Croydon residents will see a 4.99% increase in their council tax bills next year, as the council grapples with ongoing financial challenges stemming from a £1.4 billion debt burden1 and exceptional demand for services. The council's historic legacy borrowing is critical to the non-sustainability of the council's revenue budget, with an estimated £72m cost in 2025-26 to service the debt. Insufficient assets for sale from 2025-26 onwards also contribute to the financial strain.
The increase, the maximum permitted without a referendum, was discussed at a Scrutiny & Overview Committee meeting on 18 November 2025, as part of a review of the council's Medium Term Financial Strategy (MTFS) for 2026-30. The MTFS assumes this level of increase for all years.
The council aims to reduce its reliance on Exceptional Financial Support (EFS) from the government. The MTFS aims to reduce the EFS requirement for 2025-26 by £27.3m to £108.7m through the implementation of a Stabilisation Plan. Service directorates have been asked to reduce their net expenditure below their budgets so that the annual budget can be balanced with reduced use of capitalisation directions, including achievement of the £27.3m Stabilisation Plan target.
The updated MTFS model reduces the forecast budget deficits for the next three years. However, the report stated that the council's financial position remained unsustainable, with historic legacy borrowing and debt burden being critical to this.
The MTFS includes proposed savings of £35.9m for 2026-27. These savings are planned to come from a variety of areas, including Adults Living Independently (£6.156m), Children, Young People and Education (CYPE) - Helping Families Thrive (£3.400m), and Digital Operating Model (£3.700m). A full list of proposed savings can be found in Appendix B - 2026-30 Draft Savings and Growth Proposals.
It also assumes that Croydon Council will receive extra funding in future years as a result of the Government's funding reforms. This is included as £17m in 2026-27, £34m in 2027-28 and £51m in 2028-29, based on current modelling by London Councils.
The council submitted a response to the government's Fair Funding Review 2.0 consultation, stating:
There is currently a postcode lottery around the country. There is disparity in the level of services and support for residents, since funding levels no longer match population, deprivation and required service levels. A continuation of current funding allocations would continue to punish residents and local businesses who are currently not receiving their fair share of national funding.
The 2026-30 MTFS Update report noted that the council continues to work with government-appointed commissioners to identify potential solutions to restore the council's financial sustainability. The government-appointed commissioners are primarily focused on identifying potential solutions, reviewing the council's transformation programme, and overseeing the arrangements for the administration of the council's financial affairs.
The 2025-26 Period 5 Financial Performance Report, also reviewed by the committee, forecasts a £22.6m underspend at the end of the financial year. This would reduce the necessary level of capitalisation directions from £136m to £113.4m. Capitalisation directions involve transferring revenue costs into capital costs, which are then funded over 20 years. Reducing their use is important because each £1 million of capitalisation adds approximately £85,000 per annum to the Council's revenue costs, increasing the debt burden.
The MTFS assumes a Council Tax increase of 4.99% for all years, which is the referendum limit for London boroughs for 2026-27.
Footnotes
- The Council's level of borrowing, with General Fund borrowing currently at £1.4 billion, costing £71m to service in 2025-26. Exceptional demand for services and increases in inflation during 2024. Insufficient assets for sale from 2025-26 onwards to fully fund future capitalisation directions.
