London Councils Urge Capital's MPs To Oppose Local Funding Reforms

London Councils, which represents all 32 boroughs and the City of London Corporation, has called on London MPs from all parties to write to local government minister Jim McMahon to raise concerns about the Labour government's plans.

In June, the Ministry of Housing, Communities and Local Government, led by Deputy Prime Minister Angela Rayner, set out proposed changes to local authority funding in a consultation called 'The Fair Funding Review 2.0'.

It said that the "broken funding system" inherited from the last Tory government had "left local authorities across the country in crisis" and in need of a major reset.

However, the briefing note sent to MPs late last month warned that London boroughs could face "devastating" cuts to their "already-strained finances" under the proposals.

The organisation expressed concern that individual boroughs could lose more than 70 per cent of their share of grant funding, adding that while the capital is "perceived as being financially healthy... in reality, boroughs and Londoners are struggling".

Four of the seven London boroughs receiving Exceptional Financial Support (EFS) could see their funding decrease as a result of the proposed funding reforms, the briefing note said. EFS is effectively a bailout that allows councils in financial difficulty to borrow money to avoid bankruptcy. 

While London Councils welcomed the steps being taken to reform local government funding, it is concerned that the current proposals "will fail to produce a robust, long-term funding system that genuinely matches resource to need, particularly in the London context".  

London Councils told MPs: "London boroughs could lose up to £700m in funding without sufficient transition or protections. This would significantly undermine their ability to support the government’s missions and deliver the services Londoners need...

"We are particularly concerned this will impact London’s children’s services, as the children’s funding formula shifts a significant amount of funding out of London."

It added: "We’re asking London MPs to urgently write to Jim McMahon MP, minister for local government, to raise concerns about the prospect of London boroughs losing £700m despite the enormous finance challenges facing town halls in the capital and London local government having the highest rate of reliance on Exceptional Financial Support of any region in the country."

The warning represents the latest tension in the relationship between the Labour government and the capital.

At last month's Spending Review, London Mayor Sadiq Khan said ministers were at risk of "levelling down" the capital after he missed out on asks for major transport projects.

PoliticsHome reported at the time that London Labour MPs had publicly expressed concern over suggestions that the capital was set to miss out on key funding.

Khan was one of the most senior Labour figures to oppose the government's welfare reforms before Prime Minister Keir Starmer agreed to major concessions to avoid a House of Commons defeat.

As well as writing to the minister for local government, London Councils encouraged the capital's MPs to contact Janet Daby MP, the minister for children, about its concerns with the proposed children’s formula developed by the Department for Education.

The organisation said that the deprivation index currently planned "does not properly reflect housing costs and using other questionable or untested metrics". 

London Councils is holding an online briefing on the funding reforms for London MPs and their staff later this month, as it tries to build political pressure on ministers to change course.

Council funding will likely be a talking point when London borough elections are held next May, with both the Liberal Democrats and Greens hoping to make inroads into Labour-held councils. 

Labour is the dominant political force in London, with Starmer's party representing 57 of the 75 parliamentary constituencies in Greater London. Nine are Conservative, six are Liberal Democrat, and three are Independent. 

Luke Taylor, Liberal Democrat MP for Sutton and Cheam and the party's London spokesperson, said he was "really concerned" about the warnings set out in the briefing note obtained by PoliticsHome.

"London has some of the most cash-strapped councils in the country, and those councils are dealing with unimaginably high demand on services, so a loss of 70 per cent of their share of grant funding would be terrifying," he told PoliticsHome.

Taylor said London has the largest funding gap in the country and the government "should be looking to do something about that, not making the situation worse".

“We all accept that public finances are squeezed, but the government mustn’t outsource the burden of those savings down to cash-strapped local councils in London. They should be looking to raise revenue by making the big banks and tech companies pay their fair share of tax instead.”

A Ministry of Housing, Communities and Local Government spokesperson told PoliticsHome: “We’re reforming the local government funding system to get councils back on stable footing and improve the lives for people across the country, delivering on the Plan for Change.

“This will deliver fairer funding for all local authorities to help them deliver better public services, recognising specific demand on services in London. This comes after we have already made available a total Core Spending Power for London, including the GLA, of up to £13.35bn, for this financial year.” 

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