I declare an interest as I am a vice-president of the Local Government Association. I also echo the thanks that the Secretary of State and shadow Secretary of State have rightly given to local authorities, councillors, and their staff for the incredible work they have done for our communities in the past 12 months. Whether that work was particular to covid-related issues, or whether it involved social care, public health, environmental services, paying business grants, or keeping day-to-day essential services such as refuse collection going, they have been a credit to our communities and we should thank them for their work.
Recently, the Housing, Communities and Local Government Committee held hearings into local government finance, and we heard from Councillor James Jamieson, chair of the LGA, and Councillor Richard Watts, chair of the LGA resources board, which showed how the LGA works cross-party. They both gave us the same message: a recognition of the help that the Government have given to councils to meet the costs of the covid crisis, but also a recognition that those costs, particularly the loss of revenue that has affected many councils in different ways, have not been fully compensated. They estimated a gap of around £2.6 billion between the money that councils spent and have not received in income, and what the Government have compensated them for.
It is not often that I agree with John Redwood, but he referred to the problems faced by some councils that do not run their leisure services directly, and that is equally true of Sheffield. Ours is run by an arm’s length trust, and because the losses of the trust are paid for by the council, with the council paying more than £12 million to keep our leisure services sustainable, that is not regarded as a loss of council income but a council cost—extra expenditure—and has not been compensated for in the same way. There is an unfairness there that affects many authorities in the country, and it needs addressing.
The Government’s scheme to compensate councils for losses in council tax and business rate collection is welcome, but it is only for 75% of the losses. That needs to be monitored, because we can all see that, as the economy hits rocky times in the next 12 months and more people lose their jobs and more businesses are liquidated, councils will need extra support. We do not know what the ongoing costs of covid will be or how long the lockdown will extend for, so we still cannot estimate all the pressures on councils for the next financial year. I hope the Government will retain a degree of flexibility about any further support that councils may need in the next 12 months.
Of course, the costs of covid come on top of a very precarious situation for local government finance as a whole and for many local councils in particular. Estimates from the LGA and others show about a £5 billion gap before covid hit, due to councils facing the biggest cuts of any part of the public sector since 2010 and the rising costs of social care. Those pressures have led to really heavy cuts to important services such as road safety, bus services, libraries, street cleaning and many others.
The position is unsustainable. Rob Whiteman, the chief executive of the Chartered Institute of Public Finance and Accountancy, told the Select Committee the other day that he knew of 12 authorities that have had to go to Government to ask for extra capitalisation of revenue expenditure, to ensure that their books can balance. Some of those councils may have particular problems, some may have created particular problems and others may be badly hit by covid, but in the end, it reflects a long-term problem for councils. As Rob Whiteman said, those 12 councils are probably only the tip of the iceberg. Many other councils could be entering very similar grounds for having to come to the Government for extra help in the near term, as their position substantially worsens. That is not a sustainable position for the long term.
Councillor Jamieson and Councillor Watts both said that when looking to the future of local government finance, we simply have to sort out the funding of social care. The 4.6% extra spending for councils next year is welcome, but it is clear that the costs of adult social care and children’s social care, rising above inflation in the future, cannot continue to be funded by council tax and business rates. It is simply not sustainable, so finding another way forward to fund social care is essential. I draw the Secretary of State’s attention again to the joint Select Committee report published nearly four years ago, which the Government still have not responded to. In that report, we put forward a social care premium as a solution, similar to arrangements that have worked for the long term in Germany and Japan. The Government have not yet come back to us. My Select Committee may look at this issue again, because until we sort out the problem of social care funding, the rest of local government finance will always remain challenged and not properly addressed.
The Local Government Association emphasised again that it understands, as does the Select Committee, precisely why the Government could only give a one-year settlement this year. However, as well as asking the Government to sort out the long-term funding of social care, we want to say as strongly as we can to them that local government must have a four-year settlement as soon as possible, by which we mean for the financial year from 2022 onwards. That will give local government the certainty to be able to plan ahead in a way that makes the best use of the resources available to it and gives the best value for money for its constituents.