Ministers are preparing a £1bn bailout to prevent a number of English councils from collapsing into insolvency as a result of huge cashflow problems caused by the coronavirus lockdown.
The move, expected on Saturday, follows warnings that councils face liabilities running into several billion pounds due to the soaring costs of dealing with the crisis, as well as a massive expected shortfall in council tax income.
Councils have been spending millions extra on providing social care and on housing rough sleepers throughout the lockdown, despite haemorrhaging even larger amounts in lost revenues from council tax, parking and leisure fees.
Although the government earmarked £1.6bn in additional funding to cope with the social care costs of Covid-19 in March, it has been told that councils have already spent that, with nearly £1bn alone on a 10% increase in fees to care providers.
The Local Government Association called on ministers on Friday to issue cast-iron guarantees that the government would continue to support councils financially. “Without this urgent government funding guarantee, some councils may be subject to section 114 reports [bankruptcy notifications] in the next few weeks,” it said.
The decision to shore up council finances, taken by the communities minister, Robert Jenrick, follows panic among local government leaders this week that ministers were reneging on a commitment made a month ago to “do whatever is necessary” to support councils financially through the crisis.
Several local government leaders had come away from a conference call with Jenrick held on Tuesday believing the minister had suggested that rather than central government underwriting the multibillion cost of Covid-19, councils should instead prepare to “share the burden”.
“All of us are spending cash at a rate that means that normally council financial directors would be drafting section 114 notices. They are not doing so, but if they lose confidence that government was not standing behind them, that will change,” one council leader said.
David Williams, chairman of the Tory-controllled County Councils Network (CCN), said: “Councils have made a hugely significant contribution to the national and local effort to fight coronavirus and to support their residents, but increasingly we have had very real concerns that the money allocated for outbreak-related costs is not sufficient, with local authorities experiencing real cashflow and budgetary issues.
“We have made the case to the Treasury and ministers, and they have been very receptive to our evidence.”
A letter sent earlier this month to ministers by the CCN warned that “no council should become insolvent as a result of the heroic efforts being undertaken across the country to support government at a time of national emergency”.
It said: “The scale of the financial liabilities and our ability to manage these in the short to medium term is now becoming a real and pressing concern for all our member councils and their district and borough authorities. Many will be left facing severe cashflow and liquidity issues.”
Islington council in London estimated that it had spent an extra £5.4m since the start of the crisis on additional social care services, emergency food and medicine, and business support, while losing £8.4m income from council tax, parking and other revenues in March and April alone.
“We simply cannot continue to deliver the vital services local people need and deserve without adequate additional funding from the government,” Islington’s leader, Richard Watts, said in a letter to the prime minister on Friday.
The leader of a northern metropolitan council said the estimated additional costs of managing Covid-19 would add £60m to the authority’s annual running costs – and that its likely share of a £1bn bailout would meet just a 10th of that extra cost.
Although a £1bn injection would be welcomed by local government as being enough to prevent a number of councils falling over, the expectation is that would only be a short-term measure. “It buys us a month or two,” said one council leader.
Jonathan Carr-West, the chief executive of the Local Government Information Unit thinktank, said: “If the government does renege on its promise to support councils, they will fail in large numbers. That will plunge millions of people around the country into further crisis and impede our national recovery from Covid-19.”
A Ministry of Housing, Communities & Local Government spokesperson said on Friday evening: “The secretary of state [Jenrick] has been clear that we will support councils to provide services to their communities during the pandemic.
“We’ve already provided £1.6bn of additional funding and have announced new measures to help ease immediate cashflow pressures faced by councils in England.”