London boroughs face £5.2bn shortfall as demand for essential services grows

London’s councils are warning that a widening funding gap could destabilise local services as the cost of supporting vulnerable residents continues to rise.

Analysis by the cross-party London Councils group forecasts a shortfall of almost £1.2 billion across the capital’s local authorities during 2026/27. The cumulative gap is expected to reach £5.2 billion by 2030, rising from an estimate of £4.7 billion published last year.

Much of the pressure is being driven by growing demand for adult and children’s social care, homelessness support and services for children and young people with special educational needs and disabilities. Because many of these are statutory responsibilities, councils have limited scope to reduce provision and may instead have to cut other services, use reserves or borrow more heavily.

Nine of London’s 33 local authorities are already receiving Exceptional Financial Support from the government, allowing them to use emergency borrowing to balance their budgets and avoid issuing effective bankruptcy notices. London Councils warned that this approach adds further debt without resolving the underlying financial problem.

Homelessness is placing particularly severe pressure on borough finances. One in 50 Londoners is living in temporary accommodation, with councils collectively spending around £5.5 million every day on providing it.

London Councils is calling for greater financial powers, changes to housing support and a sustainable funding settlement from central government. It warned that without reform, boroughs could struggle to protect frontline services while also meeting ambitions to build homes, support employment and invest in local communities.

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