London Boroughs Warned of Multi-Billion Pound Funding Shortfall Amid Rising Homelessness Demand
London boroughs face a potential £4.7 billion funding gap between 2025 and 2029, with authorities warning that current government proposals under Fair Funding Review 2.0 could push some councils to the brink of bankruptcy. The London Councils coalition, a cross-party body representing all 32 boroughs, has issued the stark warning as central funding redistribution plans are finalized in the coming weeks.
According to London Councils, the combined pressure of rising homelessness, growing demand for adult and children’s social care, and limited government support has created an unprecedented financial strain. For the 2025/26 financial year, boroughs must identify £600 million in savings to balance their budgets, on top of £400 million of Exceptional Financial Support (EFS) already provided to seven boroughs. This marks the first time London’s local authorities face a total funding gap of £1 billion in a single year.
The coalition predicts that this shortfall will increase by roughly 50% next year, reaching £1.5 billion in 2026/27, with the potential impact of Fair Funding Review 2.0 exacerbating the problem. “Boroughs are under relentless pressure to support vulnerable Londoners while keeping essential services running,” said Claire Holland, Chair of London Councils.
Central to the coalition’s concerns is the government’s approach to measuring deprivation. While the Index of Multiple Deprivation (IMD) is intended to assess local needs, London Councils argues it underestimates housing poverty, where one-in-four London households live in poverty after housing costs — the highest rate in the UK. Without adequate adjustment for this reality, boroughs fear their funding allocations will fall short of actual demand.
Currently, six London boroughs rely on EFS to balance core budgets, with one borough dependent on it to maintain its Housing Revenue Account. London Councils warns that if current trends continue, up to 17 boroughs — half of London’s local authorities — could require emergency financial support by 2028.
Over the four-year period from 2025/26 to 2028/29, the coalition estimates the cumulative funding shortage could reach £4.7 billion, putting essential services and long-term investments at risk. These include programs to build new homes, deliver critical social care, create jobs, and support economic growth across the capital.
“Boroughs will continue working with the government to seek a sustainable solution,” Claire Holland said. “After years of financial uncertainty and instability, it is vital that local authorities receive funding that reflects the realities of housing poverty and the increasing demand for homelessness support. This is critical to delivering on our shared priorities and ensuring London remains a city that works for everyone.”
London Councils is calling on the government to adjust funding formulas to fully account for deprivation and housing costs, warning that failure to act could force boroughs into service cuts, increased borrowing, and long-term financial instability.
The coalition’s warning highlights the urgent need for a sustainable funding settlement for London councils, ensuring they can continue providing essential services while addressing growing social challenges in the capital.
