Kensington and Chelsea Council is facing a significant financial challenge, with a potential £82 million funding loss projected over the next three years. This could lead to a council tax increase and cuts to essential services.
The stark financial outlook was revealed during a meeting of the Audit & Transparency Committee on Monday, July 21, 2025, where members discussed the management of medium-term financial risks. The potential funding shortfall stems from the government's consultation on funding reform for local government, set to take effect from 2026/27. The council believes the proposed changes disproportionately affect inner London boroughs like Kensington and Chelsea.
The government's consultation document, The Fair Funding Review 2.0, proposes changes to the funding formula that the council says disadvantages inner London boroughs. These include simplifying the analysis of need, insufficient consideration of housing costs, population density, and deprivation in Inner London, a lack of a significant area cost adjustment, and changes in the children's formula that do not reflect the position in Inner London.
Councillor Kamal, Lead Member for Finance, Digital and Efficiency, described the situation as challenging times,
noting that London has not seen such financial difficulties in its metropolitan history. Mike Curtis, Executive Director of Resources, added that the fair funding paper issued on 20 June had completely changed the position,
potentially resulting in losses of £82 million over three years, in addition to other existing financial pressures such as inflation, pressures on pay awards, and contracting increases.
The committee discussed lobbying efforts to persuade the government to revise the funding formula, which they believe disadvantages inner London boroughs. These efforts include discussions with the Ministry of Housing, Communities & Local Government (MHCLG), lobbying through London MPs, highlighting the cross-party nature of affected councils, and arguing that the formula weightings are based on mathematics rather than political policy. The council's strategy is to persuade the government to reinstate area cost adjustments and address issues with the children's formula.
Concerns were raised about the potential impact on essential services and the need for significant changes to the council's budget. The committee also explored various options for addressing the budget shortfall, including a potential 5% increase in council tax. However, they acknowledged the potential impact on the borough's poorest residents. The report mentions that the council tax for a Band D property in Kensington and Chelsea is £1,079, which is below the government's notion of £2,000. The potential 5% increase is being considered as a way to close the funding gap. The report also mentions that the council is assuming it will always increase council tax by 5%.
Besides reducing access to services and facilities, alternative savings measures being considered include dissolving the council tax reduction scheme, levying the second homes premium, and temporary accommodation investment from the pension fund.
Lisa Taylor, Director of Financial Management, noted that the consultation closes on 15 August, with a policy statement expected in October. The committee requested a revisit of the work stream project in January to assess the situation further.
The potential funding cuts add further pressure to the council's finances, which are already stretched. The Audit & Transparency Committee will continue to monitor the situation and explore all available options to mitigate the impact on residents and services.
