The long-awaited local government finance settlement has been published for 2025-26 and although a large sum of money has been promised, London Councils have expressed concerns.
The settlement, which is awaiting approval from the House of Commons, has pledged over £69bn will be given to England’s councils in a bid to restore trust in public services.
Alongside funding, the settlement provides a 6.8% in cash terms increase in councils’ Core Spending Power compared to 2024-25. This means local authorities will have more money to spend on products and services.
‘We have been clear we will fix the foundations of local government,’ Jim McMahon OBE, minister of state for local government and English devolution said. ‘That means an end to short-term solutions and instead rebuilding the sector to put councils on a more stable and secure footing.
‘Local leaders play a crucial role in delivering day-to-day services communities across the country rely on, which is why we want to work with them towards a fairer funding model that tackles regional inequality and prioritises outcomes for local people.’
However, new research from cross-party group London Councils suggests that despite the money increase, boroughs across the capital city are still set to face a £500m funding gap.
Experts found at least seven borough will require Exceptional Financial Support (EFS) from the government to balance their books this upcoming financial year – marking an increase from the two boroughs who previously relied on EFS arrangements in last year.
Reasons for why boroughs are struggling, according to the research from London Councils, includes social care and homelessness overspends. Experts found £180m had been poured into adult social care, £150m into children’s care and £270m on the housing crisis.
As it stands, London Councils estimates at least one in 50 Londoners is homeless and that boroughs spend around £4m a day on temporary accommodation.
Concerns for care costs have been expressed even after the government announced an additional £3.7bn for local authorities to address their care crisis’. This includes an £880million uplift to the Social Care Grant, compared to 2024-25.
With these findings in mind, Cllr Claire Holland, chair of London Councils, said: ‘Massive service pressures and tight funding constraints mean that hard times are still here for boroughs’ budgets. Having faced more than a decade of structural underfunding, councils in the capital remain under enormous financial strain.
‘We are dealing with a range of immense challenges in London, but the worsening homelessness emergency represents the biggest single risk to borough finances. The impact of homelessness on Londoners – especially families with children – is devastating, and the costs to boroughs are utterly unsustainable.’
‘With more and more boroughs forced to turn to the government for Exceptional Financial Support simply to stay afloat, it is clear that there is a long way to go to end the crisis in local government finance,’ Cllr Holland continued. ‘Boroughs provide vital local services for our communities and play a crucial role in delivering new homes and driving economic growth. We desperately need financial stability and will carry on working with the government to achieve this.’
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