Merton Council has reported a net underspend of £0.5 million on its revenue budget for the 2025/26 financial year, according to the latest outturn report. However, the report also highlights significant financial pressures, particularly in temporary accommodation costs, which surged sharply.
The Dedicated Schools Grant (DSG) High Needs budget remained in deficit, though government funding through the High Needs Stability Grant is expected to address a substantial portion of this. The government has introduced a statutory override, extended until March 2028, to separate DSG deficits from broader council finances. This provides an accounting solution but does not resolve the underlying funding issue. A significant funding package has been announced to tackle 90% of historic high-needs deficits up to the end of 2025/26, with all local councils eligible for grant funding subject to approval of a SEND local reform plan. This grant will cover 90% of eligible DSG deficits, with the council required to fund the remaining 10% locally, creating an ongoing financial risk should deficits continue to increase. Details of a further scheme for deficits accrued in 2026/27 and 2027/28 are yet to be announced.
Cabinet was also asked to consider adjustments to the Capital Programme, which requires considerable reprofiling.
Despite the overall revenue underspend, the report points to ongoing challenges in demand-led services such as adult and children's social care, and homelessness. The cost of temporary accommodation was a particular concern, increasing significantly during 2025/26. Merton Council faces unprecedented pressures in these areas, with the DSG High Needs budget in deficit since 2018/19. Overspends in Corporate Parenting (CP) and Family Support and Safeguarding (FSS) budgets within Children's Social Care have been driven by national pressures linked to the volatility in the placement market, including packages for children with disabilities.
To address these pressures, Merton Council is implementing several measures. For Adult Social Care, the focus is on effective spend management, underpinned by early intervention and reablement to support residents' independence. The new Community Reablement Service and the Living Well in Merton (LWIM) programme aim to provide coordinated, person-centred support to prevent escalating needs.
In Children's Social Care, the council is reviewing high-cost temporary accommodation placements and seeking cheaper alternatives, with a comprehensive recovery plan being developed. They are also progressing joint commissioning priorities with the Integrated Care Board (ICB) and exploring innovative solutions, such as prioritising foster care placements over residential homes.
For homelessness, a proactive, multi-strand approach is being taken to increase supply. This includes building new affordable homes on council-owned land, acquiring properties from the private market for both permanent and temporary housing, and collaborating with private sector partners to support development.
The long-term financial implications of current temporary accommodation cost trends are significant. Merton's supply chain relies heavily on private providers offering nightly-paid accommodation. This model has led to financial volatility, with providers able to increase prices with minimal notice, making budget planning difficult. High costs also limit the council's ability to discharge its duty into the private rented sector due to household affordability issues. The combination of high inflow and low outflow means the temporary accommodation caseload continues to grow, and the quality of nightly-paid accommodation is often variable with limited council control.
To mitigate these challenges, Merton Council has set a target to acquire 125 homes in 2026/27 and a total of 225 homes over the next four years. Each acquisition is estimated to save £10,000 per year compared to the cost of nightly-paid temporary accommodation, based on current Local Housing Allowance rates. Reaching the target of 225 acquisitions is projected to deliver a saving of £2.25 million annually.
Further details on the council's financial outturn and plans can be found in the Public reports pack Monday 13 Jul 2026.
