London councils face bankruptcy over £330m overspend on homelessness

London Councils have called the homelessness crisis the “single biggest risk” to local authority finances in a warning that 2024-25’s £330 million budget overspend could leave some councils facing bankruptcy.

The cross-party group said London boroughs spent £900m tackling homelessness this year. That’s 60% more than the £600m they originally allocated to spend on homelessness in the wake of soaring numbers of households living in temporary accommodation.

The crisis is leading to councils collectively spending £4m a day on temporary accommodation. The gap between the subsidies they receive from central government and the cost of accomodation is estimated to have risen from £96m to £140m in the last couple of years.

Councillor Grace Williams, London Councils’ executive member for housing and regeneration, said: “The worsening homelessness emergency is devastating the lives of too many Londoners and represents the single biggest risk to boroughs’ finances.

“Homelessness spending is fundamentally driven by factors outside our control. Boroughs have a legal duty to provide homelessness support – and we’re seeing homelessness numbers skyrocket while accommodation costs spiral.  

“If things carry on as they are, we will see more boroughs’ become effectively bankrupt. This brings massive uncertainty to the future of our communities’ local services, and could ultimately mean more costs to the government when emergency interventions are required.”

A record-high 126,000 households in England are being put up by councils after falling into homelessness with more than 160,000 children growing up homeless.

A high proportion of households living in temporary accommodation are in London. Around 183,000 Londoners are in temporary accommodation – equivalent to one in 50 residents of the English capital.

London Councils said costs have also spiked due to landlords ending their arrangements with boroughs either to sell their property or seek tenants paying higher rents on the open market.

Over recent years, 45,000 homes have been lost from London’s private rented sector, mainly at the cheaper end of the housing market, increasing the reliance on expensive nightly paid accommodation, including hotels.

The cross-party group has called on the government to step in at June’s spending review, warning emergency support from the government may be required to prevent councils issuing section 114 notices – effectively declarations of bankruptcy.

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Councillor Williams said: “London boroughs are doing everything we can to turn this situation around, but we need urgent action from ministers. Only national government has the powers and resources required to bolster councils’ budgets and reduce homelessness pressures – particularly through investing far more in affordable housing.”

The Labour government is set to lay out local government financial plans at the spending review, while long-term housing and homelessness strategies are set to follow shortly after.

London Councils is urging ministers to close the subsidy gap for councils and raise local housing allowance rates to help low-income renters afford soaring private rents. The group also wants local housing allowance to rise each year alongside inflation.

More long-term grant funding for affordable housing is also required to help councils build their way out of the current crisis, London Councils said.

Peers discussed the cost of temporary accommodation on local authority finances in the House of Lords on Tuesday (22 April).

Speaking on behalf of the government, Baroness Sharon Taylor said: “This government recognises that homelessness levels are far too high and that this can have a devastating effect on those involved. It also places a huge financial strain on councils providing temporary accommodation.

“We have allocated an extra £233m to councils directly for homelessness, taking total funding to nearly £1billion this year. The deputy prime minister is chairing an inter-ministerial group to develop a long-term strategy to deliver the long-term solutions that we need.”

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