COVID-19 and English council funding: what is the medium-term outlook?
This report has been produced by The Institute for Fiscal Studies, as a response to the economic pressure that the COVID-19 crisis is having for councils in England. It explores the pressures the Covid-19 pandemic has brought about in terms of English councils, funding, and income pressures.
The report looks at how councils are experiencing income pressure based on falls in council tax (largest source of revenue for local councils), business rates revenues, as well as non-tax income.
The report highlights that although some of these challenges were already existing, they have been exacerbated as a consequence of COVID-19. Unemployment, for example, will see a rise of households entitled to council tax support. Similarly, business closures will also result in a reduced yield from business rates. Councils are also experiencing non-tax income pressure, from for example, reduced rentals of public spaces. Furthermore, the pandemic is forcing councils to up their expenditure on public services. As the next few years appear particularly uncertain in economic terms, the report presents three scenarios (lower, middle and upper) that councils could face in terms of financial pressure. Despite central government efforts to compensate all of the above challenges, according to the middle scenario, councils could face a shortfall of more than £3 billion.
The report concludes by offering a series of policy options for how to tackle this funding gap, such as the government giving councils additional tax-reform and/or tax-raising powers.