Lambeth Council is grappling with a severe financial crisis, forecasting an £11 million overspend for the current financial year and a staggering £93 million budget gap over the next three years. The dire financial outlook was revealed at a Cabinet meeting on Wednesday, July 22, 2026.

Councillor Zvikomborero Chihoro, Cabinet Member for Finance and Community Wealth Building, presented the early year-end forecast for 2026-27. The report detailed pressures in areas such as temporary accommodation, income shortfalls in growth and environment services, and persistent demands in children's and adult social care. The projected overspend on the general fund stands at £10.979 million, exacerbated by delays in implementing crucial savings proposals.

Councillor Martin Abrams, Leader of the Council, pointed to national austerity measures as a significant factor impacting local government funding. He stated, Austerity is always a political choice, and urged the new national administration to prioritise proper funding for local government to ensure the continuation of essential services.

The Medium Term Financial Strategy (MTFS) update for 2027-2031 paints an even more alarming picture. The council anticipates a budget gap of £19.096 million for 2027-28, escalating to a cumulative shortfall of £93.217 million by 2029-30. This widening deficit is attributed to several factors, including a substantial reduction in core funding following the 'Fair Funding Review 2.0' and the withdrawal of 'transitional protection funding'. The 'Fair Funding Review 2.0' is expected to significantly decrease Lambeth Council's core funding, though specific details of the review's mechanisms are not yet available.

Furthermore, the withdrawal of 'transitional protection funding' in 2029-30 will remove a crucial financial safeguard. This protection had ensured Lambeth's funding level from 2026-27 to 2028-29 matched the equivalent total in 2025-26, but its absence will contribute to the growing budget gap.

Significant expenditure pressures are foreseen in Adult Social Care, driven by increasing demand and the complexity of client needs. Children's Social Care also faces mounting costs due to recruitment and retention challenges and high placement expenses. The Growth and Environment directorate is tasked with substantial savings targets, a considerable portion of which relies on income generation initiatives that carry inherent delivery risks.

During the meeting, councillors discussed the origins of the financial strain. The previous administration's debt burden and the costly Homes for Lambeth initiative were identified as contributing factors. Councillor Martin Abrams highlighted that Homes for Lambeth was a housing vehicle that could cost Lambeth Council upwards of 100 million pounds after the disaster that that housing vehicle cost for the borough delivered basically miniscule amounts of housing costing incredible amounts of money. He further noted that the business case for it was an absolute disaster, and myself and other councillors in this room spoke about it at the time, that the business plan didn't stack up. While its intended outcome was to deliver housing, it ultimately resulted in substantial financial losses.

Concerns were also raised regarding the transparency of financial reporting and the potential impact of future cuts on vulnerable residents. The council's reserves are currently low, offering limited financial resilience. As of March 31, 2026, Lambeth Council held General Fund balances of £45 million and Housing Revenue Account (HRA) balances of £7.517 million. While General Fund balances have been restored to a more sustainable level through Exceptional Financial Support (EFS), earmarked revenue reserves remain low. For a council of its size and needs, a General Fund balance of 10% of net revenue expenditure is recommended for adequate financial resilience.

In response to these challenges, the council is implementing management actions. These include reviews of high-cost care placements, efforts to maximise income streams, and a focus on preventative interventions. The council is also seeking approval to utilise flexible capital receipts to support budget proposals and is investing in electric vehicle charging points as a means to generate additional income.

The report indicated that 21 savings schemes are currently flagged as having a high delivery risk, collectively representing a savings gap of £18.157 million. Further details on the council's financial position and proposed actions can be found in the Public reports pack for the Cabinet meeting.