from a government pot of £3.2 billion, according to the analysis of 216 local authorities.

It has been estimated previously that the crisis will cost £18.4million, which will therefore lead to a shortfall of £7.3million in both 'best' and 'worst' case scenarios.

However the council believes it will not meet the criteria for a section 114 notice - effectively signalling bankruptcy when a council cannot meet a balanced budget.

In a 'worst case scenario' the council predicts the pandemic will lead to a shortfall of £36 for each resident of the city, compared to other local authorities where the figure is as high as £256 (Camden) and £411 in Highland (Scotland).

In the council's cabinet meeting last month Cllr David Seaton, Cabinet Member for Finance, said that the shortfall of £7.3million could either be made up from more government funding, or the council could "use more than half of our current reserves to make up that shortfall.”

In Cambridgeshire - where 'a great big budget hole' was predicted earlier this month - a shortfall of £13million is anticipated, but again the authority predicts no S114 notice.

The county council has received emergency grant funding totalling more than £26 million, and expects a shortfall of £20 per resident. 

A Cambridgeshire County Council spokesperson said: "The county council has received a total of £26.1m of emergence funding from the government so far, £14.1m in the first round and 11.5million in the second. 

"The first two tranches of government funding has given us breathing space until the end of June, but we know like all other councils in the UK it will not cover the full and emerging costs as a result of the coronavirus.

"This is the message we and all other local authorities in the UK are taking to government with the help of our local MPs. We need more sustainable funding to fight this virus and support our communities."

At least six of the UK’s largest local authorities said they would effectively have to declare themselves bankrupt unless the government provided more support.

The investigation used a strict set of questions for all chief financial officers across the UK, and found:

  • A total shortfall of £3.3 billion in England
  • At least six councils warned they would meet the criteria to issue a section 114 notice within 18 months, declaring themselves effectively bankrupt, without more government support.
  • Those in this situation include some of the UK’s largest unitary authorities – Liverpool, Leeds, Wiltshire, Trafford, Tameside and Barnet
  • Birmingham City Council – the largest authority in Europe – said “given the size” of its forecasted shortfall of £212m across 2020-21 and 2021-22 after £70m government funding it had already received, a section 114 notice “would not rectify this situation”
  • Of 173 local authorities responsible for social care who responded to the BBC’s questions, 148 (86%) predicted a budget shortfall totalling at least £3.2bn
  • At least 20 local authorities are holding an emergency or in-year budget
  • At Highland Council in Scotland, the estimated shortfall is the equivalent of £411 for every resident

In the east: 

  • All 10 of the councils who responded predicted a shortfall. In total, councils across the region predicted a shortfall of £324.4m as a worst case scenario.
  •  In raw figures, Essex predicted the largest worst case shortfall of £177m
  • The most affected council when accounting for population was Luton. Its predicted £49m shortfall equates to £230 per person living in the area.
  • The average predicted worst-case shortfall was £75m 

At the end of April, councils in England warned the £3.2bn funding already allocated in two tranches by government was “not even close” to covering costs or money that had already been spent.

The Ministry of Housing, Communities and Local Government saying it would “work with councils over the coming weeks to ensure they are managing as the pandemic progresses”. 

Permanent secretary Jeremy Pocklington gave evidence to the public accounts committee last week that civil servants were “talking to one or two local authorities bilaterally to understand their position”.

England’s Minister for Local Government Simon Clarke MP said:  “We’re giving councils an unprecedented package of support, including £3.2 billion non-ringfenced emergency funding, to tackle the pressures they have told us they’re facing.

“This is part of a wider package of support from across government for local communities and businesses – totalling over £27 billion – including grants, business rate relief and for local transport.

“We are working on a comprehensive plan to ensure councils’ financial sustainability over the financial year ahead – we will continue to work closely with them to ensure they are managing their costs and we have a collective understanding of the costs they are facing.”