London boroughs are facing mounting pressure as funding shortfalls and soaring service demand continue to strain local finances.
Responding to the provisional Local Government Finance Settlement for 2026-27, Cllr Claire Holland, Chair of London Councils, highlighted the delicate balancing act facing councils across the capital.
“A combination of long-term structural underfunding, skyrocketing demand for services and spiralling costs has left town hall finances across the capital under enormous strain,” she said.
The new multi-year settlement, the first in a decade, is a welcome step according to London Councils, offering more accurate funding allocations based on up-to-date council spending data and deprivation measures that factor in housing costs. “This is a far more accurate approach to measuring deprivation and its impact on levels of need, not just in London but across the country,” Cllr Holland noted.
Additional investment in local SEND provision has also been announced, providing crucial support for special educational needs and disabilities. Yet, even with these positive moves, the council finance outlook remains challenging. London is confronting a £1 billion budget shortfall this year, with more boroughs likely to require emergency borrowing. “Stabilising our budgets is critical for sustaining local services, building affordable homes and driving the economic growth we all want to see in our communities,” Holland added.
London Councils will analyse the settlement in detail to assess implications for borough budgets. Previous forecasts indicate that up to half of London boroughs may need emergency support to avoid financial collapse by 2028, with the capital already being the region most reliant on Exceptional Financial Support.
Temporary accommodation for homeless Londoners remains the single largest financial pressure. Latest analysis shows around 210,000 Londoners, including 102,000 children, are living in temporary accommodation—a record high, with child homelessness up 8% from last year and 35% since 2021. Subsidy for temporary accommodation has been frozen since 2011, despite massive rises in housing costs, creating a £740m annual shortfall, according to LSE research. London Councils calls for the subsidy to be updated to today’s housing costs to ensure quality accommodation and protect borough finances.
Social housing finances are also under strain. Boroughs must manage budget cutbacks even as demand for affordable homes grows. London Councils advocates for a social rent ‘convergence rate’ of at least £3 per week from April 2026 to balance fairness for tenants and funding for new home construction.
Revenue from the newly confirmed overnight accommodation levy is another area of focus. London Councils stresses that boroughs should retain a fair share of the funds raised to manage local service pressures and support growth, particularly in areas with high tourist volumes. The group will work with the government and Mayor of London to implement the levy while continuing to push for greater fiscal devolution.
