The effect of COVID-19 on the financial sustainability of local government

Abstract

Local government, weakened by ten years of funding reductions, was significantly financially challenged by the COVID-19 pandemic; the financial effect is estimated at £10 billion for 2020–2021 (or 20 per cent of net revenue expenditure). The consequences of the pandemic comprise reduced income, increased costs from supporting local recovery, and potentially, systemic financial failure, challenging the Department for Levelling Up, Housing and Communities as steward of the local government finance system. Economic development as a local function has seen major funding reductions and the local growth landscape is complex, with government continuing to announce new funding streams to support business and to ‘level up’. The overarching question is whether the local government finance system is itself still viable with its weaknesses exposed by the pandemic and how far it is enabling local government merely to survive.