London councils face bankruptcy due to £330m homelessness budget overspend

In 2023-24, the gap was around £96m, but London Councils has estimated the gap for 2024-25 reached £140m – a 45% increase.

Josie Parsons, chief executive of Local Space, said: “These are shocking figures, but are unsurprising for anyone closely involved in helping to tackle the homelessness crisis engulfing London. As a prominent provider of settled accommodation in London, we see first-hand the perfect storm many councils are facing.”

If the trend continues, London Councils fears more boroughs will need emergency support from the government and some may even be at risk of issuing declarations of bankruptcy.

The £330m overspend comes on top of almost £600m already allocated for 2024-25, but has risen after Londoners requiring temporary accommodation has reached the highest level ever recorded – 183,000, or one in 50 residents of the capital.

This amounts to a collective daily spend of £4m on temporary accommodation. Costs have spiked due to landlords ending their arrangements with boroughs (whether to sell their property or seek tenants paying higher rents on the open market) and resulted in increased use of more expensive nightly paid accommodation, including hotels.

The latest analysis comes after Capital Letters, a company set up by a group of London boroughs to address homelessness and reduce spending on temporary accommodation, cited similar reasons for its decision to close.

Grace Williams, deputy chair and executive member for housing and regeneration at London Councils, said: “The worsening homelessness emergency is devastating the lives of too many Londoners and represents the single biggest risk to boroughs’ finances.

“Homelessness spending is fundamentally driven by factors outside our control. Boroughs have a legal duty to provide homelessness support – and we’re seeing homelessness numbers skyrocket while accommodation costs spiral.”

Ms Williams recently gave evidence in parliament on boroughs’ unsustainable spending on homelessness services, including showing MPs a “chart of doom” based on the fast-rising overspends. 

She added: “If things carry on as they are, we will see more boroughs’ become effectively bankrupt. This brings massive uncertainty to the future of our communities’ local services, and could ultimately mean more costs to the government when emergency interventions are required.

“London boroughs are doing everything we can to turn this situation around, but we need urgent action from ministers. Only national government has the powers and resources required to bolster councils’ budgets and reduce homelessness pressures – particularly through investing far more in affordable housing.”

London Councils emphasised the need for urgent national policy action in the Spending Review in June to reduce homelessness pressures, including through more financial support for hard-pressed boroughs and additional investment in affordable housing.

The cross-party group is calling for an end to the 14-year freeze on the amount local authorities can claim back from the government to meet their temporary accommodation costs. 

In addition to making the recent increase in Local Housing Allowance rates a permanent measure, it should be updated annually to track inflation and ensure adequate support for low-income tenants in the private rented sector. 

London Councils would also like to see a more ambitious and longer-term Affordable Homes Programme on top of the initial investment confirmed for 2026-27.  

A Ministry of Housing, Communities and Local Government spokesperson said: “We inherited a serious housing crisis, which is why we are taking urgent and decisive action to end homelessness, fix the foundations of local government and drive forward our Plan for Change.

“This government is providing £1bn for crucial homelessness services and tackling the root causes of homelessness by building 1.5 million new homes, boosting social and affordable housing and abolishing Section 21 no-fault evictions.”