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Why are councils in London going bankrupt?

Councils are responsible for some of the most important things in people’s everyday lives. They collect your bins, they run your local library, they look after most of the road network, they decide whether to grant planning permission for new developments, and they own and maintain around one in seven of all homes across London.

Authorities across the country have been coming under strain for several years – but many are now reaching breaking point. Why?

A perfect storm of high inflation, an ageing population and a lack of long-term funding from the Government have all come together to bring many authorities to the brink of bankruptcy – with some tipping over the edge.


Social care is an especially heavy cost, as the number of over-65s across the country has grown significantly, meaning that there is an ever-growing number of people in the UK in need of daily care – whether that’s help getting dressed in the morning or cooking meals.

Then there’s the fact that more and more families are being pushed into homelessness by the soaring cost of living. Here in London, which has some of the country’s highest rents, increasing numbers of people are failing to make enough to pay the rent and are coming to their local council in need of emergency housing.

But with such high demand, authorities are having to resort to putting families up in bed and breakfast accommodation or hostels, often at relatively high costs.

According to councils, it’s not just that they aren’t receiving enough funding from the Government, though they argue in London that they they will be under-funded to the tune of £400m in the coming financial year. It’s also the fact that the funding is given out on such a short-term basis, with a horizon of just one year at a time. This will be the sixth year in a row in which the Government’s funding is only being set out for one year.

Councils say that this short-termism is making the situation worse, as they can’t plan effectively for the future without knowing how much cash they can count on receiving in future years.

Here in London, in general, it’s the boroughs in outer London who are facing a particularly tough outlook, as they are estimated to be amongst the lowest funded per capita in the country, with growing populations who are becoming more deprived.

One of the clearest current examples of this is Havering Council, in north-east London, which is facing a £32.5m budget gap this year, rising to £81.9m over the next four years.

Boroughs are under a legal duty to balance their budgets, so Havering has said that as well as requiring a £54m Government loan, it is now considering plans to dim streetlights, stop funding Christmas decorations, and review its bin collections.

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