That this House has considered local government finances in London.
It is a pleasure to serve under your chairmanship, Ms Lewell.
This Government are committed to fixing the foundations and getting local government back on its feet after 14 years of neglect and decline. Vital uplifts in funding, alongside the move towards multi-year settlements and away from wasteful bidding wars, have been extremely welcome. This is a Government who stand for giving councils, like all our providers of public services, the certainty and stability that they need to go from costly crisis management to long-term prevention and root-and-branch reform of local public services. These agendas are vital for our national missions on growth, NHS waiting lists, and crime and antisocial behaviour, and are an opportunity for all our young people.
I want to lay out some of the main challenges facing local government, which need to be fully recognised and addressed by Government policy to prevent further councils from moving into crisis. The economic and social changes that have relentlessly driven council costs upwards were simply ignored by Conservative Governments. Rather than tackling these drivers and supporting our councils to adapt to the impact of social change, policy since 2010 has at best papered over the cracks. Financial support has been reduced to the point that our boroughs are receiving around 28% less funding per Londoner than under the last Labour Government.
My hon. Friend is making an important speech. In my constituency, Brent council has had to cut its budget by £220 million since 2010. Under the Conservative Government, it suffered. Does my hon. Friend agree that it is nice that we now have this change of direction from the new Government?
My hon. Friend is right. It is important that we recognise the circumstances in which we found ourselves and that we point to the measures that this Government have taken to start to fix this endemic problem, which I will continue to explain.
Over and over again, the Tories passed the buck without passing the bucks. Our councils have had to deal with wider changes to legislation and other new duties and responsibilities, even as financial support has been repeatedly eroded. This challenge has been building and building. London’s population has grown by 900,000 in the last 15 years, with massive consequences for rising demand for services, particularly adult and children’s social care, special educational needs and disabilities, and temporary accommodation.
I commend the hon. Gentleman for securing the debate. One of the biggest issues for all councils—London councils and other councils across this great United Kingdom of Great Britain and Northern Ireland—is housing. The Government have committed to 1.5 million houses, and that is a commendable strategy to address the issue. Does he agree that, whenever the houses come through, the Government have to look at rental accommodation and price, which many people are finding it hard to manage? It is not just the provision of houses, but ensuring that people can actually rent and live in social and rented housing.
The hon. Member is right, but we cannot adjust the market situation without adding more houses to the stock. Once we have increased the number of houses, we can start tackling the private rented sector. We are doing so, and I hope that the Minister will expand on some of the measures that this Government are taking to bring our landlords into line and improve the quality of the private rented sector.
As a result of the problems I have described, London’s boroughs are facing an unprecedented financial crisis, one that threatens the vital public services that millions of Londoners rely on, including my constituents in Leyton and Wanstead. Our communities are strong, but we also face significant challenges, ranging from crime and antisocial behaviour to a shortage of decent, affordable homes and the need for better opportunities for young people. All those issues can only be addressed effectively if our excellent councils can invest in our future.
Many councils are now teetering on the edge of issuing section 114 notices—meaning effective bankruptcy—and those risks are increasing, because the drivers of increased costs have simply not been accounted for. Seven London boroughs, nearly a quarter of the total, require exceptional financial support for 2025-26 amounting to over £400 million, and London accounts for almost a third of the total national EFS funding of £1.3 billion. We need to seriously engage with these challenges and chart a sustainable path forward. According to London Councils, London boroughs are forecast to overspend by £800 million this year; particular pressures include homelessness at £330 million, adult social care at £200 million and children’s social care at £160 million. The cost to the public purse will be so much greater in the long run if we do not deal with this crisis now.
By far the most acute financial pressure facing London boroughs is homelessness. The scale of the crisis is staggering: London Councils assesses that one in every 50 Londoners is currently homeless and living in temporary accommodation, including nearly 90,000 children. First and foremost, this is a human tragedy. Like many other colleagues, I have been engaging with individuals and families who are suffering as a result of the housing crisis, including a very powerful visit that I had this Christmas with Crisis in central London. In addition to this human suffering, homelessness represents the fastest-growing financial risk to London’s local authorities, with our councils spending £4 million per day on temporary accommodation—a figure that has surged by 68% in just one year.
I thank the hon. Member for giving way and for securing today’s important debate. I agree a lot with what he is saying about homelessness and the challenges it creates for London authorities, whether in inner London or outer London, but it prompts the question of why his Government have cut the housing targets for Labour councils in central London.
I thank the hon. Member for his intervention, but it is difficult to accept that kind of challenge when his Government missed every one of their housing targets over the course of 14 years, and he has ignored the fact that the trajectory I have described was set under his Government. If that trajectory continues, homelessness alone will push London boroughs into bankruptcy, although the Government have been working hard to address the enormous challenges that we have inherited—which I have just highlighted to the hon. Member—after the abject failure of Conservative housing and homelessness policies. We welcome the recent uplift to the homelessness prevention grant and this week’s confirmation of £2 billion of grant funding for social and affordable homes across the country. However, there are further measures that could provide much-needed support to London boroughs.
One issue exacerbating the crisis is the cap on the amount of local housing allowance payable for temporary accommodation, which has been frozen at 2011 rates for nearly 14 years, even though such accommodation has become massively more expensive in recent years. The cost to London councils of acquiring temporary accommodation increased by 68% in the single year up to 2023, while the number of homeless Londoners increased by about 8% over the same period. This has created a significant funding gap for local authorities. Updating the cap would provide immediate financial relief for London boroughs, which could then spend more resources on preventing homelessness.
My hon. Friend is making a powerful point. London Councils has stated that one in 50 Londoners are currently homeless and living in temporary accommodation, and as my hon. Friend has said, spending is around £114 million per month, or approximately £4 million a day. Does he agree that this is unsustainable?
I thank my hon. Friend for her intervention. She refers to one of the three main stresses on our councils: addressing that would bring the greatest relief to all of them. Another step that the Government could take to tackle the homelessness crisis would be to ensure that the LHA rates reflect actual housing costs. London rents have risen so fast in recent years that just 5% of private rented properties are affordable on LHA, pushing more and more families into homelessness. I hope the Minister will set out the steps the Government are taking to review LHA rates, because that could make a huge difference to many families as well as to council finances.
Additionally, a longer-term social rent settlement would stabilise council housing revenue accounts and allow boroughs to increase the building of the new genuinely affordable homes that Londoners need, which we know is the only way to tackle the housing crisis.
When deprivation measures—rightly—have such a significant impact on funding formulas, it is vital to ensure that they effectively account for the impact of rents. Housing costs are one of the biggest drivers of deprivation in London, which is the third most deprived region in England once housing costs are considered. Beyond housing, the fundamental issue at the heart of London’s council funding crisis is a growing disparity between funding allocations and actual levels of need. The main local government funding formula has not been updated since 2013, meaning that allocations are based on outdated data that fails to account for population growth, demographic changes or London’s high housing costs.
Such difficulties can be illustrated by the councils that serve my constituents in Leyton and Wanstead. Redbridge has had population growth of 11.4% since 2011 and has huge pressures from homelessness, with a spend of £52 million a year on temporary accommodation. This is driven by the fact that Redbridge has an enormous private rented sector, comprising 75% of renters locally. The eviction rate in Redbridge is at 4.6% per 10,000 renters, almost triple the London average, with 86% of those evictions coming from the PRS. There is no escaping the reality that shocking numbers of people in constituencies like mine are now being evicted as the housing market changes, and identifying creative policies to tackle it is truly urgent.
I echo the hon. Member’s comments about funding not keeping up with demographic changes. That is a cross-party criticism—not one aimed just at the Labour Government—because the problem is historical. Other price and funding challenges coming through include contract inflation, and the impact of the jobs tax on all local councils. The impact on Bexley council is expected to be around £5 million next year, but the Government are only providing £1.6 million of funding. Does the hon. Member agree that Ministers must address that issue, as well as the issue of fair funding, to ensure that councils can be financially sustainable?
No, and I will allow the Minister to explain why later.
The Tories’ legacies are a local government funding formula that does not recognise London-wide changes, pressure and needs, and a woefully outdated division between outer and inner London. Even 15 or 20 years ago, the traditional distinction between the core city and its outer areas made some sense: density and deprivation were more concentrated in the centre, as a legacy of slums and deindustrialisation. But the impacts of affordable housing and demographic changes have since consigned that situation to the past.
The population, especially people on lower incomes, have moved outwards, but the funding formula has not kept up. The places we live in have changed massively. Populations have grown as new people have come in, which has pushed up rents and house prices, contributing to real social exclusion and deprivation for many. I will quote just two of the many statistics that illustrate that. The borough of Redbridge has more than 80,000 children and young people; Islington has less than half that figure, but the figures for spending on children’s services are almost the inverse—Islington is able to spend £81 million and Redbridge just £44 million. That cannot be justified by deprivation rates, because Redbridge sits above the London average rate, and Islington below it. The situation is no different for public health, where outdated formulae mean that Waltham Forest receives 2.5 times less public health funding per person than Kensington and Chelsea, despite having higher levels of deprivation.
We must recognise that this is not just about the grant formula itself. Inner London weighting has impacts across many policy areas and therefore affects the quality of life of my constituents. Performance levels across education, health, crime and antisocial behaviour are becoming harder to sustain due to recruitment and retention issues, because teachers and police officers can earn up to £6,000 more just by travelling 15 minutes on the Tube. The disparity impacts both revenues and costs, because many inner London boroughs have a greater ability to raise funds from business rates and charges. That also needs to be further taken into account in the Government’s funding reforms.
I remind Members that if they wish to speak, they should bob in the usual way, as they would in the Chamber. We will need to impose a four-minute time limit to ensure all Members get to speak.
It is a pleasure to serve under your chairmanship, Ms Lewell. I am very grateful to the hon. Member for Leyton and Wanstead (Mr Bailey) for securing this vital debate. I requested a debate on this subject myself, so I am glad that one of us got drawn in the ballot. As an outer London MP, I am extremely sympathetic to the compelling case he makes about the disparity between the centre of the city and its outskirts.
Residents in Havering pay among the highest council tax in London and in return they rightly expect robust services. They want to see their vulnerable neighbours supported, parks and streets well maintained, and essential services working effectively. However, Havering has been under significant financial pressure for years. The root cause of the issue is an outdated and flawed local government funding formula that does not adequately reflect the changing needs of our borough.
Havering’s population has undergone significant changes in the past decade. We have had one of the fastest increases in child numbers in the country, and we have a growing elderly population. Both groups come with complex, multi-layered needs. Those demographic shifts have driven up demand for expensive social care services, but the funding formula still relies on outdated data and fails to reflect those changes, which has left Havering facing growing financial strain.
Other London councils have been able to build reserves during this period, largely because they have benefited from the same outdated formula, especially given that covid grants were allocated on that basis. That has created a disparity between inner and outer London: some boroughs have received more than they need, while others such as Havering are struggling. The Department for Education uses a much more up-to-date formula, which is why Havering has received the bulk of London’s capital funding for schools to meet the rising number of children—one part of Government acknowledges the change, yet another is a decade out of date.
It is a pleasure to serve under your chairmanship, Ms Lewell. I thank my hon. Friend the Member for Leyton and Wanstead (Mr Bailey) for securing this debate.
Local government funding must be fair and must reflect the needs of the boroughs. As has been said by the two hon. Members before me, my hon. Friend the Member for Leyton and Wanstead and the hon. Member for Hornchurch and Upminster (Julia Lopez), the recovery grant offers some respite, but boroughs such as Redbridge —which should in our estimation have received £6 million —did not get a penny. Despite facing significant financial constraints, these boroughs, such as Redbridge, still managed to punch above their weight. That does not mean they do not deserve the money; it means they deserve even more money, because they are well-run, efficient and effective councils.
Redbridge council’s children’s services have been rated outstanding for the second time in a row, and its adult social care is excellent. It has weekly bin collections and has built two new leisure centres and a new lido, with a climbing centre on the way. People might think that it is rolling in money—but that could not be much wronger. While it is a well-run and effective council, Redbridge is the 11th most deprived borough in London, with a core spending power of £904 per person. When we extrapolate that over the population, the council receives about £73 million less per year than it should—and yet it did not receive the recovery fund. That is a lot of money.
We have heard the arguments about inner and outer London. Yes, inner London has the ability to generate funds, and of course there is less ability for the outer-London councils to raise cash. That is equalised by residents from outer London having to pay more council tax to make up the services that the residents deserve. No one can tell me that residents in outer London deserve less money per head than people in inner London. We have heard that housing is one of the biggest decimators of finance at the moment. Homelessness is rife all over, exacerbated by the fact that more expensive inner London areas can buy up housing in outer London areas such as Redbridge, Waltham Forest and Havering. Therefore, at my weekly MP surgeries, many of my cases deal with inner London councils whose people are being housed in outer London boroughs.
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Waltham Forest is facing massive pressures from increased homelessness, with a 55% increase in temporary accommodation in just one year up to last October. The requirement to spend under 51% of the homelessness prevention grant on temporary accommodation, although obviously a step in the right direction, will mean that still more of the bill for rising homelessness costs will have to come from the general budgets, including from reserves and other spending.
Costs from special educational needs and disabilities have also been surging, with a forecast overspend of £4.6 million, but the increase in the high needs block funding has not recognised that. Across London the upshot of the large gap between assessed need and actual funding, which the Institute for Fiscal Studies has identified as 17%, is the largest shortfall of any region in England. Many outer London boroughs are among the lowest funded per capita in the country, despite significant pressures.
We welcome the Government’s commitment to reviewing local government funding, because this is a huge opportunity to create a system that accurately reflects the current levels of need. In particular, we need to make sure population figures are robust, which requires serious attention to whether the figures for London reported in the last census are accurate, given that many people left the capital during the pandemic and have since returned.
Ultimately, we need significant change that recognises the impact of huge London-wide demographic shifts, but we also need specific, special consideration for outer London. I welcome the steps that the Government have taken so far to reform the local government financing system, including by giving councils multi-year settlements, which allow them to plan more effectively. That said, local government funding reform will not, on its own, guarantee the financial sustainability of local government, and we all know the challenging financial position that the Government inherited.
If greater resources cannot come from national Government, one alternative would be to empower local authorities to raise revenue through greater fiscal devolution. The fact that seven London boroughs now require exceptional financial support should be a wake-up call for us all—but EFS is not a solution; it is an emergency measure that does nothing to address the structural funding problem. The two London boroughs that required EFS in 2024-25 need even greater support in 2025-26. Relying on EFS would only kick the can down the road and allow financial instability to deepen. That presents a further concern for my constituents because our local councils have managed their budgets prudently and well. They have dealt with the inadequacies of the funding settlement and have often had to increase council tax as a result.
We cannot continue to see success punished, as happened under the previous Government, through policies that direct funding towards life support instead of tackling the underlying drivers of increased costs, which affect well-managed and poorly managed councils alike. I urge the Government to work with the local government sector to explore alternative support mechanisms, such as long-term debt restructuring, to give councils a genuine route to financial stability. We look forward to the funding reforms due in the next 12 months, but we must recognise that the pressure driving costs for our councils is linked to other policies across Government, from housing and planning to special educational needs and disabilities reform.
Strong and empowered local government in London is vital to support delivery of our national missions. Whether we are talking about raising living standards, delivering 1.5 million new homes, getting our NHS and social care system back on their feet, or creating good jobs and strong communities, it all comes back to local councils such as Waltham Forest and Redbridge delivering for local communities. Our Labour councils can do so much more if those challenges are tackled.
Despite the challenges, our hard-working local government staff and council leaders are already innovating and delivering change. In Waltham Forest, the council aims to deliver 27,000 new homes and 52,000 square feet of working space. Redbridge has taken forward a new empty property strategy to tackle that element of the housing crisis, alongside plans to deliver 19,000 new homes and 7,000 new jobs over the next decade. London MPs across the House, along with our hard-working councillors and council officers, are keen to work in partnership with the Government to address the huge challenge we face, and I look forward to playing my part in that.
I have long advocated reform of the local government funding formula to reflect those demographic shifts. The previous Conservative Government initiated a fair funding review to address the imbalances, but the pandemic stalled progress. Much of the groundwork for reform has therefore been done, and I urge the Minister to accelerate the review to bring about the necessary changes.
In recent years, Havering council has received some crucial uplifts in social care funding, which have helped it continue to deliver vital services, but the fundamental structural issues in the funding formula remain. Without a long-term solution, the situation will only worsen. To address that, in January I facilitated a meeting between Havering council and the local government Minister, Baroness Taylor. I was grateful for that meeting. As a result, the Government approved further exceptional financial support, which enabled the council to set a budget for the year. That is welcome support, but it is a temporary fix, and a lasting solution is needed. Again, that requires pushing forward with the funding formula review.
On top of those ongoing funding issues, the Government have also introduced fresh financial pressures through the Budget. One of the most significant changes is the increase in employer national insurance contributions, which has driven up the cost of social care and other essential services across the borough. Those increases are directly impacting local businesses and services, from pharmacies and GPs to critical childcare providers and high street shops. Just last week, I spoke to several high street businesses: they are facing huge business rate increases, rising parking charges and the impact of the NICs increases. Those increases are pushing customers away from our high streets and threatening the vitality of our local economy. There will obviously be an ongoing knock-on impact on the local government funding issues.
The latest local government finance settlement has provided Havering with the smallest increase in spending power since 2021, an increase essentially wiped out by the additional national insurance costs. On top of that, Havering has been excluded from the national £600 million recovery grant; no non-Labour London council, apart from Tower Hamlets, will benefit from that spend in the capital. Looking forward, the council is looking at ways to get the economy growing again locally, but that is not going to deal with the fundamental issue of the funding formula. I ask the Minister to accelerate the review so that our residents can benefit.
The three key asks are for central Government to use updated and accurate data, such as that from the Office for National Statistics, on employment, income and homelessness, so that outer London boroughs can be more fairly served. We need to reform the funding formula so that updated data on deprivation and demands on services, particularly housing needs, are taken into account. Of course, we need to use the census data—