Martin Ford 22 September 2020

Councils face £3bn COVID-19 funding gap

Councils face £3bn COVID-19 funding gap image

Financial pressures within local government will outstrip additional funding by around £3.1bn this year, the Institute for Fiscal Studies (IFS) has found.

While £1.1bn of the gap – resulting from reductions in tax income - can be spread over the next three years, the sector will have to grapple with £2bn in the short-term.

The figures are based on projections made by local authorities before local lockdowns began and could be even higher according to the report, funded by the Economic and Social Research Council and Local Government Association.

In the medium-term, councils’ revenues are projected to grow by 4% in real-terms by 2024/25, but spending is projected to grow by 11% due to adults’ and children’s services and increases in the National Living Wage.

In the most likely of three scenarios outlined by the IFS, English councils would need a further £3.3bn of funding in real-terms in 2024/25 to maintain services at pre-pandemic levels.

David Phillips, an associate director at IFS and one of the report’s authors, said it was unlikely the Spending Review would offer comprehensive solutions.

He added: ‘Instead, it may be better to consider the Spending Review as a chance to set baseline allocations.

'These could then be varied as more evidence on councils’ revenues and spending needs, and the overall economic and public finance outlook, becomes available over time.’

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