Loosen rules to let councils borrow for day-to-day spending, says IFS

The Government is being urged to “loosen the rules” to allow councils to borrow in order to fund day-to-day spending in response to the coronavirus pandemic.

Last month, the Government announced a £1.6 billion funding package for English councils to help them respond to additional pressures caused by the virus.

However, a new briefing published by the Institute for Fiscal Studies (IFS) suggests that there are big differences in the allocations being received across the country.

Accurately predicting in advance how much the coronavirus pandemic will affect councils in different parts of the country and providing funding accordingly is a near-impossible task

According to the IFS, the funding is being allocated based on assessments of spending needs made for 2013-2014, despite there being a substantial change in demographics and spending in the years since then.

The research institute described such assessments as “out-of-date and overly-general”, warning that it could mean that funding does not end up where it is needed most.

David Phillips, an associate director at the IFS and author of the briefing, suggested that councils could be reimbursed by the Government at a later date when there is a clearer picture of the impact of the virus.

He said: “Accurately predicting in advance how much the coronavirus pandemic will affect councils in different parts of the country and providing funding accordingly is a near-impossible task.

“Given it wanted to provide additional funding quickly, the Government has therefore had to make use of the rough proxies already available to it.

“But there are other approaches it could have taken, and indeed could still take if further funding is needed.

“Rather than try to allocate all of the funding in advance, it could loosen the rules to allow councils to borrow to fund day-to-day spending linked to the coronavirus pandemic, allowing them to respond rapidly in a manner they see fit.

“The Government could then reimburse councils at a later date once it has a better idea of what the impact of the coronavirus has been in different parts of the country and is able to apply proper financial safeguards.”

A spokesman for the Ministry of Housing, Communities and Local Government said: “Local authorities across the country are playing a vital role to keep people safe and we recognise the invaluable work they are doing for residents.

“We’ve given local authorities across England an additional £1.6 billion to help their crucial work in the national effort against coronavirus, and we are continuing to ensure they get all of the support they need by keeping future funding and flexibilities under review.”