Merton Council has issued a stark warning about potential government funding cuts across London, estimating a loss of up to £700 million due to proposed changes in how funding is distributed to local authorities.
The council anticipates that changes to the Children's Services formula and the Area Cost Adjustment (ACA), including a potential remoteness
factor, could negatively affect London boroughs. London Councils are coordinating a lobbying response to scrutinize the Children's formula, address concerns about the ACA, and emphasize the importance of using accurate population data.
The warning came during a Cabinet meeting on Monday, 22 September 2025, where councillors discussed the approach to the Medium Term Financial Strategy (MTFS) for 2026-30 and noted the council's response to the Fair Funding Review 2.0 consultation paper.
The Fair Funding Review 2.0 is a government consultation on the proposed approach to local authority funding reform through the Local Government Finance Settlement from 2026-27. According to the meeting information, The government's principal objective is to develop a new distribution methodology, based on an updated assessment of need and resources, to allocate funding more efficiently to local authorities through the Local Government Finance Settlement.
According to a report pack prepared for the meeting, London Councils expressed concerns that the proposed changes to local authority funding could significantly impact London boroughs. The report stated that the government's aim is to develop a new distribution methodology based on updated assessments of need and resources to allocate funding more efficiently to local authorities through the Local Government Finance Settlement.
Merton Council has submitted a response to the Fair Funding Review 2.0 consultation paper, which is included as Appendix 3. The council's response includes concerns that deprivation measures do not sufficiently reflect housing costs and that the proposed children's funding formula needs improvement. The council also opposes the proposed approach to the Area Cost Adjustment (ACA), particularly the introduction of a remoteness factor.
The Cabinet agreed to note the approach to rolling forward the MTFS for 2026-30 and the timetable for the Financial Management cycle 2026-30, including the revenue budget 2025627, the MTFS 2026-30, and the Capital Programme for 2026-30. They also agreed to note the council's response to the Fair Funding Review 2.0 consultation paper.
The council's response to the Fair Funding Review 2.0 consultation paper, as noted in the meeting, highlighted several concerns. Merton Council fears that the proposed changes negatively affect London boroughs, with a capital wide impact of up to £700 million.
Council Leader Ross Garrod and Cabinet Member for Finance and Corporate Services Stephen Alambritis MBE were present at the meeting, where the potential impact of these funding changes was a key point of discussion.
The full Agenda frontsheet Monday 22-Sep-2025 19.15 Cabinet and Public reports pack Monday 22-Sep-2025 19.15 Cabinet from the meeting are available online.
