Households could be left paying “more for less” as council taxes rise while services are cut in response to the impact of the pandemic, MPs have warned.
English councils are facing holes in their budgets due to “over-optimism” from the Government about the impact of coronavirus, and ratepayers are having to pay an average of 4.3% extra during 2021-22 in council tax bills, a Commons committee said.
Meg Hillier MP, chairwoman of the Public Accounts Committee (PAC), called the Government’s approach “very concerning”, while the Local Government Association pressed ministers to meet “all cost pressures and income losses incurred by councils as a result of the pandemic”.
PAC’s report published on Friday – Covid-19: Local Government Finance – said sector representatives had told the committee “most councils will… need to make service cuts” as part of budgeting as England moves out of lockdown.
The MPs said: “The department’s over-optimism about the impact of the pandemic on local authorities risks leading to reductions in services for local people.
“Local government sector representatives are clear that most councils will not be able to manage solely using reserves and will also need to make service cuts in 2021–22.
“We were told about many councils facing multimillion-pound budget reductions due to Covid-19, even after Government support.
“Typical council tax bills will rise by an average of 4.3% across England in 2021–22, meaning that local people could be paying more for less.”
The 25-page document called for the Ministry of Housing, Communities and Local Government (MHCLG) to do more to understand the “service implications of current financial pressures”.
It recommended that the department and the Treasury ensure the next Spending Review “includes full consideration of the longer-term effects of the pandemic on local government finance and the demands placed on local authorities”.
Ms Hillier said: “MHCLG did step up to stave off a wave of council bankruptcies as a result of the pandemic, but the long-term health of the sector is still precarious.
“The over-optimism about the resilience of the sector is very concerning.
“MHCLG needs to be a better champion for local government within Whitehall.”
The committee praised Communities Secretary Robert Jenrick’s department for the scale of its intervention during the coronavirus crisis, noting that the £9.7 billion of increased costs and lost income faced by local authorities up to December 2020 were nearly matched by £9.1 billion of Government support.
Local authorities had to increase support after the March 2020 outbreak, paying grants to businesses, providing assistance to vulnerable people who were shielding, setting up community testing facilities and taking on the most challenging contact tracing, while keeping existing services running as they lost access to many of their revenue streams, MPs said.
But with council budgets already under strain pre-Covid, PAC said there were lessons to be learned from the response to the virus.
It said MHCLG needed a better understanding of the financial issues in city and town halls, and called for it to be “more transparent” with the National Audit Office about the “potential for Section 114 notices” – issued when a council effectively goes bust – to enable better scrutiny of issues thrown up when a council fails financially.
The committee also made the case for the long-delayed reform of council finances to be undertaken as part of the post-pandemic recovery.
Sharon Taylor, chairwoman of the LGA’s resources board, said the committee was “right” to recognise the “significant financial package of support” given to councils.
She added: “This support will need to be kept under review and we continue to call on Government to meet, in full, all cost pressures and income losses incurred by councils as a result of the pandemic.
“Councils continue to face significant demand pressures on day-to-day services and income losses, such as from local taxation, fees and charges.”
An MHCLG spokesperson said: “The committee rightly recognise that we acted quickly and effectively to support councils during the pandemic – in total we have committed over £45 billion to help councils support their communities and local businesses.
“However, we reject their other claims and continue to work closely with councils to ensure they have the resources they need to deliver vital services for their communities – including access to an extra £2.3 billion this year.”