London Councils warns of £1.4bn funding gap threat to post-Covid renewal

  • By Gemma Kappala-R...

At a pivotal moment in the response to the coronavirus pandemic, London boroughs are calling on the government to recognise their crucial role in rebuilding the economy and provide “desperately needed” stability to councils across the capital facing an immediate £1.4bn Covid-19 shortfall, and underlying pressures of £2bn more over the next three years. 

In its submission of priorities to the government’s comprehensive spending review [1], London Councils – the cross-party group representing all 32 boroughs and the City of London Corporation – highlights the importance of local services supporting Londoners, businesses and the wider economy through the pandemic and contributing to the government’s levelling-up agenda. 

London’s businesses and their employees have been severely affected by the pandemic – seeing a million workers furloughed and faster increases in unemployment benefit and Universal Credit claims than the national average – but London has a vital part to play in the national economic recovery. 

London Councils has set out a case for strategic investment - a combination of direct funding, finance for key projects and greater local empowerment - that will ignite productivity and growth in London, tackle local inequality and have a positive impact on the rest of the country.

Proposals detailed in London Councils’ comprehensive spending review submission include: boosting London boroughs’ ability to build new housing, creating 2,000 green jobs through investment in retrofitting schemes, and targeted extension of business support schemes such as the business rates holiday and ‘Eat Out to Help Out’ discount.

However, local services such as public health, social care and homelessness support are under unsustainable pressures due to the ongoing impact of Covid-19, on top of years of budget cuts, leading to an enormous funding gap that boroughs cannot bridge by themselves.

With Covid-19 hitting councils after a decade of funding reductions from central government, boroughs are urging ministers to use the comprehensive spending review to boost stability through long-term commitments. This approach will enable councils to drive London’s economic reboot, meet their communities’ needs and achieve ambitions shared with the government – such as ending rough sleeping by 2024 and net zero carbon emissions by 2050. 

Cllr Peter John OBE, Chair of London Councils, said:

“We’re seeking a new approach to the funding of local services – one that recognises the vital role councils play in shaping the economy, supporting communities and maintaining London’s resilience.

“Covid-19 has proved the value of local government beyond doubt, with councils at the forefront of caring for the vulnerable, housing the homeless, advocating for business and keeping Londoners safe. 

“We’re ready to work with government on an array of economy-boosting proposals that will drive jobs and growth after many months of forced inactivity. These projects will not succeed without the local knowledge and leadership councils provide. 

“But the pandemic has also exacerbated longstanding budget pressures to the extent that many councils are fast approaching a precarious financial cliff edge. 

“The comprehensive spending review is an opportunity for the government make a commitment to stability. We’re calling on ministers to bring desperately needed investment to local services – crucial for sustaining our response to Covid-19 and for enabling us to deliver the post-pandemic economic recovery we’re determined to help build.” 

Key points from London Councils’ CSR submission to the government:

• The immediate focus for the government must be to deliver the national economic recovery from the consequences of the pandemic. This cannot happen without a strong recovery in London which, before the crisis, contributed 28 per cent of UK GVA, and a fiscal surplus of £39 billion.

• London’s economic recovery relies on government taking some immediate steps urgently - such as targeted extension of existing business rates reliefs, grants such as the Reopening High Streets Safely Fund, job retention schemes, business loans and customer confidence incentives. 

• These immediate actions must be implemented alongside sustainable, long-term measures such as investment in a green recovery to address climate change, boosting housing delivery by giving councils complete flexibility over Right To Buy receipts and guaranteeing rent increases by CPI +1 over the long term, and devolving skills and employment responsibilities to London boroughs and the Mayor. 

• The capital has been hit hard by the pandemic. By the beginning of September, over 40,000 Londoners had contracted Covid-19 [2], and eight out of the ten local authorities in England with the highest rates of excess deaths were London boroughs [3]. The economic impact has also been dramatic, with the capital seeing faster increases in unemployment benefit and Universal Credit claims than the national average [4]. One million Londoners are furloughed [5], with massive uncertainty remaining over jobs in London’s hospitality, culture, and other significant industries.

• Covid-19 has blown a £1.4 billion hole in boroughs’ budgets for this year. The total impact of the pandemic – as seen through councils’ falling income and rising expenditure – is expected to be £2 billion in 2020-21 [6]. The government’s extra support for local authorities so far equates to £587 million for London boroughs, leaving a £1.4 billion funding gap. The financial position facing boroughs is so dire that emergency spending reductions may be required in the coming months if the government doesn’t provide further assistance.

• Homelessness support, children’s services, and adult social care all make substantial contribution to London’s Covid-19 response and resilience, but all are under particular pressure as demand for services has out-stripped the resources available from government funding. London Councils now seeks above-inflation increases in investment, with funding to be prioritised for these service areas. 

• Severe deprivation within London makes the capital pivotal to the success of government objectives on reducing homelessness and addressing inequality. The capital accounts for two-thirds of homelessness in England, with 58,000 London households living in temporary accommodation [7]. Household incomes in London are significantly lower than the UK average once housing costs are taken into account, with 28% of London’s population living in relative poverty compared with 22% across the UK as a whole [8]. 

• Even though London’s population has grown by 12% over the past decade (almost twice the rate of growth across the rest of England) and boroughs now serve nearly a million more people than in 2010 [9], council budgets have endured consistent reductions in recent years. The overall resources available to London local government fell by over a quarter in real terms since 2010-11. London boroughs need to make savings of up to £2 billion to balance their budgets over the next three years – and future waves of Covid-19 would tighten this squeeze even further. 

• Boroughs want to end their over-reliance on central government funding and decision-making. They point to their success during the pandemic in strengthening community participation (such as co-ordinating volunteers at food hubs) and collaborating cross-borough and with other partners. With more powers and resources devolved to a local level, boroughs will be even better placed to sustain services, innovate, and contribute to the post-pandemic recovery. 


Notes to Editors:

1. The deadline for representations to the comprehensive spending review is 24 September 2020. More details on the review can be found at:

2. PHE dashboard -

3. ONS data on excess deaths released 28/08/2020 from March to July.



6. London Councils’ analysis of MHCLG monthly Covid-19 financial impact survey returns


8. Trust for London:

9. London Councils analysis of ONS Mid-year estimates and Sub-national population projections 2010 to 2020.

10. You can download a summary of London Councils' submission here