Housing and homelessness pressures pose the “fastest-growing risk” to boroughs and are “wreaking havoc” on town hall finances in the capital, London Councils has warned.
Skyrocketing numbers of homeless Londoners requiring temporary accommodation and the worsening state of social housing budgets threaten the overall stability of borough finances – with several local authorities in the capital edging closer towards effective bankruptcy.
London Councils forecasts boroughs will face a collective budget shortfall (across all services, not just housing and homelessness) of at least £700m next year unless the government provides more funding support.
Making its submission to the Treasury ahead of the Budget on 30 October – where the Chancellor will also set out her Spending Review decisions for 2025/26 – London Councils’ top priority is to stabilise local government funding.
The cross-party group says shoring up borough finances is critical for boosting their ability to help tackle the housing crisis, drive economic growth, and invest in the preventative services that bring long-term benefits to Londoners.
Cllr Claire Holland, Chair of London Councils, said:
“The housing crisis is having a devastating impact on Londoners’ lives and wreaking havoc on town hall finances across the capital.
“Housing and homelessness pressures are the fastest-growing risk to London borough finances. At a time when we need to invest in social housing and support homeless Londoners, boroughs are facing an unrelenting squeeze on our resources. The unavoidable reality is that spiralling costs and years of underfunding threaten to break boroughs’ budgets.
“The current outlook is bleak, but we are committed to working with the government to find a better way forward. The upcoming Budget is a crucial chance for the government to restore much-needed stability to council finances and the local services we provide. This will enable boroughs to play our part in tackling the capital’s housing crisis and driving economic growth in London and across the country.”
London Councils has welcomed the government’s commitment to multi-year spending reviews, multi-year financial settlements, and ending competitive bidding. However, although these changes will improve boroughs’ funding certainty, they will not in themselves address the immediate crisis in council finances.
Boroughs argue a failing local government sector will only exacerbate broader economic and fiscal challenges. Local authorities and their services can be powerful tools for growth but insufficient funding and powers undermine this – and instead could lead to increased demand on other government services and departments, such as the NHS and Department for Work and Pensions.
In its Budget submission to the Treasury, London Councils highlights the following priority concerns:
Overall funding shortfall
- Across all budgets and service areas (i.e. not just housing and homelessness), London Councils estimates that boroughs will overspend on their original budget plans by over £600m this year (2024/25). The group forecasts a collective funding gap for London boroughs of £700m next year (2025/26). However, this is prior to the knock-on impact of overspending this year, so is likely to rise even further.
- Boroughs are grappling with ever-increasing levels of demand for services after experiencing years of structural underfunding. As with so many councils across the country, there is a very real possibility of boroughs needing to issue Section 114 notices (effectively a declaration of bankruptcy). Three London boroughs are currently reliant on Exceptional Financial Support from the government, with more expected next year.
- In 2024/25, London boroughs’ resources for spending on services (their Core Spending Power, or CSP) remains a fifth (£2.2 billion) lower in real terms than it was in 2010/11. With boroughs now serving 884,000 (11%) more residents, this means real terms per person CSP is 28% lower than it was in 2010/11.
- Among its Budget asks to the government, London Councils is seeking a 7% uplift to Core Spending Power in 2025-26 (broadly in line with this year’s increase) to help cover the funding gap.
Unsustainable temporary accommodation numbers
- London Councils estimates over 175,000 Londoners are living in temporary accommodation arranged by their local borough. This equates to one in 50 residents of the capital, and means on average there is at least one homeless child in every London classroom. London accounts for over half (56%) of England’s total number of homeless households in temporary accommodation.
- London Councils’ latest borough survey shows a 10% increase in homeless London households living in temporary accommodation between April 2023 and April 2024, rising to 60,959. The shortage of accommodation options has made boroughs more reliant on expensive options such as commercial hotels. Boroughs are collectively spending around £90m per month – approximately £3m every day – on temporary accommodation, up nearly 40% from a year earlier.
- Across 2023/24, London boroughs collectively overspent on their homelessness budgets by £208m – with 29 of London’s 33 local authorities overspending their budget. Overspending averaged more than 60% per borough. This has continued into 2024/25 with boroughs already forecasting a £250m overspend despite homelessness funding increasing this year.
- The ‘temporary accommodation housing benefit subsidy gap’ is an escalating financial strain to boroughs. Councils are limited in how much funding support they can claim from the government for their temporary accommodation costs. Currently this subsidy is frozen at 2011 levels – even though accommodation has become significantly more expensive over the past 13 years. London Councils’ data from 24 boroughs shows a gap of more than £96m in 2023/24 between the cost of providing temporary accommodation and what councils can recover from government through the housing benefit subsidy for temporary accommodation.
- London Councils is seeking a doubling of Homelessness Prevention Grant (London boroughs received £157m through this grant in 2024/25) and a removal of the 2011 cap on temporary accommodation subsidy rates.
Social housing finances on the brink
- London Councils is extremely concerned about boroughs’ housing revenue accounts (HRAs) – the budgets for managing their social housing stock, which includes paying for repairs and maintenance as well as building new homes for social rent.
- HRA budgets are under pressure due to the combination of reduced resources and increasing costs (including high inflation, additional fire safety requirements, and more repairs needed to London’s ageing housing stock). Three London boroughs forecast they could run out of HRA reserves in the next four years – an unprecedented situation.
- Earlier this year London Councils published analysis showing boroughs face a ‘black hole’ in their social housing finances of £700m between 2023/24 and 2027/28 as a result of the previous government’s interventions to cap social rent increases.
- Pressures are so acute that boroughs are budgeting for £170m of cuts to spending on supervision, management, maintenance and repairs over the next four years to balance their HRA accounts, focusing only on the most urgent repairs and delaying much-needed improvements.
- London Councils is calling for a new funding settlement for the social housing sector alongside more investment in the Affordable Homes Programme to support housebuilding in the capital.
London boroughs will continue making the case for action to stabilise local government funding. Key policy goals include:
Additional funding. To stabilise finances and prevent any more boroughs being forced to issue Section 114 notices, increased investment is needed.
Fairer funding. The distribution of government funding needs to become more reflective of local needs. The government’s core funding formulae have not been updated since 2013 and a ‘fair funding review’ is urgently required.
Funding certainty. Boroughs are seeking long-term funding settlements of at least three years and fewer bidding pots where councils compete for funding from the government. Greater funding certainty will enable better planning and strategic investment in prevention.
Greater financial autonomy. With more financial freedoms and devolved powers, boroughs will be in a stronger position to sustain services and encourage local economic growth. These could include measures such as 100% business rates growth retention for London, powers to create a new tourism levy, and ensuring government grants are un-ringfenced by default (i.e. do not come with burdensome restrictions).