Here we talk to Cipfa, the accountancy body for public services on what they believe the key priorities are for local governments in regards to coronavirus.
Andrew Burns is associate director at Cipfa and worked for 13 years as the finance director at Staffordshire County Council. He has worked in local government for over 30 years, having started as a trainee accountant at Birmingham City council.
He was Cipfa president in 2017/18 and has been at the cutting edge of local government finance for three decades. Here he discusses the challenges facing local government teams over the Covid-19 crisis.
What were the priorities early on?
There was lots of early talk about what could be done to support businesses. In the last few weeks, we have had good discussions between central and local government finance directors and these are set to continue through the coranavirus crisis.
What are the key roles and priorities now?
- Supporting vulnerable members of the community – homeless people, adult social care and children’s social care
- Councils managing their own council cash flow
- Helping local businesses with grants and rate reliefs
Councils are doing all this while delivering remotely for the first time and with scarce resources because many members of staff are off sick or self-isolating. Some councils are experiencing up to 20 percent absence rates – so we have a situation where there is more work to do and fewer people available to do it.
What about support from Central Government – has that arrived fast enough?
The government has been fantastic in its response and I have been impressed by the scale and pace of what is being done.
For example, the financial support in terms of the hardship fund for businesses shows how the government is seeking to understand the key issues that are affecting people and businesses as a result of this crisis.
A week ago, the early issues were around governance, decision-making, and cashflow. Now with the emergency legislation having been passed, councils are freed from having to go through the old procurement procedures and spending money without the traditional authorisation processes.
Do councils have the cashflow to deliver support fast?
In the Budget, there was talk of support for businesses over rates, but councils did not know when they were going to be compensated for the lower business rate receipts that they would receive in the future.
Now we know that they are going to receive:
- £3.4 billion in cash from the government to support the first tranche of aid received by councils on 27 March
- £13 billion from the Department of Business, Enterprise and Regulatory Reform covering grants for businesses
- With this £13 billion coming in the first week of April
In this way, the immediate cash flow problem is being solved by having the money in advance. This is the reverse of the normal situation where councils would expect to be reimbursed later. For finance directors, there is now less of a concern around cashflow that there might otherwise have been.
For councils now the advice from government ministers is “do what is right and we will find the money later”. That can be a difficult switch for some finance professionals to make – ordinarily, they are used to thinking about where the money is going to come from before they spend it.
For them, the priority now is getting the money quickly to vulnerable people and businesses.
How have councils been affected by the closure of leisure centres and car parks?
Councils are facing their own financial pressures. There is the loss of income from business rates and council tax and the drop in income from fees and charges for car parking, leisure facilities, and contributions towards the cost of social care
For some councils, the parking and leisure income has fallen through the floor. A Midlands council finance director told me that they would normally receive around £10,000 in car parking income each week, and last week that figure had dropped to £240.
The challenge for councils is that there is a loss of income, issues around cash flow, and the need to spend more money. For district councils, the responsibility is to support housing and the homeless, while for county councils it is adult and children’s social care. So there are different cost pressures for different types of councils.
County councils face rising costs in adult social care while district councils are facing income losses from lack of parking fees and leisure income. For example, one London borough has seen a 70 percent reduction in income from parking over the past couple of weeks. For district councils between one quarter and one-third of their income might come from these types of fees and charges.
For a larger county council around 10 percent of income might come from fees and charges, for example, people paying towards adult social care.
How are councils involved in providing support for business?
Finance teams that might normally have been administering council tax and business rates bills are now being redirected to help get business support packages out as quickly as possible.
Normally at this time of year councils would be involved in closing their accounts and getting ready for audit. The deadline for accounts has now been extended from the end of June to the end of September instead, but many councils are asking whether that extension is long enough.
They are looking for guidance on this because they are prioritising getting money out to businesses and supporting vulnerable people and children. One issue which has come up is the EU rules around providing state aid via grants to business.
Under EU law, any support for business that is more than euros 800,000 would count as state aid. Councils do not want to be subject to legal issues or challenges around this law.
To reduce the risk of councils facing legal action from the EU, the state aid risk has been shifted to businesses. So it is the responsibility of the business itself to ensure that it does not breach the amount of aid it has accepted. This is because aid might come from various sources and although each separate payment might be below the threshold, they might breach the amount when aggregated.
How do finance teams ensure that they get the priorities right?
It is always more complicated than just giving money to people. Finance directors want to do things properly as well as quickly.
Within councils there will be daily conversations about what are the priorities, what at the pressures, where is the money coming from and what about our own cashflow?
It is about prioritising the right things to do but made more complex by having to do everything remotely and not being able to meet together to make collective decisions. It is about video conferencing and learning to use new technology.
What about financial forecasting for the new financial year?
The other question that councils are wrestling with is what this means for the budgets that were set in February.
The questions financial teams will be asking is: how long do we think this is going to last? What are our cost pressures? What are our income losses likely to be? Can we still deliver our planned savings programs and how can we project this forward? They will be looking at the first quarter and trying to quantify what this means and then making planning assumptions for six and twelve months.
For example, district councils will be asking, if the lockdown continues for six months, how will we make up lost income from leisure and parking?
Finance teams will be trying to forecast and quantify losses and thinking about how much it will affect the reserves they hold. Some councils will have reserves – some will have more than others. Government support has been targeted around business rate income losses and council tax support.
Will councils be able to borrow money if they have a shortfall?
It may be that some will need to borrow money – they are able to borrow for treasury management purposes. However, they cannot currently borrow to payday to day running costs like salaries.
It might be that the government takes a more flexible approach in terms of spending restrictions on cash-strapped local authorities. They might need to have more flexibility in access to borrowing in order to fund more services in the short term.
If a council is unable to balance its budgets then it may have its expenditure reduced under Section 114 notice, issued under the Local Government Act 1988. This happened to Northamptonshire County Council in 2017 and now some other councils might be projecting that their budgets won’t be balanced.
There is the question over whether the government should suspend legislation that requires councils to issue Section 114 notices because this would mean that spending controls are brought in at a time when councils were being encouraged to spend freely to support local communities. Then they would be chastised by their auditors for allowing this to happen. Cipfa is working with the government to seek to address this issue.
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Marianne Curphey is an award-winning financial writer and columnist, and author of the book How Money Works. She worked as City Editor at The Guardian, deputy editor of Guardian online, and has worked for The Times, Telegraph and BBC.