Kensington and Chelsea Council faces a projected budget gap of £32.8 million by the financial year 2027/28, with cumulative deficits expected to reach £127.2 million over the following four years. This significant financial challenge was outlined in the council's Medium Term Financial Strategy (MTFS) 2027/28 to 2030/31, presented to the Overview & Scrutiny Committee on Wednesday, July 8, 2026.
The substantial budget gap is attributed to several factors, including ongoing funding reforms and increasing service pressures, particularly in social care and temporary accommodation. An assumed inflation rate of 4% in 2027/28 further contributes to the financial challenge.
Funding Reforms and Their Impact
The MTFS identifies Impact of Funding Reform
as a significant driver of the budget gap, projecting a £21,297,000 impact in 2027/28, £22,409,000 in 2028/29, and £47,074,000 in 2029/30. The report notes that local authority funding calculations are driven by an assessment of an area's 'needs' and 'resources'. As the council's current Council Tax is well below the average notional rate used, any beneficial changes to the 'needs' part of the formulae have been overwhelmed by the use of notional 'resources', leading to a significant drop in the council's funding. Furthermore, the government has not confirmed whether any transitional protection will continue past 2028/29. Officers assume that £47.1m of this funding will fall away entirely in 2029/30, creating a cliff-edge situation for the Council to deal with.
Increasing Service Pressures
The MTFS identifies Budget Pressures
as a key driver of the budget gap, with a projected £6,290,000 in 2027/28. For Adult Social Care, the report states that Latest indications for adult social care contracts show continued wage-driven cost pressures in the care market (the main driver of ASC inflation rather than CPI inflation).
It also notes that The ASC cost base therefore remains above the level assumed in the core budget and will continue to place pressure on the ASC budget in 2026/27.
For Children's Social Care, the report highlights steep increases in prices for our highest need children, typically externally commissioned residential accommodation. This reflects sustained changes in the children's placements market, including increasing complexity of need, reduced sufficiency of foster carers, and escalating costs in the residential and independent fostering sectors.
The projected cost increase for Children's Services in 2027/28 is estimated at potentially up to £2.4 million.
Transformation Programme and Asset Optimisation
The council is developing a collaborative and multi-year Transformation Programme
to help balance the budget. This programme aims to modernise practices and optimising asset use.
It is structured around five workstreams: Service Review and Redesign, Workforce Engagement and Development, Digital First, Working Smarter, and Strong Communities. The Service Review and Redesign workstream is expected to deliver at least £6m of productivity, prevention & demand management savings, and at least £5m of service level reductions for 2027/28.
Further details on specific initiatives and savings are expected to be developed and presented in later reports.
The Council's Asset Strategy 2026-2030 aims to manage the Council's property estate more efficiently to meet funding challenges while protecting frontline services.
It outlines a transition towards a smaller, better-utilised estate, with Kensington Town Hall as a primary hub, Pembroke Road as an operational and VCS hub, and a locality-based model for community services.
Specific assets mentioned for potential disposal or optimisation include: 15 Gertrude Street and 1–9 St Mark's Road (for disposal due to surplus operational requirements), and Kensington Town Hall (optimisation and repurposing of space). The strategy also involves reviewing the Corporate Landlord model and property procurement and contracts.
Managing Cumulative Deficits and Potential Service Changes
The MTFS projects a budget gap of £32.8 million in 2027/28, rising to £127.2 million cumulatively over the four-year period (2027/28 to 2030/31). Beyond the Transformation Programme, the report mentions Other Options Available to the Council to Balance Its Budget
which include: reviewing previously-agreed savings, re-assessing growth assumptions, building in revised collection rates for Council Tax and Business Rates, considering replenishing reserves over a longer period, reviewing the collection fund reserve, using reserves for savings or to support the budget, and considering the flexibility provided by the removal of the Council Tax referendum limit in 2027/28 and 2028/29.
The MTFS also indicates that In the longer term not everything will be affordable, and strategic decisions are being taken to determine how best to utilise limited resources in line with the priorities in the Council Plan. This may mean adopting an invest to save approach, coupled with a need for reductions in other areas.
The Service Review and Redesign
workstream of the Transformation Programme aims to identify realisable savings and productivity improvements, and provide evidence-based service level options for decision-making.
While the report indicates a need for reductions in other areas
and service level reductions,
specific service cuts are not detailed in the provided text.
More information can be found in the Public reports pack for the Overview & Scrutiny Committee meeting on July 8, 2026. Public reports pack 08th-Jul-2026 18.30 Overview Scrutiny Committee
