London Boroughs Face £4.7bn Funding Gap, Calls for Government Aid

Key Points

• London boroughs face a combined funding gap of £1bn in 2025, forecasted to rise to £4.7bn by 2028-29, according to London Councils.
• Financial strain has forced councils like Havering to cut services, including closing libraries.
• Temporary accommodation for homeless residents, adult and children’s social care are major cost pressures.
• Exceptional Financial Support (EFS) from the government permits councils like Havering to borrow to balance budgets.
• London Councils urges the government for more Budget support: lifting the freeze on temporary accommodation funding, increased transport infrastructure investment, and new fiscal powers for councils.
• Treasury maintains the Budget will balance fairness and security for London’s future.
• Local residents call for fairer taxation to fund vital services.
• Transport projects such as the Docklands Light Railway extension and Bakerloo Line extension are key asks.
• Proposals to increase taxes on luxury properties face mixed reactions; calls exist for council tax reform.
• London Councils welcomes the Fair Funding Review 2.0 but warns the formula underestimates London’s needs.

What is the current financial situation facing London’s borough councils?

London Councils, which represents the 32 boroughs and the City of London, has issued a stark warning about the worsening financial crisis gripping London’s local authorities. As reported by the London Councils press release, a funding gap of £1 billion faces the boroughs for this year alone. Projections show this gap could soar to £4.7 billion by 2028-29 if no further government intervention occurs. The gap stems from rising costs and funding levels that have not kept pace with demand.

This situation is forcing many councils into difficult service cuts and unsustainable borrowing. Councillor Ray Morgon, leader of the Havering Residents Association and head of the London Borough of Havering, provided candid insight during a recent interview. Morgon said bluntly: You’re getting to the point now where it’s getting to rock bottom.

How have councils like Havering responded to financial pressures?

Havering, one of the boroughs most affected by financial distress, explained its recent cost-cutting approach to local services through Councillor Morgon.

“Last year we had to close libraries, which wasn’t very popular… it wasn’t something that we particularly wanted to do but… it was a necessity to ensure that we could make those savings,”

Morgon told BBC journalist. Havering’s financial strain is severe enough that it has had to resort to Exceptional Financial Support (EFS) from the government, essentially permission to borrow more money, just to keep functioning. Last year Havering borrowed £88 million to balance its books.

Morgon walked the reporter through a stalled development site in Romford where the council is now considering temporary modular homes as a more affordable means of housing homeless families, instead of costly hostels or hotels. The council’s statutory duties include providing temporary accommodation along with adult and children’s social care, both major budget drains.

Why is temporary accommodation a critical issue for London boroughs?

Temporary accommodation represents one of the most acute budgetary pressures for London boroughs. London Councils’ deputy chair and Labour councillor Grace Williams highlighted the scale:

“We’ve got one in 50 Londoners who [are] in temporary accommodation. That’s one in 21 children.”

Councils receive government funding to cover some costs, but that support has been frozen since 2011 amid rising accommodation prices. Councils must pay the difference, draining resources available for other services.

Williams spoke of the inequity in funding:

“We get less money from government than we do for social housing, so we’re asking for that kind of reform to make it fairer so that we can really, as well as housebuilding, help those families out of temporary accommodation into settled accommodation.”

What are local residents saying about council funding and taxes?

Interviews with residents like Linda from Harold Hill in Havering reveal public attitudes towards funding services. Linda said the chancellor should consider raising taxes, including income tax, as a fair method to sustain local services.

“You need to pay tax. We don’t get the hospitals and the police, and our rubbish collected and the schools for nothing. We have to contribute but it’s got to be done fairly,” she stated.

Mohammed Idrisnur, a parent visiting the Walthamstow Family Hub in Waltham Forest, emphasised the importance of funding for community services. He explained to the BBC:

“It’s good for us to get support and when the [councils have] got support, we [get] support as well. I’m happy to see this service running.”

What financial support are councils currently receiving and how sustainable is it?

The Exceptional Financial Support (EFS) scheme from the government acts as a crucial lifeline for boroughs near financial collapse. So far, seven London boroughs have accessed EFS to avoid bankruptcy, with about half of London’s 32 boroughs potentially needing the same support within three years, according to London Councils.

However, EFS functions as permission to borrow rather than direct financial relief, creating a cycle of indebtedness and growing concern over future sustainability. Councils like Havering, heavily reliant on EFS, warn that without greater government funding, local service cuts will continue and worsen.

What specific Budget ask is London Councils making to the government?

London Councils’ main Budget requests include ending the freeze on government payments for temporary accommodation, investing more in transport infrastructure to support housing delivery, and granting councils new powers to raise local revenues through mechanisms like an overnight stay levy (tourist tax) and land value capture.

Deputy chair Grace Williams stressed:

“You can’t really have extensive housing growth without the other,”

referring to transport infrastructure projects like the Docklands Light Railway extension to Thamesmead, West London Orbital, and the Bakerloo line extension. She also called for a strategic overhaul of bus services exemplified by the Superloop network, which benefits outer boroughs like Waltham Forest.

What is the government’s response to the councils’ financial crisis?

The Treasury has said the chancellor will deliver a Budget

“that takes the fair choices to build a secure future in London and beyond.”

However, detailed commitments remain awaited.

The government recently announced the Fair Funding Review 2.0, designed to reshape how local government funding is allocated with updated measurements of deprivation that now include housing factors. London Councils chair Councillor Claire Holland cautiously welcomed this but warned that the way children and young people’s services needs are calculated

“dramatically underestimate levels of need in London.”

How are councils responding to proposed changes in council tax and property taxes?

Some proposals reportedly under consideration for the Budget include raising taxes on more expensive properties to raise additional revenue. However, reactions from borough leaders like Grace Williams suggest this may not benefit all areas equally. She said:

“That won’t really help a borough like Waltham Forest,”

which relies on council tax from less valuable properties. Williams called on the government to use this Budget as an opportunity to “properly reform council tax.”

Richmond borough has expressed frustration over proposed funding cuts and threatened legal action, illustrating tensions over how the Fair Funding Review 2.0 redistributes funds.

What is the link between transport infrastructure and housing growth according to councils?

Transport infrastructure is viewed as inseparable from housing development. Williams stated:

“The link between housing and transport infrastructure is just so important, isn’t it? You can’t really have extensive housing growth without the other.”

Key projects like the Docklands Light Railway (DLR) extension, expected to be announced soon by the chancellor, and long-discussed initiatives such as the Bakerloo line extension are pivotal. Outer boroughs demand improvements in bus services citing their vital role in supporting communities.