Local Government Finances: London

Julia Lopez Excerpts

Wednesday 26th March 2025 Westminster Hall

[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 The root cause of the issue is an outdated and flawed local government funding formula that does not adequately reflect the changing needs of our borough.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demographic shifts have driven up demand for expensive social care services, but the funding formula still relies on outdated data and fails to reflect those changes, which has left Havering facing growing financial strain.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London councils have been able to build reserves during this period, largely because they have benefited from the same outdated formula, especially given that covid grants were allocated on that basis.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schools to meet the rising number of children—one part of Government acknowledges the change, yet another is a decade out of date.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.