Inflation placing extra pressure on council budgets in London

Rapidly rising inflation is causing additional budget pressures worth £400m in London boroughs, local government association London Councils has warned.

The government increased funding to London boroughs by £330m last year, but a rise in inflation to 4.1% in March means this money for 2022/23 is now worth £100m less.

This could affect local services vital for vulnerable residents and slow economic recovery without immediate extra investment, according to London Councils.

Cllr Georgia Gould, Chair of London Councils, said: ‘Rising inflation and the cost-of-living crisis are having a crippling effect on families who are having to make increasingly difficult decisions about whether to eat or heat their homes.

‘Boroughs welcome the government providing some much-needed extra support to households, and we are seeking a similar intervention to help councils deal with their massive finance pressures.  

‘Eye-watering inflation means our funding has effectively been cut by £100m already this year – and overall we face £400m of additional budget pressures.

‘Just as we did during the pandemic, councils are stepping up to support their communities and provide a vital safety net. We want to continue to offer this support but without an increase in grant funding in line with inflation and, above all, funding certainty for the next two years, councils will be forced to make reductions to services, impacting those residents who need them most.’

Analysis by London Councils has shown that London boroughs were already expecting £300m in inflation pressures when revenue budgets were set in April, but these are now closer to £700m.

The cost of running services has risen by approximately £300m, while inflation has added an additional £100m to the cost of pay across London.

Construction contracts have also risen by around 20-25% due to labour pressures and rising material costs, leading to the postponement of many planned projects, affecting schools, housing, and transport.

But inflation pressures are most noticeable in adult social care, where rising energy bills and increasing staff wages are being felt.

Adult social care represents 70% of controllable budgets for some boroughs which are doing their best to mitigate the circumstances.

While councils are reassessing contracts, looking for alternative materials and reviewing fees and charging policies, London Councils says they are in desperate need of further government funding to prevent vital services from being cut.

Photo by Henry Be