Lewisham council announce £65m hole in four-year budget

"I want to speak to you directly about the council's finances" says Rudi Schmidt in the council's social media communications to residents last week.

Looking extremely serious, he continues, "Since the election, we've been reviewing our books .. We've inherited a £65m hole in our four-year budget".

The council under its previous Labour administration approved the budget in March for this year 2026/27 with a forecast budget gap for 2027/28. There was in-depth discussion on the reasons behind the need for savings and how they would be achieved.

Rudi Schmidt was a Labour councillor at the time, read the reports and voted for the Labour budget. He will have been aware of the "hole" in the budget, as least as far as 2027/28.

Under the updated figures that the council provided to Salamander this week, the budget gap for 2027/28 has reduced from £36m to £20.9m.

In the video, Schmidt goes on to point out that councils all around the country are under pressure.

BBC figures show the budget gaps in neighbouring boroughs.

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Schmidt then tells viewers that the solution is to invest in infrastructure, and the council will be bringing forward "invest-to-save" proposals.

The key challenges with invest-to-save are how to raise investment without incurring punitive borrowing costs and the time lag between investment and saving.

Salamander asked for examples. "There are various opportunities in housing, repairs and SEND support," Schmidt said, "where targeted investment would improve services and reduce costs in the long-term. 

"Some of this will be targeted at in-year savings, some within 5 years, and others will take a longer-term view."

factcheck: '£90m a year on temporary accommodation'

Schmidt then mentions the need for more council housing to reduce the council's "£90m a year annual spend" on temporary accommodation. The council reclaims much of this from government, leaving a gap which the council has to close.

The number of council homes across the UK has plummeted since Margaret Thatcher first introduced right to buy in 1980.

Over 45 years, the policy has decimated London's council housing stock. Alongside this, social housebuilding from the early 1980s, throughout the 1997 - 2010 Labour years and up to the present, dropped to record lows.

The acute shortage of social housing and pressures of rising private rents has led to increased homelessness, with a disastrous impact on council finances.

This has been widely discussed, within this council and across London councils.

London Councils, the collective of London boroughs and the City of London, repeatedly warns that that temporary accommodation is the biggest financial risk that boroughs face.

Councils have to pick up the cost of the gap between the subsidy, based on the Local Housing Allowance (LHA) rate, set in 2011, and the current cost of temporary accommodation.

The previous Labour administration told us that, like most other London boroughs, they were pressing the government to reform the level of LHA, while also taking the longer term steps to end the homelessness crisis.

Salamander asked for an breakdown of the £90m figure that Schmidt quotes in his video.

We were told that this is the cost of the entire general fund for housing, which includes services such as homelessness services and housing advice.

Temporary accommodation costs £70m, and the council can reclaim around £50m of this cost from government.

Schmidt told Salamander that the council is making up the shortfall of £19.9m. He added: "It’s a scandal that the homelessness crisis is being exploited [by landlords] in this way.

"Housing and temporary accommodation simply should not be a for-profit, housing is a human right. We need much more council house building along with rent controls to fix the broken system." 

Schmidt then says the Greens will be looking for private companies that profiteer from council spending, and "performing an audit of council spending so we can follow the money and take action when needed"

Most councils would say they have already been cut to the bone, and Reform councils have found there is little scope for finding efficiencies.

Schmidt ends by saying the council will be lobbying government for a fairer deal.

Salamander examined how Lewisham did under the Labour government's new fair funding formula, which completely changed how way that grant funding is allocated to councils.

Although the new formula takes account of deprivation, which helps Lewisham, it also includes housing costs, which favours north London boroughs with even higher private rents.

Amanda De Ryk, who was Lewisham Labour's cabinet member for finance, resources and performance, then managed to negotiate an improved Fair Funding Settlement for the council from government, before the council set the budget in March.

Schmidt will be taking part in the Austerity Summit on 9 September, which he explained as "a cross-party summit with politicians, officers from all different councils".

"The purpose of the summit is to build a coalition of councils against austerity which is being imposed on councils and local taxpayers."

Hackney Council are leading on the summit and information will be provided on their social media.

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