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Local Government is on the frontline in responding to the COVID-19 crisis and will have an equally important role to play in recovery when we come out of lockdown. However, in order to continue to be effective councils will need enough resources to do the job – and these are currently being strained by the crisis. In this series of articles, I will look at the impact of the crisis on all types of Councils, starting with the London Boroughs.
Financial Resilience was already an issue before COVID
The analysis below shows individual levels of usable revenue reserves expressed as a percentage of 2019/20 budgeted net revenue expenditure. Each bar is an authority with Outer London Boroughs shown in light blue and Inner Boroughs in dark blue.
A number of Outer London Boroughs have little more than 4 months of net revenue expenditure in reserves. This is worrying given the level of additional costs and lost income associated with the COVID crisis and it seems certain that more Government support will be needed to protect all authorities but particularly those with low levels of usable revenue reserves.
Will the £3.2bn of funding to date cover COVID costs?
The Government has, to date, provided £3.2bn in financial support to Local Government. For London Boroughs, this is worth between 6% and 11% of Net Revenue Expenditure. But is this enough?
MHCLG has requested returns from all local authorities on the additional costs and lost incomes arising from the crisis and, in time, we will have a better idea of the impact on Councils' financial health. But for now, using 2018/19 revenue outturn data and 2020/21 council tax information, I have estimated potential annual losses using the following assumptions:
The graph below compares these estimates of additional costs/lost income with the financial support received to date. The grant received (shown in white), expressed as a percentage of net revenue expenditure, is shown above the x-axis and this is compared with the estimated losses shown below the x-axis (shown in shades of green).
In most cases, the estimated costs of COVID are about three times the level of support received to date from the Government. This would indicate that unless there is further financial support for local authorities, there will be greater depletion of usable revenue reserves and a greater risk to financial health. How will this impact London Boroughs?
What will be the impact of COVID be on London Boroughs' reserves?
By combining the above analyses, we can get an estimate of the impact of the crisis, all other things being equal, on the financial health of Local Government in London. This time the graph adds the usable revenue reserves as at 31/3/19 to the grant received to date and compares this with an estimate of the costs of COVID. As with the other analyses all the figures are expressed as a percentage of net revenue expenditure. The results are worrying and show that those authorities with low levels of usable revenue reserves will come under significant financial pressure unless further financial support is forthcoming.
The analyses are taken from the Pixel Financial Resilience service which provides benchmark analyses of statement of accounts information from the last seven years. Next week, I will look at a similar analysis for Metropolitan authorities.