Councils are facing a £2 billion funding gap this year due to unfunded coronavirus costs, a think tank has warned.
The Institute of Fiscal Studies (IFS) said in a new report that the public health and economic effects of the COVID-19 crisis are creating a “perfect storm” for councils’ finances, simultaneously increasing spending and reducing incomes.
It warned that PPE and social distancing requirements have increased unit costs for a range of services, and most notably adult social care, where many service users are particularly vulnerable to the health effects of the virus.
Councils forecast spending pressures of £4.4 billion and non-tax income pressures of £2.8 billion in 2020–21.
Adult social care accounts for £1.8 billion of those estimated spending pressures, but higher costs have also been seen in education, housing, homelessness and public health.
The government has provided local authorities with additional funding of £3.6bn during the pandemic, but that would still leave them £2bn short of the expected £7.2bn hit to their finances in 2020-21, the IFS warned.
The think tank has suggested that if the government provides additional support to local authorities, it should ensure that the funding reaches those councils most in need and that borrowing rules are relaxed.
Kate Ogden, a research economist at IFS and an author of the report, said: “The simplest approach would be to increase the general grant funding it gives councils. But providing additional funding to all would be a costly way to support those councils facing the greatest problems, and more targeted support would be cheaper.
“One option would be to follow the example of Wales, where councils submit claims based on the additional costs they have incurred, subject to some vetting.”
She added: A more general relaxing of [borrowing] rules for a period of a few years may allow councils to draw down more of their reserves if necessary this year, as they would have additional flexibility if further unfunded pressures arise in the next few years.
“Such powers would also allow those councils that wanted to go further in supporting their local areas through the COVID-19 crisis to do so even if they have limited reserves.”