£500m shortfall leaves borough budgets on ‘knife edge’, warns London Councils

Boroughs in the capital will need to make over £500m of savings next year to balance their budgets, new analysis from London Councils reveals.

Based on its latest survey of council finances, the cross-party group warns that nine in ten London boroughs expect to overspend on their budgets this year – estimated at over £400m in total across the capital [1].

London Councils says boroughs face a perfect storm of prolonged high inflation, fast-increasing demand for services, and insufficient government funding – leading to a growing risk of financial and service failures.

Pressures on adult and children’s social care, as well as the capital’s worsening homelessness crisis, are the biggest drivers of boroughs’ overspends. London Councils estimates that almost 170,000 Londoners – equivalent to one in 50 residents of the capital – are currently homeless and living in temporary accommodation arranged by their local authority. Boroughs expect to overspend on temporary accommodation by £90m this year.

Ahead of the government’s Autumn Statement in November, where the Chancellor will set out his future spending plans, boroughs are calling for urgent action to boost support for local services and stabilise council finances.

London Councils has launched its key priorities for the Autumn Statement, which include:

An overall funding increase of at least 9% (in line with what was received last year).
Investment to reduce homelessness, including through uplifting the Local Housing Allowance and Homelessness Prevent Grant.
Reforms to the broken local government finance system, such as giving councils longer-term funding settlements and more devolved powers.

Cllr Claire Holland, Acting Chair of London Councils, said:

“Borough finances are on a knife edge – with grim implications for the future of local services in the capital.

“The combination of higher costs due to spiralling inflation, skyrocketing demand for services, and insufficient levels of government funding leaves boroughs in an extremely precarious position. The pressure is relentless – we face a £400m shortfall this year, which rises to £500m next year unless the government provides more support.

“Councils play a vital role in their communities providing essential services and in tackling so many major challenges, such as addressing homelessness, unlocking economic growth, and making faster progress towards net zero.

“The government must use the Autumn Statement to bolster council finances. This will be crucial for helping boroughs stabilise budgets and sustain London’s local services.”

London boroughs’ resources remain almost a fifth (18%) lower than in 2010, despite there now being almost 800,000 more Londoners – broadly equivalent to a city the size of Leeds. This has been exacerbated by over £1bn in unfunded or underfunded new burdens over that period, such as the government transferring responsibility to local authorities for financing Council Tax Support and a host of other measures.

London Councils also highlights a recent report from the independent Institute for Fiscal Studies think-tank that found London local government funding is 17% lower than its estimated relative need – by far the largest gap of any region in England.