London boroughs say they face a £500m funding gap in the coming year, despite receiving a 5.7% increase to their Core Spending Power.
Responding to the local government finance settlement 2025-26, which has now been finalised by MHCLG and awaits approval from the House of Commons, the cross-party London Councils group warns of significant funding shortfalls in key service areas and emergency borrowing becoming the norm for boroughs.
London Councils’ analysis suggests at least seven boroughs in the capital will require Exceptional Financial Support (EFS) from the government to balance their budgets in 2025-26 [1]. This marks an increase from the two London boroughs relying on EFS arrangements in 2024-25, and the amount of EFS funding directed to local authorities in the capital will need to increase by over 500% (from £70m in 2024-25 to £430m in 2025-26).
Boroughs highlight this growing reliance on EFS as further evidence of structural underfunding and are calling for better forms of support from central government for councils struggling with the most urgent budget pressures.
As a whole, London local government is grappling with a grim financial outlook.
The combination of fast-rising demand for statutory services (where boroughs have a legal duty to provide support) and the increasing cost of delivering these services has led to substantial overspending on boroughs’ original budget plans this year (2024-25).
London Councils’ analysis shows a £180m overspend on adult social, £150m on children’s social care, and an enormous £270m on homelessness (a figure that has doubled in 12 months). The worsening homelessness emergency and skyrocketing spending on temporary accommodation in the capital pose a critical risk to boroughs’ finances.
London Councils estimates at least one in 50 Londoners is homeless – including on average at least one homeless child in every London classroom – and that boroughs spend around £4m a day on temporary accommodation.
Due to these ongoing service pressures, plus the impact of the increase in National Insurance Contributions on boroughs’ supply chains, costs will rise faster than funding levels. London Councils forecasts a shortfall of at least £500m in 2025-26 – even though the government is boosting boroughs’ funding.
Cllr Claire Holland, Chair of London Councils, said:
“Massive service pressures and tight funding constraints mean that hard times are still here for boroughs’ budgets. Having faced more than a decade of structural underfunding, councils in the capital remain under enormous financial strain.
“We are dealing with a range of immense challenges in London, but the worsening homelessness emergency represents the biggest single risk to borough finances. The impact of homelessness on Londoners – especially families with children – is devastating, and the costs to boroughs are utterly unsustainable.
“With more and more boroughs forced to turn to the government for Exceptional Financial Support simply to stay afloat, it is clear that there is a long way to go to end the crisis in local government finance.
“Boroughs provide vital local services for our communities and play a crucial role in delivering new homes and driving economic growth. We desperately need financial stability and will carry on working with the government to achieve this.”
London Councils has welcomed this year’s Spending Review as an opportunity to make the case for more long-term investment in local services. Boroughs also support the government’s commitment to reforming the broken system of funding local authorities, and will be seeking more flexibilities and devolved powers to help sustain their finances.
London Councils’ analysis shows that boroughs’ funding per Londoner fell by 28% since 2010, despite an 11% growth in London’s population and rising demand for services.
