LGA warns “fragile” councils will run out of cash without support

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Councils will “definitely” need more cash to cope with coronavirus – and the bill could run to almost £13 billion, local government leaders have said.

The Local Government Association (LGA) – which represents regional authorities in England and Wales – said councils are in a “fragile position” and need a “cast iron guarantee” of funds.

Without this, some councils could be forced to issue Section 114 orders – admitting they have run out of money – the LGA has said.

Chief executive Mark Lloyd told the House of Commons Housing, Communities and Local Government select committee he does not expect any orders “in the very short term”

But Mr Lloyd claimed such measures are under “active consideration” by some local authorities.

Section 114 orders are the equivalent of a bankruptcy notice – though legally, councils cannot go bankrupt.

They put an immediate halt to all new spending, except on essential services.

In London, local government has already warned of the strain caused by the pandemic.

Southwark Council leader Peter John warned earlier this month that cuts will be needed without extra Government funding.

Waltham Forest council says it could lose more than £38 million because of the virus.

And last week, Sadiq Khan said Transport for London will run out of cash by the end of the month if ministers don’t step in.

Local government is on the front line of the Covid-19 outbreak, tasked with providing extra services during the pandemic, additional social care and housing more rough sleepers.

The Government announced £1.6 billion of emergency funding for councils in March – and Local Government Secretary Robert Jenrick doubled that to £3.2 billion earlier this month.

The Ministry for Housing, Communities and Local Government (MHCLG) has also committed to a monthly survey to find out how councils are coping with new pressures.

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Some 97% of local authorities responded to this month’s questionaire – and LGA chairman James Jamieson said there is a clear need for extra cash.

Mr Jamieson said councils have “clearly stepped up” during the outbreak – but warned of the “significant impact” on their finances, and said some authorities are “very worried”.

Speaking at the virtual committee meeting this morning, he said funding from Government so far had been “very welcome”.

Mr Jamieson said: “That’s given us breathing space – but definitely there will be a need for additional funding.

“The estimates we have based on initial forms councils have been feeding through MHCLG is that the quantum could well be three or even four times that amount.”

This would bring the total cost to as much as £12.8 billion.

He added: “We need that cast iron guarantee that we will be funded to the amount that we are delivering.”

Mr Lloyd warned councils are losing income at the same time as their costs are increasing, leaving their finances “fragile”.

People are choosing not to pay council tax and business rates as the financial impact of the pandemic bites, he said.

Other income streams like car parking costs have “dried up”, while commercial investments are “taking a battering”, he added.

Mr Lloyd said: “Councils are facing a very significant hole in their finances this year.

“While the initial money is very welcome, the Government have said they will stand shoulder to shoulder with local councils as they lead the response to this public health crisis.

“The key thing we’ll need to do is make sure that promise is honoured during the months ahead.”

He added: “Councils do not have reserves to draw upon adequate to cover even a part of the gap that they are facing, so the financial position is uncertain.”

Ministers should be proactive and avoid a “wait and see approach” to council finances, he said.

Local Government Secretary Mr Jenrick is due to update the committee on council finances next week.

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