London Councils receive 17% less funding than they need

Funding provided to local government in London is the least adequate of any English region, new research has shown.

By Noah Vickers, Local Democracy Reporter

Islington Town Hall
Islington Town Hall. Photo: LDRS

An analysis by the Institute for Fiscal Studies found that the capital’s councils are receiving 17 per cent less funding than their “relative estimated need”.

London Councils – a cross-party organisation lobbying for the city’s borough authorities – said the funding gap was especially concerning given the capital’s “fast-rising pressures”, in terms of population and deprivation levels.

Labour councillor Claire Holland, the group’s executive member for communities, said: “London has some of the worst deprivation in the country.

“As the 2021 census showed, over the last decade outer London in particular has become more deprived, reflecting demographic and economic changes.

“Since funding was last updated, London’s total population has grown by almost 800,000 – broadly equivalent to a city the size of Leeds.

“But, as the report highlights, local government funding has not changed to reflect these fast-rising pressures and growing levels of need.”

The analysis looked not only at money received in the form of Government grants, but also cash taken in by the authorities through council tax and business rates.

Councils are limited by Government in terms of how much they can increase council tax by without holding a local referendum.

The increase cap for authorities with social care duties, which includes London boroughs, is currently 5 per cent.

A few sometimes choose not to increase council tax at all however – and on this point, the report caveats: “The fact that London receives smaller shares of local government and police funding than its shares of need may be less concerning if these gaps reflect choices local policymakers have made to set lower council tax levels than in other parts of the country.”

This is particularly relevant when looking at the boroughs of Hammersmith and Fulham, Wandsworth and Westminster – all of which set some of the country’s lowest council tax rates.

It says that when London is looked at using “notional council tax revenues” – that is, if their council tax levels were equal to the national average, the 17 per cent funding gap shrinks to 7 per cent.

However, the report also acknowledges that the data could be underestimating need in London, as it uses population figures from the 2021 census – carried out at a time when many Londoners, particularly students, young people on furlough, and migrant workers from abroad, may have temporarily relocated to family homes outside of the capital.

Ms Holland, who is also the leader of Lambeth Council, added: “With funding levels still almost a fifth below where they were in 2010, local government funding reform must take place alongside vital investment across the entire sector to put council finances back on a sustainable path for the long term.

“We remain committed to working with the Government to ensuring this happens.”

A spokesperson at the Department for Levelling Up, Housing and Communities said in response: “Levelling Up is a long-term programme of reform that sits at the heart of our ambition as a Government.

“After listening to feedback from local government, we will work with the sector in the next Parliament to take stock of the challenges and opportunities they face before consulting on any potential funding reform.

“Through the 2023/24 Local Government Finance Settlement, the most relatively deprived areas of England will receive 17 per cent more per household in available resource than the least deprived areas.”

The Government says that over this financial year, councils in England will benefit from almost £60 billion to deliver frontline services, with an average funding increase of 9.4 per cent.

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