Following the government’s announcement on Exceptional Financial Support for local authorities, London Councils has repeated its call for a sustainable solution to the crisis facing town hall budgets.
The cross-party group describes Exceptional Financial Support (EFS) as a “misnomer” as increasing numbers of boroughs are relying on the emergency borrowing it facilitates. There are serious concerns EFS is burdening councils with further debts and servicing costs – without enabling them to return their finances to a sustainable footing.
The government confirmed seven London boroughs will receive EFS in 2025-26 totalling £418m – a significant jump from the two London boroughs receiving EFS of £71m in 2024-25.
Nationally, government confirmed 29 local authorities are eligible for EFS in 2025-26, up from 19 in 2024-25 and only eight in 2023-24.
In its submission to the government’s Spending Review, London Councils highlights the worsening pressures on borough finances. The umbrella body’s analysis shows boroughs in the capital face a funding gap of at least £500m in the coming year (2025-26).
London Councils also calculates that boroughs’ funding per Londoner fell by 28% since 2010, despite rising demand for services which have become more costly to provide.
Cllr Claire Holland, Chair of London Councils, said:
“Years of structural underfunding combined with fast-rising demand for services and skyrocketing costs have created a perfect storm for borough budgets. These figures show almost a quarter of town halls in London would face financial collapse without emergency borrowing.
"Exceptional Financial Support is a misnomer – it is no longer exceptional and it fails to provide sustainable financial support, instead forcing local authorities to borrow to maintain basic statutory services. Rather than resolve the crisis, EFS is a short-term measure that leaves us with more long-term debts to worry about.
“We desperately need a sustainable solution to the crisis in local government finance, which has been years in the making. We welcome the government’s commitment to working with local authorities to reform a funding system which is fundamentally broken and to bring long-term stability to council finances. London boroughs will be making the case for restoring overall funding to 2010 levels and ensuring it is distributed in a way which meets local need, alongside other crucial interventions to stabilise budgets and avoid further cutbacks to local services.”
The EFS framework has been in place since 2020 and enables councils to take emergency loans from the Public Works Loan Board to help address their immediate financial pressures.
Without this support, more councils would effectively have to issue Section 114 notices as they would not be able to balance their budgets. A local authority Section 151 officer (Finance Director) has a duty to issue a Section 114 notice if they believe the authority is unlikely to balance its budget.
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 care, £150m on children’s social care, and an enormous £270m on homelessness (a figure that has doubled in the past 12 months). The worsening homelessness emergency and spiralling spending on temporary accommodation pose a particular risk to London 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.
London Councils’ priorities for the Spending Review can be found here.