Do councils have the financial resilience to survive Covid-19?

The economic impact of Covid-19 is clearly going to be huge; commentators are warning that this is the greatest financial crisis since the 1930s.

The government has responded to the immediate financial pressure that authorities will face by providing £1.6 billion of emergency funding. However, having worked closely with our clients to understand both the immediate and the longer-term impact, our view is that the money is likely to prove insufficient. Some authorities have already identified double figure cash shortfalls in terms of their ability to respond and provide short term assistance to local businesses.

The map below shows how the emergency funding has been allocated across local government (including fire authorities, the Greater London Authority and the Greater Manchester Combined Authority); it also highlights the level of variation in what individual councils receive, from £0.1m to £39.7m.

There is a clear correlation between emergency funding and the level of deprivation:

However, the cost of a council’s additional Covid-19 duties will not necessarily align with levels of deprivation. There will be many factors that influence the impact of the pandemic, even for areas of comparable deprivation – the difference in rough sleeping rates for an Inner London Borough versus a more rural County, to give just one example.

Comparing the current reported prevalence of Covid-19 cases against the funding allocations shows this disparity; not all of the councils currently experiencing a high prevalence of Covid-19 are receiving higher levels of additional funding.

Another important point to note is that the funding allocated also does not reflect individual councils’ levels of resilience and therefore their ability to recover after the pandemic. The scatter graph below shows the correlation between level of reserves and additional funding:

Many of the councils receiving lower levels of funding already have very low levels of reserves – meaning that difficult decisions lie ahead. Furthermore, the emergency money will not cover the non-delivery of savings or the loss of income, and every recently approved Medium Term Financial Strategy (MTFS) will need to go back to the drawing board. Authorities without healthy reserves will be worrying about being pushed over the edge, but even those in a stronger financial position will be challenged by the prospect of setting a balanced budget next year.

How can this analysis help local authorities?

With central government spending now to avoid greater pain later, it is important that the sector can effectively make the case for the support it needs to weather the storm. The capabilities of local government are being showcased by emergency response efforts up and down the country, but understanding the true cost of this is crucial. Local authorities need to be able to make the case for the right support from central government to ensure that they can emerge as sustainable and effective organisations on the other side.

Right now, responding to the crisis is absolutely the priority – but longer-term financial impact will also be keeping many staff awake at night. Organisational resilience and financial sustainability are challenged in a way they haven’t been in living memory, and it is clear that local government will not look the same after Covid-19. Work must begin now to understand how the baseline has changed in order to move forward and protect the outcomes that local government wants to deliver.