Elmbridge Borough Council’s finances are facing a perfect storm caused by the Covid-19 pandemic. A report from the Deputy Chief Executive was reviewed by the Council Cabinet at its meeting on Wednesday, 10th June. The situation was described as a “huge challenge for the current year as well as the medium and long-term finances.”
The pandemic has resulted in the Council having to spend more than it planned and, at the same time, receiving less money than it expected. The recommendations in the report to Cabinet included a review of “all discretionary and non-essential spend” in the current financial year and of the current capital programme.
The Council does have money held in reserve for unexpected events but the recommendation to the Cabinet calls for the Council to “limit the draw on reserves to mitigate the deficit and have plans in place to replenish the reserves being used, over the medium term.”
The Council has needed to fund more activities as it responded to the pandemic for example more “meals on wheels” and housing for rough sleepers; increased costs are faced in order to carry out normal operations, e.g. PPE is required, additional cleaning necessary and equipment purchased to assist staff in working remotely.
The council has three main types of funding. In 2018/2019 the contribution from each was:-
Income – from Charges & Rents £17.2m
Tax – Council Tax & Business Rates £16.2m
Other – Grants, Reserves, Bank Interest £3.7m
In a normal year the largest part of the Council’s funding is income from charges, e.g. motorists pay to park in a council car park and businesses pay rent on Council-owned properties.
The report forecasts that the Council will lose £6.7m of funding from income in the 2019/2020 financial year. That reduction in income is 18% of the funding and expenditure that the council had planned.
The income reduction is caused by lockdown closures. For example there was no income from parking charges and the leisure centre was closed. Businesses in council owned properties also faced lockdown disruption and are unable to meet their full rent obligations.
The government has provided the council with extra money to help meet the costs of pandemic related activity. But it is not clear that the government is going to assist the council in the important matter of its loss of income. The Deputy Chief Executive’s report notes that “The Secretary of State having initially given assurances that all financial strain of councils will be met by the Government, it is increasingly clear now that it is expected that Districts and Boroughs will have to manage/absorb their loss of income.”
The report also notes “that it is widely acknowledged that the impact of this pandemic is not going to be for just 3 months or until the lockdown is lifted but likely to go on for at least 6 months or even longer and it is unlikely to return to anywhere “normal”. This will undoubtedly create a structural hole in our finances forever”.
The financial future for the council will depend on how quickly or how slowly the local economy recovers from the pandemic shock. The council faces financial uncertainty on many fronts. These include to what extent income from charges and rents recovers and how well the funding from council tax and business rates returns to normal compared with previous years.