London boroughs are facing a £500m budget shortfall next year, according to cross-party organisation London Councils.
An additional £100m in savings will have to be made compared with this year without more government support, the organisation – which represents the interests of the 32 London boroughs and the City of London Corporation – reported.
Based on its latest survey of council finances, nine in ten London boroughs expect to overspend on their budgets this year, coming to more than £400m in total across the capital.
London Councils noted a “perfect storm of prolonged high inflation, fast-increasing demand for services, and insufficient government funding” and said there was 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 noted. 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, it estimated.
According to the survey, boroughs expect to overspend on temporary accommodation by £90m this year.
“Borough finances are on a knife edge – with grim implications for the future of local services in the capital,” said Claire Holland, acting chair of London Councils.
“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.”
Call for action
In light of the financial challenges facing boroughs, London Councils has set out its key priorities for the government’s Autumn Statement in November, where the chancellor will outline his future spending plans.
These include calling for an overall funding increase of at least 9%, in line with what was received last year, and an investment to reduce homelessness, including through uplifting the Local Housing Allowance and Homelessness Prevent Grant.
The organisation has also called for reforms to the “broken” local government finance system, such as giving councils longer-term funding settlements and more devolved powers.
Holland stated: “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.”
Giving background to these calls, London Councils noted that 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”.
The situation 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”, the organisation added.
London Councils also highlighted a recent report from the Institute for Fiscal Studies, which showed that London local government funding is 17% lower than its estimated relative need. This is “by far” the largest gap of any region in England, London Councils noted.
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