£732m cost to Greater Manchester local government from coronavirus

  • £368m total net deficit to local government finances
  • “Funding black hole” for vital public services

Analysis undertaken by the ten Greater Manchester councils and Greater Manchester Combined Authority (GMCA) shows that the impact of coronavirus and the actions taken to manage the pandemic will be in the region of £732m by the end of 2020/21 alone.

This is made up of additional costs faced in delivering the Greater Manchester response to the crisis of £236m, together with lost revenues of £496m. When taking into account government grants and reserves, the total net deficit facing local government finances is £368m.

Whilst there are a number of assumptions that have to be made in forecasting what the financial impact of the virus will be, the analysis does not provide a worst-case scenario. Rather it is an estimate of the most likely impact based on current rates of infection and expectations around lockdown. It does not assume there will be a second wave of cases or any increases in restrictions because of increased cases or an increased R number.

Councils’ additional expenditure & loss of income

The ten councils have estimated that they will face additional costs by the end of 2020/21 alone of £225m. Funding for adult and children’s social care makes up 40% of the additional expenditure by councils as a direct result of the health pandemic. £71m will go on adult social care, which includes an increased demand for care and support, direct purchase of Personal Protective Equipment (PPE) and reduction in charging income (day support).

An additional £18m will be spent on children’s social care, £13m on education, £33m on housing, highways and public health, and the rest on cultural services, environment and regulatory services and finance and other areas.

When it comes to council income, the analysis found that the shortfall comes from:

  • Commercial income - £167m (42%)
  • Business rates losses – (net*) £69m (17%)
  • Council tax losses - £97m (25%)
  • Sales, fees and charges - £61m (15%)

*Net impact after being mitigated this year by the leisure and retail rates reliefs given to businesses that were forced to close during lockdown and for which the councils were compensated in full. Unless they are applied again for 2021/22 councils can expect further losses as retailers struggle to survive.

Council budgets are underpinned by a substantial amount of locally raised income, of which council tax makes up a significant proportion. Most metropolitan districts are c49% reliant on council tax income and, in some Greater Manchester authorities, this is as high as 67%. Council tax receipts have fallen because people’s incomes have been adversely affected by the COVID crisis and this has led to an increase in those eligible for council tax support, with others struggling to pay bills or deferring or defaulting on payments.

With a big loss of income coming from commercial investments, it will significantly impact on the economy of the city-region and the recovery efforts to build back better. These investments are about the strategic development of local places and are part of wider regeneration and economic development strategies, for example acquisition of property to support regeneration, enhancing existing assets, zero carbon interventions, site remediation and facilitation works, and other measures.

A significant part of the loss of commercial income comes from the investment by all ten councils in the Manchester Airport Group, which is of strategic importance to the local economy with 20,000 jobs on site and 25,000 indirect jobs. The anticipated income lost from MAG to Greater Manchester local authorities totals over £100m from dividends alone. The most severely affected council, with a 35% equity stake, is Manchester City Council. The analysis notes that the scale of the impact of coronavirus is unprecedented and the financial impact of the loss of at least two years dividend cannot be sustained without a significant impact on the council's budget position. As a result of a lack of government support, councils, along with private investment partners, have had to step in to fill the funding gap in order to protect their equity stake and future yield.

The Ministry for Housing, Communities and Local Government (MHCLG) has provided two tranches of funding to Greater Manchester councils totalling £167.68m, which together with other national funding for track and trace, infection control and hardship grants will reduce the impact on finances from £634m to £390m. This will still leave a significant gap, and it is worth noting the second tranche of funding had the deprivation weighting removed, so councils received less than they were expecting while still trying to provide vital frontline services.

A total of £92m of reserves have been allocated by all ten councils to help plug some of the funding gaps.

GMCA/TfGM additional expenditure & loss of income

The GMCA and Transport for Greater Manchester (TfGM) have also been impacted by the COVID crisis, with additional costs incurred and a fall in income. For example, excluding Metrolink, there is a total net impact of £38.04m in 2020/21, with £10.21m in additional costs and the rest from loss of income.

Additional costs come from:

  • Greater Manchester Fire and Rescue Service (GMFRS) - £2m, but MHCLG funding of £2.672m reduced the overall impact
  • PPE - £2.8m
  • Homelessness (Everyone In policy) - £1.9m
  • Waste - £2m
  • TfGM - £1.5m

Loss of income for 2020/21 comes from:

  • Council tax precept - £6.9m
  • Business Rates growth - £17.5m
  • Transport fees and charges - £6.5m (excl. Metrolink)

On Metrolink, while patronage has slowly increased to 10-15% of pre-COVID levels – up from 5% at the start of lockdown – the service has been losing c£5.3m monthly (after financing costs) due to loss of fares. Department for Transport (DfT) grants totalling £24.97m, covering a 20-week period from the start of lockdown to 3 August, provide a welcome relief but still leave TfGM with a £1.8m deficit in that period. Also, without further government support, there will be further deficits of between £30-£40m for the rest of the financial year (Aug 2020-Mar 2021). Discussions with DfT are ongoing.

Mayor of Greater Manchester, Andy Burnham, said: “The COVID crisis has landed heavily on our councils after a decade of severe cuts. Even so, they have been working wonders in recent weeks to support people and communities through this and now need and deserve the Government’s direct help. Councils will be crucial to the recovery from COVID and getting communities back on their feet, but won’t be able to play that role with a black hole in their finances.

“This analysis lays bare the scale of the funding challenge facing Greater Manchester’s councils. Without urgent support, this funding crisis will engulf local government and endanger the vital services that councils provide to the community, particularly for the most vulnerable.

“We know that this virus has hit the poorest communities hardest. We have also heard the Government’s promises to “level up” the country. The time has come for it to make good on those promises and give Greater Manchester and its councils the resources they need to lead recovery and build back better.”

David Molyneux, Leader of Wigan Council and Portfolio Lead for Resources added: “Local government finances have been under pressure for many years, and what this health pandemic has done is exposed how our public services have been stripped to their bare bones. We’ve risen to the challenge to help those who need it, but it’s been at a massive expense. The balance sheet of expenditure and losses shows the stark financial toll we’re having to bear.”

Article Published: 22/06/2020 11:19 AM