Auditor's report reveals the impact of Covid-19 on council finances

Local government income during the coronavirus pandemic exceeded spending for the first time since 2015 an audit of Northern Ireland's councils has revealed.

The latest auditor’s report also uncovered the highest sickness rates among workers in the wake of Covid-19.

The report highlighted the major impact of the pandemic on local government finances.

Following a “notable reduction” in staff absence levels during 2020-21, in 2021-22 absences rose to their highest levels against the previous five years, with average an average sickness level of 15.8 days.

The audit found that during peak Covid-19 measures – 2020-21 – total local government income exceeded total expenditure for the first time since the formation of the new council structures in 2015.

It attributed council income exceeding expenditure to the pandemic response, which saw both a reduction in local government spending, and rise in significant, albeit short-term, financial support from central government.

In the following year – 2021-22 – while expenditure levels remained lower than pre-pandemic, a drop in income meant that the local government sector made a return to overspending as expenditure (£1.07 billion) exceeded income (£1.056 billion).

The audit also revealed that debt repayments were greater than the cost of new borrowing.

As a result, the value of outstanding debt across councils fell by £99.3 million (17%) over the two-year period.

While that relates to the overall totals, the report noted “significant variance” between councils in terms of both overall debts and the money used to pay those debts.

There was also an increase useable cash reserves, from £266 million at the end of 2019-20 to £462.8 million at the end of 2021-22.

The change in financial landscape over the period was also acknowledged, with inflation and the cost of living crisis putting pressure on local governments with significant uncertainty over future funding.

The report also found that during 2020-21 fraud cost councils £92,000 a "significant increase" from £5,000 in 2019-20.

This total fell during 2021-22 to £9,400.

Northern Ireland’s Local Government Auditor, Colette Kane, urged councils to foster a culture of financial resilience.

She said: “Councils must always balance the cost of delivering services with the level of income they are able to generate. In the current economic environment, this is difficult,” she said.

“Decisions that have potentially significant medium and long-term implications are having to be made with little clarity about how those implications can or will be managed in future.

“We have already seen several councils raising domestic rates in response to these challenges.

“A clearer picture of councils’ financial position will emerge from the audit of the 2022-23 financial statements and I will have more to say on this in my next report.

“However, it is clear that robust financial planning is more essential than ever.

“I have highlighted a number of important considerations for councils moving forward.

“These include how best to utilise existing reserves to maximise value for ratepayers or, conversely, how to build financial resilience where levels of reserves deplete due to a reduction in income.

“The adaptability and flexibility displayed by the local government sector in responding to the pandemic will continue to be needed if councils are to innovate and embrace change and new opportunities.”

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