Introduction

Local authorities deliver universal and specific services to their local communities and support vulnerable children and adults. Central government sets statutory duties for councils, from adult social care to waste collection. Local authorities also provide discretionary services according to local priorities set out by elected councillors and are independent bodies with their own democratic mandate and a range of statutory powers, including a ‘general power of competence’ under the Localism Act 2011 and independent borrowing powers.

Local authorities in England have made a major contribution to the national response to the COVID-19 pandemic, working to protect local communities and businesses, while continuing to deliver existing services. The pandemic has in turn placed significant pressure on local authorities’ finances, which were already under strain going into the pandemic.

Going into the pandemic

Local government’s financial sustainability (defined as their ability to set a balanced budget and deliver statutory services) has been weakened by ten years of funding reductions (Comptroller and Auditor General, 2014: 32 and 36). Since 2010–2011, central government has steadily reduced grant funding, introduced incentive-based mechanisms such as New Homes Bonus and Business Rate Retention, and encouraged local authorities to use their borrowing powers to invest and create their own income streams (Comptroller and Auditor General, 2014: 15). The Spending Review 2010 stated: ‘Local people, communities, and frontline staff understand their local priorities and problems better than central government. This makes them better placed to allocate scarce resources and shape services’ (HM Treasury, 2010: 32).

The Department for Levelling Up, Housing and Communities (DLUHC; formerly the Ministry for Housing, Communities and Local Government) measures the impact of reducing government funding on local authority income via ‘spending power’. This indicator captures the main streams of government funding to local authorities alongside council tax. It also includes some funding streams that are not within the local government Departmental Expenditure Limit (Comptroller and Auditor General, 2018: 14). The result has been that at a sectoral level, local authority spending power has fallen by 26 per cent, equating to a reduction in government grant of 50 per cent (Comptroller and Auditor General, 2021b: 13).