London Councils is renewing its call for a long-term, sustainable funding solution for local authorities, rejecting the government’s Exceptional Financial Support (EFS) as an inadequate response

to the deepening financial crisis.

The cross-party group criticizes EFS as a misleading term, arguing that it is no longer “exceptional” as more boroughs become dependent on emergency borrowing. Instead of providing a viable financial foundation, EFS burdens councils with additional debt and rising servicing costs, making it harder to achieve stability.

For 2025-26, the government has allocated £418 million in EFS to seven London boroughs, a sharp increase from the £71 million given to just two boroughs in 2024-25. Nationally, 29 local authorities will receive EFS in 2025-26, compared to 19 in the previous year and only eight in 2023-24—highlighting the growing reliance on emergency funding.

London Councils’ latest analysis underscores the severity of the financial strain, revealing a funding shortfall of at least £500 million for London boroughs in 2025-26. The group also notes that borough funding per Londoner has declined by 28% since 2010, even as service demands and costs continue to rise.

The need for a structural fix

Cllr Claire Holland, Chair of London Councils, emphasized the urgency of addressing local government finance at its core:

“Years of structural underfunding combined with fast-rising demand for services and skyrocketing costs have created a perfect storm for borough budgets. These figures show almost a quarter of town halls in London would face financial collapse without emergency borrowing. 

"Exceptional Financial Support is a misnomer – it is no longer exceptional and it fails to provide sustainable financial support, instead forcing local authorities to borrow to maintain basic statutory services. Rather than resolve the crisis, EFS is a short-term measure that leaves us with more long-term debts to worry about.

“We desperately need a sustainable solution to the crisis in local government finance, which has been years in the making. We welcome the government’s commitment to working with local authorities to reform a funding system which is fundamentally broken and to bring long-term stability to council finances. London boroughs will be making the case for restoring overall funding to 2010 levels and ensuring it is distributed in a way which meets local need, alongside other crucial interventions to stabilise budgets and avoid further cutbacks to local services.”

Mounting pressures on boroughs

Introduced in 2020, the EFS framework allows councils to borrow emergency funds from the Public Works Loan Board to address immediate financial pressures. Without this support, more councils would be forced to issue Section 114 notices, signaling an inability to balance their budgets.

The crisis is driven by surging demand for statutory services and the rising cost of delivery. London Councils reports overspending of £180 million on adult social care, £150 million on children’s social care, and a staggering £270 million on homelessness—a figure that has doubled in just one year.

The homelessness emergency is a particularly severe strain on borough finances. With at least one in 50 Londoners homeless—including one homeless child in nearly every classroom—boroughs are spending an unsustainable £4 million per day on temporary accommodation.

A call for urgent action

London Councils is pressing for meaningful reforms in the upcoming Spending Review, advocating for increased and fairer funding allocations to prevent further cuts to vital local services. As the crisis deepens, boroughs require a permanent solution rather than temporary financial patches that lead to greater instability.