Which London boroughs could go bust and what does it mean for council tax bills?

Yahoo

27-01-2025

A growing number of councils are warning that the skyrocketing cost of providing services is pushing them to the brink of bankruptcy.
Eight English town halls have gone bust since 2018, including Croydon, Woking, Nottingham, Birmingham and Thurrock, and many more are now teetering on the edge.
Local authorities face 'unsustainable' pressure sparked increasingly by record numbers of families living in temporary accommodation, according a Public Accounts Committee report published on Friday.
The committee found councils across England are at 'breaking point' as they 'haemorrhage funds'. Its Conservative chair Geoffrey Clifton-Brown said there 'seems to be no desire to move away from an unsatisfactory short-term system'.
London Councils warned that skyrocketing homelessness in the capital is 'pushing boroughs to the brink', with unsustainable pressure hitting budgets.
Four boroughs - Havering, Croydon, Newham and Lambeth, have so far this year revealed requests for emergency Government support in a bid to balance the books.
This will have an impact on council tax bills, set to rise in April. Local authorities can usually only raise council tax by up to 5% without triggering a referendum.
However, one town hall is seeking special government permission to increase council tax by a massive 10% in a bid to avoid going bust, while others are expected to follow.
Havering, which is predicting a budget gap of around £74million, has put in an application for central Government loans to cover its rising debts.
For residents the financial crisis means homeless families being placed in former office blocks to save cash and, next week, councillors are set to sign off plans to close three libraries in a bid to save £288,000.
In a cost-cutting budget last year, the town hall agreed to dim street lighting on main roads and strip back Christmas decorations.
Havering was saved from issuing a section 114 notice, effectively declaring bankruptcy, in 2024 by a £54million last-minute loan from central Government.
This year it faces the same predicament, mainly down to the soaring cost of social care. The borough has the second oldest population in London, alongside one of the fastest growing populations of young people in England, placing huge demand on both adult and children's services.
The council said the care for a single dementia patient can cost the town hall more than £210,000 a year, while a looked-after child can result in fees of about £8,000-a-week.
Leader Roy Morgon said that in 2010 his town hall received £70million of Revenue Support Grant from central Government. Today it is just under £2million.
But he has pledged not to increase council tax beyond 5% in 2025.
'Why should the taxpayer have to bear the burden of central cuts?,' Mr Morgon told the Standard.
'We will continue to argue and make the case for fairer funding.'
The east London town hall has applied for 'exceptional financial support', which will allow it to hike council tax by 10% - twice the maximum amount allowed elsewhere in the country.
It will mean bills for the average Band D home rise to around £1,868-a-year, up from £1,724. This is including City Hall's portion of the tax, which Mayor Sadiq Khan is increasing 4% to £490.38 from April.
Newham also wants permission to sell off assets to fund day-to-day spending as it struggles under the huge weight of its homelessness bill.
One in 20 households in the borough is in temporary housing – 22 times the national average.
Leaders say the £157million budget gap is almost exclusively down to the spiralling cost of providing temporary accommodation.
Councillors have already signed off penny-pinching plans. In a bid to cover costs it has cancelled Christmas and Eid lights, removed free tea and coffee for staff in its offices and banned internal catering, such as biscuits, for meetings in a desperate bid to save cash.
Fees and charges, excluding parking and commercial rents, are expected to increase by 20% for residents and a Council Tax Reduction Scheme, which sees the poorest people face lower payments, is being scaled back.
Newham faces selling off its buildings, including its Dockside offices opposite London City Airport and the Debden House conference centre in Essex.
Lambeth has said it faces making 'impossible choices' in a bid to balance the books.
Last year it received up to £50million in exceptional financial support from the Government.
This was to help fund the Lambeth Children's Homes Redress Scheme, which has provided compensation to thousands of survivors of historical child sexual abuse in council-run homes since it was established in 2018.
This year, leaders have argued Lambeth needs extra emergency funding to tackle rising costs.
The town hall estimates it will have to 'urgently' make £69million of budget cuts.
Leaders have not yet confirmed whether the plan will include increasing council tax beyond 5%.
But it is in a similar situation to Newham with regard to temporary accommodation bills and a rising number of homeless families.
Lambeth also estimates that it will be £1billion short of the money needed to cover its social housing over the next 30-years.
Council leader Claire Holland said: 'We need to be open with residents that we still face significant budget gaps caused by 14 years of government funding cuts, unprecedented demand for emergency housing for homeless families and rising demand for adult and children's social care.'
Croydon has collapsed into bankruptcy three times since 2020 and continues to struggle with £1.4billion of 'toxic' historic debt.
Measures taken since the town hall first went bust, including selling off buildings, have still not been enough to put it on a sustainable financial footing in the face of rising demand for services.
In previous years, it has been handed £38million in capitalisation directions from Government to address the debt burden.
But this year that is unlikely to be sufficient to cover the budget gap and £22million of cuts need to be made.
However executive mayor Jason Perry has pledged that council tax bills, which were increased a record 15% in 2023/24, will not rise above the 5% cap in 2025.
While many boroughs are able to use reserves and bump up costs, such as raising parking fees and rents, to help balance the books, almost every council in the capital is facing some kind of struggle.
It means all Londoners are likely to see at least around a 5% increase in council tax bills in April.
London Councils estimates boroughs now spend £4million every day on temporary accommodation.
Grace Williams, leader of Waltham Forest and London Councils' Executive Member for Housing, said: 'London is the epicentre of the national homelessness crisis.
'The number of Londoners in temporary accommodation is going through the roof.
'The impact on individuals – especially families with children – is devastating. The pressures on local services are also pushing boroughs to the brink.
'Temporary accommodation is the fastest-rising threat to London boroughs' finances as the costs we face are simply unsustainable.
'Boroughs support the committee's call for urgent policy action to reduce homelessness. We are keen to work with the government on a national strategy that addresses the unfolding emergency in the capital.'