Newham, an East London borough, is confronting a substantial financial hurdle, with a budget deficit totaling £157 million, primarily driven by the soaring costs of providing temporary housing for its homeless residents. In response to this crisis, the local council is pursuing exceptional authorization from the government to implement a significant 10% increase in council tax—double the standard cap allowed for most local authorities.
Special Government Permissions and Financial Strategy
The borough has formally requested “exceptional financial support,” enabling it to raise council tax above the usual limit. Typically, councils may increase tax by up to 5% without necessitating a local referendum. However, in extraordinary cases, such applications can be made to central government to secure necessary funds.
This measure aims to avert potential bankruptcy as the council grapples with potential financial insolvency. Notably, other local authorities have recently made similar moves. For instance, Woking raised taxes by 10% last year, and Croydon implemented a staggering 15% hike in 2023. Birmingham City Council approved a combined increase of 21% over two years, while Thurrock and Slough approved raises of 8% and 8.5%, respectively, as they declared themselves effectively bankrupt.
Despite the proposed increase, Newham will still maintain the seventh lowest council tax bill in London. Currently, an average Band D household in the borough pays £1,724 annually, which includes contributions to the Greater London Authority precept set by the Mayor of London.
Pressing Financial Concerns
Zulfiqar Ali, Newham’s cabinet member for finance, articulated the pressing challenge the borough faces, stating, “Nearly 70% of our budget, like most councils, is already spent on services for vulnerable children and adults, leaving just the remaining 30% for every other service we provide.” This reflects a broader trend affecting many local governments across the country. Ali emphasized the critical need for Sustainable funding models, asserting, “This obviously isn’t sustainable, and the whole local government sector needs multi-year fairer funding settlements based on local need.” The proposed council tax increase aims to cover the rising costs associated with homelessness and will be complemented by an 80% council tax relief scheme for low-income residents.
Broader Context in Local Government
Additionally, other councils are facing similar fiscal crises. Havering is expected to discuss its council tax strategy later this month, seeking to address a projected £74 million budget gap. Options under consideration may include significantly increasing council tax beyond the typical cap or further government loans, or even declaring bankruptcy. Lambeth is also striving with a projected £70 million deficit over the next four years, leading to potential shifts in its council tax structure.
The borough plans to reassess its protections that currently exempt certain low-income residents from paying council tax. Instead, Lambeth will propose an up to 80% reduction in bills for its most vulnerable citizens, as outlined by David Amos, Lambeth’s cabinet member for finance. Amos highlighted the pressures on local government services, which are at a breaking point after years of austerity, surging inflation, and an increasing demand for public services. He noted, “Local government must do more each year with less money, leaving us with a significant funding gap in the years ahead.”
These developments underscore a growing trend among London boroughs grappling with budget shortfalls and seeking innovative solutions to support their communities.
