Local Government finance during the pandemic

March 16, 2021

The National Audit Office (NAO) published a new report this month detailing local government finance during the pandemic.

The report examines if the Health and Social Care Department’s approach to local government finance in the pandemic enabled it to assess and fund the costs of new services which local authorities have been asked to deliver and fulfill its responsibilities for securing financial sustainability across the sector.

The fieldwork was completed in early January 2021 and does not include the impact of the January national lockdown. The most recent data in the report on the financial impact on the sector were provided by local authorities in early December 2020.

41% of single-tier and county councils with social care responsibility indicated that they were considering savings within service budgets to balance their 2021/22 budgets and 51% said they were considering service cuts to some extent.

Some respondents said that service users would be affected by reduced staffing levels and general efficiencies, which would ultimately reduce the level of service that an authority could provide over time. In other cases, authorities indicated that specific savings or income-generation measures would directly affect service users. Examples include:

  • Reviews of adult social care and special educational needs and disabilities (SEND) care packages.
  • Increased client contributions for adult social care.

The report summarised other key findings:

  • Local authorities have forecast that COVID-19 will create £6.9 billion of cost pressures in 2020-21. Local authorities have faced a range of cost pressures due to the pandemic including the need to deliver new programmes and services; increases in the costs of, and growing demand for, some existing services; and reduced opportunities to deliver savings programmes (paragraphs 1.9 to 1.16, Figures 2 and 3).
  • Also, local authorities face reductions in non-tax income amounting to a forecast loss of £2.8 billion in 2020-21 due to the pandemic. Authorities have reported losses in their sales, fees and charges (£2.1 billion), commercial (£523 million) and other income streams (£221 million). Authorities have also forecast losses in council tax (£1.3 billion) and business rates (£1.6 billion) income for 2020-21. However, local authority accounting means that these tax losses will only affect authorities’ budgets next year (paragraphs 1.17 to 1.21, 4.2 and 4.3, Figure 4).
  • Combined cost and non-tax income pressures (£9.7 billion) are significant for the sector at 17.6% of revenue expenditure, but impacts vary across authorities.
  • The forecast impacts are greatest among district councils (equivalent to 20.4% of 2019-20 revenue expenditure) due to their exposure to income-generating services. County councils (16.2%) appear to be the least vulnerable owing to their more limited exposure to income losses. There are also marked variations in combined cost pressures and income losses among authorities of the same type. These are likely to be driven by differences in data-reporting alongside a range of local conditions and decisions (paragraphs 1.22 to 1.25, Figures 5 and 6).

Cllr James Jamieson, Chairman of the Local Government Association, said, ‘Councils continue to lead local efforts to protect lives and livelihoods from COVID-19 but still face substantial cost pressures and income losses. The Government has provided a significant financial package of support so far to help but the ongoing financial impact and unpredictability of the pandemic mean this support must be kept under review. We continue to call on the government to meet - in full - all cost pressures and income losses incurred by councils as a result of the pandemic.

‘Public finances are undoubtedly under huge strain but investment in our local services will be vital for our national economic and social recovery. Alongside sustainable long-term investment for councils in the forthcoming Spending Review, bringing power and resources closer to people is the key to improving lives, tackling deep-set inequalities and building inclusive growth across the country.’

Visit the National Audit Office website to read the report in full.


Care England has repeated calls to Government about the need for greater clarity around extending COVID-19 relief funds.

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