Merton Council is grappling with a £4.1 million budget shortfall, despite showing signs of financial improvement, according to a recent cabinet meeting.
The council's cabinet noted the period six financial monitoring report, which revealed the unfavourable forecast. However, this represents a £2.392 million improvement since period three (quarter one). The improvement is primarily due to a reduction in the forecast variance on net service expenditure, according to the report. The report highlighted the challenging financial climate for local authorities, citing sensitivity to interest rate and inflation fluctuations, as noted by the Office of Budget Responsibility in October 2024[1]. These financial pressures are being felt across London, with increased demand for services and rising inflationary costs impacting service delivery.
Demand-led services, particularly adults' and children's social care and homelessness support, are creating unprecedented pressures. A significant factor contributing to the budget shortfall is the cost of temporary accommodation, with an unfavourable forecast position of £5.925 million. Children's Services also face cost pressures, with a current unfavourable forecast of £2.235 million. The Dedicated Schools Grant (DSG) High Needs budget remains a significant concern, with a cumulative deficit projected to reach £67.608 million in September 2025, up from £53.557m at the end of 2024/25.
Despite the challenges, the report indicates that Merton's service costs compare favourably with similar authorities, making further cost reductions more difficult. Mitigation measures are being prioritised, including reviews of high-cost temporary accommodation placements and the development of a comprehensive recovery plan. The review of temporary accommodation placements will focus on finding cheaper alternative accommodation.
The full details of the meeting, including the Financial Monitoring Report, are available on the council's website.
[1] The report noted that local authorities are operating in a highly challenging financial climate, with forecasts highly sensitive to interest rate and inflation fluctuations, as noted by the Office of Budget Responsibility in October 2024.
