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HomeNewsLeeds: Council faces £123 million funding shortfall - despite funding boost

Leeds: Council faces £123 million funding shortfall – despite funding boost

Leeds City Council looks set to call on the Government to cancel its loan debts in order to ease financial pressures caused by the Covid-19 pandemic, writes local democracy reporter Richard Beecham.

A report to go before decision-makers this week claims the authority is facing a funding shortfall of £123m – despite recent funding boosts from central government.

It added that expected hits to council income, such as a predicted £34m-hit on council tax collections, required drastic action from government, including canceling Public Works Loan Board (PWLB) debts and for government to underwrite council losses due to the pandemic.

Unlike other parts of the public sector, councils have a legal responsibility to balance their budgets, meaning the extra pressures on services caused by the Covid-19 pandemic has left local authorities staring at huge funding gaps for the forthcoming financial year.

Although the government has helped local authorities with an extra £3.2bn of extra spending, Leeds City Council claims this is nowhere near enough, and that the uncertainty over further funding could impact on services in coming years.

The report states:

“The financial health of the council will continue to be reviewed and updated to executive board on a monthly basis.

“However, due to the scale of the financial challenge the council is now facing for 2020/21 and future years due to the Covid-19 pandemic, it is appropriate to provide an interim briefing on the forecast position for the council, how this has materialised, and the options to consider in managing the situation.”

It added ‘updated financial implications’ for the council were now estimated at £164.7m, although this is still a very high level forecast.

Of the £3.2bn made available for councils by central government, £43m of this has gone to Leeds, but this still leaves the authority with a shortfall of more than £120m.

The report, set to be discussed by members of the authority’s decision-making executive board this week, outlines the extra funding pressures on the council, and makes a series of requests to central government.

If the report is approved, it will ask the Government to underwrite all of the shortfall in business rates and council tax resulting from Covid-19.

It also asks government to write off PWLB debt faced by local authorities, adding Leeds would save £38m in 2020/21 if 100 percent was written off. The document added if the government was unable to do this, interest rates should at least be reduced on PWLB loans.

The council is currently forecast to take on net additional borrowing of £788m to cover its capital requirements to 2024.

The council generates just over £333m from council tax but, due to Covid-19, it is expected this will reduce by £34m.

It added that business rates, through which £163.778m is generated,  is not expected to grow, which could result in a ‘real loss of income and
not a cashflow impact’.

The council generates £256.6m in fees and charges for goods and services provided. Due to COVID-19 the council is not currently providing many of these goods and services, which adds to an expected shortfall of £24.4m. This assumes three months total loss, six months reduced service and then three months back to pre-Covid-19 levels.

The council also receives £23.2m in income from the commercial activities, including markets, advertising income; and cafes and Parks. It added this income simply cannot be made while facilities are closed.

Not only is the council facing the new budget pressures from Covid-19, its 2020/21 budget also assumed £28.4m of cuts – the latest report claims 46 percent of these cuts will now not be achieved, mainly due to staff being deployed on COVID-19 delivery.

The report is set to be discussed on Tuesday, May 19.

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