Fresh call for more cash from government amid warning over new wave of council bankruptcies

Claire Holland (credit Magnus Andersson-Lambeth Council)

The cross-party body representing local councils in London has warned the government another £400m is needed to stave off more bankruptcies – with outer boroughs said to be most at risk.

London Councils says that despite a 5.5% real-terms increase in their core spending power in this year’s funding settlement from central government, boroughs will continue to grapple with an “enormous” funding gap due to service pressures and costs.

The £400m funding shortfall is roughly the same amount as London boroughs collectively spend on homelessness in a single year.

All but two of the capital’s 33 local authorities are forecast to overspend their budgets this year (2023/24), totalling over £600m – an average of £18m per council.

Outer London boroughs face “a particularly tough outlook” according to London Councils, as it says they are among “the lowest funded per capita in the country”, with growing populations who are becoming more deprived.

Enfield Council’s overspend is forecast to hit £29m this year, amid soaring costs of temporary accommodation.

Councils have a legal duty to balance their budgets, so the funding shortfall must be addressed through spending cuts or use of reserves. Adult social care and children’s services are further statutory services putting a strain on council finances.

Last month, the government offered an extra £600m for councils across England and MPs are due to agree the funding settlement today (Wednesday 6th).

But London Councils says this isn’t enough and a spate of recent warnings of financial failure across local government is the result of many years of underfunding – with boroughs in the capital badly affected. It says the increased frequency of Section 114 notices in the last year “should not be taken lightly”.

Research from the Institute for Fiscal Studies think tank found an estimated 17% gap between funding need and the actual levels of local government funding in London. This was by far the largest gap of any region in England.

London Councils calculates the current 2024/25 finance settlement will leave boroughs’ overall resources 15% lower in real terms than in 2010.

Claire Holland, deputy chair of London Councils, said: “Boroughs will continue to face a bleak financial outlook for the foreseeable future.

“The increase in funding set out in the government’s finance settlement will not be enough to address the enormous funding gap we are grappling with. Massive pressures on local services, skyrocketing costs, and years of inadequate funding have left town hall finances teetering on a cliff edge.

“It is in no-one’s interests for a council to find itself in a Section 114 situation. Londoners want stability for their local services. We will continue to urge ministers to increase funding support and to work with us in making the local government finance system fairer and more sustainable.”

In the upcoming spring budget on 6th March London Councils is calling on the Treasury to address the financial pressures facing boroughs by continuing its Household Support Fund, addressing the costs of homelessness, and reforming the “broken local government finance system” so funding better reflects local need.

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