Sutton Council faces a significant budget gap of £36.5 million over the next three years, according to a report presented to the Strategy and Resources Committee.
The projected shortfall, outlined in the Medium Term Financial Strategy (MTFS) update, necessitates a comprehensive transformation programme and careful financial management to address rising demand in key services such as adult social care, children's social care, housing, and special educational needs and disabilities (SEND).
The MTFS highlights that while the council has managed pressures over recent years through service transformation and efficiencies, the challenges are escalating. The projected budget gap is £13.6 million in 2027/28, rising to £36.5 million by 2029/30. This is attributed to increased demand in statutory services, inflationary pressures on contracts and pay, and a reduction in core government funding following the Fairer Funding Reforms.
Previous Transformation Efforts
In previous years, the council has focused transformation on high-demand service areas including Adult Social Care (ASC), Children's Social Care (CSC), Housing, and SEND through a Financial Sustainability Programme. Initiatives included reviewing high-cost packages to identify lower-cost alternatives, improving processes and policies for efficiency, investing in preventative actions, and utilising digital technologies. For CSC, transformation efforts led to the stabilisation of Children Looked After (CLA) numbers and a reduction in high-cost placements. Housing initiatives have aimed to increase the supply of quality affordable housing and invest in preventative actions to mitigate homelessness. In SEND, transformation focused on reducing reliance on external placements, reviewing support package delivery, and optimising assisted travel policies, which has helped stabilise demand for travel support despite growth in Education, Health and Care Plans (EHCPs).
'One Sutton Transformation Programme'
Councillor Sunita Gordon, Lead Member for Resources, emphasised the need for financial discipline to deliver the council's ambitions in a challenging national funding environment. To address the escalating challenges, the 'One Sutton Transformation programme' is being developed in 2026/27. This programme aims to identify significant cross-cutting proposals that will change how the council operates and delivers services, with the goal of reducing operational running costs and contributing to closing the budget gap. The programme is targeting savings to be delivered from 2027/28 onwards, with the majority expected towards the latter end of the 2026-2030 Medium Term Financial Plan forecast.
Impact of Funding Reforms and Demand Growth
The MTFS attributes a significant portion of the budget gap to the 'Fairer Funding Reforms' implemented by the government in 2025. These reforms, based on a new relative needs formula, have led to Sutton's assessed level of need being lower relative to other authorities, resulting in reduced allocations of core funding. While the reforms include a three-year transition period, the forecast indicates a 9.3% fall in core spending power when population growth is considered, and a projected 21.3% decrease in funding per capita compared to 2010/11 levels by 2028/29.
Dedicated Schools Grant Overspend
Despite the overall budget pressures, the council is forecasting a general fund underspend of £0.60 million for the first quarter of the 2026/27 financial year. This is partly due to a reduction in the number of children requiring high-cost residential care and lower expenditure on legal fees in Children's Social Care, as well as a slowdown in demand and unit costs for temporary accommodation in Housing and Regeneration.
However, the Dedicated Schools Grant (DSG) is forecasting a significant overspend of £13.80 million. This is almost entirely driven by the High Needs Block, which is forecasting a £13.71 million overspend. This pressure is caused by 'sustained national and local growth in demand for statutory Special Educational Needs and Disabilities (SEND) support', with the number of active Education Health and Care Plans (EHCPs) reaching 2,789 in June 2026. Transformation initiatives are in place to manage costs, but they are not expected to materially reduce expenditure within the current financial year.
Housing Revenue Account Pressures
The report also noted an overspend of £1.06 million in the Housing Revenue Account (HRA) due to a shortfall in rental income. This shortfall is primarily attributed to a 'higher-than-expected number of void properties' and 'delivery slippage on the Beech Tree Place development scheme'. Void properties are taking longer to turn around, impacting rental income. Sutton Housing Partnership has addressed this by allocating additional resources and dedicated teams to expedite void turnarounds, and they are now exceeding their targets. While the Beech Tree Place development scheme's completion is a factor in the forecast, a specific revised timeline for the scheme itself is not detailed.
Financial Strategies and Reserves
In response to these financial challenges, the council is exploring various strategies, including potential increases in council tax and implementing savings programmes. The MTFS assumes that council tax will increase by the maximum permitted amount annually, which is currently 4.99% (including a 2% increase for Adult Social Care). An increase of 4.99% would generate approximately £7.5 million per annum in additional revenue.
The council holds reserves totalling £120.8 million. However, the general fund balance of £11.1 million is considered low compared to other London boroughs, limiting flexibility in managing unforeseen financial shocks.
For more details, refer to the Public reports pack for the Strategy and Resources Committee meeting on 05 October 2026: Public reports pack.