Merton Council is facing a projected budget gap of £9.694 million by the financial year 2027/28, with the deficit expected to grow to £33.808 million by 2030/31. This significant financial challenge was highlighted during a Cabinet meeting on Monday, July 13, 2026.
The council's Medium Term Financial Strategy (MTFS) for 2027-31 has been updated to reflect known changes and pricing updates, revealing the revised budget gap. The report presented to the Cabinet noted the volatility of the financial outlook, attributing it to global geopolitical issues impacting inflation, particularly utility costs.
Key strategic priorities that the MTFS aims to support include assisting residents with the rising cost of living, implementing changes in Adult Social Care, progressing the housing programme, and addressing the Dedicated Schools Grant (DSG) deficit.
Addressing the Cost of Living and Housing Pressures
The council is implementing concrete strategies to build longer-term financial resilience for Merton residents, primarily through the Crisis and Resilience Fund (CRF). This approach aims to shift from reactive crisis support to proactive investment in residents' financial well-being, tackling the underlying causes of hardship and preventing future crises. Key interventions include targeted support for low-income families using the Low-Income Family Tracker (LIFT) for benefit take-up campaigns and directing discretionary spending. The focus is on evidence-based interventions that reduce material deprivation, the need for emergency food parcels, and increase access to advice services, savings, and income maximisation.
Specific initiatives include benefit maximisation, employment support, financial literacy programmes, increasing household savings, enabling access to affordable credit, and providing financial advice and debt management. The Holiday Activities and Food (HAF) provision is being expanded, and funding continues for home energy checks and repairs to improve safety and lower fuel costs. Support for carers is also being enhanced through information on benefits, emotional wellbeing, and a Carers Discretionary Grant for direct financial assistance.
Significant pressures have been noted within Housing and Sustainable Development, particularly concerning the surge in temporary accommodation costs. These are driven by high demand and constrained supply
in the housing market. To mitigate these costs, the council is pursuing several avenues: approving the acquisition of 125 homes through freehold purchases and long-term leasing in 2026/27, seeking approval to utilize Local Authority Housing Fund (LAHF) Round 4 funding for an additional 62 homes, and engaging institutional providers for long-term leased accommodation. The overarching strategy aims to reduce reliance on costly nightly-paid options
by securing increased supply to prevent homelessness and move households into more sustainable accommodation. The estimated saving per acquisition against the cost of nightly paid temporary accommodation is £10,000 over 12 months, with a target of 225 acquisitions projected to deliver a saving of £2.25 million annually.
Dedicated Schools Grant Deficit Remains a Concern
The DSG deficit, a persistent issue since 2018/19, remains a significant concern. At the end of 2025/26, the cumulative DSG deficit stood at £69.126 million. While government funding through the High Needs Stability Grant is expected to address a substantial portion of this, the council is still required to fund the remaining 10% locally, posing an ongoing financial risk should deficits continue to increase.
Financial Outturn and Future Strategies
The report also detailed the outturn position for the 2025/26 financial year, showing a net underspend of £0.498 million when corporate and other funding items were included. However, significant pressures were noted, particularly in Housing and Sustainable Development, where temporary accommodation costs surged sharply. Children's Social Care also faced cost pressures, contributing to an overall overspend in that department.
In response to these financial challenges, the council is exploring various work streams to deliver services more cost-effectively and increase income where possible. These include a focus on building longer-term financial resilience for residents, supporting the housing programme, and addressing the DSG deficit.
Further details on the council's financial strategy can be found in the Public reports pack for the Cabinet meeting on July 13, 2026.
