London Boroughs Face a £500 m Funding Gap Despite a 5.7% Pay‑Raise
After the local‑government finance deal for 2025‑26 is signed off by the Ministry of Housing, Communities & Local Government and set to hit the House of Commons next, the London Councils collective has issued a stark warning: key services are bleeding money and emergency borrowing is becoming the new normal for many boroughs.
The New EFS Crunch
- Seven boroughs now need Exceptional Financial Support (EFS) to keep their budgets from flipping upside‑down.
- That’s a huge jump from just two boroughs in 2024‑25.
- The EFS purse will swell by over 500 %, from £70 m last year to a staggering £430 m this year.
“It’s proof that London’s finances are starving,” says Claire Holland, chair of London Councils, “and that we’re chasing crumbs while the promises keep slipping.”
Why the Bucks We’re Burning
London’s councils are sweating more than a summer bath:
- Adult social care: £180 m over‑spend
- Children’s care: £150 m excess
- Homelessness: a jaw‑dropping £270 m spike (hammered double in a year)
And that’s just the tip of the iceberg. With a homeless rate of 1 in 50 Londoners—and an average of a homeless child in every primary classroom—bills are piling up. At roughly £4 m a day, temporary accommodation is draining banks like a ginormous drain.
Adding the Tax Ticker
Increasing National Insurance Contributions are squeezing supply chains tighter, pushing costs higher than the modest increases in funding.
The Forecast: £500 m Shortfall
Even with a 5.7% bump, councils see at least a half‑billion pound hole in budgets for 2025‑26. “Budgets are still tightening,” Holland muses, “and the homelessness crisis is the biggest threat to our money.”
What London Councils Wants
- Long‑term investment in local services.
- More “flexibility” and devolved powers to manage finances.
- A cleaner funding model that actually keeps up with London’s booming population.
Since 2010, funding per Londoner has slid 28% even as the city grew 11% and demands climbed. The Councils want a quick fix—turn the crisis on its head and give boroughs the power to thrive.
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