English councils are facing a £2bn black hole over the coming months if the government does not provide emergency funding, according to a leading think tank.
The Institute for Fiscal Studies’ (IFS) new report said Covid-19 has depleted local government revenues and many “face a difficult choice between depleting their reserves to low and potentially risky levels or cutting spending on important local services”.
Central government has already provided £5.2bn for English councils to cope during the coronavirus crisis.
However, the IFS found local authorities expect to spend £4.4bn more than expected on the pandemic and will make £2.2bn more of losses than expected.
This leaves councils with a £2bn shortfall in funding, meaning budget cuts could be on the way.
Under UK law, councils must run balanced budgets.
IFS associate director David Phillips said a further injection of cash only this year to local authorities would not be enough to stave off financial troubles in subsequent years.
“Even if more funding or flexibilities are forthcoming this year, councils will still not be out of the Covid-19 woods,” he said.
“Financial pressures will continue into next year and beyond, not least because shortfalls in council tax and business rates collections will have to be reflected in councils’ main accounts.
“In the upcoming Spending Review, the government will therefore need to assess these pressures.”
Councils still have £3.3bn in reserves to fall back on, however the amount each authority holds varies greatly.
The IFS estimates that 40 per cent of councils would not be able to balance their budget after using all their reserves.
Local Government Association chair James Jamieson called for central government to cover all costs pressures for the country’s local authorities.
“Councils need to be able to lead their communities out of this crisis and support recovery, but they cannot do this successfully and also address pressures in social care if they are having to focus on addressing budget cuts,” he said.
“The LGA wants to continue working with government on the further measures and funding needed to protect local council services.”