London Councils Face £70 Million Deficit as One Council Reports Additional £10 Million Shortfall

The City of London Corporation is facing a more significant financial challenge than it had previously projected, as it navigates issues such as inflation and the Government’s Fair Funding reforms. These reforms, which aim to allocate funding to local authorities based on need, are set to drastically reduce the Corporation’s grant in the coming years. This has raised alarms within the Corporation, with earlier warnings indicating that essential services may encounter “uncertainty” unless a more favourable financial settlement can be reached.

In its unaudited statement of accounts for the City Fund for the 2025/26 financial year, the Corporation has disclosed that it now anticipates a deficit exceeding £70 million by 2029/30, an increase of nearly £10 million compared to figures released earlier this year. The report highlights that, like other local authorities, the Corporation is grappling with inflationary pressures and rising costs, compounded by “uncertainty in elements of its funding.” A spokesperson for the Corporation emphasised that its “prudential and disciplined approach” will enable it to continue providing vital services both within the City and throughout the country.

Impact of Government Funding Reforms

The Government’s reforms will bring about substantial changes in how funding is distributed to local authorities, with a greater emphasis on assessing need and the capacity of councils to generate revenue. These reforms will be introduced gradually over three years. The Government grant contributes to various essential services, including street cleaning, waste collection, housing, and libraries. While some councils stand to gain from these changes, several Inner London boroughs are expected to face considerable cuts. For instance, Westminster City Council’s Conservative administration has warned of impending cuts totalling £100 million, while Kensington and Chelsea, also under Conservative leadership, is projecting a £108 million loss over the next four years.

Additionally, Hammersmith and Fulham Council’s own recently-published unaudited accounts indicate that, despite successfully balancing its budget for the current year, it anticipates a worst-case scenario of a £40 million deficit in 2027/28, escalating to £69 million in 2028/29. These projections align with figures disclosed in the local authority’s budget for 2026/27, which was approved in February.

Concerns Over Local Funding Adjustments

In the City, concerns have arisen regarding the revised needs assessment, which fails to consider the impact of the 680,000 daily commuters. The Corporation’s funding is projected to plummet from £77 million to £18 million. While the Corporation succeeded in securing some modifications to the initial proposal—such as extending transitional funding from one year to three—the organisation has cautioned that services face “uncertainty” under the current funding model. The unaudited accounts reflect a deteriorating financial outlook compared to earlier projections this spring, which indicated deficits of £13 million for 2027/28 and £62 million for 2028/29.

Currently, the Corporation expects the City Fund, responsible for local authority functions, to decline from a surplus of £16.4 million in 2026/27 to a deficit of £20.6 million the following year. This deficit is anticipated to grow to £24.9 million in 2028/29 before escalating to £70.2 million by 2029/30. Although the Fair Funding reforms are not the sole cause of this financial strain, the Corporation has explicitly acknowledged the adverse effects these changes are predicted to have on its finances.

Commitment to Financial Stability

The Corporation has reiterated its support for a funding system that is transparent and evidence-based, and one that aligns better with local needs. It intends to continue its constructive engagement with the Government as these reforms unfold. Furthermore, the Corporation has welcomed the Government’s promise of a tailored settlement for the City Corporation, along with transitional arrangements designed to manage changes and safeguard financial stability during the introduction of the new funding system.

The Corporation has also indicated that it will continue to stress the importance of ensuring core funding accurately reflects the unique characteristics of the Square Mile, including its relatively small residential population, large daytime workforce, and significant visitor numbers, alongside the nationally important services it provides. To address the pressures within the City Fund, the Corporation has proposed various mitigations and maintains adequate levels of both general and earmarked reserves to support its functions in the short to medium term.

Housing Revenue Account Challenges

The unaudited accounts further reveal that the Housing Revenue Account (HRA), which has faced its own well-documented challenges, reported a deficit of £66.9 million for the 2025/26 financial year. This marks a considerable increase from the £4.5 million deficit recorded in 2024/25 and appears to reflect both the difficulties the account is encountering and the considerable investments being made by the Corporation to improve its housing stock. The report states, “The HRA continues to be carefully monitored both in year and over the medium term.” A financing plan is currently being developed to ensure that a planned surplus can be achieved, replenishing the reserves as new housing units come online to generate additional rental income for the HRA.

Efforts to engage with the Ministry of Housing, Communities and Local Government for comment did not yield a response at the time of publication. A spokesperson for the City of London Corporation remarked, “Like many organisations, we are facing considerable demands on our resources and experiencing significant financial pressures. We have been transparent about these challenges and are taking responsible steps to safeguard our finances. This prudent and disciplined approach will ensure we can continue to deliver high-quality services for the City, London, and the UK.”