Borough finances will be in “survival mode” London Councils warns

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December 20, 2024
2 min read

Borough finances will be in “survival mode” London Councils warns

London Councils has warned that borough finances will remain in “survival mode” in 2025-26, despite the government’s latest local government finance settlement. While the settlement includes additional investment for frontline services and efforts to reform the funding system, boroughs face a projected £500m shortfall due to rising service demands and escalating costs.

The new funding settlement includes a £80m increase in the Homelessness Prevention Grant, as well as a 5.7% uplift in overall Core Spending Power for London boroughs. While London Councils has welcomed these measures as positive steps, it stressed that the funding boost is insufficient to address the growing financial pressures, particularly in relation to homelessness.

Homelessness is at record levels in the capital, with more than one in 50 Londoners currently in temporary accommodation arranged by their local borough. The latest government policy requires that at least 49% of the Homelessness Prevention Grant be spent directly on prevention. While boroughs support this focus, the shift could create challenges as much of the grant is currently used to cover the spiralling costs of temporary accommodation. Boroughs already allocate around 80% of the funding to this, and the new restrictions may force them to dip further into already overstretched general funds to meet these costs.

London Councils highlighted that boroughs collectively spend around £4 million per day on temporary accommodation, and that this figure has increased by a staggering 68% over the past year. With an expected overspend of £270m on homelessness budgets in 2024-25, the financial strain shows no sign of easing.

The overall funding shortfall facing London boroughs is projected to reach £500m in 2025-26, exacerbated by inflationary pressures and increased costs, such as the impact of the employers’ National Insurance hike on supply chains. London Councils warned that this funding gap could make it even harder to maintain service levels, with some boroughs already relying on Exceptional Financial Support from the government to stay afloat. Further requests for such support are expected as more boroughs face severe financial difficulties.

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