How cash-strapped councils are struggling to cope with Covid

Eight in ten of England’s local councils say they will have to make “damaging” cuts to services in order to avoid insolvency, as Covid-19 wreaks havoc with their finances.

The publication of the findings of a new survey by the County Councils Network came a day after south London’s Croydon Council “declared effective bankruptcy”, The Guardian reports. Croydon is “only the second council in 20 years to issue a section 114 notice - meaning it is in effect insolvent”, the newspaper adds.

Croydon South MP Chris Philp told City A.M. that the funds crisis “long predates coronavirus”, but the pandemic has helped to push local authorities nationwide into the red.

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In the Midlands, the Nuneaton and Bedworth Borough Council “has not hidden the fact that Covid-19 has hit it hard”, says Coventry Live. “At one point, it was expected to cost the town Hall £3.6m.”

Like many other councils, the authority has announced job losses and cuts to services. And more cuts are expected despite “grant funding from the government”, reports the news site, which adds that “it is unclear what impact the second lockdown will have on council services, especially its income stream”.

As a result of the pandemic, councils across the country are bringing in less money from leisure centres and car parks, and more people are defaulting on council tax and business rates. At the same time, councils are spending more to protect vulnerable people in their care.

The problem is exacerbated because “unlike central government, local authorities cannot borrow to finance day-to-day spending”, says the BBC. “They either have to run balanced budgets or draw on their financial reserves - money built up by underspending in earlier years - to ensure their annual spending does not exceed their annual revenue.”

When those reserves have been exhausted, as in Croydon, councils have no choice but to make deep cuts.

“We will need to make decisions that will be very difficult, very challenging, and will have implications [for staff and services], no question,” Croydon Council’s recently appointed leader, Councillor Hamida Ali, told The Guardian. “We are looking at everything.”