London Councils, the umbrella body for local authorities in the capital, might close a £26.4m voluntary sector grants scheme and give the money in the fund back to individual local authorities to spend as they choose.
The 32 local councils in London make payments to the London Boroughs Grants Scheme in proportion to their population. The central fund is topped up with a grant from the European Social Fund and allocated to voluntary sector projects across the capital. It awards grants to more than 400 organisations a year.
A spokeswoman for London Councils said it was considering whether it should give the money back to local boroughs, among a number of other options.
She said she was not sure whether they would be obliged to spend it on voluntary sector organisations.
In a statement issued by London Councils, Steve Bullock, the chair of its grants committee, said: "Circumstances are very different now to when the programme was last reviewed five years ago. In the light of these tough economic times, many boroughs feel that they are in a better place to decide how the money should be spent locally, especially as this will vary from borough to borough.
"We will be reviewing the grants scheme over the next few months to make sure that the money is being used in the most effective way for voluntary groups and boroughs alike."
A spokeswoman for the London Voluntary Service Council, which represents voluntary and community sector groups in the capital, said the organisation was disappointed at the move and was worried that local authorities would decide not to spend the funds on the voluntary sector.
"As far as we understand it, there is no way to ring-fence any such repatriated funding to be spent through the voluntary and community sector for the benefit of the most disadvantaged Londoners," she said.
London Councils’ review of the grants scheme is due to end in November.