Michael Burton 18 August 2020

Councils facing £2bn budget black hole

Councils facing £2bn budget black hole image

Councils face a budget black hole of £2bn this year due to unfunded coronavirus costs, a new study has found.

The report from the Institute for Fiscal Studies (IFS) said that while loss of income and council tax coupled with extra spending came to £7.2bn, the Government has so far promised only £5.2bn or 4% of councils’ pre-crisis spending.

Although many councils have reserves, drawing on them to plug the coronavirus deficit would leave them exposed.

The IFS instead proposed targeted extra government grant funding for the councils most in need and a relaxation of borrowing rules.

Local government policy manager at the Chartered Institute of Public Finance and Accountancy (CIPFA), Joanne Pitt, said the IFS’ relaxation suggestion would ‘directly contradict’ the existing prudential code, under which local authorities are only allowed to borrow for long-term capital investment.

She added: ‘'While short-term solutions may be attractive, CIPFA believes that this is the time to strengthen good financial management, not weaken it.’

A government spokeswoman said: ‘We’re giving councils unprecedented support during the pandemic to tackle the pressures they have told us they’re facing. This includes £4.3bn funding, compensation for irrecoverable income losses and a scheme allowing them to spread their tax deficits.’

Photo: Loveandrock / Shutterstock.com

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