Exclusive: London’s councils are half a billion in the red. Council Tax will go up – but will it be enough?

London’s councils are trapped in a “perfect storm” with the boroughs teetering on the financial brink, facing a collective deficit of over half a billion pounds, research has found. The figures suggest council tax across the capital will have to rise further to meet these yawning deficits.

Collectively the 32 boroughs have gone £525m over their planned budgets this year, data analysis of their cabinet and committee reports has revealed, excluding the City of London.

Figures could rise even higher – potentially putting more of London’s councils at risk of going bust – after Croydon council issued its third Section 114 earlier this year, effectively a local council’s way of declaring bankruptcy.

Residents could see their council tax bills soar – after Croydon raised it by 15 per cent – and services like public toilets, play areas, leisure and sports facilities face the chopping block.

Diwali, Bonfire Night and New Year’s events could also be cancelled as officials seek to balance the books.

It comes as almost one in five council bosses in England think it likely they will have to issue Section 114 notices this year to keep services running, according to research by the Local Government Association (LGA), after the Autumn Statement did not announce extra funding.

Ministers yesterday gave an advance heads up of the council finance deal with Michael Gove pledging authorities would see a minimum three per cent increase – but also asking local leaders to “consider how they can use their reserves to maintain services” into 2024/25.

Local government expert Jack Shaw, who compiled the research, said: “It’s clear that London’s local authorities are trapped in a perfect storm.”

Calculations were based on councils’ general funds, including adult and child social care, core services and homelessness; housing revenue accounts, which fund maintenance; and the dedicated schools grant, which is ring-fenced government cash for special needs pupils.

He cited increased demand for social services and homelessness support, as well as “stubborn inflation and more than a decade of budget cuts” as key reasons for the deficits.

‘Few alternatives’

London Councils also warned last month that budgets were “on a knife edge” as local authorities faced a collective £400m shortfall this year, as of October 2023, while the LGA recently warned councils across England faced a £4bn funding gap over the next two years.

Shaw, who works at the Institute for Public Policy Research (IPPR) and Queen Mary University, warned that councils had been forced to alter or cut services altogether, raise council tax, use up reserves – like savings – and sell off assets, such as swimming pools.

“Many have exhausted all of these options [and] there are few alternatives,” he warned.

Redbridge council had the highest budget deficit, at £41.2m, while Havering and Enfield councils followed with £40.36m and £38.5m respectively.

While the lowest recorded deficits were in Richmond-upon-Thames council,  just £200,000, and Westminster and Kensington & Chelsea councils with £3.3m and £2.3m each.

The Labour Party controls Redbridge and Enfield councils while Havering borough is under no overall control. Richmond is Liberal Democrat-run, while Westminster council is Labour, since the 2022 local elections, and Kensington & Chelsea council is Conservative-led.

Figures were not available for Camden and Lambeth councils, so a £16.42m mean average for both local authorities was recorded.

Shaw, a Labour councillor in Barking and Dagenham, which has a £29.1m deficit, stressed: “The funding available for public services has long been out of kilter with rising demand. 

“The government needs to put local government on a sustainable footing. In the short-term, it needs to provide authorities with a significant cash injection and greater financial flexibility.”

A spokesperson for the mayor of London, said: “Local authorities have been forced to do more and more over recent years with government funding not keeping up with costs.

“The situation is not sustainable; councils are running out of things to cut. Government needs to deliver a funding package that helps them deliver the services residents deserve.”

A London Councils spokesperson warned that boroughs would have to make “difficult decisions” to “keep local services going for another year”.

They said: “We will keep pushing for more funding in the face of these on-going challenges.”

A DLUHC spokesperson said: “Almost £60bn was made available to local government in England in 2023/24, an increase of £5.1bn or 9.4 per cent on the previous year. For London boroughs, this represents an increase in core spending power of up to £744m.

“We stand ready to speak to any council that has concerns about its ability to manage its finances or faces pressures it has not planned for.”