A dramatic drop in business rates income during the coronavirus pandemic has left authorities in Watford facing a funding shortfall of more than £100,000 new figures reveal.
Councils across England are facing a combined deficit of more than half a billion pounds for the 2020-21 financial year, after business rates intake plummeted in the majority of areas.
Data from the Ministry of Housing, Local Government and Communities shows Watford Borough Council will have to address an estimated shortfall of £167,102.
A Government scheme should help to plug the funding gap, while the deficit will be spread over three years and split between Hertfordshire county council, the area’s Police and Crime Commissioner, and the council as billing authority.
But the “financial hole” caused by a drastic fall in anticipated income to the authority’s collection fund could cause resource and budget pressures for years to come.
The Chartered Institute of Public Finance and Accountancy, a trade body, has warned that the end of Government funded Covid support could make it even more difficult for councils to repay the deficit.
The collection fund represents income and expenditure relating business rates, with estimates used to help set local authority budgets.
In response to the pandemic, the Government asked councils to estimate the impact of Covid-19 on the collection of funds for 2020-21.
Just 41 local authorities expect a surplus in income while more than 250 reported estimated deficits of between £14,000 and £17 million.
There were 10 councils that indicated they were not in deficit, but did not report surplus figures.
The national anticipated deficit across all councils in England rises to £546 million when surpluses are not taken into account, the data shows.
But the figures do not reflect councils’ overall financial position after other funding and spending is accounted for, nor the impact of the tax income guarantee scheme announced by the Government in November.
Under this scheme, local authorities will be reimbursed for up to 75 per cent of irrecoverable council tax and business rate losses, with payments expected to begin in the near future.
Rob Whiteman of the CIPFA said this will compensate councils for a “large chunk” of the deficit.
He added: “Ultimately, this financial hole isn’t as deep as it looks.
“But with the Government ending Covid support by the end of the year, it’s hard to see how councils will be able to afford to repay the remaining deficit without additional ‘help’ from taxpayers in the future.”
Separate MHCLG figures show that, across England, council overspend due to the pandemic totalled around £6.9 billion in March, while losses were calculated at around £5.1 billion.
Elected Mayor of Watford Peter Taylor said: “The drop in council tax income due to the Covid-19 pandemic is without doubt challenging. However, years of good financial management mean we are in a much stronger position than most other councils. For some time we have been making sure we raise income from many sources, so that we can keep council tax down.
“Our current medium term financial plan agreed in January takes this loss into account. We have worked hard to find savings whilst protecting frontline services that residents rely on. We will continue to make sure that residents get good value for money and respond to this situation sensibly.”
An MHCLG spokesperson said: “We’ve committed over £36 billion to help councils support their communities and local businesses during the pandemic.
“We’re also providing councils with £670 million of new grant funding to enable them to continue reducing council tax bills for those least able to pay, including households financially hard-hit by the pandemic.”
Hertfordshire County Council was asked for a response.