Merton Council is facing a significant budget challenge, with a projected £5.4 million gap for the 2026/27 financial year. The cabinet addressed this issue at a meeting on 20 October 2025, as part of a broader review of the Medium Term Financial Strategy (MTFS) for 2026-30.
The cabinet reviewed updated assumptions and savings proposals aimed at bridging the budget gap. These proposals will be referred to the Overview and Scrutiny panels and Commission in November 2025 for further consideration and comment.
Several factors have contributed to the projected deficit. According to the Public reports pack, the Consumer Prices Index (CPI) rose by 3.8% in the 12 months to August 2025, prompting concerns from the Bank of England's Monetary Policy Committee about potential upward pressure on wages and prices. In response, the council is proposing to increase the provision for the 2026 pay award from 2% to 3%, adding £1.329 million to the budget gap.
Service pressures, particularly in demand-led services, are also contributing to the financial strain. These pressures are most prominent in children's social care, specifically placements and packages for children with disabilities, and temporary accommodation.
The number of placements in temporary accommodation has risen significantly, with 721 placements as of the P3 monitoring report, compared to 539 one year earlier, an average increase of 30%.
To address the service pressures in children's social care and temporary accommodation, the cabinet has earmarked an additional £4 million.
Initial savings proposals from each directorate totalled £6.132 million for 2026/27, but these savings are offset by the increased pay inflation and service pressures. Details of the savings proposals, including fees and charges, are available in Appendix 1. Draft working Equalities Impact Assessments have been completed for each saving and are attached as Appendix 2.
The savings proposals are summarized in the following table:
| Draft Savings Proposals | 2026/27 £000 | 2027/28 £000 | 2028/29 £000 | 2029/30 £000 | Total £000 |
|---|---|---|---|---|---|
| Innovation and Change * Finance and Digital Housing and Sustainable Development Environment, Civic Pride and Climate Children, Lifelong Learning, and Families Adult Social Care, Integrated Care, and Public Health | 0 2,030 239 550 1,313 2,000 | 0 0 205 300 0 0 | 0 0 0 250 0 0 | 0 0 0 200 0 0 | 0 2,030 444 1,300 1,313 2,000 |
| Total Savings agreed in 2026-30 Total Savings (Cumulative) | 6,132 6,132 | 505 6,637 | 250 6,887 | 200 7,087 | 7,087 |
The updated MTFS reflects these changes:
| Draft MTFS 2026-30 OCTOBER CABINET | 2026/27 | 2027/28 | 2028/29 | 2029/30 |
|---|---|---|---|---|
| (Cumulative) | £'000 | £'000 | £'000 | £'000 |
| MTFS 2026-30 - Cabinet 22 September 2025 | 6,188 | 10,800 | 16,969 | 22,180 |
| Draft Savings proposals - Cabinet October | (6,132) | (6,637) | (6,887) | (7,087) |
| Increase 2026-27 pay inflation from 2% to 3% | 1,329 | 1,329 | 1,329 | 1,329 |
| Service Pressures to include TA and CSC* | 4,000 | 4,000 | 4,000 | 4,000 |
| Revised MTFS Gap 2026-30 (October Cabinet) | 5,385 | 9,492 | 15,411 | 20,422 |
The council is also exploring alternative revenue streams and funding opportunities, including increased interest on revenue balances through treasury management, local fee setting for development management (subject to government implementation), increased income from rent reviews and lease renewals, and joint commissioning with the ICB.
