Local Government Finances: London

Debate between Emma Lewell and Calvin Bailey

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are a local government funding formula that does not recognise London-wide changes, pressure and needs, and a woefully outdated division between outer and inner London.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 The situation is no different for public health, where outdated formulae mean that Waltham Forest receives 2.5 times less public health funding per person than Kensington and Chelsea, despite having higher levels of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

--- Later in debate ---

[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)).