The “dire” state of London borough finances must be a “clear priority” in the Chancellor’s Budget, the capital’s council leaders warned on Tuesday.
London Councils are facing a £700million blackhole driven by skyrocketing homelessness and the soaring costs of temporary accommodation and social care.
Town halls across the country have said money is increasingly tight, but the crisis is particularly acute in the capital where several councils are being pushed to the brink of bankruptcy and some have had to request emergency government loans just to balance the books.
Councils in the city are collectively spending £4million every day on housing homeless people, it was revealed last week - a dramatic jump of 68 per cent in costs.
Claire Holland, Lambeth leader and chair of London Councils, said: “Boroughs find themselves in a dire financial situation.
“Fourteen years of structural underfunding, combined with fast-rising demand for services and inflated costs, have left borough finances in a state of crisis.
“Housing and homelessness pressures in the capital are astronomical.
“If things carry on as they are, boroughs will be tipped over the edge into effective bankruptcy, requiring costly interventions from central government to balance the books.
“Stabilising local government finances should be a clear Budget priority.
“Boroughs are critical to delivering new homes and driving economic growth, working in partnership with the government. Putting councils on a stable financial footing is an essential step for the government on the path to achieving its national missions.”
Umbrella group London Councils is requesting a 7 per cent uplift in Core Spending Power in 2025-26 to help cover the £700million funding gap.
They are also asking for the Homelessness Prevention Grant to be doubled from £157million to about £314million a year and a removal of the cap on temporary accommodation subsidy rates that has been frozen since 2011.
A commitment to updating Local Housing Allowance rates every year to track market rents has also been requested.
Lambeth council is among those that has admitted its bill for temporary accommodation has become unsustainable.
Last month it issued a stark warning to Chancellor Rachel Reeves insisting that unless the borough receives an “urgent” funding boost in the October 30 budget it will face a £70million deficit over the next four years.
Newham council has recently proposed a raft of extreme cost cutting measures and requested emergency government funding in a bid to find £20.3million of immediate savings.
It is predicting a budget gap of £175million over the next three years with £100million of this down to spiralling temporary accommodation costs due to increasing rents and homelessness in the borough.
Earlier this year Havering council was only able to sign off its budget after the Government agreed an emergency £54million loan to prevent the town hall going bust.
The Institute for Fiscal Studies has suggested that Chancellor Rachel Reeves may decide in her Budget to allow town halls to ramp up council tax by 5 per cent a year, despite inflation falling to around two per cent.
