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20 May 2020updated 05 Aug 2021 5:43am

“Whatever it takes”: Has the government broken its promises to local councils?

Local authorities are on the front line of the pandemic response, but some, like Liverpool, are on the edge of bankruptcy. 

By Jonny Ball

On the 16 March, one week before the UK entered lockdown, the Communities Secretary Robert Jenrick addressed 300 leaders of English councils in a conference call on the government’s response to the coronavirus crisis. “This government stands with local councils at this difficult time,” he assured them. “Everyone needs to play their part to help the most vulnerable in society and support their local economy. The government will do whatever is necessary to support these efforts.

After 10 years of austerity, in which central government grants to many local authorities were slashed by two thirds, some wondered if the days of parsimony were over and if the crisis would usher in a new settlement for cash-starved town halls. “It was good to hear that local authorities like Liverpool, who have suffered enough through austerity, wouldn’t be punished further”, says Joe Anderson, the mayor and leader of Liverpool City Council.

Just over one month later, the Sunderland Echo reported that coronavirus had left a “£25m black hole” in Sunderland council’s budget. Southwark News also reported a “£25 million budget black hole” for the London borough. In the same week, the Rotherham Advertiser and Luton Today both reported a “£50m black hole” in their respective towns.

Both Labour-run Liverpool and the Convervative-run Royal Borough of Windsor and Maidenhead, which includes Theresa May’s constituency, have warned that without a bailout, coronavirus-related spending and lost revenue will force them into effective bankruptcy, issuing so-called s114 notices in the coming months. “My view of this is that there will be [s114s],” Anderson tells me. Earlier this year, he vowed not to pass any budget that closed children’s centres. Since we spoke, Lincoln and Stevenage councils have warned that they also are unable to balance the books and are facing bankruptcy.

Labour has accused the government of U-turning on its promises, and estimates a massive £10bn gap in local government finances nationwide. “There will be many other cities and many other councils looking at issuing a s114 order,” Anderson says.

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Many councils and devolved authorities have expressed dismay at the government’s plans to open schools on 1 June. Andy Burnham, mayor of Greater Manchester, has said that Boris Johnson’s easing of the lockdown risks “fracturing” the UK, as the rate of infection in many areas outside of London remains high. Liverpool and Hartlepool councils have said they are unlikely to follow the reopening orders for their schools. Newcastle, Gateshead and Manchester are refusing to adopt the new “Stay Alert” message, sticking with the original “Stay at Home”.

When Spotlight polled over 300 councillors from across England in mid-April, many were positive about the government’s response to the pandemic. Forty-four per cent said they thought local government was being adequately supported through the crisis, although people’s answers were clearly affected by party loyalties. The same percentage said they trusted the government’s pledge to reimburse councils for their Covid-19 spending, although this number fell to just 7 per cent for Labour councillors. A full 72 per cent described the Treasury’s fiscal response as good or very good, including half of Labour respondents.

Read more: Poll: Councillors split across party lines on government’s pandemic response

But since then, it’s likely that the view of government has soured among many councillors. Jenrick’s Ministry of Housing, Communities and Local Government has committed two tranches of funding worth £1.6bn to compensate for losses and increased spending relating to coronavirus. The first, delivered to councils in March, was allocated according to the assessed social care needs of different authorities. The second, delivered in April, removed this means test, and allocated funds on a per-head basis.

This has led to extreme differences between the first and second tranches. Liverpool, a city in which all five constituencies are in the lowest decile of the multiple indices of deprivation, was allocated around £20m in the first tranche, owing to its severe social care needs. But the second instalment was only £13.8m, a reduction of around a third. By contrast, Waverley, a leafy borough of Surrey described by the Legatum Institute as the most prosperous council area in the UK, saw its allocation increase by 3,500 per cent. “Covid has cost us £78m so far, but [we have] only received around £34m from government,” says Anderson. “It’s around £1m every week in lost income”, he adds, and it is not sustainable even in the short term.

In many cases, local authorities have been on the front-line of the fight against coronavirus, organising food bank delivery services, establishing helplines, housing homeless people in hotels, and coordinating volunteer groups. Many have spent millions on personal protective equipment for care home and social care staff after centralised purchasing schemes failed to deliver.

On 4 May the total number of coronavirus deaths reached 28,734 and Robert Jenrick appeared in front of the housing, communities and local government select committee. “We would not want anyone to labour under that false impression that what they are doing is guaranteed to be funded by central government”, the former director of Christie’s auction house told the committee chair. This was news to local authorities who had been operating according to his previous guidance that they should spend whatever it takes and that the government would reimburse them.

Councils have also lost huge revenue streams, from parking charges to municipal leisure centres. Windsor and Maidenhead, on the verge of becoming only the second council in two decades to file a s114 notice declaring bankruptcy, relies heavily on a tourism sector that has disappeared.

“There are some councils that have very significant exposure to commercial investments,” Jenrick told the committee. “Some that are perfectly understandable and some that were perhaps unwise investments to have made in the first place. I have long argued against councils establishing very large commercial portfolios, for example.”

The Minister was referring here to the practice of local authorities using low-interest loans from the Public Works Loan Board to buy commercial properties, a strategy that has become increasingly common over the last decades as councils look to replace dwindling government grants with alternative revenue streams. These speculative investments in everything from hotels, to office buildings to shopping centres are intended to offset the effects of austerity and allow councils to continue their spending on vital services.

In Liverpool this strategy is known as “Invest to Earn”. “Without Invest to Earn we’d be on the bones of our arse,” Anderson says. “We’d have gone bankrupt years ago.” Liverpool City Council’s property portfolio includes vast amounts of office space for rent on the UNESCO-listed waterfront, the nearby Pullman Hotel, a stake in the John Lennon airport, as well as Everton Football Club’s training ground, Finch Farm. These cumulatively bring in upwards of £30m a year, according to the Mayor. “For [Robert Jenrick] to criticise local authorities, who are trying to protect their people by doing these things, quite frankly is absolutely ignorant and just shows that this man is out of his depth… Without Invest to Earn we wouldn’t be able to cope, we wouldn’t be able to pay for services, including our statutory responsibilities… But we’re not asking for the money we’re losing from Invest to Earn properties. We’re not claiming that in the £78m costs of coronavirus.”

On 10 February, just before the scale of the Covid-19 pandemic in Europe became apparent, the National Audit Office released a report warning of “systemic risk” to local authorities exposed to commercial property investments in the case of a market downturn. “In the last recession,” it warned, “UK commercial property values and market rental values both fell.” Meg Hillier MP, the chair of the Public Acounts Committee, said the rapid increase in commercial investments raised “serious alarm bells”.

Last week the Bank of England warned that the UK was entering its deepest recession in three hundred years, a slump which will likely devastate the commercial property market and shrivel the income local authorities receive from municipally-owned assets.

“The government are coming out with rhetoric that I agree with, that they want to level up and help the poor and end austerity,” Anderson says. But on the evidence of Jenrick’s recent U-turn there’s a gap between rhetoric and reality. “I’m not going to start closing libraries and children centres here to pay for Covid-19. I can’t do that. I am not prepared to do that.”

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