Kensington and Chelsea Council faces a projected budget gap of £32.8 million in 2027/28, escalating to £127.2 million over the four-year period to 2030/31. The stark warning comes from the council's Medium-Term Financial Strategy (MTFS) for 2027-28 to 2030-31, presented to the Leadership Team on July 15, 2026.
The significant deficit is driven by a combination of factors, including the ongoing impact of government funding reforms, increasing pressures in social care and temporary accommodation, and higher inflation assumptions.
Government Funding Reforms and Their Impact
The MTFS highlights that government funding reforms are a key contributor to the budget gap. The government had initially stated that the council's losses in 2027/28 and 2028/29 would be limited to the equivalent of a 5% increase in Council Tax. However, the settlement published on 9 February 2026 assumed that Kensington and Chelsea, along with five other boroughs with low Council Tax rates, would also lose funding equivalent to a further £150 (Band D equivalent per property) increase in 2027/28 and 2028/29. This significantly worsens the financial position in those years. The government has not confirmed whether any transitional protection will continue past 2028/29, and the council's financial plans assume this funding of £47.1 million will fall out entirely in 2029/30.
Pressures in Social Care and Temporary Accommodation
Increasing pressures in social care and temporary accommodation are also primary drivers of the budget gap. In Adult Social Care, care package expenditure has increased materially year on year, keeping the cost base above the level assumed in the core budget. For Children's Social Care, placement costs have risen significantly due to increases in both the cost and number of high-cost placements. There are currently 28 high-cost placements costing over £100,000 annually, with five exceeding £500,000 each. Persistent demand for temporary accommodation, ever-increasing waits for permanent housing, and reductions in the availability of cost-effective properties are expected to lead to price inflation. A modest estimate of 3% inflation on temporary accommodation costs is anticipated to increase service costs by around £1.5 million.
Cyber-Attack Aftermath
The council's financial outlook has been further complicated by a significant cyber-attack in November 2025. The initial direct costs for the response and recovery phase amounted to £1.162 million, funded from the Budget Stabilisation reserve. While 94% of the council's systems have been restored, service backlogs in areas such as revenue and benefits, planning, and complaints are still being addressed, with a target to resolve these by December 2026. For complaints specifically, resolution is hoped for by Autumn 2026. Further expenditure will be required in 2026/27 and beyond to continue the recovery programme and to strengthen and modernise the Digital and Data Services (DD&T) and ensure the council is fit for the future; these costs are not yet fully quantified but are expected to be significant. The cyber incident also delayed the delivery of savings and impacted the council's ability to provide income-generating services, particularly in Council Tax and Business Rates collection, increasing the risk of unpaid debt. The cyber-attack also necessitated pausing the project to replace the Parking Suspensions IT system for six months.
Transformation Programme and Savings
In response to these financial challenges, the council is developing a multi-year Transformation Programme. This initiative aims to redesign services, modernise practices, and explore new ways of working to balance the budget. The programme will focus on five key workstreams: Service Review and Redesign, Workforce Engagement and Development, Digital First, Working Smarter, and Strong Communities.
Initial work, led by external consultants, is expected to deliver at least £6 million in productivity, prevention, and demand management savings, and at least £5 million in service level reductions for 2027/28. Savings are anticipated from the better use of multi-use community hubs, developing a more data-driven community offer, reducing duplication, and ensuring self-service and partner offers are considered across community support pathways. The Digital First
workstream expects savings from introducing omni-channel contact capability and AI-enabled tools for efficiency in assessment-based decision-making and high-manual coordination of data services. The Working Smarter
workstream aims to deliver £5 million in savings from additional advertising opportunities, operational estate reduction, and a more commercial approach to contracting services.
Council Tax Flexibilities and Ambitions
Additionally, the council is exploring other options to address the budget gap, including reviewing previously agreed savings, re-assessing growth assumptions, and increasing Council Tax collection rates. The government has removed the referendum limit for Council Tax increases for Kensington and Chelsea for 2027/28 and 2028/29, allowing the council to increase it by whatever it deems necessary. An exceptional increase of £150 at Band D equivalent would generate an extra £16 million in 2027/28 and again in 2028/29, resulting in ongoing additional annual income of approximately £32 million on a cumulative basis. The council's ambition to keep Council Tax levels low, evidenced by its position in the lowest quartile of London boroughs, is a key consideration. However, the scale of the deficit, particularly the projected loss of £47.1 million in funding in 2029/30, may necessitate difficult decisions regarding Council Tax levels. An additional £300 over the two years would raise the Band D Council Tax to £1,456.14, placing it as the 6th lowest in London.
Capital Programme Update
The MTFS also outlines the council's capital programme. The General Fund Capital Programme saw an underspend of £5.601 million against the revised budget in 2025/26, attributed to slippage across several projects, including vehicle delivery delays due to supply chain issues, progress on Streetscape Improvements - Gloucester Road, and the pausing of the Parking Suspensions IT system replacement project due to the cyber-attack. Conversely, the Housing Revenue Account (HRA) Capital Programme reported an overspend of £4.674 million. This was primarily due to accelerated expenditure on the Kitchen and Bathroom Replacements programme (£2.5 million) and delays in other projects like Silchester Arches and Lots Road. The HRA Main Programme Works overspend of £6.350 million was also influenced by higher-than-forecast capitalised staff costs, capitalised repairs, and capitalised major voids. New funding totalling £6.306 million has been added to the Capital Programme, including for Albert Bridge repairs.
