London Councils has called on the government to ensure that planned reforms to local authority funding accurately reflect the capital’s high levels of deprivation and the rising costs of
delivering services.
Responding to the launch of a government consultation on how council funding is allocated, the cross-party group stressed that boroughs are under immense financial pressure and that funding must match the scale of need in London.
Earlier this month, Cllr Claire Holland, Chair of London Councils, described the reforms as “make or break” for borough finances.
While welcoming the government’s focus on deprivation, London Councils warned that any new funding formula must include measures that properly account for housing costs. London has the highest poverty rate in the UK once housing costs are considered, and using inaccurate measures could leave deprived areas worse off.
The proposal to introduce a formula specifically addressing homelessness pressures has been seen as a positive move. London boroughs overspent by £330 million on temporary accommodation in 2024/25 alone.
Boroughs across the capital are facing a collective £500 million budget gap this year. This follows over a decade of chronic underfunding, growing service demands, and rising costs.
Currently, seven London boroughs – nearly a quarter of the total – rely on emergency borrowing through the government’s Exceptional Financial Support scheme, the highest number in any UK region. Without adequate reform, more councils may face effective bankruptcy.
Cllr Grace Williams, Deputy Chair of London Councils, said:
“In the face of severe budget pressures, these funding reforms will be pivotal in determining boroughs’ financial future.
“It has been twelve years since the government formulae that determine so much of our funding were last updated. Change is long overdue – current funding certainly does not reflect the costs of sustaining London’s local services – but if we don’t get this right, we risk more boroughs being pushed towards effective bankruptcy.
“We welcome the chance to shape the government’s plans. It’s vital that the resources we receive match the high levels of need, deprivation and cost of delivering services in the capital.”
London Councils is currently analysing the proposals and will provide further insights and a formal response to the consultation in the coming weeks. Photo by londoncouncils.gov.uk