Coronavirus: ‘Decimation’ of council finances revealed as government support falls short

Hackney Council’s income has been “decimated” by the impact of Covid-19, according to the deputy mayor.

The council faces a towering financial blow of £67m this financial year, made up of around £24m in additional spending and £43m in lost takings.

Central government has provided £18m of additional support to the borough so far, with an additional maximum of around £12.3m still to arrive. This leaves the council staring down a shortfall this year of around £37m.

To put this in perspective, the entire funding loss experienced by the council during the past decade of austerity was £140m.

Deputy Mayor Cllr Rebecca Rennison said: “While recent government announcements offer some potential opportunities, particularly around jobs for young people under 25 at risk of long-term unemployment, although we note our concern that this only references ensuring payment of the minimum wage rather than the London Living Wage, these can only partially mitigate against the devastating impact we are seeing of Covid-19 across our communities, our businesses and council services.

“Costs have included everything, from additional staff to patrol our
parks to food parcels for residents who need them. At the same time, council income, more important than ever after a decade of austerity and £140m of central government cuts, has been decimated.

“Further funding commitments from central government will help us reduce the budget shortfall, and we are exploring those financial tools at our disposal to try and mitigate the remaining budget gap, but they do not place local government finance on a secure footing, and in some cases simply push difficult decisions further down the road.”

In a parallel announcement, Hackney Mayor Philip Glanville refreshed the council’s priorities with associated investment in tackling poverty through support of fresh food voucher schemes, strengthened support for vulnerable families and housing people with complex needs, and continued work aimed at reducing inequality and building social cohesion.

Overall, however, the financial picture for the Town Hall remains uncertain, with finance mandarin Ian Williams understood to be in the process of a review of council reserve funds for reappropriation to help support the efforts to tackle Covid, meaning a delay of “some projects or activities initially expected to be funded from reserves”.

A report from Williams reads: “It is by no means clear what the longer term financial impact on local government will be as a result of Covid-19 but it looks likely that the UK faces a significant recession, possibly its sharpest recession on record.

“It is also worth noting that the UK’s debt is now worth more than its economy after the government borrowed a record amount in May. The £55.2bn figure was nine times higher than in May last year and the highest since records began in 1993 and it sent total government debt surging to £1.95trn. Income from tax, National Insurance and VAT all dived in May amid the coronavirus lockdown as spending on support measures soared.

“Clearly this will have an impact on future public sector and local authority budgets. It seems that at this time there is much less of an appetite for austerity than that following the financial crisis in 2008 but it seems very unlikely that sufficient resources will be available to put local government on a sound and sustainable financial footing going forward.”

The council has now published an update of its finances for each department, the majority of which face significant overspends.

For example, the Town Hall’s central procurement and energy team is forecasting Covid-19 related costs of £2.7m, having spent £1.7m on PPE with a further £1m in expenditure predicted with such equipment anticipated to be required over a longer period of time than at the start of lockdown.

Meanwhile, the council’s policy, strategy and economic development divisions have Covid overspends in their budget of £612,000, having spent half a million on food parcels for residents unable to access or afford food and giving emergency voluntary sector grants for Covid-19-related services worth £121,000.

Over 800,000 items of PPE have been given out by Hackney at time of writing, with over 14,000 emergency parcels delivered.

The council’s housing revenue has seen a hit from coronavirus of £7.4m, with increased rental arrears of just under £6m estimated, with an assumption that irrecoverable debt will increase. Its commercial property division has seen a £2.5m rental loss relating to Covid-19.

Just under £2m has been spent on housing needs arising from the virus, with extra staff costs needed to move rough sleepers into emergency accommodation as well as the costs of the accommodation itself.

The council’s market and shop front trading department has seen an income shortfall of £795,000, with the Town Hall noting that it remains “difficult” to make markets safe despite the easing of lockdown, with take-up of stalls limited as footfall remains restricted.

Other budget holes also stem from income shortfalls, with the council’s parking service showing a £6.3m overspend. Parking income dropping by 44 per cent from last year in the first two months of lockdown, a pattern which, if maintained for a whole year, would see this service showing an income of £14.6m against a budget of a little under twice that.

The report makes mention of a further “tragic consequence” in its finances of mortuary costs, with additional capacity required across London to meet predictions of deaths from the virus. Hackney’s cost in this area is likely to be £740,000.

Part of the council’s efforts now are understood to be to promote a more inclusive economy, with the Town Hall seeking to address challenges in skills and employment for its residents and to forge job pathways in an increasingly hostile marketplace, with 34,000 jobs furloughed by employers in Hackney alone.

Mayor Glanville stressed that the council remains in a better position than many due to its past financial management, underlining that his administration is not signalling an emergency budget in the autumn.

Thanking council staff, partner organisations, volunteers and residents and mourning the over 200 residents lost to coronavirus, the borough leader has noted the “devastating impact [of coronavirus] on communities, businesses
and the voluntary sector, bringing inequality and specifically racial
inequality into stark relief”.

Glanville added: “Covid-19 has already impacted on services, businesses and communities in ways that will resonate for many years.

“Unlike other crises that local government has had to respond to, there really is no ‘going back to normal’ or ‘business as usual’.

“For many in Hackney, ‘normal’ was also not working for them economically or socially before this crisis, and we now have an opportunity to respond to these challenges as we work to rebuild a better Hackney. We will still be responding to the direct and indirect impacts for many months and years.

“We are still responding to the pandemic, whilst managing the process of the council and the borough safely coming out of lockdown and the possibility of localised outbreaks or a full ‘second wave’. What is also clear is that our residents will  continue to be impacted and vulnerable for the foreseeable future.

“We are seeing increased poverty, unemployment and a struggling business, voluntary and community sector, and specific needs for really vulnerable groups like rough sleepers and people with no recourse to public funds. At the same time, the longer term issues for individuals and communities cannot be parked or we will see long and enduring impacts on individual life chances and inequalities.

“Our resolve remains in Hackney to provide excellent services, even in an age of austerity, while tackling the challenges the borough faces. Where we don’t have the powers or resources to achieve these objectives, we resolve to continue to be a campaigning council advocating for policy change and investment into Hackney.”