Time to relax borrowing rules

By Michael Burton | 23 June 2020

Hard on the heels of its report on the geographic variation of the coronavirus, the Institute for Fiscal Studies (IFS) has this week published a separate study on the variation in the financial impact of the crisis on local authorities. Because there is such a wide variation in needs the IFS recommends that the government relaxes its borrowing rules and allows councils to borrow for day-to-day spending to plug the gaps.

The government has allocated £3.2bn to councils to cope with the financial impact of the coronavirus. Most of the first trance was based on social care needs but the second tranche of £1.6bn was directed more at shire districts after returns from councils suggested the virus had a greater impact on income, such as business rate, charges and parking, than spending. Fees for parking, cultural and leisure services, planning and trade waste schemes, which are likely at particular risk, are equivalent to an average of 29% of shire districts’ budgets, compared with 7% for London boroughs and less than 1% for county councils.

Councils were budgeted to raise £26.8bn for themselves (plus almost £5bn for police, fire and other authorities) from council tax in 2019/20, or an average of 51% of non-schools revenue expenditure. Councils reported income of £12.4bn from sales, fees and charges in 2018/19 and were budgeted to retain £16.3bn in business rates revenue in 2019/20. Although fees and charges make uo only 5% of all councils’ income, they make up 29% for shire districts.

Even here there is great variation. One in ten shire districts rely on fees from parking, cultural and leisure services, planning and trade waste schemes for less than 9% of their expenditure, while another one in ten rely on them for more than 55%, for instance. Paradoxically councils in deprived areas do better than those in wealthier areas, as the former rely less on income from fees, charges and council tax though this is offset by higher levels of social service health and housing needs. Levels of reserves also widely vary.

Life after lockdown: managing local variations

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