Far from rosy financial outlook for boroughs as pressures continue

The government’s boost to local authority funding provides short-term relief but cannot disguise the extreme pressures town halls will continue to face in the coming years, according to London Councils.

Responding to the government’s recent consultation on the provisional Local Government Finance Settlement, London Councils welcomed the much-needed 4% increase in London boroughs’ core spending power for 2022-23.

However, the cross-party group’s analysis indicates a third of this increase comes from council tax. It also shows London boroughs still face a funding shortfall of up to £400m next year due to underlying demand pressures, growing inflation, and the ongoing impact of Covid-19.

Key points from London Councils’ response:

  • The £496m increase in boroughs’ core spending power in 2022-23 is a welcome increase compared with recent finance settlements but will not meet the growing pressures facing London boroughs.
  • The pandemic has rapidly increased demand for key services – particularly adult social care, public health, homelessness support, and children’s services. Boroughs were forecasting additional spending of almost £700m this year before the onset of the Omicron variant. The heightened pressures on these services will not end in March.
  • Business rates and council tax income losses have been higher in the capital than other areas, leaving boroughs £300m out of pocket next year, which alone exceeds their £243m share of additional grant funding confirmed at the provisional settlement.
  • Skyrocketing inflation – including the spike in gas prices, wage increases and higher national insurance contributions within boroughs’ supply chains – is adding further pressure.
  • London boroughs already faced underlying demand pressures of £400m per year just to maintain services at pre-pandemic levels. The pandemic and rising inflation will add a further £500m in 2022-23, which will absorb all the uplift in funding. Boroughs are left with a major challenge in meeting the remaining £400m shortfall.

Cllr Georgia Gould, Chair of London Councils, said:

“With food and energy bills skyrocketing, Londoners are facing a cost of living crisis.

“As the capital emerges from the most recent wave of Covid-19 pandemic, boroughs continue to see an increase in demand on their services. While we welcome the government’s funding boost to councils, it doesn’t go far enough. Without proper financial support, boroughs will once again be forced to make difficult decisions about the future of frontline services that play such an important role in our communities.

“The government should be doing more to increase council resources and investing in the local services that are so important for getting us through this crisis.”

London Councils also welcomed the government’s recommitment to delivering local government funding reforms and to engaging with the sector to deliver them. Considering the massive scale of poverty and inequalities within the capital – which have widened during the pandemic – London Councils has reiterated the importance of accurately measuring deprivation and ensuring housing costs are reflected in the measures that will inform government funding decisions.

Around 27% of Londoners live in relative poverty after housing costs are taken into account, the highest figure of any region. In addition, boroughs want any funding reforms to use reliable and robust population projections that appropriately adjust for any temporary reduction in population figures within the 2021 census due to the pandemic, and to continue to reflect the different labour and property costs of delivering services in different parts of the country.


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