Could Covid-19 bankrupt councils?

WHEN stories began to emerge of councils potentially needing to prepare emergency, or in-year budgets due to the all-encompassing impact of the coronavirus and lockdown, we decided to harness the ability of the Shared Data Unit to gather the necessary figures and build a dataset to analyse the extent of the issue and how pressing it was.

With the support of Local Democracy Reporters, we asked all 216 councils responsible for social care the same questions and made sure to direct them to the councils’ chief finance officer(s).

The investigation has found some of the UK’s largest local authorities say they will effectively have to declare themselves bankrupt unless the government provides more support.

Nearly nine out of ten local authorities face budget deficits as a result of the coronavirus, with the estimated shortfall forecasted to be as high as £3.7bn.

Councils face increased costs from supporting vulnerable people, while their income from fees and rates is falling.

The Government has already given £3.2bn funding to all councils in England in two tranches to help cover their costs.

Leaders have previously said funding already allocated was “not even close” to covering costs or money that had already been spent.

The investigation found that across the UK at least six councils say it is possible they will have to issue an S114 notice if further government support is not forthcoming, effectively declaring themselves bankrupt.

Local authorities in this situation include some of the UK’s largest unitary authorities –Liverpool, Leeds, Wiltshire, Trafford, Tameside and Barnet.

Birmingham City Council – the largest authority in Europe – said “given the size” of its forecasted shortfall of £212m across 2020-21 and 2021-22 after £70m government funding it had already received, a section 114 notice “would not rectify this situation”.

The total budget shortfall forecasted by local authorities across the UK is at least £3.2bn.

Of 173 local authorities who responded, 148 (86%) predicted a budget shortfall.

At Highland Council, the estimated shortfall is the equivalent of £411 for every resident.

At least 20 local authorities are holding an emergency or in-year budget to address the impact of coronavirus.

After reaching out for a comment Carmarthenshire County Council said:

“Currently it is very difficult to forecast the definitive impact of Covid-19, we have identified a significant increase in costs and a substantial reduction in our income through the loss in fees and charges. However, much of the additional expenditure and loss in income is expected to be funded via various funds set up by the Welsh Government. Inevitably there is likely to be a shortfall in the 2020/21 finances but this is difficult to quantify at the moment, but with Welsh Government Support, I expect the shortfall to be manageable.”