Important article in Room151 blog not only for Newham but also for many, many other Councils facing section 114 notices (a form of municipal insolvency and/or technical bankruptcy).My understanding is EFS is not an increase in Government funding but an expensive loan being paid for by selling off of Council assets.
"Exceptional Financial Support risks becoming normalised across the local government sector and is only a “sticking plaster solution” to councils’ financial problems anyway, according to Conrad Hall, corporate director of resources at the London Borough of Newham.
The authority’s Cabinet will discuss Newham’s financial position today (15 October) – with a £175m budget gap forecasted over the next three years – and will be asked to continue discussions with the Ministry of Housing, Communities and Local Government (MHCLG) on receiving Exceptional Financial Support (EFS) in financial year 2025/26.
Temporary accommodation costs account for £100m of that £175m budget gap, with Hall stating that the “housing crisis and the consequence of the failure of the housing market” has fallen “very disproportionately” on authorities. Some, like Newham, are being put in a “completely impossible” position.
“There’s something wrong with a funding system that allows that degree of, frankly, randomness between two different councils,” he told Room151.
Conrad Hall
EFS would provide temporary financial relief for Newham but only “kicks the can down the road”, according to Hall. He also fears that with so many other authorities across the country in an unstable financial position, EFS could “stop being exceptional and start to look a bit normal”.
Newham anticipates an overspend for the current 2024/25 financial year in the region of £47m, of which a £31m overspend is forecast on temporary accommodation and £16m on social care provision.
The authority has identified savings – including asset sales – for 2025/26 that have an annual value of £20.3m, growing to £51.2m for 2027/28, and the Cabinet will be asked to approve these immediately. Further savings options have also been listed for consideration that amount to £13.5m in 2025/26, growing to £20.9m for 2027/28.
Hall described the savings as a “substantial package of pretty unpleasant cuts”.
If the MHCLG does not provide EFS, Hall said that a section 114 notice becomes a “very serious consideration” and might be needed in around 18 months in that scenario. However, it is an effectively “pointless” action when the issue is not underlying financial mismanagement but instead external factors beyond the authority’s control.
“Issuing [a section 114 notice] is foremost to say that we haven’t got the money. It doesn’t really help because we still have the same duty to house people in temporary accommodation, and that is the cause of the financial problem,” he said. “So while it is a dramatic moment, it doesn’t actually change the dial much. We’re trying to get [government] to change policy so that you don’t have local authorities just collectively all going under. The current situation is just unsustainable.”
Hall noted that Newham has had initial conversations with the MHCLG, but has heard nothing since. This situation, though, “is not unexpected, because I think they will be waiting until after [the Budget] of 30 October”. If the government operates to the same timetable as the last financial year, a final decision might be expected around February.
Consequently, Newham has so far not specified an amount of EFS it is seeking, as much will depend on what the government does with the homelessness funding system, Hall said. “It’s so dramatically broken in London and beyond that it’s hard to imagine that they’re not going to do anything,” he added.
Action on Local Housing Allowance (LHA) rates, for example, could be “taken overnight”, which would reduce the cost burden on individual councils and transfer it “at no overall cost to the public purse”, Hall noted.
Ultimately, Hall said that funding reform was needed, which goes beyond just multi-year settlements, to solve the underlying issues that are forcing more councils to seek EFS and potentially issue section 114 notices.
Photo: Shutterstock
“EFS can be done for, say, a year while [the government] fixes the overall funding system and sorts out housing and things like that. But it’s not something that will work for any period of time,” he said.
“It must be accompanied by funding reform. The difficult thing for the government to do is to find some money to fix the problem, because if they don’t it’ll just get worse and worse. And if housing isn’t fixed, other things also get worse, and you need more expensive interventions elsewhere. It is an extraordinary crisis, and the government just doesn’t seem, so far, to have reached a clear and funded policy about how they’re going to deal with it.”
Hall said that while the government would surely “like to help” they may have boxed themselves in in terms of verbal commitments to action in other areas. “What about education? What about universities? The criminal justice system? And the list goes on,” he said. “They are probably thinking, ‘we can’t afford to fix all those things’, and local government usually ends up pretty far down the public sector pecking order....
See link for further report on Newham rents and HRA plans...
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