From the very start of the coronavirus crisis, the Government's message on local government finance was clear: whatever it takes.

 But since last week, when communities secretary faced a grilling from MPs, the mood music changed. He said he would fully fund all costs for the additional COVID-19-related services they have been asked to take on – but no more.

As councils address the stark reality of funding the pandemic, and the Government reiterates its mantra that the £3.2bn emergency funding is enough, the sector and its secretary of state are caught in a stand-off over cash.  

The shift in tone from central government angered council leaders. After a decade of austerity, local authorities were already cash-strapped and now they face fighting an emergency on a basic budget and with huge amounts of financial uncertainty.

Leader of the Local Government Association (LGA) Labour Group, Cllr Nick Forbes, told The MJ: ‘Jenrick's comments on the Monday were downright insulting.'

The direct costs of coronavirus are just the fraction of financial issues by local government. There will also be a long-term economic and social costs impact on communities, alongside a dramatic drop in income and the abrupt halt in transformation programmes that were due to save the councils cash.

In his own authority, Newcastle City Council, Cllr Forbes estimates a budget gap of around £63m. The Government's funding so far has been £18m – less than a third of the cost to the council. 

‘I don't think there is any formula in the world that could adequately compensate councils for the loss of income and unachievable savings that we face,' he said.

He called for a specific COVID-19 compensation scheme, similar to the existing Bellwin scheme for emergency funding. ‘That would be a fairer way for councils to receive the proper compensation for the gap they face.'

Cllr Forbes said it was ‘disingenuous' to suggest councils are over-egging the levels of finance they need. ‘I don't see any widespread evidence that anyone is trying to exploit this for political reasons.'

But there are suggestions the Government baulked after the LGA estimated the sector would need up to a further £12.8bn.  

Chair of the District Councils Network, Cllr John Fuller, suggested the Treasury may have viewed some of the predicted cash shortfall – gleaned from financial returns information from councils themselves – as being a bit speculative.

‘Whether or not it was intended, the ministry has inferred that some claims for costs actually expended are a bit racy,' Cllr Fuller said.

Some councils may have presumed their costs for the first month may continue through to September, he suggested, and it may not be the case. And, while it may be reasonable to guess people will struggle to pay their council tax, until it happens the Treasury are unlikely to see it as a justifiable expense.

The data has not been published – despite requests from shadow communities secretary Steve Reed – so it is impossible see if the high cost of COVID-19 has been over-estimated by some authorities, or if the Government is backtracking as the true costs emerge.

But as Cllr Fuller said: ‘We can't afford the perception in Government that COVID gives us cover to pay for all our underlying cost pressures.'

Chartered Institute of Public Finance and Accountancy (CIPFA) associate director Andy Burns agreed the LGA figures seem to have come as a shock to MHCLG and the Treasury and, rightly or wrongly, the harder line may well be ‘a bit of push back'.

He admitted: ‘It's easy to conflate the difference between short-term costs, cash flow issues, income losses and cost pressures. I'm not sure there is a detailed understanding around those issues yet.'

The £3.2bn already handed over will be enough to cover the current costs, Mr Burns said, but only if we recover from lockdown quickly. It doesn't cover the longer term costs and income loses, which are likely to hit next year's budget too.

So far, the emergency cash has staved off a s114 notice but the Government's new tone may make finance chiefs more anxious if they feel their finances will not be supported, pushing them closer to calling a halt to spending.

CIPFA is currently looking at issuing advice, but Mr Burns said he was concerned about the impact of issuing a s114: ‘It wouldn't be sufficient, it would kill the patient and it would divert a huge amount of attention from what we need to be spending our time on.'

Society of County Treasurers' president Gary Fielding said the funding so far covers social care costs and little else. ‘The future looks bleak – we have no idea what will happen.'

For counties, the cost of the crisis so far is estimated at £2bn, compared with the £1.2bn they have had in funding – on top of a decade of austerity and the rising costs of care.

But he has not asked for repeated handouts. Instead, he suggested the Government could underwrite potential council tax and business rate loses to protect the sector.

‘If they with an underwriting scheme to cover the risk and given us some assurance, we don't need to look at it in such a bleak manner,' he said. It would give councils a safety net, ensuring the costs are covered but the Government would only pay for what was lost.

He described Boris Johnson's recent comment that there would be no more austerity as ‘a reassuring thing to say' but without austerity, there would be ‘some sort of tax raising' at a central or local level. ‘It feels like austerity is with us now,' he said.