Croydon's financial position remains unsustainable despite efforts to reduce its budget deficit, according to a recent review. The council's struggle is largely due to the cost of servicing its historic debt, estimated at £72m for 2025-26.
The committee met on Tuesday, 18 November 2025, to discuss the 2026-30 Medium Term Financial Strategy Update and the 2025-2026 Period 5 Financial Performance Report. While the updated MTFS model projects reduced budget deficits over the next three years, the council's historic debt burden continues to be a critical factor in its financial instability.
The MTFS report noted that the council aims to reduce its Exceptional Financial Support (EFS) requirement for 2025-26 by £27.3m to £108.7m through the implementation of the Stabilisation Plan. The 2025-26 budget required £136m in capitalisation directions (EFS) to balance, owing to funding the ongoing annual cost of servicing the disproportionate level of debt and unfunded local government cost pressures.
The plan includes proposed savings of £35.9m for 2026-27 and assumes a Council Tax increase of 4.99% for all years, the referendum limit for London boroughs for 2026-27. These savings are expected to come from a variety of initiatives, including Adults Living Independently (£6.156m), Children, Young People and Education (CYPE) - Helping Families Thrive (£3.400m), and Digital Operating Model (£3.700m). Other savings are expected from areas such as a Unified Front Door (£2.800m), Improving Payments (£1.150m), and Predictive Analytics and Prevention (£1.000m). A full list of proposed savings can be found in section 4.27 of the 2026-30 MTFS Update.
Despite these measures, the report stated that the council's financial position remains unsustainable, primarily due to its historic legacy borrowing and debt burden.
The 2025-2026 Period 5 Financial Performance Report noted that the General Fund revenue budget was forecast to underspend at financial year end by £22.6m, contributing to the Stabilisation Plan target. This would reduce the necessary level of capitalisation directions from £136m to £113.4m.
Service directorates have been asked to reduce their net expenditure below their budgets to balance the annual budget with reduced use of capitalisation directions, including achievement of the £27.3m Stabilisation Plan target.
