‘Spending Review offers some short-term help, but a £500m shortfall still remains’ – London Councils’ response to the Spending Review

The cross-party group London Councils has welcomed the short term funding commitments in the Chancellor’s Spending Review, while cautioning that uncertainty remains over future funding and a £500m shortfall arising from the Covid-19 pandemic.

Cllr Georgia Gould, Chair of London Councils, said:

“The Spending Review provided some welcome short-term support, but won’t be enough to fully meet boroughs’ costs caused by the pandemic.

“Boroughs have been on the frontline of London’s response to Covid-19, with key services such as social care, public health, and homelessness support playing a vital role in keeping Londoners safe. The pandemic has placed enormous burdens on boroughs’ budgets, and we’re pleased that the government has listened to our calls to provide compensation for tax losses and extra funding.

“However, London boroughs still face a funding shortfall of over £500 million this year – even with the support announced by the government. And it can’t be forgotten that the Covid-19 crisis has come after a decade of funding reductions for local authorities, which had already led to unsustainable pressures. We are disappointed that this one-year settlement for local government means we can only plan for the next year and gives us no long term certainty over our finances.

“London boroughs have proven they can deliver results. We’re determined to build back better from this pandemic – including on key challenges like creating jobs, building homes, and tackling inequality and climate change.

“We’ll continue to make the case for increased, long-term investment in local services, which is pivotal for securing the ambitious and inclusive recovery we all want to see.”

Overall outlook for boroughs’ finances
Councils’ core spending power will increase by 4.5% next year which, while less than the increases seen this year, is welcome given the pressures facing councils.

However, much of the increase will come at the expense of local Council Tax payers – the Spending Review assumes 5% increases in all councils (like London boroughs) with responsibility for social care – and, as the Spending Review only covers one year, there remains considerable uncertainty facing local government finances in future years.

Funding for Covid-19 response 

The Chancellor set out a compensation scheme that the government estimates will cover 75% of lost council tax and business rates income that will impact on next year’s budgets, a further £1.55 billion for local councils’ coronavirus response, £670 million for council tax support for the most vulnerable and three more months of sales, fees and charges support from April to June 2021.

While this all represents a much-needed funding boost for next year’s budgets, London Councils estimates that they are facing a funding gap of over £500 million as result of the pandemic in 2020-21.

Adult social care
The Spending Review unveiled welcome support for adult social care services, although London Councils notes that much of the burden for adult social care funding increases will fall on local taxpayers through the council tax precept.

Even before Covid-19, London’s adult social care sector faced a funding shortfall of £130 million this year. While the Spending Review had provided a short-term boost, boroughs will continue to call for a long-term, sustainable solution to the challenge of funding adult social care services.

Business rates
The business rates multiplier will be frozen next year, saving businesses £575 million, which councils will be fully compensated for by the government.

However, London boroughs are concerned that businesses may still face significant bills next year, especially as rates relief for retail, leisure and hospitality businesses have not been extended into 2021/22.

Housing and homelessness
Boroughs welcome the additional funding announced today for local services but remain concerned this won’t be enough to address London’s unsustainable costs or to increase provision of beds and Covid-secure accommodation for rough sleepers this winter. Long-term funding increases will still be needed for meeting the government’s homelessness reduction targets.

London Councils anticipates that spending on homelessness and rough sleeping in the capital will rise by an extra £108 million in 2020-21 due to Covid-19. London faces the most severe homelessness crisis in the country and boroughs play a key role in keeping homeless Londoners safe in the face of the on-going pandemic.

With winter fast approaching and demand for services increasing, approximately 900 rough sleepers are still out on London’s streets, with 3,000 placed in emergency accommodation in the capital, while a further 3,000 have been found ‘move on’ accommodation. On top of this, more than 60,000 London households live in temporary accommodation.

Boroughs will also continue to call for a suspension of No Recourse to Public Funds restrictions. These restrictions add to boroughs’ homelessness costs since rough sleepers classified as NRPF can’t access housing benefit.

Levelling up fund
In London, supporting disadvantaged communities and tackling inequality is a huge priority – two thirds of all homeless households live in the capital and 28% of the city’s population live in relative poverty, compared to 22% nationally.

While boroughs welcome new money for this important work and will certainly be keen to access it in partnership with their local MPs and communities, the bidding process and one-off nature of the investment will limit what can be achieved.

In the long term, sustainable funding for local government is crucial to levelling up places that for too long have suffered with poverty and disadvantage.

Infrastructure investment
It is hugely disappointing that the National Infrastructure Strategy, published alongside the Spending Review, confirmed its intentions to “pivot investment away from London”, including confirming it will stop development on Crossrail 2. London plays an important role in the national economy, delivering an annual fiscal surplus of £39 billion before the pandemic.

Support for the long-term unemployed
With unemployment set to peak at 7.5% next year, investment in supporting people who are out of work is vital.

The launch of Restart, a new national support programme for unemployed people, recognises the huge need to help people adapt to a changing jobs market in the wake of the pandemic.

However, this centralised, top-down programme is an unwelcome reversal of progress made towards employment devolution in London, where the Work and Health Programme is already running with local control and oversight from London boroughs. Thanks to the involvement of local leaders, these programmes are tailored to the unique skills and employment needs of Londoners and the city’s jobs market and are being joined up with other local services.

It is also vital that the UK Shared Prosperity Fund (UKSPF) is fully devolved to local areas, as it will focus on people most in need and will be tailored to local communities, and that London gains a fair allocation of UKSPF, given it has seen the largest increases in unemployed people compared to any other region since the pandemic.

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