At least 12 English councils in bailout talks as Covid smashes local finances

At least 12 English councils have been in bailout talks with the government, in what could be the ‘tip of the iceberg’, experts say, as the Covid-19 pandemic devastates local authority finances.

Croydon council in November became just the second local authority in 20 years to issue a ‘Section 114 notice’ – equivalent to local authority bankruptcy – following its use by council of the Northamptonshire county in 2018.

But Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said on Monday 12 authorities were in talks with the Department for Housing, Communities and Local Government “in or around a Section 114 position”. .

Of these, six have agreed terms with the government, he added, employing so-called ‘capitalization orders’ from ministers to allow greater flexibility in the use of capital funds for expenditure. daily – to avoid entering a section 114.

“I personally think there are more than 12,” Whiteman said during a hearing by the MHCLG select committee. “I think 12 is probably the tip of the iceberg.”

Whiteman told MPs the sector entered the Covid-19 crisis after suffering “significant cuts” over the past decade of public spending cuts.

Richard Watts, chairman of the Local Government Association’s resources council, said councils had seen a cumulative cut of £15billion in their Whitehall grants since 2010.

Now they are battling a “double whammy” of lower revenue streams due to the pandemic, ranging from lost activity rates to lower payments such as parking fees and fines. If there is a rise in unemployment after the pandemic, it could leave councils facing further shortages for months, experts have warned.

“The sector has been extremely challenged going into this Covid crisis,” Watts said.

Some councils had endured specific problems then, citing how Manchester and Luton had both been damaged by their investments in local airports, whose passenger numbers have plummeted due to the closures.

The Public Accounts Committee recently warned that many councils were in a ‘precarious financial situation’ due to the wider crisis, predicting an increase in the number of authorities issuing Section 114 notices to suspend spending not essential.

The committee also criticized some councils for taking on ‘extremely risky levels of debt’ to shore up their dwindling finances, often investing them in commercial property, which suffered as rents fell over the year. elapsed.

Central government has provided local authorities with £3.6billion in additional grants during the pandemic and some councils have been able to secure further support from central government. But that would still leave local councils £2billion short of the £7.2billion expected for their finances in 2020-21 because of the coronavirus crisis, research from the Institute for Fiscal Studies has found.

An MHCLG spokesperson said: “The Government has allocated more than £8bn directly to councils since the start of the pandemic, including £4.6bn which is not ring-fenced and £1.3bn which is pounds specifically to support social care providers.

“Next year we will give councils access to an additional £2.2bn to deliver services and £3bn in additional support for Covid-19 pressures. This brings the total support committed to councils in England to tackle the impacts of Covid-19 to more than £11billion.

“We are having conversations with a small number of councils regarding additional financial support and cannot comment further at this stage.”

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