Local Government Finances: London

Emma Lewell Excerpts

Wednesday 26th March 2025 Westminster Hall

[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are a local government funding formula that does not recognise London-wide changes, pressure and needs, and a woefully outdated division between outer and inner London.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 The situation is no different for public health, where outdated formulae mean that Waltham Forest receives 2.5 times less public health funding per person than Kensington and Chelsea, despite having higher levels of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.

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[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.

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[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.

[Emma Lewell (in the Chair)]

Order.

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[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.

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[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.

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[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—

[Emma Lewell (in the Chair)]

Order.

Motion lapsed (Standing Order No. 10(6)).