London boroughs sound the alarm bells as skyrocketing inflation is eating £400m hole into budget

Skyrocketing inflation is driving £400m of additional budget pressures on boroughs in the capital, London Councils warned this morning.

Although the government increased local authority funding this year, fast-rising inflation has effectively cut £100m from the financial uplift boroughs received for 2022-23.

London Councils, a cross-party group representing all 32 boroughs and the City of London Corporation, is concerned that vital local services and economic recovery will be jeopardised without immediate extra investment and certainty over future funding.

With so many Londoners struggling through the cost-of-living crisis, London Councils fears the impact of boroughs’ worsening finance pressures on services for the capital’s most vulnerable residents, as well the repercussions for local economic growth and regeneration plans.  

Since the 2022-23 local government finance settlement in February – which delivered a £330m real terms increase in London boroughs’ core spending power – rising energy prices, global supply chain shortages, and the economic impact of the war in Ukraine have seen inflation hit a 40-year high.

The change in GDP inflation – from 2.7 per cent to 4.1 per cent in March – means the funding increase is now worth £100m less in real terms than when it was agreed.

However, costs have also risen sharply.  The increase in contracts and wider running costs is more closely linked to CPI inflation (currently at 9 per cent and rising). With unions recently setting out a 10 per cent pay claim, the cost to pay bills is likely to far exceed the 2 per cent on average boroughs budgeted for this year.  

Inflation pressures are being felt most acutely in adult social care, with costs spiralling due to issues such as energy bills for care homes and staff wages increasing, the body said.

For some boroughs, adult social care represents 70 per cent of their controllable budgets. The costs of delivering the government’s funding reforms now look set to far exceed the funding earmarked at the 2021 Spending Review.

London Councils said boroughs are doing their best to mitigate pressures by reassessing contracts, looking at alternative markets for materials, sharing risk with contractors, considering collaborative procurements, and reviewing fees and charges policies.

However, “these actions alone won’t be enough to address the unanticipated costs boroughs are currently enduring. Without extra funding support from the government, many boroughs will either have to use one-off reserves to plug gaps or take tough choices to cut services when vulnerable residents need them most,” London Councils warned.