Councils face bankruptcy due to rising homelessness costs, leaders warn

The rising cost of preventing homelessness will push many councils into effective bankruptcy and could spell “the end of local government”, an emergency meeting of council leaders has been told.

Cross-party leaders, predominantly from district and lower tier city councils responsible for housing, collectively called on the Government to address unsustainable rising costs for temporary accommodation.

Stephen Holt, Liberal Democrat leader of Eastbourne Borough Council, told a gathering of 50 council leaders in Westminster that the Government must prevent a “national crisis”.

He said: “Simply put, without Government intervention to tackle the tremendous cost of temporary accommodation and homelessness, the next step for many councils of all stripes is emergency budgets and section 114 notices.”

He insisted that the issue is not a political one and called on the Government to immediately uprate the housing benefit subsidy cap for temporary accommodation placements.

Senior councillors from other authorities raised similar concerns, with one warning of a catastrophic impact on local government as a whole.

Michael Jones, Labour leader of Crawley Borough Council, said costs and homelessness were “accelerating” and stressed the town had become “an asylum dispersal city by the back door” which is driving “new demands”.

Referring to the frozen funding regime, he added: “It is simply unjust and needs rectifying now.

“This crisis in temporary accommodation is a challenge that would have been insurmountable even for the most well-resourced councils at the best of times, so I don’t think it is over-dramatic given the pressures facing councils to tell the Government that they are presiding over the end of local government if they fail to take the urgent action needed.”

This week more than 40 Conservative backbenchers signed a letter to the Prime Minister warning that without emergency cash many councils will be forced to cut crucial frontline services and hike council tax in an election year.

Struggling councils have repeatedly called on the Government to provide emergency funding to protect services for local communities, as they have grappled with rampant inflation following a decade of significant funding reductions.

The meeting heard Eastbourne Borough Council’s net costs for temporary accommodation have risen from £1.4 million in 2018/19 to £4.9 million in 2023-24.

A Department for Levelling Up, Housing and Communities spokesperson said: “We recognise councils are facing challenges and that is why we have announced a £64 billion funding package – an above-inflation increase at an average of 6.5% – to ensure they can continue making a difference, alongside our combined efforts to level up.”