The National Audit Office’s (NAO) latest warning on the state of council finances shows the need to support local early intervention services, according to London Councils.

The cross-party group welcomes the NAO’s new analysis, which highlights that although local government funding has increased, it has not kept up with demand or complexity of needs.

The NAO, which assesses value for money in government spending, points to financial pressures limiting councils’ ability to invest in early intervention or prevention to help manage levels of demand. The NAO is recommending a “whole-system, cross-government” approach to ensure councils’ financial sustainability, including through its current Spending Review.

London Councils says boroughs in the capital will be left grappling with a funding shortfall of at least £500m in the coming year (2025-26).

It was recently confirmed that seven London boroughs would receive Exceptional Financial Support, accounting for a third (£418m) of the national total of £1.4bn. However, London Councils argues these emergency borrowing measures burden boroughs with further debts and will not be enough to return them to a stable financial footing.

The umbrella body is urging the government to use the Spending Review to deliver much-needed investment in local services after a prolonged period of underfunding and instability. Boroughs in the capital receive around 28% less funding per Londoner compared to 2010.

Among London Councils’ key asks is a call for overall council funding to be restored to 2010 levels by 2028-29, requiring real-terms increases of 4% every year.

Cllr Claire Holland, Chair of London Councils, said:

“Boroughs want to invest more into early intervention and prevention because we know this brings the best long-term results for our residents.

“At the same time, council finances are under extreme pressure and many are struggling to keep their head above water. More and more of our budgets are taken up by skyrocketing levels of demand for homelessness support and adult and children’s social care – where we have a legal duty to provide services.

“As the NAO’s analysis demonstrates, this makes it incredibly difficult to find money for the prevention services that deliver the most value over the long term.

“The Spending Review is a crucial opportunity to restore sustainability to local government funding. This would put us in a much better position to invest in priorities such as prevention, housebuilding, and driving the economic growth we all want to see.”