London’s boroughs are facing a record £1.2bn overspend this year, with council leaders warning that a deepening funding crisis could leave the capital’s 33 local authorities facing a collective £5.2bn shortfall by 2030.
The warning comes ahead of the Chancellor’s Budget on October 28, as councils grapple with rising demand for services, mounting housing costs and funding settlements that local government leaders say have failed to keep pace with inflation.
Stephen Cowan, chair of London Councils, said the financial pressures were threatening the ability of boroughs to maintain essential services.
“Everyone knows the local government finance system is broken,” he said, arguing that funding had “failed to keep pace with skyrocketing costs and demand for services”.
Nine London councils are currently receiving Exceptional Financial Support from the government, allowing them to access emergency borrowing to balance their books. The arrangement has increasingly become a feature of local government finances as councils struggle to close widening budget gaps.
Local authorities have warned that the pressure could translate into significant reductions in services including parks, culture, youth provision, housing and health programmes.
At the same time, several London boroughs have been granted permission to raise council tax beyond the usual 5 per cent ceiling. Kensington and Chelsea, Westminster, the City of London, Wandsworth and Hammersmith and Fulham have all received approval for larger increases.
Wandsworth residents have been warned of a potential 94 per cent increase in council tax bills from April, after the borough was granted permission to exceed the standard limit.
Bromley has also asked ministers for permission to increase council tax beyond the 5 per cent threshold, while Lambeth is expected to seek similar flexibility.
Housing costs are another major pressure. London boroughs are spending about £5.5mn a day on accommodation for homeless families, according to London Councils, adding to already stretched budgets.
Barnet, Croydon, Haringey, Havering, Hillingdon, Lambeth, Redbridge, the City of London and Waltham Forest are currently receiving Exceptional Financial Support.
Cowan said greater fiscal devolution could give boroughs additional tools to manage the crisis and support economic growth.
“London is a leading global city and the powerhouse of the UK economy, but granting London more autonomy is critical to sustaining this success,” he said.
“Strengthening London boroughs by devolving new fiscal resources would put us in a much stronger position to tackle London’s challenges, grow the economy, and maximise London’s contribution to the public coffers.”
He added that the deteriorating funding position was casting a shadow over investment in local services, housing and economic development.
After adjusting for inflation, London’s overall share of local authority funding is expected to be almost 17 per cent lower in 2028 than in 2010.
The government said councils would have access to more than £78bn for local government finances next year, with most of the funding unringfenced.
“Local authorities decide the level of council tax they wish to set, but we are clear that in doing so they should put taxpayers first,” a government spokesman said.
The government said it was also working to reform an “outdated funding system” so that resources were directed towards areas of greatest need.
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