Guidance

February 2021: COVID-19 funding for local government in 2021 to 2022 policy paper

Updated 12 August 2022

Applies to England

Executive summary - local government 2021 to 2022 COVID-19 package

1. Following the commitments made at Spending Review 2020 on 25 November to offer further COVID-19 support for local authorities in 2021/22, on 17 December 2020 we outlined further details on these commitments and sought views through a consultative policy paper. We received 71 responses to that paper and engaged on the proposals with sector representative groups.

2. The December publication included final allocations for local authorities on £1.55 billion of unringfenced grant to manage the immediate and long-term impacts of the pandemic, to be paid in April 2021; a proposal for distributing the £670 million of grant to enable councils to continue reducing council tax bills for those least able to pay; and our preferred position on the extension of the Sales, Fees and Charges income support scheme (SFC Scheme) to June 2021. Following our commitment earlier this year, we also outlined details of a new 75% guarantee scheme for irrecoverable council tax and business rates losses for 2020/21, worth an estimated £800 million. Finally, we sought feedback from the sector on our approach to the COVID-19 financial monitoring survey for local government.

3. This paper provides the government’s update on the 2021/22 local government COVID-19 package, having fully considered all responses to the consultative policy paper.

4. Separate to this package of support, the Minister for the Constitution announced on 5 February that a further £15 million of central support will also be made available to local authorities in England to help with COVID-19-secure measures in the upcoming local polls. Alongside this bespoke funding, we would also ask councils to consider using the flexibility provided by the £1.55 billion unringfenced grant to prioritise additional COVID-19 related costs noting local elections were outlined as a priority pressure for £1.55 billion grant.

Local council tax support grant

5. The £670 million of new grant funding for local council tax support will be distributed as set out in the consultative paper. Specifically, allocations will be based on each billing authority’s mean average working-age local council tax support caseload across the first two quarters of 2020/21 and its average bill per dwelling in 2020/21, compared to the England average.

Local tax income guarantee for 2020/21

6. Losses in scope for council tax will be measured as set out in Annex A of the consultative paper published on 17 December. We continue to work through the detailed calculations for business rates, considering how these interact with the business rates system as a whole, and will provide further detail as soon as possible. We will make an front-loaded, on-account cash payments for the guarantee early in the financial year 2021/22, before reconciling against outturn data later in the financial year.

Sales, fees and charges scheme extension

7. The extension of the Sales, Fees & Charges Scheme, into the first three months of 2021-22, will operate on the same basis as the successful 2020/21 scheme. This means that local authorities will continue to absorb the first 5% of all relevant, irrecoverable income losses compared to budgets, on a pro rata basis, with the government compensating councils for 75 pence in every pound of loss thereafter.

8. This paper also confirms the government’s final position on the two substantive elements of the consultative policy paper: 1) the use of the 2020/21 baseline for budgeted income and 2) in order to better reflect the seasonality of their income, government will give local authorities discretion over how they report losses against a budgeted income for the Apr-Jun quarter of 2020/21.

COVID-19 financial management information collections

9. The department intends to continue the local authority COVID-19 financial management information collections in 2021/22. This paper provides an update on our proposed approach to the survey in 2021/22, noting that this remains in development and decisions are not yet final. The department currently expects to continue running the survey on a monthly basis for as long as the pandemic has a significant impact on local authority finances. We intend to ask respondents to use 2020/21 pre-COVID-19 budgets as a baseline from which to calculate 2021/22 pressures.

Local council tax support grant

Summary of responses

10. The majority of responses to the consultation broadly agreed with the proposed distribution methodology, welcoming the early certainty that it would provide for budget setting. Some suggested that distribution should reflect the increase in local council tax support caseloads in quarters 1 and 2 of 2020/21, rather than mean average total caseload in these quarters. They felt this would better reflect costs driven by the pandemic. By contrast, a small number of responses raised concerns that using data from the first two quarters of 2020/21 to determine the allocation would not reflect the distribution of pressures in 2021/22. They suggested that payments should instead be delayed to enable use of later data points.

11. A small number suggested that distribution should reflect average band D levels or average bills per local council tax support claimant. They considered that this would better match local council tax support costs. Some responses also queried the government’s expectations for how the funding would be used and its implications for aspects of the council tax setting process.

12. A number of responses called for the position to be reviewed during 2021/22 should the additional cost of local council tax support in 2021/22 prove higher than the £670 million provided.

Final policy position

13. Having reflected on responses, the government has decided to confirm that final payments will be made on the basis set out in the consultative paper. This reflects that the majority of respondents welcomed the early certainty provided through the approach set out in December, which helps with budget planning and cashflow at a time of high levels of uncertainty.

14. Final grant payments will be distributed as proposed in the consultative paper and set out in the indicative allocations (subject to a grant payment rounding methodology to the nearest £1, and to possible further minor revisions to reflect changes in published statistics).

Timing of payments

15. Grant payments will be made directly to billing and major precepting authorities by section 31 grant, as a lump sum early in the financial year 2021/22.

Further consideration – scheme design

16. The grant is being provided to local authorities in recognition of the anticipated extra cost to them of local council tax support at a time when more households are facing financial difficulties as a result of the pandemic. It is in addition to the funding that is already built into the local government finance system for local council tax support (which is a local discount, rather than a benefit payment).

17. Depending on local decisions at the time of budget setting, and actual eventual caseloads, this extra cost may materialise as tax setting base reductions (leading to less available council tax income in 2021/22), or a deficit on the collection fund at the end of 2021/22, or both. There are no specific requirements connected to the grant regarding the design of local council tax support schemes for 2021/22, which remain a matter for billing authorities, in consultation with their major precepting authorities and the public. The funding is unringfenced but is provided towards expenditure incurred, or to be incurred, in respect of the provision of local council tax support in 2021/22.

18. An increase in local council tax support costs for 2021/22 may also have an impact on town and parish councils, where these are recognised by the billing authority as a reduction in tax setting base. The government does not have powers to offer direct financial support to town and parish councils. However, it expects billing authorities to discuss the distribution of this funding with their local precepting authorities, and notes that when apportioning the aggregate allocations in each area, the billing authority share has been calculated including local precepts.

Further consideration – accounting

19. Any questions on accounting practices should be directed towards the Chartered Institute of Public Finance and Accountancy or other professional bodies.

Local tax income guarantee for 2020 to 2021

Summary

20. The consultative policy paper did not explicitly invite views on the local tax income guarantee. In broad terms it set out how losses in scope will be quantified for both council tax and business rates.

21. The local tax income guarantee will cover 75% of irrecoverable losses in business rates and council tax income for 2020/21. Tax income guarantee payments are not being provided directly to meet collection fund deficits estimated in January but will be calculated at the end of the financial year, based on outturn figures. Losses will be measured against the income that billing and major precepting authorities had anticipated for 2020/21, as reported in National Non-Domestic Rates (NNDR1) and Council Tax Requirement (CTR1) returns. For business rates, losses in scope will exclude losses that are due to increases in those reliefs for which authorities are already being fully compensated through section 31 grants. The grant is unringfenced and can be used as considered appropriate locally.

Update on the position

22. Where responses commented on the local tax income guarantee, they welcomed the broad principle of the guarantee for both business rates and council tax. However, some questioned the exclusion of drops in in-year collection rate from the guarantee’s council tax calculations.

23. Having considered responses, the government is maintaining the approach to the guarantee’s council tax calculations. The vast majority of unrealised council tax income in 2020/21 will result from increased local council tax support costs, the cost of which falls within scope of the guarantee. The government expects billing authorities to continue appropriate collection and enforcement action for any outstanding council tax debt in the usual way. It is allowing local authorities to phase repayment of collection fund deficits accrued in 2020/21 over three years rather than one, in order to help them manage their cashflow.

24. Losses in council tax income will therefore be measured as set out at Annex A of the consultative policy paper. Specifically, billing and major precepting authorities will be compensated for 75% of their share of irrecoverable losses in council tax income for 2020/21, measured by taking each authority’s share of the aggregate area council tax requirement reported to the department in the Council Tax Requirement (CTR1) return for 2020/21, and deducting its share of the ‘adjusted’ in-year net collectable debit reported in the Quarterly Return of Council Taxes and Non-Domestic Rates (QRC4) return for 2020/21.

25. The ‘adjusted’ net collectable debit will be calculated by multiplying the reported in-year net collectable debit by the collection rate used to inform council tax setting for 2020/21, which was reported to the department via CTR1 returns. This will then be adjusted by adding the value of council tax reductions offered to taxpayers in 2020/21 through use of the billing authority’s discretionary powers under section 13A 1(c) of the Local government Finance Act 1992. This adjustment will ensure for example that authorities do not receive double compensation for providing reductions as part of the government’s £500 million Hardship Fund.

26. There are a number of particularly complex and evolving challenges relating to the calculation of the tax income guarantee for business rates. We will continue to engage with the sector on how best to manage these. In particular we will consider how the guarantee may interact with the ongoing operation of the business rates system, including section 31 grant payments for reliefs and COVID-19 related appeals. We will provide authorities with more detail about the calculation of the guarantee shortly.

27. Further to concerns raised by the sector about cashflow challenges next year, we will make front loaded on-account cash payments for the income guarantee early in the financial year 2021/22, before reconciling against outturn data later in the financial year. For council tax, on-account payments will be made using data provided in section D of the QRC3 return for 2020/21. Further detail will be provided on the business rates on-account payments in due course.

28. In accordance with proper accounting practice, our understanding from discussions with the Chartered Institute of Public Finance and Accountancy is that the grant payments from the income guarantee should be recognised in the 2020/21 accounts, as the grant is to cover income loss in 2020/21. Any questions on accounting practices should be directed towards relevant professional bodies.

Sales, Fees and Charges Scheme extension

Summary

29. We have announced an extension to the Sales, Fees and Charges Scheme, into the first three months of 2021/22, on the same basis as the current year’s scheme (councils will absorb the first 5% of relevant, irrecoverable losses compared to budgets, which will be calculated on a pro rata basis, with the government compensating councils for 75 pence in every pound of loss thereafter).

30. Responses to the consultative policy paper broadly agreed with the use of the 2020/21 baseline for budgeted income, with many stating there was no viable alternative. A minority of respondents also noted the impact of yearly fee increases and a small number requested the freedom to take this into account when setting the new baseline.

31. Around half of respondents noted the seasonality of their income and a sizeable number requested the freedom to profile their budgets to better reflect the April – June quarter of 2020/21, rather than a straight quarter of 2020/21 budgeted income, as previously consulted.

Final policy position - baseline

32. After carefully considering the views expressed to the consultative policy paper, we are now confirming the use of the 2020/21 baseline for budgeted income.

Final policy position – profiling of budgets

33. The government has listened to the views expressed and we are now confirming that local authorities will have the option to report losses against a budgeted income for the April - June quarter of 2020/21, to better reflect the seasonality of their income.

34. Local authorities should be prepared to provide sufficient evidence to justify the budget figures they submit under the scheme.

Local authority COVID-19 financial management information collection

Summary

35. The consultative paper set out our intention to continue with the local authority COVID-19 financial management information (FMI) collections in 2021/22 and requested views on how the survey should ask authorities to calculate their 2021/22 COVID-19 pressures and on the frequency and timing of returns.

36. The department currently expects to continue running the survey on a monthly basis for as long as the pandemic has a significant impact on local authority finances, and intends to ask respondents to use 2020/21 pre-COVID budgets as a baseline from which to calculate 2021/22 pressures.

Estimating 2021/22 COVID-19 pressures

37. Of the respondents who commented on this question, 7 agreed with our proposal to ask local authorities to calculate their 2021/22 pressures using a pre-COVID-19 2020/21 budget baseline, and 15 disagreed.

1. The majority (thirteen) of the respondents who disagreed instead agreed with our alternative proposal, to allow authorities to submit best estimates of 2021/22 COVID-19 pressures without prescriptive guidance as to how these are calculated. The main reason given for preferring this alternative is that it would enable local authorities to reuse figures produced for internal purposes and concerns over the additional resource required to produce bespoke figures for the FMI returns.

39. By contrast, at a focus group held with the sector on the monitoring proposals, attendees were overwhelmingly supportive of the proposal to ask for figures baselined on 2020/21 pre-COVID-19 budgets.

Frequency and timing of returns

40. When commenting on the timing and frequency of collection, 28 of 62 respondents specifically highlighted the burden that reporting places on local authorities.

41. With regard to the frequency of returns, 29 respondents supported continuing collections on a monthly basis, and 28 supported reducing to either a bi-monthly (13) or quarterly (15) collection, and eleven did not give a preference. Sixteen respondents commented that the frequency of returns should be reduced as the impact of COVID-19 on local authority finances reduces.

42. A number of other points around the timing and frequency of collections were also raised by respondents. These included that an advance timetable of collection dates would help plan workloads; that allowing longer than a week for returns would ease pressures, particularly where new information is requested; and that not having a return in April or May would help with resource pressures at a time when finance teams are focussed on closure of accounts and statutory reporting. It was also suggested that the timing of collections should be aligned with council quarterly budget reporting.

Other comments

43. A number of respondents raised that point that the burden of reporting could be reduced by streamlining the questions in the returns and maintaining consistency of the form between rounds.

44. Some respondents suggested that not being able to revise previously reported figures was unhelpful, and could distort the profile of pressures reported.

45. It was suggested that MHCLG should use the returns to gather information on the longer-term impacts of COVID-19 pressures.

46. It was also highlighted that it would be beneficial to be able to import data directly from Excel into DELTA, and others also commented that it would be useful if one single system was used for all returns to central government.

47. Some respondents requested more information about how the data is used and the department’s conclusions from it.

Current position – information to be collected

48. While recognising that it will place an additional burden on some local authorities, the department’s current intention is to ask local authorities to baseline their 2021/22 pressures from their pre-COVID-19 2020/21 budgets, while making reasonable adjustments for estimated non-COVID-19 pressures on budgets. This approach, as noted by some respondents, should improve the consistency of data returned by the sector.

49. We will however keep this position under review, and will take into account responses and comments on the 2021/22 estimates provided in the Round 9 monitoring form before taking a final decision.

Current position – frequency of collection

50. The department considers that the frequency of data collection needs to be responsive to the course of the pandemic and anticipates that the returns will need to continue on a monthly basis for the foreseeable future. We recognise the reporting burden that this places on local authorities, however, and will keep this under review. Unfortunately, it is not possible to allow longer than a week for returns to be completed while on a monthly collection cycle, however where possible we will give advance notice of upcoming changes to the form.

51. The department recognises that advance notice of collection dates is helpful for planning purposes and will aim to provide an advance schedule of provisional dates.

52. It is unlikely that the department will be able to avoid a return in April or May, but we will work with the sector to find the most convenient date within this window to launch the first return for 2021/22.

Current position – other comments

53. The department does not anticipate asking local authorities to revise figures reported for previous months but will clarify guidance to make it clear that we understand figures may change and do not expect cumulative monthly totals to reconcile with full year estimates.

54. We will consider whether the financial management information returns are the appropriate avenue for gathering information from the sector about the longer-term financial impacts of COVID-19.