London Labour MPs Warn Council Funding Reforms Could Hurt Electoral Prospects In Capital
Steve Reed replaced Angela Rayner as the Housing Secretary this month (Alamy)
5 min read
London Labour MPs have warned the government that proposed reforms for how local government is funded have “massive flaws” and could damage the party in next year’s elections in the capital.
PoliticsHome reported earlier this year that London councils had voiced concerns about the proposed changes, with MPs warned they would result in "devastating" cuts.
Labour MPs representing seats in the capital are understood to be particularly concerned about the exclusion of housing costs from the reforms, and have raised this point in recent meetings with the Ministry of Housing, Communities and Local Government.
The Labour government has pledged to allocate funding more evenly across the country. At the Spending Review in June, Chancellor Rachel Reeves said, "past governments have underinvested in towns and cities outside London and the South East".
There is also a strong geographical element to the ongoing contest to replace Angela Rayner as Labour deputy leader, with many Labour MPs, including those in the Red Wall Group, arguing that her successor must be a woman from the north of England. Prime Minister Keir Starmer is a London MP, as is the new Deputy Prime Minister David Lammy.
However, there is growing concern among the capital's Labour MPs that reforms to local council funding could negatively impact areas in inner London, with one backbencher warning that the government is failing to see the potential "political" ramifications.
PoliticsHome understands that MPs met with the now-former local government minister Jim McMahon earlier this summer and pushed him on why housing was not being sufficiently factored into the deprivation index, as well as on concerns over the proposed children's funding formula.
One London Labour MP who was present at the meeting told PoliticsHome: "No one can really give us an answer as to why the housing costs aren't being included. The minister said he would go back and look at that."
Inner London boroughs are expected to be hit hardest under the current proposals for funding reform, while outer boroughs are expected to benefit.
One London Labour MP, who wished to speak anonymously, told PoliticsHome that while the proposals in theory have a “noble objective”, the current proposals have “really major flaws”.
“I am really worried that the approach has been to come up with an academic formula, and no one can explain [the government's thinking] clearly. They've put it out into the wild without looking at the political and financial consequences,” they added.
The timeline for the consultation period is something that has faced criticism from local government experts, with Antonia Jennings, chief executive of the Centre for London, describing the speed of the policymaking process as "concerning".
But the government has also faced criticism for failing to publish modelling for what the impact of the changes would be, with analysis from the Institute for Fiscal Studies think tank finding that some central London councils could lose more than 10 per cent of their funding.
The same MP warned: "The [proposal] is a bit of a sledgehammer to some boroughs in London with pockets of very high deprivation.
"It is not clear that the politics is being thought through with the London elections next year. It's a place that has strongly voted for this government. I think [fair funding] is a noble objective, but I don't think you do that by slashing services in one part of the country to give to another one."
Neil Coyle, the Labour MP for Bermondsey and Old Southwark, told PoliticsHome that his council had proposed a number of tweaks.
“What we've asked for already in central London is that the review fully take into account housing issue needs and temporary accommodation, being a massive, much, much more significant issue in London than outside London.”
He added that if the measurement of disadvantage in housing issues is “done better”, the result will be “a better settlement”.
Neil Coyle is among the London Labour MPs calling for the government to rethink its council funding reforms (Alamy)
Labour MPs who have raised concerns with the government argue it makes little sense not to include housing costs within the formula when people in some London constituencies spend such a large share of their take-home pay on rent. They also believe that the current trend of families leaving London, reflected in the closures of primary schools across the capital, could be exacerbated further if the proposed reforms go ahead.
Jennings from the Centre for London told PoliticsHome that SEND pressures are also currently missing from the proposals, which are "uniquely stark in London".
Pushback against the reforms comes amid a feeling among London Labour MPs that the party's dominance in the capital could be at risk at local elections in May 2026.
The unnamed MP said: "We have got a number of councils we won for the first time that are doing a really good job, and it would be a mistake to have them carry the can for a national decision that is not of their making at all."
"We have got to be smarter about this," they said, adding, "I don't think you want to make life harder in the elections."
London Labour MPs hope that the arrival of Steve Reed at MHCLG at last week's ministerial reshuffle provides an opportunity to persuade the government to change direction. Reed, who left his role as environment secretary to replace Angela Rayner as housing secretary, is a south London MP and used to lead Lambeth Council.
A Ministry of Housing, Communities and Local Government spokesperson said: “Councils have been failed by the outdated funding system we inherited.
"We're fixing this to give people the high-quality public services they deserve in London and across the country, delivering on our Plan for Change.”
