Background to the report
The COVID-19 pandemic has been an unprecedented public health and economic emergency. Local authorities in England have made a major contribution to the national response to the pandemic, working to protect local communities and businesses, while continuing to deliver existing services. The pandemic has in turn placed significant pressure on local authorities’ finances, which in many cases were already under strain going into the pandemic.
The overall financial framework for local government is the responsibility of the Ministry of Housing, Communities & Local Government (the Department). The framework provides assurance on the financial health of the sector and allows for intervention in individual cases and in response to system-wide risks. The Department assesses financial sustainability using authorities’ capacity to deliver their statutory services while also taking into account whether they have flexibility to respond to events and emergencies.
Scope of the report
Our report examines if the Department’s approach to local government finance in the COVID-19 pandemic enabled it to assess and fund the costs of new services which local authorities have been asked to deliver. It also examines whether the Department fulfilled its responsibilities in securing financial sustainability across the sector:
- Part One looks at the financial health of the sector before the pandemic and the financial impact of the pandemic in 2020-21.
- Part Two examines action taken by the government to support the sector in 2020-21.
- Part Three assesses the effectiveness of government measures to support the sector in 2020-21.
- Part Four examines the steps taken by government to support the sector’s financial sustainability in 2021-22.
Fieldwork was completed in early January 2021 and does not include the impact of the January national lock-down. The most recent data in our report on the financial impact on the sector were provided by local authorities in early December 2020.
Steps taken by the government, led by the Department, have supported local authorities in the COVID-19 pandemic response. The Department’s successful monthly collection of data and continued intensive engagement with the sector provided a good evidence base to underpin the financial and other support provided by government. Action by the Department and wider government to support the sector has averted system-wide financial failure at a very challenging time and means that the Department has managed the most severe risks to value for money in the short term.
However, the financial position of local government remains a cause for concern. Many authorities will be relying on reserves to balance their 2020-21 year-end budgets. Despite continuing support into 2021-22 the outlook for next year is uncertain. Many authorities are setting budgets for 2021-22 in which they have limited confidence, and which are balanced through cuts to service budgets and the use of reserves.