London’s councils warn over £400m funding shortfall amid ‘skyrocketing’ costs

Fourteen councils have issued Section 114 notices, which effectively is a declaration of bankruptcy, since the Local Government Finance Act took effect in 1988. In London, Croydon Council has issued three Section 114 notices in the space of two years, between 2020 and 2022.

Hackney and Hillingdon had also issued Section 114 notices prior to the current crisis. 

London Councils said that despite a 5.5% real-terms increase in core spending power in the settlement, town halls will face an “enormous” funding gap due to service pressures and costs.

The £400m funding shortfall is roughly the same amount as London boroughs collectively spend on homelessness in a year.

The group said that 31 out of the capital’s 33 local authorities are forecast to overspend their budgets this current financial year (2023-24), totalling more than £600m.

It also warned that government’s plans to increase council funding rely “too heavily” on council tax. 

The group also flagged that rising demand for services and inflationary costs will pose “major budgetary challenges”. Housing and homelessness services are among the “key drivers” of councils’ finance concerns, the group said. 

According to London Councils’ calculations, the 2024-25 finance settlement will leave boroughs’ overall resources 15% lower in real terms than in 2010.

As next month’s Spring Budget approaches, the group said it was also calling for the Household Support Fund to continue as it is currently due to end in March. 

Councils also need “greater investment in affordable housing and homelessness prevention”, the group said. One in 50 Londoners are homeless and living in temporary accommodation, according to London Councils’ estimates.