Local Government Finance Teams are at the sharp end of the Covid-19 crisis, helping businesses and administering Government help to businesses and individuals.
They are responsible for delivering aid in the form of hardship grants, business rate relief and other forms of financial assistance.
Rishi Sunak, the Chancellor, announced a business rates holiday to all businesses in the retail, hospitality and leisure sector, irrespective of their rateable value.
He also announced cash grants of up to £25,000 per business to firms in this sector that have a rateable value below the £51,000 threshold. He said local authorities would be “fully compensated” for the cost of these measures. This will have an impact on council finance teams who are trying to administer the rescue package for local businesses and individuals.
What is the current situation?
According to the Local Government Chronicle (LGC), councils have been promised they will get their £1.6 billion allocations of the £5 billion coronavirus response fund by 3 April.
Councils could be forced into effective bankruptcy unless ministers relax restrictions that prevent borrowing to fund services, experts claim. The LGC reported that Rob Whiteman, chief executive of the Chartered Institute of Public Finance & Accountancy, has said that the financial effects on local government will be profound.
He has asked for government support for councils to be equivalent to that given to the NHS and business. The sector’s “expenditure will go up and its income is likely to fall”, and there is mounting concern about cashflow amongst treasurers.
Managing council cash flow
Mr. Whiteman told the LGC: “If councils have a negative cash flow… the rules governing local government’s treasury management and cash flow will need to be relaxed because councils will need to borrow in order to fund services. It wouldn’t serve anybody – the public, councils or government – for [section] 114 notices to be issued during a crisis.”
He said a chief executive or director of finance who found themselves in such a situation should work with the government. “There’s no purpose at all to freezing expenditure at the time of the greatest crisis in public services for 75 years,” he said. “So we’re all going to have to do the right thing and ordinary rules don’t apply in my view.” He predicted that when the coronavirus crisis was over there was likely to be long term reform of local government finance.
His comments came as the LGC also reported that the Bellwin scheme for emergency funding will be deployed to make sure that councils are able to meet service needs in the face of the coronavirus. The Bellwin formula is usually used to compensate councils for exceptional costs in the event of disasters such as flooding.
What is the impact on local government finance teams likely to be?
Nigel Wilcock is Executive Director of the Institute for Economic Development, the UK’s leading independent professional body for economic development and regeneration practitioners working for local and regional communities. He explains the impact of the government’s announcement and what it will mean for finance teams.
How is the help being administered and who is eligible?
“It is important to note that Local Government is in a position where, in a fast-moving environment, it is expected to help roll-out many of the services announced by the Central Government. For the most part, it isn’t yet devising its own proactive policies – but Local Enterprise Partnerships and Combined Authorities have more scope to do so.
“Central Government measures have been aimed specifically at the leisure, retail, and hospitality sector. There is a sliding scale of eligibility according to the rateable value of a property because the first wave of support is focused on business rates and grants for SMEs. A broader package of loan guarantees is also being made available.
What are the current challenges for local government finance teams?
“The challenges are the same for all organisations in a crisis but this is genuinely compounded by a lack of resources in Local Authorities over a long period of time. Local Government is being instructed to deliver a package of measures by the Central Government but has no ability to input on their capability to provide the service required.
“One important example is the expectation that the SME grant scheme will be administered by Local Government through the Business Rates system. It is completely correct to acknowledge that Local Authorities know of exempt business rate customers – but they do not know their banking details – and so the process of delivering the expected grant payment becomes extraordinarily difficult at a time when the funds are expected to flow quickly.
What are the challenges for businesses applying for financial help from the local government?
“The challenges for business are the reverse side of the coin – businesses are being given messages from Central Government but in many cases, these messages are being received at the same time as those expected to administer the scheme. Everyone is playing catch-up. Public finance needs to ensure reasonable governance is in place even in times of crisis – and administrative processes and staff aren’t in place to allow immediate delivery.
What are the problems that they need to overcome?
“These are organisations that have been forever juggling how they cover deficits, for almost a decade now, and with no certainty of future funding. The IED has been critical of this approach and coming out of this crisis it will be really important to recognise that the UK needs a local response mechanism and Local Government emaciation has gone too far.
How are they redrawing budgets as income from services (leisure, parking) dries up, and new needs emerge?
“The IED has no quantitative knowledge of this – but a strong suspicion is that budgeting resource means that these line items are not re-forecast quickly in light of economic changes – but they all add nails into the coffin of Local Government budgets. The budgeting departments will be playing catch up while they also try to react to additional demands from the Central Government.
What do the coming months hold?
“The IED’s central view on this is that in these times of immense difficulty the only goal for everyone is to try to deliver from the position that they find themselves in. The aftermath will be different – the dismantling of local delivery of good governance and service delivery is something that we need to recognise and reverse post-crisis.”
- Coronavirus help and information from AAT
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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.