2022 Sector Outlook

Resilient local authorities still facing financial uncertainties

View our 2023 sector outlook for local authorities

While additional funding gets a cautious welcome, maintaining vital services and supporting Covid-hit communities will be challenging again this year, says Julian Batson.

In many ways our local authorities were the unsung heroes of the pandemic last year, ensuring vital services were delivered in adverse circumstances amid immense financial pressure.

Councils once again showed great determination in grappling with staff shortages, changing work patterns and other day-to-day pandemic-related operational issues, while facing increasing Covid-driven demand for adult social care and children’s services in particular.

At the same time, many local authorities have driven digital transformation to increase efficiency, strived to deliver national and local sustainability and environmental objectives, and continued to distribute the government’s business support grants and other crucial funding to local enterprises.

But given the cash-strapped situation of most councils, the government’s keenly awaited October Spending Review was undoubtedly the most significant event of the year for them, shaping the financial landscape for 2022 and beyond.

Assessing the impact

While the 2021 review does offer more money for local government, the headline £4.8 billion figure is somewhat misleading and in reality represents a flat £1.6bn increase. Once council tax is taken out of the equation, according to the National Audit Office, spending power fell by more than half on a like-for-like basis between 2010/11 and 2020/21.

So, the fourth successive one-year-settlement for councils didn’t contain any further cuts, but didn’t herald the end of austerity either. Nor did it include the much anticipated full review and reform of local government finance, severely hampering local authorities’ ability to plan ahead.

Also absent from the settlement were increases in public health provision and, given authorities’ vital role in helping society cope with Covid, many will be left wondering how they will pay for that.

The primary aim of the settlement appears to be to stop more councils falling over in the short-term. After all, there’s been a lot of noise about Section 114 notices either being issued or threatened, and many authorities are apparently in discussion with Government around emergency cash flow requirements to balance their books, while some have had to dip into their cash reserves.

But it does at least enable the new Secretary of State for Communities and Local Government to instigate a review of business rates and the central government grant system. I think that merits a cautious welcome with the proviso that there will be winners and losers if this merely amounts to a redistribution of funding.

Social care challenges

The funding review failed to address the rising demand authorities face in children’s care and the handling of increasingly complex and costly abuse and neglect cases, exemplified by the recent string of high-profile and shocking cases. Any further Covid-related school closures and the resulting pressure on children’s services will be of great concern to local authorities.

Resourcing and funding adult social care, a long-running battle that the pandemic has only intensified, remains a major challenge this year and will no doubt be so for years to come. With the Social Care Precept capped at 1%, it remains unclear to what extent the social care funding package announced last year will enable councils to deliver much needed social reforms.

Additionally, special educational needs, housing and homeless services will place ongoing funding and resourcing pressure on councils. Many authorities face an uphill struggle to get on top of these fundamental issues and meet their remit to tackle social inequality.

Wider economic factors

Overarching all this, local authorities face rising costs in their supply chains and operations as the UK experiences its highest rate of inflation for three decades, with the Office for Budget Responsibility predicting it could be between 4.4% and 5.5% this year.

At the same time councils, like many other employers across the country, continue to experience a shortage of talent and skills at many levels as demand for services soars. Staff shortages are particularly acute in the social care sector due to a combination of Covid and reduced availability of overseas staff post-Brexit.

As well as the operational challenges this presents, it’s driving up costs through wage inflation, while the National Living Wage increase combined with the effect of the 1.25% rise in National Insurance Contributions this year will also have a significant impact on councils’ employment costs.

So, it seems that even if local authorities increase council tax – something many will be reluctant to do lightly given the rising costs of living people are experiencing – they will still have to make cuts, according to the Institute for Fiscal Studies.

Levelling up

On a more positive note, the Government’s levelling up agenda may result in additional finance being made available.

It will be interesting to see how this plays out and whether the extra money is deployed countrywide or in the Government’s priority places. The White Paper on levelling up is due to be published imminently and councils await the answers with interest, not just how much will be allocated to this ambition but where it will be invested – in infrastructure or people or both?

A sustainable future

While there was no reference to net zero objectives or associated funding in the Spending Review, local authorities will need to continue their valiant efforts to deliver strategies to reduce their carbon footprint and protect the environment, and help their communities to do so, too.

And many councils are already hard at work on their digital journeys to deploy more technology to deliver operational and financial efficiencies – whether that be by enabling more people to work from home, or introducing AI and automation in customer-facing services.

I see that trend accelerating during 2022 and it will be increasingly incumbent on authorities to ensure they help all residents navigate and understand the online world and tech they need them to embrace.

Support at hand

Even within the first few weeks of 2022, councils across the country are once again proving their value to society as they distribute a much-needed new round of Government funded grants to struggling local businesses. Just as in previous rounds, we are pleased to play our part in helping them achieve this as smoothly as possible.

As a long-term, forward-looking partner of councils, we appreciate the hard work they put into keeping their communities thriving, and proud of our consistent presence in the market and strong track record of support.

We’re here for local authorities, in good times and bad, to provide financial and other solutions in tune with their needs, whether that be through our Digital Wings technology support programme or banking solutions to improve day-to-day financial management and support essential services.

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