A proposed overhaul of local government funding could see some of London’s most deprived boroughs lose millions of pounds, despite long-standing pledges to prioritise areas with high levels of poverty and homelessness.
According to new analysis by the Institute for Fiscal Studies (IFS), Labour-run inner London councils including Camden, Islington, and Hammersmith and Fulham are facing real-terms cuts of up to 12% over the next three years. Camden, which includes Labour leader Keir Starmer’s constituency, is among the hardest hit under the government’s proposed changes.
The funding shake-up, due to be implemented from April, has sparked criticism from local leaders who argue the new formula fails to reflect the true needs of low-income communities in the capital. London Councils, the body representing the capital’s boroughs, said the plans had not been properly tested and risked harming the most vulnerable residents.
Chair of London Councils, Claire Holland, warned the cuts would have “major implications” for disadvantaged groups, stressing that London has the UK’s highest poverty rate once housing costs are considered. One in every 50 Londoners is currently homeless and placed in temporary accommodation.
The IFS expressed surprise that the proposed formula is not more heavily weighted towards deprivation. Although the government had pledged to create a fairer, more needs-based system, the think tank found that the reforms are not especially redistributive in favour of poorer urban areas.
While deprived regions such as Blackpool, Bradford, and Wolverhampton are expected to gain funding, several northern areas like South Tyneside and Sunderland may still see cuts. Across England, around 30 local authorities could face real-terms reductions of 11-12%, while a quarter are set for increases of 12% or more.
The capital, along with the south-east and south-west, is expected to be the biggest loser regionally. London alone could face a 7% cut overall, and £1.5bn could be lost through changes to the children’s services funding formula.
In contrast, regions such as the East Midlands and Yorkshire and the Humber stand to gain from the review. At a local level, urban districts like Crawley, Harlow, and Norwich are predicted to receive double-digit funding increases.
The Ministry of Housing, Communities and Local Government defended the proposals, saying the current system no longer reflects the real needs of communities. A spokesperson said the new approach would better align funding with local demand and ensure services are improved nationwide.
Final decisions on the funding reform are yet to be made, with extensive negotiations between local authorities and central government expected before any changes are finalised.
