English councils predict Covid-19 will create a £700m hole in their budgets for culture and leisure services this financial year.
A report from the Institute for Fiscal Studies (IFS) says councils expect to spend £192m more on culture and leisure this year due to the pandemic, while losing an expected £484m in sales, fees and charges.
This means councils’ income from culture and leisure has fallen by 55% from pre-Covid levels. Meanwhile, spending in this area has increased by 9%.
The pandemic has led to extra costs such as implementing safety measures, while the ability to generate income from tickets, cafes and shops has been severely reduced.
Some of the losses will be covered by the government’s previously announced income compensation scheme. But overall, the report finds that councils are facing a £2bn budget gap this year, meaning some may have to cut services unless additional support is provided.
Councils are predicting extra spending of £4.4bn due to Covid-19 alongside a £2.8bn loss of non-tax income, meaning their overall budget pressure in 2020/21 is £7.2bn. IFS calculates that the UK government support promised to councils so far amounts to £5.2bn, leading to an estimated £2bn shortfall.
The report says that the pandemic has created a “perfect storm for councils’ finances” and warns that problems will persist beyond this year.
Together councils hold £3.3bn in reserves that could be used this year, but this is distributed unevenly, meaning that more than four in 10 councils would still face a shortfall even after using their available reserves.
The report warns that councils’ financial difficulties will continue beyond this year, particularly if a Covid-19 vaccine is delayed. “If the government wants to avoid cuts to services,” it says, “additional funding will therefore be needed in the coming years”.
IFS says that while increasing general-purpose grant funding would be the simplest way for the UK government to ease the pressure on councils, more targeted support would be a cheaper option. It also suggests the possibility of temporarily relaxing rules to allow councils to borrow money to cover their day-to-day spending.
Sharon Heal, director of the Museums Association, said: "We have already had the news that Birmingham and York Museum Trusts have announced large-scale redundancy consultations and we know there will be more to come. Many local authorities face a precarious financial future and some have already stated that they will not be able to fund non-statutory services in the future.
"Civic museums are the life blood of our towns and cities throughout the UK and we are asking central government to give fair settlements to local authorities and so that they can invest in the cultural infrastructure that our communities need on their doorsteps."
Councils’ overall loss of sales, fees and charges income from transport (such as parking charges) is expected to be £785m this financial year, while their predicted loss from commercial income (such as rents) is £626m.
The largest predicted income losses are from council tax (£1.9bn) and business rates (£1.8bn), but these will not impact local authority budgets until 2021/22.