Guidance

December 2020: COVID-19 funding for local government in 2021 to 2022 - consultative policy paper

Updated 12 August 2022

Applies to England

Foreword from the Secretary of State

I am pleased to publish additional details of the Local Government COVID Support Package for 2021-22, following up on the commitments made at Spending Review 2020 on 25 November. These proposals complement the provisional Local Government Finance Settlement, also published today, to support councils as we continue to work in tandem to overcome the challenges faced by communities up and down the country in fighting the pandemic.

At the start of the pandemic, we said we would support local government, and we have delivered on that commitment. We have provided over £7.2 billion of additional expenditure funding for local authorities in 2020-21, the majority of it in unringfenced grant, available to respond to local pressures and priorities. In addition, we have ensured councils receive support with COVID-19-related loss of income, including from sales, fees and charges, and from local taxes.

As we look to the future, we have good reasons to be optimistic about overcoming the spread of the virus as we roll out new vaccines. Nonetheless many of the challenges posed by COVID-19 will not go away immediately, and that is why I was delighted that the Chancellor announced a further package of support at the Spending Review, worth an estimated £3 billion for next year, taking our total support for local government in responding to COVID-19 to around £10 billion.

This new package comprises £1.55 billion of unringfenced grant to manage the immediate and long-term impacts of the pandemic; £670 million to enable councils to continue reducing council tax bills for those least able to pay, including households financially hard-hit by the pandemic; and an extension of the Sales, Fees and Charges income support scheme (SFC Scheme) to June 2021. Following our commitment earlier this year, we are also launching a new guarantee scheme for 75% of 2020-21 irrecoverable local tax losses, worth an estimated £800 million.

This package complements the core Local Government Finance Settlement through which we are directing resources to the highest priority areas, in particular for adult and children’s social care. Councils will have access to an increase in Core Spending Power next year of 4.5% in cash terms – a real terms increase. Within Core Spending Power, there will be an additional £1 billion for social care made up of £300 million of social care grant and the 3% ASC council tax precept. Lower-tier authorities will benefit from a new Lower Tier Services Grant. Councils will be protected from a year-on-year reduction in Core Spending Power through the introduction of a one-off funding floor mechanism.

I would like to end by thanking everyone in local government for your continued hard work and commitment in responding to the pandemic. I hope the proposals we set out today demonstrate clearly that this government will continue to stand with you, ensuring you have the resources and support you need to play your vital role in supporting your communities.

The Rt Hon Robert Jenrick MP
Secretary of State for Housing, Communities and Local Government

Executive summary

1. Following on from the announcements as part of the Spending Review, this publication is intended to provide further details on COVID-19 funding for local authorities in 2021-22, and our approach to continuing to monitor the impact of the pandemic on the sector. We are also asking questions to seek views from the sector to inform certain policy positions. It covers the 4 COVID-19 funding policies and the COVID-19 financial impact monitoring survey:

£1.55 billion COVID-19 Expenditure Pressures Grant – Allocations and final policy position

2. We are announcing final allocations for local authorities on the £1.55 billion of additional unringfenced funding.

3. This is being distributed using the familiar COVID-19 Relative Needs Formula and we are aiming to make payments to local authorities as soon as reasonably practicable in the next financial year, with our aim being to provide payments in April 2021.

Local council tax support grant – Proposed policy position on which we are seeking views

4. We are seeking views on our proposal for distributing the £670 million of new, unringfenced funding that will be provided to authorities in recognition of the increased costs of providing local council tax support following the pandemic.

5. We propose to distribute the funding on the basis of each billing authority’s share of the England level working-age local council tax support caseload, adjusted to reflect the average bill per dwelling in the area. Indicative allocations and a detailed methodology note will be published shortly.

Local tax income guarantee for 2020-21 – Final policy position

6. Following our commitment earlier this year, the Spending Review confirmed that the government will compensate local authorities for 75% of irrecoverable losses in council tax and business rates income in respect of 2020-21.

7. We are setting out how losses in scope of the guarantee will be measured. For council tax, this is broadly a comparison of each authority’s council tax requirement and an adjusted Net Collectable Debit. For business rates, this is broadly a comparison of income as calculated in the National Non-Domestic Rates (‘NNDR’) statistical collection forms 1 and 3.

SFC scheme extension – Proposed policy position on which we are open to views

8. We are proposing a continuation of the successful scheme that is currently in operation in 2020-21, for the first 3 months of the 2021-22 financial year.

9. We intend to use each council’s 2020-21 budgeted income as the baseline from which to assess losses.

COVID-19 financial impact monitoring survey – Proposed policy position on which we are open to views

10. We intend to continue the local authority COVID-19 financial impact monitoring survey for as long as the pandemic continues to have a significant impact on local authority finances. Equally, we want to reduce the burden on local authorities by streamlining the process as much as possible going forward.

11. Alongside this, we are also seeking your views on the priority areas for data collection and on how we can refine the process in general going forward.

Responding to this policy paper

12. This publication outlines final policy positions and sets out preferred positions on other issues on which we are open to views. Where we are open to views on emerging positions, you can send your responses to the questions and any alternative proposals for consideration to: LGFCovidPackageFeedback@communities.gov.uk

13. Additionally, we will be pro-actively seeking views from stakeholders for a 4-week period from 17 December – 14 January. We aim to develop a final position on these issues to be announced as soon as practicable early in the New Year.

£1.55 billion COVID-19 expenditure pressures grant

Policy position

Summary

14. We are announcing final allocations for local authorities of the £1.55 billion of additional unringfenced funding for COVID-19 expenditure pressures.

15. This is being distributed using the COVID-19 Relative Needs Formula and we are aiming to make payments to local authorities in April 2021.

COVID-19 Relative Needs Formula

16. We have used the existing COVID-19 Relative Needs Formula, as used during both the 3rd and 4th Tranches of 2020-21 funding, to determine the allocations published for the £1.55 billion of unringfenced grant in 2021-22. This formula has been designed to reflect the underlying drivers of expenditure: population and deprivation, and the varying cost of delivering services across the country, and we are confident that it will ensure resources are targeted to areas where the need is most acute.

Allocations

17. Allocations of the funding have now been published.

18. For the fourth round of funding in 2020-21, in determining allocations we took into account of the funding local authorities had already received relative to their assessed needs. As we have now appropriately addressed this issue, individual local authority allocations have not been adjusted in this way for this round of funding.

Priority areas for funding

19. While the additional grant will once again be unringfenced, recognising that local authorities are best placed to determine local priorities, we expect the funding to be focussed on a similar set of priority pressures as previously set out for 2020-21 unringfenced funding.

20. These are: adult social care, children’s services, public health services, household waste services, shielding the clinically extremely vulnerable, homelessness and rough sleeping, domestic abuse, managing excess deaths, support for re-opening the country and, in addition, the additional costs associated with the local elections in May 2021.

21. This funding should be used in planning to cover any COVID-related costs for the priority pressures above and any further COVID-19 costs in 2021-22. Councils should plan on the basis of not receiving any additional funding for the above pressures.

Next steps

Payments and funding going forward

22. We are aiming to make payments to local authorities in April 2021.

23. Government has provided certainty to councils on this additional funding now in order to assist councils as they continue to respond to the pandemic. Looking to the future, we have good reasons to be optimistic about overcoming the spread of the virus. On that basis, our working assumption is that COVID-19 costs will start to decline significantly from Easter onwards. We will keep the situation under review, but councils should plan on the basis of no further funding subsequent to this package to meet COVID-19 costs in 2021-22.

Local council tax support grant

Policy proposal

Summary

24. At the Spending Review we announced that we will provide local government with £670 million of new funding for 2021-22 in recognition of the increased costs of providing local council tax support and other help to economically vulnerable households following the pandemic.

25. Broadly, we expect that the funding will meet the additional costs associated with increases in local council tax support (‘LCTS’) caseloads in 2021-22. Decisions on local council tax support scheme design for 2021-22 will be for billing authorities to take as usual, in consultation with their major precepting authorities and the public.

26. The funding is unringfenced and can be used to provide other support to vulnerable households, including through local welfare schemes.

Proposal for distribution on which we are seeking views

27. We propose to distribute the £670 million of grant funding based on working-age LCTS caseloads in each billing authority’s area, using data from quarter 1 and quarter 2 of 2020-21. In doing so, we would be prioritising early certainty over using a later data point (for example, data from all quarters of 2020-21). Waiting to use data from all quarters of this financial year would mean that allocations would not be published and payments made until July 2021 at the earliest.

28. We propose to adjust this distribution based on the ratio of the average bill per dwelling in the billing authority’s area in 2020-21, compared to the average bill per dwelling in England in 2020-21. The average bill per dwelling in an area is calculated as the total council tax payable in an area divided by the total number of chargeable dwellings in the area, reflecting both council tax levels and council tax base. By adjusting for this, allocations would reflect one of the major cost drivers of local council tax support.

29. Having determined initial total billing authority area allocations based on share of working-age caseload, adjusted to reflect the average bill per dwelling, these would then be apportioned between billing and major precepting authorities in the area, based on their share of the council tax requirement in the area for 2020-21.

Timing of payments

30. Using this distribution methodology, we would be in a position to make up-front lump sum section 31 payments directly to billing and major precepting authorities in April. If we were to use an alternative methodology informed by later data points, this would delay the timing of payments.

Allocations

31. Provisional allocations of this funding and a detailed methodology note will be published on this page shortly. Final allocations would be subject to a rounding methodology.

Question 1 - Do you agree with our proposed approach to distributing the £670m of local council tax support grant? If not, why, and do you have an alternative proposal?

Local tax income guarantee for 2020-21

Policy position

Summary

32. Earlier this year, we announced that the repayment of collection fund deficits arising in 2020-21 will be spread over the next 3 years rather than the usual period of a year. The regulations to implement the collection fund deficit phasing came into force on 1 December 2020.

33. We also announced that an apportionment of irrecoverable local tax losses between central and local government would be agreed at the spending review. This confirmed that the government will compensate local authorities for 75% of irrecoverable losses in council tax and business rates income in respect of 2020-21.

34. For council tax, losses in scope will be measured through a comparison of each authority’s council tax requirement and an adjusted Net Collectable Debit, as set out at Annex A. For business rates, they will be measured through a comparison of income as calculated in the National Non-Domestic Rates (‘NNDR’) statistical collection forms 1 and 3, adjusted as set out at Annex A.

Losses in scope of the guarantee

Council tax

35. Losses of council tax income in scope of the guarantee will be measured by comparing an authority’s council tax requirement for 2020-21 with its share of each relevant billing authority’s adjusted ‘Net Collectable Debit’ for 2020-21, as set out at Annex A.

36. This means that the guarantee will predominantly cover expected council tax liability at the time of budget setting for 2020-21, which did not materialise. This might be for example due to an increase in local council tax support costs or unachieved council tax base growth. The department expects billing authorities to continue appropriate collection and enforcement action for outstanding council tax debt, in the usual way.

Business rates

37. Losses of business rates income in scope of the guarantee will be measured by comparing an authority’s estimated 2020-21 non-domestic rating income, as calculated in NNDR1s, with its outturn figures for non-domestic rating income as calculated in certified 2020-21 NNDR3s, adjusted as set out at Annex A.

Next steps

38. Annex A contains further technical detail on the methodology for identifying losses in scope, and implications (if any) for other aspects of council tax and business rates retention systems.

39. We expect to be in a position to make section 31 grant payments directly to billing and major precepting authorities by January 2022, covering 75% of losses identified following the methodology set out above and at Annex A.

40. We will consider further whether there might be a need to make on account payments earlier in the 2021-22 financial year, using an earlier data point, and running a reconciliation against outturn data.

SFC scheme extension

Policy proposal

Summary

41. We are seeking views on a proposed continuation of the successful scheme that is currently in operation in 2020-21, for the first 3 months of the 2021-22 financial year.

Roll over of general principles of existing scheme

42. Spending Review 2020 confirmed that the SFC scheme will operate for the first 3 months of the next financial year (April-June 2021).

43. We propose to continue to use the existing general principles for the extension of the scheme, with the scheme focused on compensating councils for irrecoverable and unavoidable losses from sales, fees and charges income generated in the delivery of services into the first 3 months of the next financial year.

44. The scheme would again feature a 5% deductible rate, whereby councils will absorb losses up to 5% of their planned sales, fees and charges income against the chosen baseline (see below), with the government compensating them for 75p in every pound of relevant loss thereafter. By maintaining a 5% deductible the government is accounting for an acceptable level of volatility, whilst shielding authorities from the worst losses.

45. The definition of an eligible loss will remain the same as has been used for the current scheme so will be familiar to local authorities. Se further information on the current scheme.

Baseline

46. We intend to use each council’s 2020-21 budgeted income as the baseline from which to assess losses. This would ensure a fair comparison with pre-COVID-19 expectations, drawing on the data we have collected on local authorities’ 2020-21 budgets through this year’s scheme.

Question 2 – Do you agree that we should use 2020-21 budgeted income as a baseline for the SFC scheme? If not, we welcome alternative proposals.

Profiling of budgets

47. We will need to consider how we profile baseline budgets and whether there is a need to reflect seasonality, in order to ensure local authorities are treated on a fair and equal basis.

48. Our preferred approach is to assess losses against a quarter of the baseline budget for 2020-21, rather than against the specific April, May, June profile. The 5% deductible will therefore be calculated against a quarter of the budgets you wish to claim for, rather than the full year.

Question 3 – Do you agree that we should use a quarter of 2020-21 baseline budgets to assess SFC losses? If not, we welcome alternative proposals.

Next steps

Final details on the scheme

49. We will determine and publish the final approach to the SFC Scheme extension when practicable in the New Year. As with this year, payments will be conditional on the accuracy and reasonableness of the claims made and the department may require authorities to provide evidence to support their claims.

COVID-19 financial impact monitoring survey

Policy proposal

Summary

50. We intend to continue the local authority COVID-19 financial impact monitoring survey for as long as the pandemic continues to have a significant impact on local authority finances. Equally, we want to reduce the burden on local authorities by streamlining the process as much as possible going forward.

51. Alongside this, we are also seeking your views on the priority areas for data collection and on how we can refine the process in general going forward.

Position on monitoring next year and information to be collected

52. We intend to continue the local authority COVID-19 financial impact monitoring survey for as long as the pandemic continues to have a significant impact on local authority finances. We are aware that completing the returns is time consuming and are keen to ensure that the process is streamlined far as possible and at this stage we intend to collect monthly data up until at least the summer.

53. Our working assumption is that COVID-19 costs will start to decline significantly from Easter, tapering away throughout the first quarter of the next financial year. We are also aware of the capacity requirements completing the monitoring returns requires in local authorities.

54. In 2020/21 we have asked local authorities to report all additional expenditure and income loss due to COVID-19 relative to pre-COVID-19 2020-21 budgets. An equivalent pre-COVID-19 baseline does not exist for 2021-22, and we would therefore appreciate views on what guidance we provide in order to collect the most accurate and consistent data on the impact of COVID-19 on local authority finances next year.

55. In line with the proposal for the SFC scheme above, our intended approach is to ask for figures to be baselined against 2020-21. In this scenario, on the expenditure side we would ask for any additional expenditure not due to COVID-19 (e.g., inflationary pressures or additional investment in a service area) to be netted off. For income loss, we would similarly expect non-COVID-19 impacts on an income source to be accounted for in providing figures.

56. An alternative approach could be to ask local authorities to provide their best estimates of expenditure and income pressures due to the COVID-19 pandemic, whether directly or indirectly, and not be prescriptive about how these are calculated. This should make it easier for local authorities to re-use figures that have already been prepared for internal purposes but is likely to lead to more inconsistent reporting between authorities. We would welcome views on the relative ease and usefulness of these two approaches.

Question 4 – Do you have views for how we ask local authorities to report their COVID-related pressures in 2021-22? Do you have a view on the frequency of the collection cycle in 2021-22? We welcome your views and alternative proposals on the above.

Next steps

57. We will continue the monitoring process in its current format for the remainder of the 2020-21 financial year. From the January collection (Round 9) onwards, we will include a preliminary question asking about 2021-22 COVID-19 pressures.

58. In 2021-22 we will launch a re-designed monitoring collection exercise.

Annex A: Local tax income guarantee technical detail

Council tax

1. Billing authorities and major precepting authorities will be paid directly through section 31 grant in full into general funds in the 2021-22 financial year. The payment will be calculated by taking the authority’s outturn, minus their baseline, and paying 75% of this value, provided it is negative. If it is positive, no guarantee will be payable^{[footnote 1]}.

Baseline

2. Baseline council tax requirements for 2020-21, will be taken from the following statistical release. Legislation requires billing authorities to be responsible for any deficit relating to town and parish councils’ share of council tax receipts in 2020-21. Accordingly, the baseline council tax requirement used for billing authorities will include local precepts.

Outturn

3. The outturn Net Collectable Debit (‘NCD’) in respect of 2020-21 will be taken from the QRC4 returns (section 1, part A, question 1). See the relevant publication from last year.

4. The Net Collectable Debit for 2020-21 will be multiplied by each billing authority’s expected collection rate for 2020-21, which informed its council tax requirement. This will enable a like-for-like comparison. Each billing authority’s estimated collection rate for 2020-21 will be taken from table 9, line 5 of the following publication.

5. We will then adjust this figure to add back the amount by which the 2020-21 Net Collectable Debit has been reduced by the billing authority through use of its discretionary powers to offer reductions under section 13A1(c) of the Local Government Finance Act 1992. We will add a new line to the QRC4 returns to collect data on this amount.

6. This will give an ‘adjusted Net Collectable Debit’ across the billing authority’s area.

7. This adjusted Net Collectable Debit will then be split across major precepting and billing authorities in each billing authority’s area according to their share of the Council Tax requirement for 2020-21 in the area.

8. Each billing authority’s share of the adjusted Net Collectable Debit for 2020-21 will be its outturn figure. For major precepting authorities, their total of shares of adjusted Net Collectable Debits for 2020-21 across their billing authority areas will be their outturn figure.

Business rates

9. Billing and major precepting authorities will be compensated for 75% of their share of losses in business rates income as measured between NNDR1s and NNDR3s.

10. The starting point for the calculation will be the figure for non-domestic rating income as measured in 2020-21 NNDR3s. If this is less than the equivalent figure in NNDR1s, the difference between the two figures will be the loss on which compensation will be calculated, as set out above (ie loss multiplied by a local authority’s share under the rates retention scheme, multiplied by 75%).

11. Before being used to calculate the compensation due, the loss figure will be adjusted to strip out the changes (between NNDR1 and NNDR3) in the section 31 grant due to authorities in respect of the section 47 relief they have awarded. This will ensure that authorities are not compensated twice for the same change in non-domestic rating income. We propose to use the figures in Part 1C of the NNDR1 and Part 4 of the NNDR3 to work out the changes to the section 31 grant awarded, ignoring the adjustment for under-indexation.

12. Authorities will also be awarded 75% compensation for any reduction in the amounts they retain in respect of Designated Areas and in respect of renewable energy and shale gas sites, except insofar as that reduction is the result of an increase in section 47 reliefs for which the authority will already be receiving a section 31 grant.

13. The compensation due to authorities under the income guarantee scheme will be taken into account in calculating levy or safety net payments due to authorities in respect of 2020-21. This will ensure that authorities are not awarded a safety net payment for losses of income for which they are already being compensated.

Annex B: Personal data

The following is to explain your rights and give you the information you are be entitled to under the Data Protection Act 2018.

Note that this section only refers to your personal data (your name address and anything that could be used to identify you personally) not the content of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer

The Ministry of Housing, Communities and Local Government (MHCLG) is the data controller. The Data Protection Officer can be contacted at dataprotection@communities.gov.uk.

2. Why we are collecting your personal data

Your personal data is being collected as an essential part of this process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

3. Our legal basis for processing your personal data

The Data Protection Act 2018 states that, as a government department, MHCLG may process personal data as necessary for the effective performance of a task carried out in the public interest. i.e., a consultation.

4. With whom we will be sharing your personal data

We may share this data with other departments in government where relevant to do so.

5. For how long we will keep your personal data, or criteria used to determine the retention period.

Your personal data will be held for two years from the closure of the period in which we are seeking views.

6. Your rights, e.g., access, rectification, erasure

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you

b. to ask us to stop using your data, but keep it on record

c. to ask to have all or some of your data deleted or corrected

d. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law. You can contact the ICO at https://ico.org.uk/, or telephone 0303 123 1113

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

1. Authorities with a liability to an exceptional balance in deficit must still discharge this over the three financial years 2021-22, 2022-23 and 2023-24 rather than one. An exceptional balance is defined in the Local Authorities (Funds) (England) Regulations 1992 as amended by the Local Authorities (Collection Fund: Surplus and Deficit) (Coronavirus) (England) Regulations 2020 (“the Regulations”) which came into force on 1 December 2020. ↩