Ministers have been urged to halt proposed reforms to local government funding after it emerged that inner London boroughs will receive £700million less than under current arrangements.
The Fair Funding Review 2.0, which analyses the ways that local authorities are handed cash settlements, is set to transform where central government cash goes in the country over the next three years from April 2026.
However, London Councils, a cross-party group representing the capital’s local authorities, have warned that the proposals fail to account for London’s level of need.
They say London boroughs are particularly concerned about the way the government measures deprivation as it does not take into context the higher rent and mortgage bills paid in the capital.
It also gives factors such as “road distance to a post office” equal weighting to levels of homelessness, skewing the formula.
Once housing costs are factored in, London Councils say, London has the highest rate of poverty of any region in the country.
Cllr Claire Holland, Chair of London Councils, said: “We have long called for reform to local government funding to ensure money is distributed fairly on the basis of need. However, the current proposals risk failing to achieve this. After more than a decade of structural underfunding, rising demand and skyrocketing costs, the impact on London could be severe.
“It is right to focus resources on areas with the highest levels of deprivation, but we can’t ignore deprivation in the capital – London has the highest rate of poverty in the country once housing costs are factored in. It is difficult to explain how proximity to a post office affects someone’s life as much as homelessness, yet these factors are given equal weighting under the current proposals.
“As the government considers the responses to the consultation, we will continue working with them to ensure we create a funding regime that genuinely matches resources to need and helps restore financial stability to the sector. This is critical to us delivering on our shared priorities, including building homes, creating jobs and driving economic growth.”
Analysis from the Institute of Fiscal Studies (IFS) showed that several inner London boroughs with high levels of poverty and homelessness could lose out under the changes.
They said councils such as Camden, Islington, Wandsworth, and Hammersmith and Fulham could face real-terms cuts in funding of up to 12 per cent over the next three years.
As a whole, London will lose seven per cent of funding compared to the old system.
The Liberal Democrats have also now joined calls for ministers to not “turn their back” on London.
MP Luke Taylor, the Lib Dem Spokesperson for London, said: “London has huge swathes of deprivation – including the highest rate of child poverty in the country and councils budgets are on the brink.
“Under the previous Conservative government, councils in London were bled dry with many having to cut back on essential services for residents.
“It is now up to both the Labour Mayor and Government to ensure residents across the capital get the funding they deserve and desperately need.”
The Mayor of London, Sadiq Khan, told the Local Democracy Reporting Service (LDRS): “We’re doing all we can to tackle the housing crisis and to deliver more of the affordable homes Londoners desperately need.
“We know that high rents and the lack of affordable homes are pushing Londoners into poverty, so it is vital that any changes to council funding ensure housing costs are properly accounted for when measuring deprivation.
“Central and local government must work hand-in-hand to ensure service needs are measured accurately and that councils have sustainable funding to ensure they can meet demand. I will work in partnership with the Government and boroughs on this issue to ensure that we can continue to build a better, fairer London for everyone.”
The Ministry of Housing, Communities and Local Government were contacted for comment.
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