London councils warn of £5.2bn budget gap as nine boroughs need emergency loans

London’s 33 councils expect to be £5.2bn short between them over the coming four years, according to London Councils, the group that speaks for them.

The new forecast is drawn from figures each borough supplied, and it is worse than the £4.7bn shortfall the group predicted last October. Over the same period, the number of boroughs using the government’s Exceptional Financial Support scheme has gone up from seven to nine. The scheme allows councils in financial difficulty to borrow in an emergency so that they can set a balanced budget.

Social care and homelessness costs behind the gap

For the current financial year alone, London Councils puts the gap at almost £1.2bn. It says more people need social care and help with homelessness, while demand for special educational needs services is also going up.

This year’s figure is still below the almost £1.5bn the group had expected for 2026-27 when it made its forecast last October. That earlier estimate was made before the government settled its changes to council funding through the Fair Funding Review.

What London Councils wants from the budget

Stephen Cowan, who chairs London Councils, said costs and demand for services had soared while the money given to boroughs fell behind. “Everyone knows the local government finance system is broken,” he said.

Mr Cowan described the upcoming budget as a chance to “help stabilise town hall finances”. He also wants boroughs to be given more fiscal tools of their own.

The group has called the emergency support scheme “a misnomer” in the past. It says there are serious concerns that the loans leave councils carrying more debt without restoring their finances to a sustainable footing.