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Covid-19 – Council expresses new concerns over funding and government support

22 July 2020

Cheshire East Council has welcomed the latest round of Covid-19 funding from central government but has warned again that the funding is not sufficient to cover the forecast impacts.

The government recently announced the allocation of a further £500m emergency funding for councils across England.  Cheshire East Council’s allocation is £2.7 million, bringing the total amount of Covid-19 additional emergency funding for Cheshire East to £22.4 million.

A report to the council’s audit and governance committee, which meets on 30 July 2020, sets out the current and forecast financial position in relation to the Covid-19 emergency.

The council originally forecast cost pressures on the council’s 2020/21 budget of £60 million, this was later revised to £70 million. These cost pressures are the result of increased demand on council services, the council’s response to the Covid-19 emergency and loss of income. 

Current forecasts set out more than £42 million in increased expenditure.

Nearly a quarter of this relates to adult social care, with significant increases in other areas such as personal protective equipment, home to school transport and maintaining recycling and waste collections.

The pandemic has impacted on every area of the council’s business with increased expenditure incurred in services as diverse as homelessness, leisure, children’s social care and ICT.

Reduced income for services stepped down through lockdown is forecast to be around £14 million, relating to services such as car parking, registration of births and marriages, cultural services, schools catering and planning.

A further £13.8m is forecast for loss of income from council tax and business rates.Cllr Amanda Stott

Councillor Amanda Stott, Cheshire East Council cabinet member for finance, said: “We are continuously monitoring our spend and forecasts to fully understand the financial impact of our fight against Covid-19.

“Councils are not permitted to borrow to support revenue expenditure and it is illegal for an authority to set an unbalanced budget in any financial year.  It is therefore now crucial for us to analyse the latest government funding and the extent to which the easing of lockdown and social distancing criteria will reduce forecasts to understand when cuts could be required to council services."

The council has submitted regular reports to officials at the Ministry of Housing, Communities and Local Government (MHCLG) who require estimates of forecast impacts for 2020/21.

This forecasting is subject to many factors, including the length of time lockdown measures are in place, the specific nature of lockdown measures, the speed of wider economic recovery and changes to legislation and guidance from government, including rules about how council services are delivered.  As these variables change, the council’s forecasts will inevitably change.

Forecasting has also been impacted by changes to the specific information requested by MHCLG.

Cllr Sam Corcoran

"Councillor Sam Corcoran, leader of Cheshire East Council said: “The council has really stepped up to deliver for the people of Cheshire East during the pandemic.  But we cannot ignore the fact that, in order to support people through this emergency, we have had to spend money that was not budgeted for at the start of the year.

“We have received repeated assurances from government that councils will be fully compensated for costs incurred in the fight against Covid but we are yet to see the promise meet the forecasts. “Cheshire East Council is not unique – councils across the country are facing the same challenges.  That is why we continue to work alongside other councils and organisations like the County Councils Network (CCN) and Local Government Association (LGA), to lobby government to fully deliver on their promise.”

Here are some frequently asked questions and answers relating to the financial impact of the Covid-19 pandemic on your council's resources and budget:

Q) Why does the amount of the council’s forecast deficit keep changing?

A) These are unprecedented circumstances. All councils, including Cheshire East Council, have made assumptions based on the best information available at the time the Government asked for forecasts.  To date, requests have been made monthly.  This forecasting is subject to many factors, including the length of time each specific lockdown measure is in place, the specific nature of those lockdown measures, the speed of wider economic recovery, funding announcements for specific initiatives and the many changes to regulations and guidance from government, including rules about how council services are delivered.  As changes are made over time, the council’s forecasts will inevitably change. Forecasting has also been impacted by changes to the specific information requested by Ministry of Housing, Communities and Local Government (MHCLG).

Q) How much money has Cheshire East Council had from the government?

A) The council has received direct funding of around £165m for new initiatives introduced by the Government to tackle COIVID-19.  This is to pay for things like test and trace, active travel initiatives, business grants, business rates holiday, infection control in care homes, council tax hardship and emergency assistance.  This money is for specific, ring-fenced activities. In addition, to date, government has announced £22.401 million of non-ringfenced COVID emergency funding for Cheshire East Council to compensate for all other COVID-related costs. Government has also announced that councils will be partially compensated for lost income, for services such as car parking and registration services.  The announcement stated that where losses are more than five per cent of a council’s budgeted income from sales, fees and charges, the government will cover them for 75p in every pound lost. Exact details about how this scheme will work are not yet available and so we cannot be confident in how this will impact on our forecasts, budgets and actual balance at year end. We do know that we will have to absorb five per cent of any lost income from fees and charges.

Q) How much has Cheshire East Council already spent on dealing with COVID-19

A) We are forecasting a total of more than £42 million in additional spend for the 2020/21 financial year. This forecast is for activities that are not covered by the £165 million direct funding from government. The council also estimates losses of income for the year of around £18 million, bringing the total forecast impact to £70 million at this time. Figures for actual spend to date are not yet available as transactions are still being processed.This spend includes: • Adult Social Care services• Home to School Transport • Delays to infrastructure projects • ICT • PPE • Waste Services • Unachievable / delayed savings targets • Children’s Social Care • Agency • Leisure Services • Shielding • Homelessness 

Q) How much money have you given out in business grants?  How much is left over and does that help the council budget?

A) The council has distributed more than £82 million in government grants to local businesses through the Small Business Grant Fund and the Retail, Leisure and Hospitality Grant Fund. This is from an allocation of £95.5 million, however, this funding is for local businesses, not the council and we are looking to support more businesses through our discretionary grant scheme of £4.2m.

Q) Why is the council in a position where it is forecasting significantly higher costs than is available as government funding?

A) We have spent and are carefully accounting for spend in critical areas such as shielding the most vulnerable, purchase of personal protective equipment and providing homes for the rough sleepers.  As required by government, we, along with all other councils, are providing MHCLG with regular reporting about spend and forecasting. However, we, along with other councils are asking the government to use this information to inform a comprehensive funding package that fully compensates councils for increased expenditure and lost income as a result of COVID-19. The Secretary of State for Housing, Communities and Local Government promised that “This government stands with local councils at this difficult time. Everyone needs to play their part to help the most vulnerable in society and support their local economy. The government will do whatever is necessary to support these efforts.”

Q) Why can’t you just borrow money to get over this?

A) Councils are not permitted to borrow to support revenue expenditure.

Q) Can you spread the cost over a few years?  Carry a deficit?

A) Councils must not by law have a deficit budget, it must be balanced. We cannot simply carry a deficit over a number of years.  However, in relation to deficits resulting from losses from local taxes, government has announced a proposal for a phased repayment of council tax and business rates deficits over three years, rather than requiring complete repayment of deficits next year. This will allow authorities to pay deficits off in a reasonable timescale and will limit their cash flow pressures.

Q) Will you have to cut services to meet any shortfall?

A) We cannot at this stage rule out cuts in services, however it is too early to discuss specifics, things may change over the coming months.  It is now crucial for us to analyse the latest Government funding and the extent to which the easing of lockdown and social distancing criteria will reduce our forecast losses to understand when cuts could be required to council services. We will also continue to lobby, along with the rest of local government for the funding needed to respond properly to COVID-19.