The £39bn boost for affordable housing announced at the Spending Review is a “potential gamechanger” for efforts to tackle the housing crisis in the capital, according to London Councils, with the cross-party group arguing it is “vital” London receives its fair share of the national pot.
Boroughs have also welcomed the Spending Review bringing additional investment for children’s social care and temporary accommodation, saying this will help local authorities invest in prevention and reduce the cost of delivering services in the long-run.
However, London Councils warns the modest overall increase to council funding means boroughs’ budgets still face an “extremely difficult” outlook in the immediate term and “serious risks” to financial stability, with plans to reform council funding now “make or break” for town hall finances in London.
With the government consulting on changes to the way in which council funding is distributed [1], London Councils stressed the importance of ensuring that the money provided to boroughs reflects the high levels of need and significant deprivation in the capital, as well as the rising cost of delivering local services [2].
Key asks include using deprivation measures that account for housing costs, introducing a new formula for homelessness pressures, and accurately assessing demand for children’s services.
Boroughs are grappling with a £500m budget shortfall this year, following more than a decade of structural underfunding, skyrocketing demand for services and rising costs. Almost a quarter of councils in the capital (seven) now rely on emergency borrowing measures through the government’s Exceptional Financial Support programme [3] and more boroughs are likely face the risk of effective bankruptcy if funding reforms fail to deliver sufficient resources [4].
Cllr Claire Holland, Chair of London Councils, said:
“Increased investment in affordable housing is hugely welcome and critical for tackling the capital’s housing crisis. This is a potential gamechanger in our efforts to accelerate housebuilding and it’s vital that London gets its fair share of this funding.
“However, the outlook for boroughs is still extremely difficult and there remain serious risks to our financial stability. More than a decade of structural underfunding, fast-rising demand for services and spiralling costs have pushed council budgets in London to the brink.
“The upcoming reforms to local government funding are now ‘make or break’ for London boroughs. The resources we receive must match the high levels of need, deprivation and cost of delivering services in the capital.”
With housing and homelessness the biggest risk to borough finances, increased investment in housebuilding has been a key ask of London Councils in the run up to the Spending Review. London’s allocation of the £39bn pot is yet to be confirmed and boroughs will lobby for the capital to receive its fair share of the Affordable Homes Programme funding, in partnership with the Mayor.
The government’s commitment to introducing a 10-year social rent settlement at CPI+1% and consulting on rent convergence has also been welcomed. London Councils has pushed for these policies and recently warned of boroughs reaching a “crunch point” in their social housing finances [5].
Confirmation that London will receive an integrated settlement from 2026-27 is a positive step forward for the capital, as this will enable greater flexibility in spending on regional priorities. Boroughs will look to work with the Mayor of London and national government to develop suitable joint-decision making arrangements for relevant funding streams within the integrated settlement, ensuring it can deliver the best possible outcomes for Londoners and maximise value for money.
However, the lack of any confirmed investment for major transport infrastructure projects in the capital is likely to represent a significant barrier to economic growth and housing delivery. Alongside the Mayor, boroughs will continue to make the case to government to support infrastructure investment in London, through both capital spending and innovative funding mechanisms, such as Land Value Capture.
ENDS
[1] The government announced last year that it will reform its approach to new funding allocations for local authorities, with the aim of changes being implemented in 2026-27.
This will include updating funding formulae that allocate core funding to local authorities and resetting the business rates retention scheme – neither of which have been changed since 2013 – reducing the number of grants to local authorities and delivering a multi-year settlement over the next three years (from 2026-27 to 2028-29)
A government consultation on aims and principles closed in February 2025:
https://www.gov.uk/government/consultations/local-authority-funding-reform-objectives-and-principles
As the next step towards reform, a consultation on detailed proposals is expected within the coming weeks.
[2] London has the highest rate of households in relative low income once housing costs are properly reflected. More than a quarter (26%) of London households have “relative low income”, defined by DWP as having household income below the 60% median average income, based on the three years ending 2023-24.
[3] Seven London boroughs now require Exceptional Financial Support (EFS) from the government to balance their budgets for 2025-26, the highest rate of any region in the country. London accounts for almost a third (£418m) of the national EFS total of £1.3bn. This means seven London boroughs could be borrowing more than £1 million each day just to cover their day-to-day running costs.
EFS is an emergency measure that effectively forces councils into further borrowing or selling assets rather than addressing structural funding issues.
[4] Homelessness represents a key challenge for boroughs’ finances. London Councils estimates that one in 50 Londoners is homeless and living in temporary accommodation arranged by their local borough. Boroughs collectively spend £4m daily on temporary accommodation for homeless Londoners, with major implications for their budgets:
https://www.londoncouncils.gov.uk/news-and-press-releases/2025/ps330m-homelessness-overspend-housing-crisis-threatens-bankrupt-london
Growing demand and insufficient funding for other statutory services are also undermining boroughs’ financial stability. London Councils recently highlighted ballooning deficits for SEND provision, adding to boroughs’ bankruptcy risk:
https://www.londoncouncils.gov.uk/news-and-press-releases/2025/sums-dont-add-almost-half-london-boroughs-bankruptcy-risk-due-school
London Councils’ Spending Review representation to the government can be found here: https://www.londoncouncils.gov.uk/news-and-press-releases/2025/london-councils-spending-review-representation
For further context, London Councils has produced an information video: Why are London boroughs’ finances on the brink? https://www.youtube.com/watch?v=4D61_2zTOIA&t=44s
[5] Council housing ‘crunch point’ as London boroughs warn of £264m of real-terms spending cuts in council housing services over the period 2024/25 to 2026/27:
https://www.londoncouncils.gov.uk/news-and-press-releases/2025/council-housing-crunch-point-london-boroughs-warn-ps264m-budget