BIG ISSUE NATIONAL VENDOR WEEK
LEARN MORE
Housing

Homelessness at heart of councils' £4bn funding black hole, MPs warn: 'It's an out-of-control crisis'

Local authority finances are ‘out of control’ and the cost of homelessness could make councils go bust, according to the Levelling Up Committee

Centre for Homelessness Impact Brian

Councils increasingly crumbling under the demand of helping people like Brian avoid homelessness. A service user at a hostel in Brighton, Brian became homeless when his dad kicked him out at the age of 12. He’s been homeless one way or another since 1980. Image: Jeff Hubbard/PA Wire

The government must plug English councils’ £4bn funding gap or see more go bust, MPs have warned, with the cost of homelessness one of the big issues stretching local authorities’ finances.

MPs from the Levelling Up, Housing and Communities (LUHC) Committee have sounded a dire warning that council finances are “out of control” in a damning report.

Change a Big Issue vendor’s life this winter by purchasing a Winter Support Kit. You’ll receive four copies of the magazine and create a brighter future for our vendors through 2024 and beyond.

The cross-party group said further councils face bankruptcy unless systemic underfunding is resolved, calling on the government to reform council tax and wider funding streams for local authorities. The Westminster government has recently announced an additional £600m support package for councils across England and is “ready to talk” to councils struggling to balance the books.

Councils are facing increasing costs for children’s and adults social care as well as the cost of homelessness with the annual temporary accommodation bill hitting £1.7bn a year and set to grow further.

Committee chair Clive Betts said: “There is an out-of-control financial crisis in local councils across England.

“Councils are hit by a double harm of increased demands for services while experiencing a significant hit to their real-terms spending power in recent years. 

“The government must use the local government financial settlement to help bridge the £4bn funding gap for 2024-25 or risk already strained council services becoming stretched to breaking point. If the government fails to plug this gap, well-run councils could face the very real prospect of effectively going bust.

“Long-term reform is vitally needed. Councils are being forced to hike up council tax, in a forlorn attempt to plug increasingly large holes in their budgets, is unsustainable and unfair to local people who are, year on year, seeing less services while paying more.”

The committee heard that increasing levels of homelessness have required local authorities to spend more in fulfilling their statutory duties to people who require support.

Stephen Jones, director of Core Cities UK, told MPs that one local authority had tripled its homelessness and temporary accommodation budget and was still seeing costs that are “outstripping that”.

Lambeth Council leader Claire Holland said that London boroughs are forecasting to overspend over £90m on temporary accommodation this year. “That is a massive cost to us [ … ] In my own borough it is sadly going up consistently and constantly,” she added.

The biggest driver of homelessness was the freeze in local housing allowance, MPs concluded.

The Big Issue campaigned for local housing allowance rates to be unfrozen to cover the bottom 30% of local market rents after a four-year freeze left housing benefits lagging behind rents.

Abdool Kara, executive director at the National Audit Office, said the failure to fund housing benefits left councils caught in a vicious cycle.

“The freezing of local housing allowance rates does two things: it creates more people who are homeless, because their housing benefit cannot afford rising rents,” said Kara.

“But more importantly it means that local authorities cannot discharge their duty towards households once those people are homeless, because they cannot find them properties in the local area that are within the local housing allowance rates.”

Rates will rise in April to give a much-needed boost to low-income renters. Levelling up secretary Michael Gove told MPs that the wait since the announcement at November’s Autumn Statement was down to “the way the public spending cycle works”.

The committee urged the government to rethink plans to re-freeze LHA rates next year and called for a renewed effort to build social housing to be at the top of ministers’ agenda.

Failure to do so will see pressures on public sector finances escalate further.

Meanwhile, the LUHC Committee report also highlighted the costs involved in the delivery of services for children and young people with special educational needs and disabilities and home-to-school transport. 

It called for a full review into the Education, Health and Care plan system and to consider reforms to make special educational needs provision financially sustainable. 

Councillor Pete Marland, chair of the Local Government Association’s Resources Board, said: “Councils have led the way at finding ways to save money and reduce costs and this work will continue, but they will still need to raise council tax this year and many will need to make further savings to local services in order to plug remaining funding gaps. 

“As the committee rightly highlights, cost and demand pressures will continue to stretch council budgets to the limit. Without further funding, some councils will find themselves struggling to set balanced budgets in 2024/25 and potentially unable to do so as they look forward to 2025/26.

A Department for Levelling Up, Housing and Communities spokesperson said: “We recognise councils are facing challenges and that is why we recently announced an additional £600m support package for councils across England, increasing their overall proposed funding for next year to £64.7bn – a 7.5% increase in cash terms.

“This additional funding has been welcomed by leading local government organisations, but we remain ready to talk to any concerned council about its financial position.”

Do you have a story to tell or opinions to share about this? We want to hear from you. Get in touch and tell us more.

National Vendor Week 2024

A celebration of people who are working their way out of poverty.
Vendor martin Hawes

Recommended for you

View all
Jeremy Hunt to unveil 99% mortgages in Spring Budget. But what does it mean for housing crisis?
Chancellor Jeremy Hunt is reportedly considering a 99% mortgage scheme
Housing

Jeremy Hunt to unveil 99% mortgages in Spring Budget. But what does it mean for housing crisis?

'It's a win-win solution': Building social housing could add £50bn to UK economy, study finds
build social housing to end the housing crisis
Housing crisis

'It's a win-win solution': Building social housing could add £50bn to UK economy, study finds

Competition watchdog launches investigation into house builders over failure to build enough homes
Watchdog to investigate housebuilders over the housing crisis
Housing crisis

Competition watchdog launches investigation into house builders over failure to build enough homes

Rising homelessness has UK in a chokehold – but this project is fighting back with mixed martial arts
MMA class to prevent homelessness in Sheffield
Homelessness

Rising homelessness has UK in a chokehold – but this project is fighting back with mixed martial arts

Most Popular

Read All
Renters pay their landlords' buy-to-let mortgages, so they should get a share of the profits
Renters: A mortgage lender's window advertising buy-to-let products
1.

Renters pay their landlords' buy-to-let mortgages, so they should get a share of the profits

Exclusive: Disabled people are 'set up to fail' by the DWP in target-driven disability benefits system, whistleblowers reveal
Pound coins on a piece of paper with disability living allowancve
2.

Exclusive: Disabled people are 'set up to fail' by the DWP in target-driven disability benefits system, whistleblowers reveal

Here's when UK households to start receiving last cost of living payments
next dwp cost of living payment 2023
3.

Here's when UK households to start receiving last cost of living payments

Strike dates 2023: From train drivers to NHS doctors, here are the dates to know
4.

Strike dates 2023: From train drivers to NHS doctors, here are the dates to know