Tower Hamlets Council's financial sustainability remains a significant risk, according to the latest findings from its external auditors, Ernst & Young (EY).
An interim value for money report presented to the Audit Committee on Thursday, 24 September 2026, highlighted that while progress has been made in addressing identified weaknesses, four statutory recommendations and six significant weaknesses from previous years remain outstanding. A new risk concerning the council's financial sustainability was also identified.
Stephen Reid, Partner at EY, presented the report, noting that many actions to address issues were implemented too late in the financial year to demonstrate effectiveness. Consequently, most findings remain unchanged from the prior year, with the exception of arrangements relating to the Annual Governance Statement.
The Council has developed a Value for Money Response Mobilisation Plan to coordinate, prioritise and accelerate its response to external audit findings. This plan consolidated findings into four workstreams and established clear ownership and governance routes. Progress has been made across all four statutory recommendations and six significant weaknesses, with tangible improvements noted in financial reporting, internal controls, procurement, and investigations. However, all four statutory recommendations and the six significant weaknesses remain open at the September 2026 reporting point.
The report states that many of these actions were not implemented sufficiently early, or embedded for long enough, during 2025/26 to provide sufficient evidence that the underlying arrangements were operating effectively for a sufficient proportion of the year under review.
This indicates that while actions have been taken, their late implementation or insufficient embedding period has limited their effectiveness for the period under review. The report also notes that significant legacy weaknesses not yet fully embedded or consistently applied
and capacity and capability constraints across key corporate functions
are ongoing challenges.
The report detailed concerns regarding the council's medium-term financial planning and pressures. Despite setting a balanced budget for 2025/26, a significant net overspend of £14.7 million was forecast in the first quarter, necessitating a £5.7 million draw on reserves. This followed a similar pattern in 2024/25, raising concerns about the robustness of budget-setting assumptions and financial forecasting. The 2026/27 budget also showed an early forecast net overspend of £19.2 million.
The primary drivers behind the significant net overspends are demand-led services, particularly in children's social care, where we have a high number of high-complexity cases coming in at year-end.
Additionally, the report mentions that gross pressures reported at Period 2 already totalled £39.5 million, based on a provisional outturn of £537.3 million against a revised net expenditure budget of £497.8 million.
For 2026/27, the forecast net overspend of £19.2 million by Period 2 is noted, following a similar pattern to recent years where significant overspends have emerged early in the financial year and subsequently increased by year end.
EY expressed significant concerns about the achievability of planned reserve replenishment and the reasonableness of the financial trajectory set out in the Medium Term Financial Strategy (MTFS), noting a sustained weakening of the council's financial resilience.
EY has significant concerns regarding the achievability of the planned replenishment of reserves and the reasonableness of the financial trajectory set out within the MTFS.
This is due to the pattern of significant overspends reported in consecutive years, together with the Council's increasing reliance on reserves to support ongoing expenditure.
The report further states that the continued depletion of reserves reduces the Council's financial resilience and limits its capacity to respond to future financial shocks, service pressures or adverse events.
Savings plans for 2025/26 included £24.4 million, largely reliant on vacancies, and for 2026/27, £68.8 million was identified, including strategic funding substitutions and a reduction in pension contribution rates. However, EY noted a risk that planned savings might not be delivered in full.
The 2026/27 budget identified £68.8 million in savings, which included £25 million of strategic funding substitutions
and £27 million from a reduction in the pension contribution rate.
The risk associated with these savings is that planned savings might not be delivered in full.
The report also notes that £7.8 million [of savings] reported as at risk and £4.1 million reported as unlikely to be delivered.
The council's revised Minimum Revenue Provision (MRP) policy was also scrutinised, with EY concluding it did not represent a prudent approach, deferring costs to future years and increasing the burden on future budgets. This policy change had generated a short-term benefit of £7.7 million in 2025/26, which was transferred to earmarked reserves.
EY concluded that the Council's revised MRP policy did not represent a prudent approach, deferring costs to future years and increasing the burden on future budgets.
This policy change generated a short-term benefit of £7.7 million in 2025/26, which was transferred to earmarked reserves.
The long-term implication is that it is increasing the burden on future budgets
and deferring costs to future years.
The report also states that without the reduction in MRP charges arising from the policy change, the Council would have faced additional financial pressures of up to £27 million across the MTFS period to 2028/29, equivalent to approximately 27% of the Council's forecast reserves position reported at Period 2 for 2026/27.
Significant weaknesses were also identified in statutory financial reporting, internal controls, contract management, social housing, the effectiveness of the internal audit function, audit committee effectiveness, the capacity of the 'Golden Triangle' (Chief Executive, Monitoring Officer, and Section 151 Officer), and the effectiveness of the council's process for conducting internal investigations.
The meeting information indicates that improvements were not sufficiently embedded during 2025/26 to demonstrate that effective arrangements operated for a sufficient proportion of the year.
This is a recurring theme across multiple areas, including statutory financial reporting,
arrangements to manage risks effectively and maintain a sound system of internal control,
and contract management and procurement.
For statutory financial reporting, the Council adopted an audit approach that limits the scope of work to be undertaken during 2025/26 in order to prioritise the rebuilding of assurance over the balance sheet,
meaning significant areas of the financial statements are not currently subject to audit procedures.
For internal controls, pervasive weaknesses in the control environment
were identified, with a high volume of outstanding recommendations arising from internal audit, external audit and other external assurance activity.
For contract management and procurement, many of the key actions were implemented during, or after, 2025/26 and therefore were not in place for a sufficient proportion of the year under review,
and a number of improvements remain in progress.
The capacity and effectiveness of the 'Golden Triangle' remains a significant weakness
due to continued instability in the Section 151 Officer role.
While a permanent appointment has been made, interim arrangements were in place for much of the period.
Steps being taken include changes to roles, reporting lines and service structures within the senior leadership team
to increase leadership capacity, improve cohesion, maintain clear accountability and embed robust governance.
A review of the Golden Triangle's operating model and governance arrangements has also been commissioned. The recruitment process for a permanent Section 151 Officer has concluded with an appointment made, and an interim has been secured to cover the transition.
For the internal audit function, the Council has appointed an interim Head of Internal Audit
and is actively recruiting a replacement.
A review of the Internal Audit function, including its processes, reporting arrangements and approach to recommendations management
is ongoing. A self-assessment against the Global Internal Audit Standards
concluded the function Generally Conforms,
with plans for an External Quality Assessment
before March 2027. For the Audit Committee, a review of the existing Audit Committee training and development programme is planned,
and the LGA has been commissioned to undertake an external review of Audit Committee effectiveness, which is being scheduled for October 2026.
The timeline for addressing these weaknesses is not explicitly stated as a single, consolidated timeline, but improvements are expected to be embedded
and further reviewed in 2026/27 audit work
and before 31 March 2027
for the external quality assessment.
The council anticipates achieving an unqualified audit opinion by 2028/29.
Read more about the Audit Committee meeting here: Agenda Pack 24th Sep 2026 Audit Committee