Accountants are often accused of knowing the cost of everything and the value of nothing, in some cases that may be true. However, the real art is knowing what the hidden cost of some thing or some action might be. If as accountants we were really able to see the hidden costs of our decisions then we might think twice about some of the recommendations that we might make.
The COVID-19 pandemic has without doubt placed a significant extra quantifiable cost on councils in the current financial year. These are costs that were not foreseen when budgets were set in February of this year but are at least to an extent quantifiable. It is possible to put a figure on lost income from fees and charges or the additional cost to the care sector in providing financial support or personal protective equipment. But what are the hidden costs of the pandemic?
Unlike the NHS, where the hidden costs are in part a trade-off (such as less routine operations to create space for COVID cases, leading to backlogs and future increased demand and in extreme cases additional mortality rates), for local government the hidden costs are perhaps less obvious, but potentially very serious.
The pandemic has impacted income streams to local government in a way that a year ago would have seemed unimaginable. The assumption has to be that some of those losses will now impact future base budgets, meaning that – on the assumptions that there is no increased central government support and no increase in the referendum limit for council tax – councils will be back into austerity regardless of the Government’s rhetoric. The statutory requirement to balance the budget means that in the absence of income, and in many cases reserves, the only option is to reduce costs which in effect normally means reduced services. So the first hidden cost is austerity ‘mark two’.
The issue is further complicated by the impact of lower collection rates for both council tax and business rates. The impact on the former results in increases in council tax support claims, which will no doubt further increase with the end of the furlough scheme in October, will further indirectly impact collection rates by deflating council tax bases. It is not beyond the realms of possibility that even after increases in council tax at 2 or 3% the net impact will be a lower council tax take – something that will take some explaining to councillors, let alone the public.
This will be further impacted by the calculation for the current year’s collection losses, having an effect on income and increasing the risk of austerity mark two. Apart from the above there are other hidden, perhaps unquantifiable, costs.
There is no doubt in my mind that the pandemic will lead to a fundamental shift in the way that services will be delivered in the future, expediting some changes but also potentially reversing others. In simple cost terms these may well produce a cost reduction. But who knows what the hidden cost is of home working?
At present it works because staff are familiar with systems learnt often while they are in the office. However, if this becomes the new normal, the familiarity with systems and processes that enabled home working to work will fade, the efficiencies will shrink over time, as the need to train new team members occurs, and the unpriceable camaraderie and esprit de corps from working in a physically based team will be diminished. The loss of this within an office-based service will create over time additional costs that outweigh the current benefits.
There is no doubt many other hidden costs will creep out of the woodwork over time to impact local government, from the absence of voluntary run youth groups that haven’t met for the last six months , to the impact on local areas that have a heavy reliance on overseas visitors. These and other myriad changes will impact the way that services are delivered, with a cost both to councils and the wider community.
Chris Buss is former Section 151 officer and deputy chief executive of Wandsworth LBC
