A new report from the Local Government Information Unit (LGIU) highlights the mounting financial strain on councils, with London Councils describing it as further evidence of the
“severe and worsening pressures” facing borough finances.
The LGIU’s findings reveal that fewer than 10% of senior council officials are confident in the sustainability of local government funding. The biggest challenge stems from surging demand for services, exacerbating existing financial difficulties.
London boroughs, already struggling with stretched budgets, are bracing for a funding gap of at least £500 million in the upcoming financial year (2025-26).
London Councils' warning: boroughs on the brink
Cllr Claire Holland, Chair of London Councils, issued a stark warning:
“This stark report chimes with what we see in the capital, where severe and worsening pressures are pushing London boroughs towards bankruptcy.
“The combination of years of structural underfunding, fast-rising demand for services, and spiralling costs have created a perfect storm for London boroughs’ finances.
“The Spending Review is a crucial opportunity to restore sustainability to council funding. This would put us in a much better position to invest in priorities such as sustaining local services, building more affordable homes, and driving the economic growth we all want to see.”
Emergency support falls short
Recently, it was confirmed that seven London boroughs will receive Exceptional Financial Support from the government, totaling £418 million—over a third of the £1.4 billion allocated nationwide. However, London Councils warns that these emergency measures only add to boroughs’ debt burdens and fail to provide a long-term solution.
The organization is calling on the government to use the Spending Review to inject much-needed investment into local services. Since 2010, London boroughs have faced a 28% funding cut per resident, leading to widespread financial instability.
Key funding demands
London Councils is pushing for:
- Restoration of council funding to 2010 levels by 2028-29, requiring a real-terms annual increase of 4%.
- Protection for demand-driven services, ensuring funding matches projected growth.
- Access to diverse funding sources, reducing reliance on short-term emergency measures.
- Greater investment in early intervention and prevention services, which offer long-term savings and benefits.
With borough finances at breaking point, London Councils insists urgent government action is needed to restore stability and ensure the future of essential local services.