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Mr Calvin Bailey (Leyton and Wanstead) (Lab)
I beg to move,
That this House has considered local government finances in London.
It is a pleasure to serve under your chairmanship, Ms Lewell.
This Government are committed to fixing the foundations and getting local government back on its feet after 14 years of neglect and decline. Vital uplifts in funding, alongside the move towards multi-year settlements and away from wasteful bidding wars, have been extremely welcome. This is a Government who stand for giving councils, like all our providers of public services, the certainty and stability that they need to go from costly crisis management to long-term prevention and root-and-branch reform of local public services. These agendas are vital for our national missions on growth, NHS waiting lists, and crime and antisocial behaviour, and are an opportunity for all our young people.
I want to lay out some of the main challenges facing local government, which need to be fully recognised and addressed by Government policy to prevent further councils from moving into crisis. The economic and social changes that have relentlessly driven council costs upwards were simply ignored by Conservative Governments. Rather than tackling these drivers and supporting our councils to adapt to the impact of social change, policy since 2010 has at best papered over the cracks. Financial support has been reduced to the point that our boroughs are receiving around 28% less funding per Londoner than under the last Labour Government.
Dawn Butler (Brent East) (Lab)
My hon. Friend is making an important speech. In my constituency, Brent council has had to cut its budget by £220 million since 2010. Under the Conservative Government, it suffered. Does my hon. Friend agree that it is nice that we now have this change of direction from the new Government?
Mr Bailey
My hon. Friend is right. It is important that we recognise the circumstances in which we found ourselves and that we point to the measures that this Government have taken to start to fix this endemic problem, which I will continue to explain.
Over and over again, the Tories passed the buck without passing the bucks. Our councils have had to deal with wider changes to legislation and other new duties and responsibilities, even as financial support has been repeatedly eroded. This challenge has been building and building. London’s population has grown by 900,000 in the last 15 years, with massive consequences for rising demand for services, particularly adult and children’s social care, special educational needs and disabilities, and temporary accommodation.
Jim Shannon (Strangford) (DUP)
I commend the hon. Gentleman for securing the debate. One of the biggest issues for all councils—London councils and other councils across this great United Kingdom of Great Britain and Northern Ireland—is housing. The Government have committed to 1.5 million houses, and that is a commendable strategy to address the issue. Does he agree that, whenever the houses come through, the Government have to look at rental accommodation and price, which many people are finding it hard to manage? It is not just the provision of houses, but ensuring that people can actually rent and live in social and rented housing.
Mr Bailey
The hon. Member is right, but we cannot adjust the market situation without adding more houses to the stock. Once we have increased the number of houses, we can start tackling the private rented sector. We are doing so, and I hope that the Minister will expand on some of the measures that this Government are taking to bring our landlords into line and improve the quality of the private rented sector.
As a result of the problems I have described, London’s boroughs are facing an unprecedented financial crisis, one that threatens the vital public services that millions of Londoners rely on, including my constituents in Leyton and Wanstead. Our communities are strong, but we also face significant challenges, ranging from crime and antisocial behaviour to a shortage of decent, affordable homes and the need for better opportunities for young people. All those issues can only be addressed effectively if our excellent councils can invest in our future.
Many councils are now teetering on the edge of issuing section 114 notices—meaning effective bankruptcy—and those risks are increasing, because the drivers of increased costs have simply not been accounted for. Seven London boroughs, nearly a quarter of the total, require exceptional financial support for 2025-26 amounting to over £400 million, and London accounts for almost a third of the total national EFS funding of £1.3 billion. We need to seriously engage with these challenges and chart a sustainable path forward. According to London Councils, London boroughs are forecast to overspend by £800 million this year; particular pressures include homelessness at £330 million, adult social care at £200 million and children’s social care at £160 million. The cost to the public purse will be so much greater in the long run if we do not deal with this crisis now.
By far the most acute financial pressure facing London boroughs is homelessness. The scale of the crisis is staggering: London Councils assesses that one in every 50 Londoners is currently homeless and living in temporary accommodation, including nearly 90,000 children. First and foremost, this is a human tragedy. Like many other colleagues, I have been engaging with individuals and families who are suffering as a result of the housing crisis, including a very powerful visit that I had this Christmas with Crisis in central London. In addition to this human suffering, homelessness represents the fastest-growing financial risk to London’s local authorities, with our councils spending £4 million per day on temporary accommodation—a figure that has surged by 68% in just one year.
Mr Louie French (Old Bexley and Sidcup) (Con)
I thank the hon. Member for giving way and for securing today’s important debate. I agree a lot with what he is saying about homelessness and the challenges it creates for London authorities, whether in inner London or outer London, but it prompts the question of why his Government have cut the housing targets for Labour councils in central London.
Mr Bailey
I thank the hon. Member for his intervention, but it is difficult to accept that kind of challenge when his Government missed every one of their housing targets over the course of 14 years, and he has ignored the fact that the trajectory I have described was set under his Government. If that trajectory continues, homelessness alone will push London boroughs into bankruptcy, although the Government have been working hard to address the enormous challenges that we have inherited—which I have just highlighted to the hon. Member—after the abject failure of Conservative housing and homelessness policies. We welcome the recent uplift to the homelessness prevention grant and this week’s confirmation of £2 billion of grant funding for social and affordable homes across the country. However, there are further measures that could provide much-needed support to London boroughs.
One issue exacerbating the crisis is the cap on the amount of local housing allowance payable for temporary accommodation, which has been frozen at 2011 rates for nearly 14 years, even though such accommodation has become massively more expensive in recent years. The cost to London councils of acquiring temporary accommodation increased by 68% in the single year up to 2023, while the number of homeless Londoners increased by about 8% over the same period. This has created a significant funding gap for local authorities. Updating the cap would provide immediate financial relief for London boroughs, which could then spend more resources on preventing homelessness.
Dawn Butler
My hon. Friend is making a powerful point. London Councils has stated that one in 50 Londoners are currently homeless and living in temporary accommodation, and as my hon. Friend has said, spending is around £114 million per month, or approximately £4 million a day. Does he agree that this is unsustainable?
Mr Bailey
I thank my hon. Friend for her intervention. She refers to one of the three main stresses on our councils: addressing that would bring the greatest relief to all of them. Another step that the Government could take to tackle the homelessness crisis would be to ensure that the LHA rates reflect actual housing costs. London rents have risen so fast in recent years that just 5% of private rented properties are affordable on LHA, pushing more and more families into homelessness. I hope the Minister will set out the steps the Government are taking to review LHA rates, because that could make a huge difference to many families as well as to council finances.
Additionally, a longer-term social rent settlement would stabilise council housing revenue accounts and allow boroughs to increase the building of the new genuinely affordable homes that Londoners need, which we know is the only way to tackle the housing crisis.
When deprivation measures—rightly—have such a significant impact on funding formulas, it is vital to ensure that they effectively account for the impact of rents. Housing costs are one of the biggest drivers of deprivation in London, which is the third most deprived region in England once housing costs are considered. Beyond housing, the fundamental issue at the heart of London’s council funding crisis is a growing disparity between funding allocations and actual levels of need. The main local government funding formula has not been updated since 2013, meaning that allocations are based on outdated data that fails to account for population growth, demographic changes or London’s high housing costs.
Such difficulties can be illustrated by the councils that serve my constituents in Leyton and Wanstead. Redbridge has had population growth of 11.4% since 2011 and has huge pressures from homelessness, with a spend of £52 million a year on temporary accommodation. This is driven by the fact that Redbridge has an enormous private rented sector, comprising 75% of renters locally. The eviction rate in Redbridge is at 4.6% per 10,000 renters, almost triple the London average, with 86% of those evictions coming from the PRS. There is no escaping the reality that shocking numbers of people in constituencies like mine are now being evicted as the housing market changes, and identifying creative policies to tackle it is truly urgent.
Waltham Forest is facing massive pressures from increased homelessness, with a 55% increase in temporary accommodation in just one year up to last October. The requirement to spend under 51% of the homelessness prevention grant on temporary accommodation, although obviously a step in the right direction, will mean that still more of the bill for rising homelessness costs will have to come from the general budgets, including from reserves and other spending.
Costs from special educational needs and disabilities have also been surging, with a forecast overspend of £4.6 million, but the increase in the high needs block funding has not recognised that. Across London the upshot of the large gap between assessed need and actual funding, which the Institute for Fiscal Studies has identified as 17%, is the largest shortfall of any region in England. Many outer London boroughs are among the lowest funded per capita in the country, despite significant pressures.
We welcome the Government’s commitment to reviewing local government funding, because this is a huge opportunity to create a system that accurately reflects the current levels of need. In particular, we need to make sure population figures are robust, which requires serious attention to whether the figures for London reported in the last census are accurate, given that many people left the capital during the pandemic and have since returned.
Mr French
I echo the hon. Member’s comments about funding not keeping up with demographic changes. That is a cross-party criticism—not one aimed just at the Labour Government—because the problem is historical. Other price and funding challenges coming through include contract inflation, and the impact of the jobs tax on all local councils. The impact on Bexley council is expected to be around £5 million next year, but the Government are only providing £1.6 million of funding. Does the hon. Member agree that Ministers must address that issue, as well as the issue of fair funding, to ensure that councils can be financially sustainable?
Mr Bailey
No, and I will allow the Minister to explain why later.
The Tories’ legacies are a local government funding formula that does not recognise London-wide changes, pressure and needs, and a woefully outdated division between outer and inner London. Even 15 or 20 years ago, the traditional distinction between the core city and its outer areas made some sense: density and deprivation were more concentrated in the centre, as a legacy of slums and deindustrialisation. But the impacts of affordable housing and demographic changes have since consigned that situation to the past.
The population, especially people on lower incomes, have moved outwards, but the funding formula has not kept up. The places we live in have changed massively. Populations have grown as new people have come in, which has pushed up rents and house prices, contributing to real social exclusion and deprivation for many. I will quote just two of the many statistics that illustrate that. The borough of Redbridge has more than 80,000 children and young people; Islington has less than half that figure, but the figures for spending on children’s services are almost the inverse—Islington is able to spend £81 million and Redbridge just £44 million. That cannot be justified by deprivation rates, because Redbridge sits above the London average rate, and Islington below it. The situation is no different for public health, where outdated formulae mean that Waltham Forest receives 2.5 times less public health funding per person than Kensington and Chelsea, despite having higher levels of deprivation.
We must recognise that this is not just about the grant formula itself. Inner London weighting has impacts across many policy areas and therefore affects the quality of life of my constituents. Performance levels across education, health, crime and antisocial behaviour are becoming harder to sustain due to recruitment and retention issues, because teachers and police officers can earn up to £6,000 more just by travelling 15 minutes on the Tube. The disparity impacts both revenues and costs, because many inner London boroughs have a greater ability to raise funds from business rates and charges. That also needs to be further taken into account in the Government’s funding reforms.
Ultimately, we need significant change that recognises the impact of huge London-wide demographic shifts, but we also need specific, special consideration for outer London. I welcome the steps that the Government have taken so far to reform the local government financing system, including by giving councils multi-year settlements, which allow them to plan more effectively. That said, local government funding reform will not, on its own, guarantee the financial sustainability of local government, and we all know the challenging financial position that the Government inherited.
If greater resources cannot come from national Government, one alternative would be to empower local authorities to raise revenue through greater fiscal devolution. The fact that seven London boroughs now require exceptional financial support should be a wake-up call for us all—but EFS is not a solution; it is an emergency measure that does nothing to address the structural funding problem. The two London boroughs that required EFS in 2024-25 need even greater support in 2025-26. Relying on EFS would only kick the can down the road and allow financial instability to deepen. That presents a further concern for my constituents because our local councils have managed their budgets prudently and well. They have dealt with the inadequacies of the funding settlement and have often had to increase council tax as a result.
We cannot continue to see success punished, as happened under the previous Government, through policies that direct funding towards life support instead of tackling the underlying drivers of increased costs, which affect well-managed and poorly managed councils alike. I urge the Government to work with the local government sector to explore alternative support mechanisms, such as long-term debt restructuring, to give councils a genuine route to financial stability. We look forward to the funding reforms due in the next 12 months, but we must recognise that the pressure driving costs for our councils is linked to other policies across Government, from housing and planning to special educational needs and disabilities reform.
Strong and empowered local government in London is vital to support delivery of our national missions. Whether we are talking about raising living standards, delivering 1.5 million new homes, getting our NHS and social care system back on their feet, or creating good jobs and strong communities, it all comes back to local councils such as Waltham Forest and Redbridge delivering for local communities. Our Labour councils can do so much more if those challenges are tackled.
Despite the challenges, our hard-working local government staff and council leaders are already innovating and delivering change. In Waltham Forest, the council aims to deliver 27,000 new homes and 52,000 square feet of working space. Redbridge has taken forward a new empty property strategy to tackle that element of the housing crisis, alongside plans to deliver 19,000 new homes and 7,000 new jobs over the next decade. London MPs across the House, along with our hard-working councillors and council officers, are keen to work in partnership with the Government to address the huge challenge we face, and I look forward to playing my part in that.
Emma Lewell (in the Chair)
I remind Members that if they wish to speak, they should bob in the usual way, as they would in the Chamber. We will need to impose a four-minute time limit to ensure all Members get to speak.
Julia Lopez (Hornchurch and Upminster) (Con)
It is a pleasure to serve under your chairmanship, Ms Lewell. I am very grateful to the hon. Member for Leyton and Wanstead (Mr Bailey) for securing this vital debate. I requested a debate on this subject myself, so I am glad that one of us got drawn in the ballot. As an outer London MP, I am extremely sympathetic to the compelling case he makes about the disparity between the centre of the city and its outskirts.
Residents in Havering pay among the highest council tax in London and in return they rightly expect robust services. They want to see their vulnerable neighbours supported, parks and streets well maintained, and essential services working effectively. However, Havering has been under significant financial pressure for years. The root cause of the issue is an outdated and flawed local government funding formula that does not adequately reflect the changing needs of our borough.
Havering’s population has undergone significant changes in the past decade. We have had one of the fastest increases in child numbers in the country, and we have a growing elderly population. Both groups come with complex, multi-layered needs. Those demographic shifts have driven up demand for expensive social care services, but the funding formula still relies on outdated data and fails to reflect those changes, which has left Havering facing growing financial strain.
Other London councils have been able to build reserves during this period, largely because they have benefited from the same outdated formula, especially given that covid grants were allocated on that basis. That has created a disparity between inner and outer London: some boroughs have received more than they need, while others such as Havering are struggling. The Department for Education uses a much more up-to-date formula, which is why Havering has received the bulk of London’s capital funding for schools to meet the rising number of children—one part of Government acknowledges the change, yet another is a decade out of date.
I have long advocated reform of the local government funding formula to reflect those demographic shifts. The previous Conservative Government initiated a fair funding review to address the imbalances, but the pandemic stalled progress. Much of the groundwork for reform has therefore been done, and I urge the Minister to accelerate the review to bring about the necessary changes.
In recent years, Havering council has received some crucial uplifts in social care funding, which have helped it continue to deliver vital services, but the fundamental structural issues in the funding formula remain. Without a long-term solution, the situation will only worsen. To address that, in January I facilitated a meeting between Havering council and the local government Minister, Baroness Taylor. I was grateful for that meeting. As a result, the Government approved further exceptional financial support, which enabled the council to set a budget for the year. That is welcome support, but it is a temporary fix, and a lasting solution is needed. Again, that requires pushing forward with the funding formula review.
On top of those ongoing funding issues, the Government have also introduced fresh financial pressures through the Budget. One of the most significant changes is the increase in employer national insurance contributions, which has driven up the cost of social care and other essential services across the borough. Those increases are directly impacting local businesses and services, from pharmacies and GPs to critical childcare providers and high street shops. Just last week, I spoke to several high street businesses: they are facing huge business rate increases, rising parking charges and the impact of the NICs increases. Those increases are pushing customers away from our high streets and threatening the vitality of our local economy. There will obviously be an ongoing knock-on impact on the local government funding issues.
The latest local government finance settlement has provided Havering with the smallest increase in spending power since 2021, an increase essentially wiped out by the additional national insurance costs. On top of that, Havering has been excluded from the national £600 million recovery grant; no non-Labour London council, apart from Tower Hamlets, will benefit from that spend in the capital. Looking forward, the council is looking at ways to get the economy growing again locally, but that is not going to deal with the fundamental issue of the funding formula. I ask the Minister to accelerate the review so that our residents can benefit.
Jas Athwal (Ilford South) (Lab)
It is a pleasure to serve under your chairmanship, Ms Lewell. I thank my hon. Friend the Member for Leyton and Wanstead (Mr Bailey) for securing this debate.
Local government funding must be fair and must reflect the needs of the boroughs. As has been said by the two hon. Members before me, my hon. Friend the Member for Leyton and Wanstead and the hon. Member for Hornchurch and Upminster (Julia Lopez), the recovery grant offers some respite, but boroughs such as Redbridge —which should in our estimation have received £6 million —did not get a penny. Despite facing significant financial constraints, these boroughs, such as Redbridge, still managed to punch above their weight. That does not mean they do not deserve the money; it means they deserve even more money, because they are well-run, efficient and effective councils.
Redbridge council’s children’s services have been rated outstanding for the second time in a row, and its adult social care is excellent. It has weekly bin collections and has built two new leisure centres and a new lido, with a climbing centre on the way. People might think that it is rolling in money—but that could not be much wronger. While it is a well-run and effective council, Redbridge is the 11th most deprived borough in London, with a core spending power of £904 per person. When we extrapolate that over the population, the council receives about £73 million less per year than it should—and yet it did not receive the recovery fund. That is a lot of money.
We have heard the arguments about inner and outer London. Yes, inner London has the ability to generate funds, and of course there is less ability for the outer-London councils to raise cash. That is equalised by residents from outer London having to pay more council tax to make up the services that the residents deserve. No one can tell me that residents in outer London deserve less money per head than people in inner London. We have heard that housing is one of the biggest decimators of finance at the moment. Homelessness is rife all over, exacerbated by the fact that more expensive inner London areas can buy up housing in outer London areas such as Redbridge, Waltham Forest and Havering. Therefore, at my weekly MP surgeries, many of my cases deal with inner London councils whose people are being housed in outer London boroughs.
The three key asks are for central Government to use updated and accurate data, such as that from the Office for National Statistics, on employment, income and homelessness, so that outer London boroughs can be more fairly served. We need to reform the funding formula so that updated data on deprivation and demands on services, particularly housing needs, are taken into account. Of course, we need to use the census data—
Emma Lewell (in the Chair)
Order. Sorry but the time is up. I now have to reduce the time allowed to three and half minutes.
Peter Fortune (Bromley and Biggin Hill) (Con)
It is a pleasure to serve under your chairmanship, Ms Lewell.
Before serving the people of Bromley and Biggin Hill as their Member of Parliament, I served them as a councillor in the borough for 12 years. I was also privileged to be deputy leader of that great borough. I have, therefore, long been familiar with the financial challenges that face local government. As much as the Labour party would like to pin the blame solely on decisions taken in 2010, the story is far longer than that.
For Bromley, the story of underfunding started in 1997, under the previous Labour Government. Bromley council’s net budget has reduced by more than a quarter in real terms and nearly two fifths per person. It is true that the previous Conservative Government asked councils to make significant savings to tackle the country’s deficit but, ultimately, without those difficult decisions our nation would not have been able to weather the financial storm caused by the coronavirus.
I regret that the previous Conservative Government did not deliver a long-promised fair funding review, but I recognise that that was hard to achieve in the aftermath of the pandemic, the energy crisis and high inflation. It is a problem that successive Governments of all stripes have failed to grasp. The new Labour Government’s actions have made it even more challenging for councils. It is the same old Labour story in London: more money is spent on Labour areas and less on the Conservative suburbs.
Bromley council was awarded the second-lowest funding settlement amount per person. If Bromley received the average settlement grant of funding per person for London, the borough would receive an additional £80 million a year. In addition to inadequate settlements, Bromley did not benefit from the recovery grant. With inflation rising fast again under the Labour Government, the funding pressures will worsen, further eroding councils’ financial standing. Nor have councils received adequate funding to cover the cost of Labour’s decision to increase employer’s national insurance contributions. This jobs tax will further push up costs, especially in social care.
Bromley is a well-managed borough, and I commend its Conservative leader, Councillor Colin Smith, and his excellent team, but like all London councils Bromley faces enormous pressures that are simply unaffordable. We retain the fourth-lowest level of council tax in outer London because we are a low-cost borough. Bromley council has saved more than £150 million since 2011, but being a low-tax, low-cost borough means there are few remaining savings.
It is becoming increasingly impossible for councils to balance the books. Bromley can this year, but only thanks to the authority’s reserves, carefully built and protected over many years of sensible and responsible stewardship, despite opposition calls to reduce them. That is not sustainable in the long term. It is why a quarter of London boroughs have already effectively declared bankruptcy and requested exceptional financial support.
Future local government settlements must adequately fund councils to deliver, especially considering the rising national insurance costs. They should reflect the higher costs that all London boroughs face, fixing the area cost adjustments that wrongly say that Bromley is one of the most affordable places in London. There should also be a mechanism to reward low-cost and efficient authorities, instead of asking them to make savings while spendthrift authorities are given more.
Finally, the Government should allow councils to change statutory charges to match costs, and reduce ringfencing to allow councils to be more flexible and more concerned with their own priorities.
Natasha Irons (Croydon East) (Lab)
Councils are at the coalface of politics and are leaders in delivery. From potholes to parks and parking, local councils deliver the things that we care about. For too long, our councils have been failed by central Government. They have been undervalued and underfunded.
In London, where councils receive 28% less funding per Londoner than they did in 2010, boroughs are now at crisis point. London’s housing emergency has pushed an estimated one in 50 Londoners into homelessness and pushed London councils into spending £4 million a day on temporary accommodation.
Dan Tomlinson (Chipping Barnet) (Lab)
Barnet council now processes 10 homelessness applications every single day—more than double the number it was processing just two years ago. This, coupled with additional spending on educational needs and adult social care, is crippling councils’ budgets, much as council leaders will try to do the best they can by their local communities. Does my hon. Friend agree that that must change if we are to see a sustainable future for councils in outer London?
Natasha Irons
Of course I agree. It is imperative that we solve this crisis.
With overspends in children’s and social care services across London, seven London boroughs require exceptional financial support to balance their books, and Croydon council is one of them. As with councils across the country, poor decisions and failure in governance, mixed with chronic underfunding, saw the council issue its first section 114 notice in 2020.
As an outer-London borough with inner-London problems, Croydon has historically suffered from a financial settlement that does not reflect the demands on its services. The debt built up over successive administrations now costs the council £71 million a year to service, and it borrows £38 million of that from central Government. Although I appreciate that it is not something the Government can just write off, I urge them to work with Croydon council to restructure the debt and find a long-term solution to bring down the cost and its impact on day-to-day spending.
Debt is not Croydon council’s only challenge, because even if the debt were wiped out, it would still need to borrow an extra £65 million from the Government to balance its books. Although there are overspends in the areas that we would expect, such as children’s and adult social care, the council is also grappling with a number of neighbouring boroughs placing vulnerable people in temporary accommodation in Croydon while not funding the ongoing associated costs.
A massive 24% of people in temporary accommodation in Croydon have been placed there from outside the borough, with the highest number of placements coming from Lambeth, Lewisham and Bromley. With families often stuck in temporary accommodation for many months or even years, it falls to Croydon to pick up the further, ongoing costs with regard to demand-led services. With councils across London bidding for accommodation and social care placements in Croydon, the council is often forced into a bidding war to provide support for its own residents.
Will the Government look at funding London councils properly, and introduce measures such as including deprivation in the local government funding formula, or increasing the local housing allowance in line with inflation and removing the cap on how much councils can reclaim to cover the costs of temporary accommodation? Will they also consider ways to reduce profiteering in the marketplace for demand-led services, consider legislating to ensure that a home council continues to fund the costs of care when children are placed outside their home borough, and ensure that a family’s home council continues to fund the costs of placing homeless families outside the host borough? I ask because no one wins when councils are forced into this situation and pitted against one another.
If we want people to see and feel the change that they voted for, on their streets, in their communities and across this country, it is properly funded councils that can deliver that. If we want the services that communities rely on every day to be of the highest quality, it is properly funded councils that can make that happen. If we want to make it feel as if the lights have finally come on in this country, it is properly funded councils that can flip the switch.
Andrew Rosindell (Romford) (Con)
It is a pleasure to serve under your chairmanship, Ms Lewell. I thank the hon. Member for Leyton and Wanstead (Mr Bailey) for rightly raising this issue for debate. I am grateful to him, as I am sure we all are.
I endorse the comments of pretty much all Members who have spoken, but especially my hon. Friend the Member for Hornchurch and Upminster (Julia Lopez)—we share the borough of Havering. Members have highlighted what we all know: the local government funding system is fundamentally broken. No matter what borough we come from, the current system simply is not working. We are all suffering local services that are inadequate. Funding is not there for things that are essential, and we are seeing money spent on things in local government that I believe are wasted.
Particularly in Havering, as well as in Bromley and in Hillingdon, which is represented by my hon. Friend the Member for Ruislip, Northwood and Pinner (David Simmonds), we also say that our boroughs are spending a lot of money to fund the Greater London Authority, and most of that seems to be spent in inner-London areas. Outer-London areas are funding inner London. We have been doing that for many decades, not just since the Greater London Authority and the mayor were created, but under both Governments.
I would like to depoliticise this issue a bit. We can blame each other—[Hon. Members: “Ah!”] We can blame each other, but the last Government did not deal with it, and I hope this Government will attempt to deal with it. Without fundamental change, the problem will go on and on. What we need is less, but more effective, government. We need spending on the right things. We need to give control back to our local areas and to have less control by central Government and the Greater London Authority.
I will not repeat all the arguments made by my hon. Friend the Member for Hornchurch and Upminster, because all the points she made were absolutely correct, but Havering has particularly suffered from underfunding and an unfair funding formula for many decades—in fact, all the way back to when the London boroughs were created in the 1960s. When the London boroughs were created, the outer-London areas, which were considered to be wealthier, were effectively putting money into the centre, and they did so for many decades. As hon. Members have said, that has changed. As the hon. Member for Leyton and Wanstead said, outer-London areas have altered and the demographics have changed. But the funding formula remains the same.
We need to completely change how we deal with this issue. Fiddling around with the figures at the edges will not solve it; we need root-and-branch reform of how local government operates in the Greater London area. We need more flexibility in areas such as Havering, which are not really in London—we orbit London, but we are far more linked to Essex areas than we are to inner London—and fundamental reform of the whole system.
Outer London has always been poorly funded and unfairly treated. In Havering, which has a large older population and a large younger population, and changing demographics, we particularly need more support. I hope the Minister will pledge that support, because all our constituents need change.
Daniel Francis (Bexleyheath and Crayford) (Lab)
It is a pleasure to serve under your chairship, Ms Lewell. I need to say at the outset that my wife is employed as a SEND co-ordinator in the London borough of Bexley.
I was a councillor in Bexley for 20 years, including 10 years under the last Labour Government. I hear what the hon. Member for Bromley and Biggin Hill (Peter Fortune) says, but I assure him that we had a very different funding arrangement then—my local authority was not in the position it now is. The hon. Member for Old Bexley and Sidcup (Mr French) is no longer in his place, but he was the deputy leader on the council and I the leader of the opposition when we faced our funding crisis back in 2021. That funding crisis continues to this day.
In our council, reserves have been used to balance the budget for years. That includes the £5 million we needed to balance the budget in the 2018 council election year. Things became worse in 2021, when the council applied for its capitalisation order. It made 15% of staff redundant and had to sell a building for £9 million to fund the redundancy costs. In the period from 2010 to 2015, Bexley went from having the 10th most expensive council tax in London to the 8th most expensive.
At my election speech last year, I pledged to work tirelessly with my Conservative-controlled local authority to deliver for local people and businesses, and I am here on their behalf to make some key pledges about the pressures they face and the pressures we have heard about today.
First, as my hon. Friend the Member for Ilford South (Jas Athwal) said, we face the matter of the fair funding settlement. Demographic changes in outer London and inner London mean that the borough I was first elected to represent on the council 25 years ago is a very different borough today. Parts of my constituency, such as Slade Green and Northumberland Heath, are very different, demographically and in terms of poverty, from how they were then. My council’s position is that council tax should not be a primary driver of increased core spending power, and that we should simplify the assessments and reduce the number of relative needs formulae.
Then there is the public health grant. I have sat there, through budget after budget, as either leader of the opposition or the opposition finance spokesperson, listening to the Conservative leader, Baroness O’Neill, saying that the public health grant for Bexley is the second lowest in London. I am pleased—in fact, I am proud—that, under a Labour Government, Bexley this year has had the sixth-highest public health increase of all the boroughs, but clearly that position remains, and our public health grant remains too low. As I have said, our finances remain in a very difficult position, with a £32 million budget gap next year, which needs to be addressed.
Most worrying is our safety valve agreement. Our safety valve agreement was signed because of the significant overspends in special educational needs, but that will expire next year. We are not currently on course to achieve the requirements in the safety valve agreement and the statutory override. There is potentially £12.8 million at risk. As I have continually said to the Government, we clearly need to resolve that to protect some of our most vulnerable children in next year’s budget, but also residents and businesses across the London borough of Bexley.
Helen Hayes (Dulwich and West Norwood) (Lab)
It is a pleasure to see you in the Chair, Ms Lewell. I congratulate my hon. Friend the Member for Leyton and Wanstead (Mr Bailey) on securing this important debate.
I was a councillor in Southwark for six years before I was elected to this place. It is a privilege to serve in local government. Our councils carry the heavy responsibility of delivering local services across a huge range of areas, and they have a unique opportunity to make a real difference in the lives of local residents by delivering vital protections for vulnerable people as well as the services that all of us rely on. I pay particular tribute to my local councils, Lambeth and Southwark, for the work that they did during the covid-19 pandemic and what they have done over the last few years to support residents with the cost of living crisis.
I was elected to my local council in 2010, on the same day that the Tory-Lib Dem coalition Government took power in Westminster. I remember the first meeting of our council, when we were briefed on its financial settlement from central Government at the start of a period of austerity. I remember the shock that descended in the room at the scale of the cuts to our budget as the impact on local services became clear.
We had no idea what was yet to come. For 14 years, the Conservative Government outsourced both the pain and the blame for their austerity programme to our local councils, cutting well over 50% of the local government grant, slashing the affordable housing grant, freezing council rents, reducing investment in the existing council housing stock, and freezing the local housing allowance, driving up homelessness. On SEND—an area in which I take a particular interest as Chair of the Education Committee—the coalition placed almost all the statutory responsibility for delivering services on councils, but took away their ability to deliver new school places directly, driving up home-to-school transport costs and the cost of purchasing places in the independent sector.
There will not be a Member here today who does not see the impact of the housing crisis, and the crisis of temporary accommodation, on our constituents and local authorities. The shortage of homes is driving more and more residents to seek support from their council, and putting more and more into the worst-quality accommodation, which has destabilising effects on families across our city. The Liz Truss mini-Budget had a devastating impact on our councils’ ability to build new homes. Both of my boroughs have ambitious programmes for delivering new homes, but they have had to mothball sites as the cost of materials and labour has been sent spiralling.
On all of these issues and many more, London councils face a perfect storm in their finances, and we urgently need support from the Government. Let me finish with five quick measures that the Government should turn their attention to: raising the local council housing allowance to stabilise housing in London; ensuring immediate investment in small sites owned by councils and housing associations that already have planning consent and can be delivered; addressing the statutory override—there is not sufficient engagement with councils on what the Government plan as they begin to plan for the next financial year—getting housing revenue accounts back on a sustainable footing; and delivering multi-year settlements to give certainty and stability to our councils for the future. I know that our councils have the commitment and determination to keep delivering for our residents, and I call on the Government to support them to do so as a matter of urgency.
Bambos Charalambous (Southgate and Wood Green) (Lab)
It is a pleasure to see you in the Chair, Ms Lewell. I congratulate my hon. Friend the Member for Leyton and Wanstead (Mr Bailey) on securing this vital debate and making such an excellent speech. As the Member for Southgate and Wood Green, I have the privilege of representing two boroughs—Enfield and Haringey. Both have faced enormous pressures on their budgets since 2010, when we had the first iteration of the then Government’s austerity agenda. Funding to local councils was slashed, and London councils were particularly badly affected.
Since 2010, Enfield has had £200 million slashed from its budget, a 42% cut. The Institute for Fiscal Studies estimates that Enfield’s share of current local authority funding is the fourth worst in the country relative to comparative need, with a gap of £90 million per year. Like many other outer London boroughs, Enfield suffers from damping, under which the Government calculate the need of outer London boroughs but then take away a proportion and distribute it elsewhere. That is just plain wrong. Enfield needs to get the funding it actually requires to provide services for its residents, but it has lost £11.6 million year on year since 2012-13 as a result of the calculation for outer London boroughs.
Since 2011, Haringey has had its budget cut by £143 million in real terms and has seen a 30% cut in its workforce. It too faces huge pressures on its budgets, particularly in adult social care, in which costs have risen by £31 million, and in children’s social care and SEND provision, where costs have risen by £6 million over the same period.
My hon. Friend the Member for Leyton and Wanstead has already mentioned the antiquated inner-outer London funding formula that adversely affects both Enfield and Haringey and, as is clear from the debate, many other outer London boroughs. The outdated inner-outer London definition needs to be scrapped. Other colleagues have mentioned the huge pressures that London local authorities face in relation to temporary accommodation. Last year, Enfield faced a £17.3 million overspend on temporary accommodation, and for Haringey the figure is £13 million over the last two years.
Despite all that, the councils still provide excellent services. I am proud to put on the record the great work that Haringey Learning Partnership does in the circumstances. What needs to be done? The inner-outer London formula needs to be scrapped, and we need to double the homelessness prevention grant, introduce a funding formula that addresses deprivation, and reform capital flexibility.
Rachel Blake (Cities of London and Westminster) (Lab/Co-op)
It is an honour to serve under your chairship, Ms Lewell. I thank my hon. Friend the Member for Leyton and Wanstead (Mr Bailey) for securing this important debate. I also thank our friends and colleagues from the London local government family who are here listening to the debate. Their tireless work, day in, day out, is not unappreciated, and we are really happy to see them here today.
It has been good to listen to the cross-party support for the debate, but I was a little disappointed not to hear a bit more reflection from Opposition Members on how we got here, despite our having much shared experience as local representatives. That includes the slashing of housing investment by the previous Conservative Government and the slashing of genuinely affordable homes by the previous Conservative mayor—where is he now? Let us not forget the failed fair funding review that the hon. Member for Bromley and Biggin Hill (Peter Fortune) referenced, which hung over local government for years and prevented meaningful planning.
In the last 14 years, we have seen an 173% increase in rough sleeping and a 69% increase in temporary accommodation —that is shameful—as well as rising rents and falling investment. Let us not forget that the cause lies firmly with the Conservatives. The hon. Member for Bromley and Biggin Hill tempts me to remind us what happened in 1997. Labour halved temporary accommodation, made record investment in the condition of homes through the decent homes programme, and introduced the historic 2008-11 programme of new, genuinely affordable homes, which benefits many families now.
Rachel Blake
No.
Let us come to the matter at hand. I would like to talk about temporary accommodation costs, special educational needs and the specific challenges of managing the visitor economy in the very centre of London.
Joe Powell (Kensington and Bayswater) (Lab)
On the specific challenges for central London, does my hon. Friend agree that Westminster council is making the right decision to make use of the new council tax powers to implement a premium for second home owners? Will she join me in encouraging Kensington and Chelsea council to look at doing the same? That could raise £11 million a year, but is not currently the council’s position.
Rachel Blake
I am delighted to celebrate the work that Westminster city council does on tackling the challenges we face as a visitor economy. I am not sure how much Kensington and Chelsea council would appreciate me joining my hon. Friend’s campaign, but I certainly will, because it is for the best for the very centre of London.
Last year, Westminster city council spent £95 million on temporary accommodation, and the City of London’s temporary accommodation costs increased 52% to £1.1 million. I am very proud of the investment that Westminster city council is choosing to make to insource temporary accommodation. It is a real pioneer in that. However, we are doing it in a very challenging environment in terms of overall costs. I acknowledge the challenges that my outer London colleagues face because of the number of families moving to that area. We very much want those families to stay in the centre of London, and I hope that some of the solutions we will put forward will make sure that that happens.
On special educational needs, the number of pupils on education, health and care plans increased by 37%—from 1,035 to 1,413—between 2018 and 2024. None of those children and families deserves to have to go through such a difficult approach to securing a special educational needs plan, and every single one of them deserves the security and certainty that investment in their education will continue in the future.
I turn to the specific challenges of the very centre of London. We have higher additional street-cleaning costs, and Westminster has just invested £2 million in tackling the additional antisocial behaviour that we face. What can we do about that? The Government have made great progress, with £2 billion announced today for 18,000 new genuinely affordable homes, core spending power up by 5.3%, and multi-year settlements, which will make such a big difference. However, we can go further. Let us bring forward the short-term lets registration scheme and pilot it in Cities of London and Westminster. Let us review the formula so that it does not have to be uncertain and complex, and let us tackle the temporary accommodation crisis for good. Imagine what that would do for those families. Imagine what it would do to life chances. Imagine what it would do to public finances when we are not pouring money into a poor-quality private rented sector, but building the genuinely affordable homes that our country and our city need.
Emma Lewell (in the Chair)
With a time limit of two minutes, I call Danny Beales.
Danny Beales (Uxbridge and South Ruislip) (Lab)
Last, but not least. It is a pleasure—less of a pleasure now, but it was a pleasure—to serve under your chairmanship, Ms Lewell. I echo the points my colleagues have made about the unprecedented financial pressures on London councils. While we need to tackle temporary accommodation, the SEND crisis and much more—that is as true in Hillingdon as in any other borough—we also need to ensure the very best financial governance for local authorities.
Unfortunately, in Hillingdon, on top of those long-term pressures, we have seen short-termism and poor governance. A salami-slice approach to budgeting—taking off an extra per cent each year—and the failure to transform services and build the financial base of the council long term have all come home to roost, with the council now in financial crisis. We have seen that if we do not invest in new homes, we get temporary accommodation pressures. If we do not invest in early years and youth services, and close them instead, we get more pressures later in the education system. That is what has happened in Hillingdon.
We have the lowest reserves among our nearest neighbours. The Chartered Institute of Public Finance and Accountancy reported that we ran them down from £62 million in 2021 to £20 million in 2025.
Dan Tomlinson
In Barnet, we have around 85 care homes. Inner London boroughs such as Camden and Islington have around 20, yet the grant that inner London boroughs receive is around £3 million, whereas Barnet council and other outer London boroughs only get around £2 million. Does my hon. Friend think that that injustice in the funding formula is also causing issues for councils such as the one in the area he represents?
Danny Beales
I do—we have to consider the costs that outer London boroughs face, as well as London more generally. As has been said excellently by my hon. Friend the Member for Leyton and Wanstead (Mr Bailey), London is special; it is different, and it faces extra costs and pressures. That is the case right across London.
This very year, Hillingdon’s own financial officer wrote a damning cover report to the council’s budget, making it clear that the road is fast running out. They pointed to governance issues within the council and an inability to meet its own, less ambitious savings targets in previous years, compared with the projected future targets. My constituents have paid the price for that mismanagement—they are paying substantially more every single year, with fees and charges going up exponentially, and getting fewer services as a result.
I welcome the calls for extra long-term financial support for local government, which is much needed; however, we have to ensure as a Government that when we agree that extra long-term financial settlement, which hopefully we will, governance improvements are in place. This money should not be used to fix the cracks in the short term again, but should be used to fundamentally transform services, including the SEND system, the housing system, the social care system and many others. In some authorities, when times were slightly easier than they are today, that did not happen.
To sum up and echo my colleagues’ points, London councils are on their knees financially. As a Government, it is vital that we intervene, because local government is key—it is everyone’s front door to government and their community. We need to invest and we need long-term reform of services, including our education and housing systems, to provide the mixed, successful and financially sustainable communities we all want to see.
Luke Taylor (Sutton and Cheam) (LD)
It is a pleasure to serve under your benevolent gaze, Ms Lewell. I thank the hon. Member for Leyton and Wanstead (Mr Bailey) for securing this important debate, and I point to my entry in the Register of Members’ Financial Interests, which shows that I still proudly serve as a councillor in my constituency in Sutton borough.
London faces a crisis in council funding unparalleled in living memory. We have a funding system that has been starved for years under previous Conservative Governments. As a result, our councils are now struggling to meet the growing demands of the communities they serve. This is not an exaggeration—this is an emergency. Since the onset of austerity in 2010, per capita Government funding has been reduced by more than a fifth, with boroughs now receiving 28% less funding per resident. Meanwhile, London’s population has skyrocketed, increasing by over 900,000 in the past 15 years. The city’s councils are crying out for a long-term funding solution.
Local government provides critical frontline services to our society. It is where people turn for help to meet their daily needs, and it is how communities are supported. Let us be clear: many councils that put in considerable effort to balance the books are not at fault here; they are simply not given enough financial support in the first place as statutory demands rise. It makes a mockery of our conversations about policy here in Westminster when people’s bins go uncollected and children are left waiting for their EHCPs. Our attention should be focused on helping local government, which is at the frontline of the state, to deliver the basics.
Outer London boroughs like Sutton, Kingston and Richmond are getting a raw deal on Government funding—in fact, some of the worst in the country. We see that in police abstractions and we see it in financial council funding.
Andrew Rosindell
The hon. Member mentions that the people of Sutton are getting a raw deal, and I am quite sure that they are. Does he think that the people of Sutton are getting good value for money from the precept we are paying to the Mayor and the Greater London Authority, or would he like some of that money put back into the local communities that he serves?
Luke Taylor
I thank the hon. Member for his intervention. Sutton has one of the lowest spends per resident by Transport for London of any of the London boroughs. We have no tubes, no overground, and half a tram stop in the very northernmost part of the borough, which shows how poorly we are served by TfL infrastructure, so I agree with the hon. Member’s point.
Outer London is being left behind, with some of the lowest support per capita. Our broken system means that inner London continues to be prioritised, despite the shifting needs across the city. There is a growing mismatch between funding allocations and local need, worsened by a funding formula that has not been updated since 2013. The data on which those allocations are based—population demographics and deprivation levels—are outdated and no longer reflect the reality on the ground. Research from the IFS in 2022 found a 17% gap between funding need and actual funding across London, the largest gap of any region in England. There is a temptation among many—we have all heard it—to paint London as a city where the streets are paved with gold and the challenges of poverty are less intense, which is nonsense. London has the second highest poverty rate in the country, second only to the west midlands. It has infrastructure problems, growing homelessness and millions of people suffering with the ever-rising cost of living, which is particularly pronounced in the context of London’s overheated property market.
The problem is diffuse, not concentrated in inner London. Indeed, poverty is shifting across London in ways we have not seen before, as working patterns change and jobs and industries ebb and flow. The outdated funding model forces outer London boroughs to tackle what are often characterised as inner London problems with far less support. The Minister must reassess the funding formula to ensure a fairer deal for boroughs like Sutton.
It is time to recognise the significant demographic and social changes that have taken place in London over the last 12 years. The homelessness crisis is an example of how poverty is shifting across London in unprecedented ways. Homelessness in my home borough of Sutton increased by 51% between 2018 and 2023. London is at the epicentre of the UK’s homelessness disaster, with the highest levels in the country. London Councils estimates that one in 50 Londoners are currently homeless and living in temporary accommodation. In Sutton every night 1,200 families are housed at the cost of the council. Nearly 90,000 children in the capital are homeless. That is one in every 21 children in London—at least one homeless child in every classroom.
As the Liberal Democrat MP for Sutton and Cheam, I am proud to live in a borough that is committed to housing the homeless where we can, but for the sake of such boroughs that hold that commitment it is essential that we address the gaps in support and provide long-term solutions to end homelessness for good. The financial strain currently put on councils to fight the crisis is utterly unsustainable. Boroughs are spending £4 million every single day on temporary accommodation, and those costs have shot up by 68% in just one year. If such trends continue, homelessness will bankrupt our boroughs and plunge our city back into the dark days of Victorian poverty and inequality. Municipal government will wither away and the fingertips of the state will succumb to financial frostbite, meaning we will no longer be able to reach out and rescue families from homelessness and communities from disintegration. Our city will be a plaything of the rich and famous—no longer a home, but a cold shell. Let us be under no illusion: that is what is at stake.
We are already seeing councils needing exceptional financial support just to survive. The housing revenue account is under unprecedented pressure, and with cuts to resources, capped social rents, rising inflation and ageing housing stock, London boroughs are being forced to cut £260 million over the next four years, making it harder to build new homes or to maintain the ones we already have. So we on the Liberal Democrat Benches urge the Government to urgently publish a cross-Whitehall plan to end all forms of homelessness and exempt groups of homeless people and those at risk of homelessness from the shared accommodation rate; ring-fence emergency funding for local councils for permanent accommodation of rough sleepers; increase the local housing allowance rates in line with inflation; and ensure sufficient financial resources for local authorities to deliver the Homelessness Reduction Act 2017. If we do not, I fear the consequences for the future liveability of our city will be existential.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
It is a pleasure to serve once again under your chairmanship, Ms Lewell. I add my congratulations to the hon. Member for Leyton and Wanstead (Mr Bailey) on securing, with cross-party support, a very wide-ranging debate. My starting point, having served 12 years as a London councillor under the last Labour Government and then 12 years as a London councillor under the previous coalition and Conservative Government, is that he should be careful what he wishes for when he has a debate on this subject.
We can already see a pattern beginning to reassert itself in the finances of our local authorities in London and in local government generally. What sound like significant increases are announced, but while one hand gives, the other takes away. Extra funding that has been announced, for the most part comprises maximum possible rises in council tax, very large increases in business rates, and an assumption that local authorities will raise the maximum possible fees and charges from their residents, which is then deducted from any central Government support. We can see the imposition of that in decisions large and small. On the smaller side, we have had representations from London Councils about the impact of ringfenced grant funding to tackle homelessness, which reduces the freedom and flexibility of local authorities in the capital to deploy those resources to keep people off the streets. On a much more macro scale, we have the national insurance contributions rise, which, after additional Government support, leaves local authorities in England over £1 billion net worse off than before the Budget was announced.
Many of us will have served through many years when there were announcements, such as significant rises in the single regeneration budget, and the establishment of the dedicated schools grant under the last Labour Government. However, as Members who experienced those announcements will know, that approach of starting with a standard spending assessment and then damping any increase that it could give rise to, especially impacting on outer London boroughs with a very significant level of social need, has had a significant long-term impact. If there is an apology to be made from the Opposition about our approach to finances in local government, it is that we did not go as far as we would have wished to, as set out by my hon. Friend the Member for Hornchurch and Upminster (Julia Lopez), in redressing some of those imbalances.
The very first council meeting I attended as a member of the public was the last one at which a Labour council ever set a budget in Hillingdon. An 18% council tax rise hit local residents, and the council made £40 million—then around 10% of its budget—in unspecified savings. Let us not succumb to any fiction that somehow we are entering a gilded age for the local authorities of our capital city. And of course, it comes at a time when we know that the pressures on local authorities are rising sharply. According to the charity St Mungo’s, there has been a 29% increase in rough sleeping in the capital compared with the equivalent period under the last Conservative Government. A huge impact on our economy—not just the business rate rises, but the loss of confidence and the lack of investment.
Many Members have spoken eloquently about the pressures around homelessness—the shortage of housing. We have all been ambitious about that, but it is very striking if we look simply at the numbers. The serving Mayor, Sir Sadiq, was set a target by the last Government of around 100,000 new affordable homes. He set himself a target of 52,000—around half what central Government said he should be able to deliver. He actually delivered 35,000 new affordable homes. In total, in equivalent periods, the current Mayor has delivered 65,000 affordable homes, compared with 90,000 under his Conservative predecessor.
Although we all share the ambition, we need the shared starting point as well, of recognising the challenges, including the impact of damping and the inner/outer London inequality. Those things have existed in our funding formula for a very long time, and they are part of a complex set of interactions that arise from not just the current Ministry of Housing, Communities and Local Government, but the Department for Education, the Department of Health and Social Care, the Department for Transport and the Home Office. Many, many London local authorities are supporting significant numbers of asylum seekers. Hillingdon has the highest number of asylum seekers per capita of any local authority in the whole country—a cost not currently funded at all by central Government, but contributing very significantly to the numbers of people needing to be housed and children to be cared for. That complex picture needs to be taken into account when we debate this issue.
I have some asks and some requests to put to the Minister. Like others, I thank London Councils for its excellent work to consider not just the big picture of the quantum of financing, but the things that could be done, such as removing some of the ringfences that the Government have imposed on how those resources are deployed. The first ask is that, as the Government proceed with their processes on devolution, we look at a true shared decision-making arrangement. There is a risk that the devolution settlement will leave London as the only major devolved area with no formal agreement between the Mayor and the boroughs on shared decision making. We see much of that tension around housing.
I ask the Government once again to look at a process around fairer funding, which has been worked on in the past, to begin to address the inequality of funding between inner and outer London. We know the origins of that lie in assumptions that are made about deprivation, but it manifests in almost every area of local government finance in London.
We still see relatively very large amounts of grant going into inner-London local authorities with low-level council tax, which are also often the ones that are most able to raise revenue in other ways. If we compare parking revenue accounts, for example, London borough of Bexley raises £6 million a year and Hillingdon raises £3.8 million a year, all of which can contribute, to a limited extent, to things such as environmental and road improvements. The London borough of Westminster raises £70 million a year—a net contribution of over £40 million just for environmental projects alone. The capacity of local authorities in London to raise revenue is hugely variable, and not just about the costs imposed by the demographics. We need to make sure that we take that fully into account.
I know that the Minister has been asked for this before on the Floor of the House, so I want to ask him to reconsider the position around national insurance contributions. We have just had an emergency Budget, and have been through a period of six months where it has become clear that the sums do not add up, but its impact—driving up the cost of children’s and adult’s social care, as well as every other part of public service in the capital—has been absolutely enormous. We have had representations from every single London borough about the impact of that. There were promises made that that would be mitigated, and we need to see them fulfilled.
Let me finish with an important point. It seems to me that all Members here, on a cross-party basis, have done their best to speak up from east to west, from inner to outer, for the interests of residents in the capital. We know that those challenges will be significant. I say gently to my neighbour, the hon. Member for Uxbridge and South Ruislip (Danny Beales), the rises in charges are 5%, not exponential.
Danny Beales
Does the hon. Gentleman welcome the significant uplift in public health funding from this Government? Or the fact that there is a third more homelessness funding, a significant and additional uplift in local government funding and millions more to be spent on potholes, one of the biggest levels in London? I could go on. That is a significant increase compared with what happened under the last Government, of which he was part. At the same time, our council is increasing council tax for many people, introducing a garden tax and making significant increases in fees and charges, as well as cutting council tax support to many. Does the hon. Gentleman agree that that is an acceptable record?
David Simmonds
I think I will probably avoid descending too much into parochial politics, but it is important to recognise that I will have to pay the garden tax—I do not know whether the hon. Gentleman will—because I live in the London borough of Hillingdon.
All our local authorities are facing elements of those challenges, and are addressing them as best they can. London local authorities have demonstrated probably the greatest financial resilience of any group of local authorities in the country. We have seen a considerable increase in balances held by local authorities across the capital, but that masks significant variations. In particular, significant financial pressures are being created in outer London, partly because of the significant numbers of unfunded costs around things such as asylum and the long-term impact of the very rapid rise in rough sleeping. Set that alongside the fact that the long-standing structural underfunding leaves them less able to deal with the impact of a massive increase in national insurance contributions and the devastating impact of the Budget on the local economy and its ability to pay those taxes, all of which support local services. Let us take all those things into account, and come out of this with a new funding settlement for London. I ask the Minister to give us an undertaking that this will not be one of those settlements where a Government simply give with one hand and take with the other.
Emma Lewell (in the Chair)
I remind the Minister it would be decent of him to leave two minutes at the end for the Member leading the debate to wind up.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Alex Norris)
It is a pleasure to serve with you in the Chair, Ms Lewell, and to speak for the Government in this debate. I congratulate my hon. Friend the Member for Leyton and Wanstead (Mr Bailey) on securing it. All the interest from Members shows how important it was. He made a very thoughtful case on behalf of his community and local authority, and of everybody living across the capital. The themes that my hon. Friend pulled out—homelessness, the importance of exceptional financial support in some areas and the long-standing issues with the formula—were important, and I will perhaps reflect on them as the structure for my own speech, and cover other Member’s contributions along the way, notwithstanding the time I must leave my hon. Friend at the end.
The debate has felt at some points like a bit of a recovering councillors’ convention, and I add myself to that number. I know, as we all do, how important it is for local authorities that their Members of Parliament go and raise their issues in Parliament. It would be reasonable to think that it would be axiomatic that we would do so, but, sometimes, there might be a temptation for a person to finish their time in local government and think they perhaps want to do other things. It is important that we advocate on behalf of our local authorities, and I think that that has been done excellently by colleagues across this place.
We should hold on to the common understanding, which I think was expressed by colleagues, of just how good a job councillors and officers are doing across the city to keep vital public services running. I want to add my thanks to them for their dedication and incredible work in the 800-plus ways in which they touch local people’ lives every day. One of the differences between my previous and current political lives is that there is so much interest in what we do in this place, and there never seems to be enough in what goes on in local government, when actually, that can be more fundamental to individuals’ daily lives.
I want to give some context about the financial settlement because it starts with a conversation about money, which has happened throughout the debate. The settlement for this year makes available a total core spending power for London, including the GLA, of up to £11.35 billion. That is a £726 million increase on last year, and it represents a 5.8% cash-terms increase. That is a start on fixing the foundations of local government and providing significant investment for those services and places that need it most.
My hon. Friend the Member for Dulwich and West Norwood (Helen Hayes) eloquently set out just how hard the challenges were in the previous decade, and how hard those decisions were; that was a common experience for me when I was in local government at that time. No single Budget or intervention can reverse the damage and the harm done then, but this debate is our starting place, and I am pleased that it is under way.
My hon. Friend the Member for Leyton and Wanstead mentioned the importance of homelessness and rough sleeping. My hon. Friend the Member for Croydon East (Natasha Irons) also made some thoughtful points about that. We are very well aware of the particular issues facing councils in London. We know that that is a symptom and an aspect of the homelessness crisis across the country, but that London is particularly affected, for obvious reasons. The crisis is a national disgrace, which I think we should be angry about. There has been a sharp increase in rough sleeping, families stuck in temporary accommodation—perhaps not as visible but just as pernicious—and children growing up without a stable place to call home. Those points were made by my hon. Friend the Member for Cities of London and Westminster (Rachel Blake). That is why we have taken action by allocating £233 million to councils directly for homelessness. That includes the largest ever investment in prevention services, enabling councils to intervene earlier with targeted support. The money available for that will be nearly £1 billion.
As it is an emergency, we have focused on getting money out of the door. However, there will be long-term fixes, and colleagues have talked about ways in which those fixes might happen. I point them towards the long-term housing strategy, which I think will be a huge opportunity to grip the issue. I encourage them to play their part in whatever way they can.
My hon. Friend the Member for Leyton and Wanstead also mentioned exceptional financial support. We have made it clear that while we continue to expect councils to do what they can to deliver for their residents, we do know—and we have heard it in the debate—that the sector is in a fragile state and that some London councils are really struggling. The hon. Member for Bromley and Biggin Hill (Peter Fortune) tried to tempt me back to 1997 in relation to where the origins of that might lie, and the shadow Minister, the hon. Member for Ruislip, Northwood and Pinner (David Simmonds), tried a little bit of that, too. I gently say that I was just about out of short trousers at that time, so they will struggle to make me take the blame. I also say to the shadow Minister that maybe we should stand at the Local Government Association conference and ask colleagues there whether they think that the last decade or the one before was better. I have a sense of what the answer might be, and I know he does too.
However, the exceptional financial support process will be there when councils need it. We have been clear that we want to reset how that works so that it is more collaborative and supportive—unlike the previous Government, which perhaps took a more punitive approach to it. One aspect of that is that when additional borrowing is needed to support recovery, we will not make that more expensive with the additional 1% premium, which the previous Government did. We will also take steps to prevent the disposal of community and heritage assets, when that is considered as a route to financing capitalisation support. We know how important that is to local communities.
As has been said, seven London councils have requested support this year and we are working with them to drive improvements. Exactly as my hon. Friend the Member for Uxbridge and South Ruislip (Danny Beales) said, those improvements must happen now, and I have been through the process in my own city. It is a moment to grapple with and grasp that transformation process, to take those difficult decisions, and to get local authorities on to a stronger footing.
I want to talk a bit about reform more generally. On the multi-year settlement, the year-by-year decisions are driven by settlement decisions, and we always used to get on Christmas eve. It used to drive us mad, because there was not much we could do on Christmas eve. We need to do much better, which is why we are committed to the first multi-year settlement in a decade to give councils time to plan.
We recognise that, as my hon. Friend the Member for Ilford South (Jas Athwal), the hon. Members for Hornchurch and Upminster (Julia Lopez) and for Romford (Andrew Rosindell), and my hon. Friends the Members for Bexleyheath and Crayford (Daniel Francis) and for Southgate and Wood Green (Bambos Charalambous) said, the formula has been out of date for years and years. That is a point of political consensus. Of course, under the previous Administration there was the fair funding review, but that was not delivered, so what we have today is a system that does not represent the best value for taxpayers and does not get money to where it is needed most. We are implementing a comprehensive and up-to-date assessment of needs and resources as part of the multi-year settlement from 2026-27, so it is coming soon.
I thank those who contributed to the recent consultation—I know London Councils will have done so. There will be more discussion when we consult in further detail later in the spring. I ask colleagues to engage with the consultation in the spirit in which this debate has been conducted, based on the cold, hard facts. We will be very clear about the formulas that we use and what the assumptions are based on. I hope we can have the consultation on that level. The hon. Member for Ruislip, Northwood and Pinner said we should steer away from the parochial, and I think that is probably right.
This is probably a good moment to address the point about the recovery grant. It went to places where, weighted by population, deprivation outweighs council tax recovery. That was emergency money to prop up the dangerous state of local authority funding. It was a difficult decision, but we have been very clear about why we took it and the formula is publicly available. I hope we can engage in those sorts of difficult decisions in that spirit, because the alternative is to have senior leaders of Governments boasting at party events about how they have been able to tilt formulas to get money intended for deprived communities to other places. That was a particularly discrediting experience for the previous Government, and we will not replicate it.
Hon. Members mentioned national insurance contributions. As part of the settlement, we announced an extra £550 million of support for local government, but we have needed to make difficult decisions to balance the nation’s finances. The challenge for the Opposition is that they can only say what they are against; they cannot say that they do not want money to go into the national health service, local government and the police. Until and unless they are able to address that fundamental balance—“If not this, then what?”—I fear it looks like their points are political rather than substantial.
I want to end on a positive note. I thank my hon. Friend the Member for Leyton and Wanstead for setting a great tone for the debate, and other hon. Members for populating it with their own thoughtful views and experiences. The Government are committed to resetting the relationship with local government; we want to work with it as partners. Similarly, I hope Members of Parliament of any political party or none, on their own behalf and on behalf of their communities and council, feel they can contribute to the policy process and have their say on what formulas we might use and what priorities we might have. We have a common goal: we want vibrant local authorities that deliver for their local communities day in, day out. That is what councillors, council officers and MPs want, and the Government certainly want the same.
Mr Calvin Bailey
I thank everyone who has contributed to the debate. It will be interesting to see where I go with my first winding-up speech—I will take feedback later.
I thank the councils and councillors of London, who deliver the outputs that we need. I thank Councillor Williams and Councillor Rai and all the council leaders of London for showing leadership in a very challenging time. I thank the Mayor, and I also thank the Minister for the £11.3 billion—5.8%—core increase.
I will steal the words from my hon. Friend the Member for Uxbridge and South Ruislip (Danny Beales): London is special. It is different. Local government is the gateway; it is everyone’s front door. I secured this debate not to draw out ideological challenges and bring up some of the unpleasant aspects of the subject that we have discussed, but to tackle the structural problems that have been languishing untouched for so long. I come back to the point that I should be wary of what I wish for when I secure a debate, but I am not: I am wary of Conservative leadership. I welcome partnership and the Government’s approach, which allows us to have these debates knowing that we will bring better settlements—