Local government finance in the pandemic

To ensure that risks to value for money are managed going forward, the Department needs to learn lessons from 2020-21. To maintain successful elements of its approach: a) the Department should continue with the effective aspects of its approach to supporting the sector during the pandemic: intensive sector engagement, improved monitoring and providing unringfenced general grants.

To further improve other elements: b) other departments, drawing on the support of the Department, should improve their links with, and understanding of, local authorities, drawing on learning from the Social Care Sector COVID-19 Support Taskforce;

c) the Department and HM Treasury should explore how to provide the sector with greater clarity over future funding both during the pandemic and the recovery including: • signalling clearly on a timely basis the likelihood of further funding or support; and • supporting value for money in local decision-making by looking for ways to reduce uncertainty in time to be of use to next year’s local authority budget-setting process.

d) In recognition that the sector remains under significant financial stress in the short term, the Department should: • maintain its exceptional support offer, with appropriate capacity within the Department to ensure timely consideration of requests; and • consider how it can present information about levels of financial stress in the sector without undermining engagement with individual authorities.

To address long-standing issues and ensure the government and the sector are prepared for the future: e) the Department, working with other departments, should focus more fully on risks to service sustainability. Government, led by the Department should: • assess authorities’ 2021-22 budgets to understand the impact on service budgets and the implications for service users, other service providers and long-term value for money; and • use this service-level information, alongside its financial monitoring data, to inform in-year and future funding decisions.

f) The Department, supported by the rest of government, should carry out a review of the lessons from the pandemic in order to understand better the information it needs to manage financial risk in the sector, including: • the Department’s reliance on its additional COVID-19 monitoring activities to identify the broad range and high level of risk in Croydon Council, and the implicit limitations of its standard risk monitoring work; and • the problems that the pandemic has exposed with data on authorities’ reserves, which led to the Department collecting experimental data on reserves in-year.

g) In time to be of use to authorities’ 2022-23 budget-setting processes the Department and HM Treasury should produce a long-term financial plan for the sector that: • sets out when the various paused elements of the local government finance reform programme will be restarted; and • considers any further steps that will be needed to support the sector to recover from the financial scarring from the pandemic.

h) In preparation for, and to mitigate the impacts of, future pandemics or similar crises, the Department needs to: • incorporate an assessment of the sector’s resilience to a future pandemic or similar crisis as part of its ongoing monitoring and assessment of financial sustainability; and • undertake a review of the government’s response in relation to local authorities and use this information to create an emergency financial response framework.