Recommendation 20

The Department and HM Treasury explained that their judgement of the sustainability of the local government sector was not a long-term one and any government assessment of funding needs beyond 2021–22 was a matter for the next spending review.50 Sector representatives told us “the impact of Covid will be with us for a long time yet.”51 The Department recognised that there would be short-, medium- and long-term impacts from the pandemic. In particular it told us that it was reflecting on the difference between “the scarring effects of COVID”, which would “diminish over time”, and any permanent changes as a result of the pandemic.52 We have previously expressed concern about the quality of evidence about the funding needed to sustain local authority services that has been assembled for past spending reviews.53 Around half of authorities did not expect their finances to return to pre-pandemic levels until 2023–24 at the earliest. The Department said using £400 million of reserves in 2020–21, as forecast by the Office for Budget Responsibility, was an “appropriate way of helping to manage the impact of the pandemic on local government finance.” Nonetheless, this will have lasting effects: 53% of NAO survey respondents from single tier and county councils indicated that they would need to build up their reserves in the next two to three years, but only 16% of these respondents felt confident that they would be able to do this.54 The need to reform local government finance