Merton Council now has some of the lowest debt levels in London, but has been hit hard but the recent changes to the government Fair Funding formula
Merton Council has passed its budget for the next financial year, which will see the main element of council tax frozen from April. The Labour-run council also announced that it had slashed its external debt by over £50 million, making it one of the least indebted councils in the country, the authority claims.
At last week’s budget meeting (February 25), the council voted against an increase to the amount collected for core services. However, it will still impose a 2% increase for the adult social care precept.
For a typical Band D property, bills would rise from £1,598.05 to an estimated £1,630.01 – an increase of around £32 per year. The council also operates a council tax support scheme, which supports 10,000 households every year.
Addressing the chamber, Cabinet Member for Finance and Corporate Services, Councillor Stephen Alambritis, said: “This budget is drenched with strong financial management and represents a positive investment in Merton’s services, together with support for the most vulnerable in our community.”
Cllr Alambritis told the chamber that strong financial management allows Merton to justify the council tax freeze. He added that the council is deemed ‘low risk’, with healthy reserves and low levels of external debt.
The sale of its risk prevention, compliance, and supply chain management company, CHAS, in 2023 also provided Merton Council with a substantial £186 million windfall. At the budget, the council revealed that over £50 million of this had been used to pay off historic debt, reducing borrowing from £110 million in 2022 to £38 million today.
As a result, Merton is only servicing debt at the level of £2.6 million a year and has the third-lowest debt burden in London. Its strong financial position has also allowed it to provide secure loans to other councils, including Manchester, Dorset and Leeds which it earns interest from.
On the issue of council tax, Lib Dem Opposition Leader Anthony Fairclough said: “People may be relieved that it is not five per cent, but they still know they are paying more, and that’s on top of years of maximum council tax increases, as well as over 700 fees and charges increased above inflation, all pushing costs on to residents.”
The Lib Dems also criticised the Labour council’s £13.2 million savings outlined in the budget, which set a record for the borough. While Cllr Alambritis argued that all of these savings were “deliverable, sustainable and fair”, the Lib Dems said: “These rushed and panicked proposals are shameful.”
They added that the savings largely involve cuts to local services, including £3 million they say was announced at the last minute and without proper scrutiny. They highlighted that the council aims to find over £1.5 million from a saving referred to in the budget papers as ‘Strategic joint commissioning & service delivery for vulnerable children’.
The Lib Dems warned that this could push higher charges on other bodies that provide care. In response, Labour said all cuts had been subject to equality impact assessments.
Cllr Alambritis also criticised the Lib Dems for not raising these questions ahead of the budget.
He added that setting the budget had been “unusually complex”, due in part to the recent Fair Funding formula review. The changes have seen the Government recategorise Merton as a relatively “low needs, high resourced authority”.
As a result, Merton’s core Government funding stands to fall from £84.2 million in 2025/26 to £70.8 million by 2028/29. In comparison, neighbouring Croydon is expected to gain an extra £59.6 million over the next three years.
The budget also highlighted the rising service pressures on the council. Homelessness and temporary accommodation have now become the its largest spending pressure.
Placements in temporary accommodation rose by 30% over the past year, from 539 to 700 households. In response, the council is allocating a permanent £3 million budget increase from 2026/27 to manage demand, alongside its ongoing council-led housebuilding programme.
Elsewhere, the council welcomed the Government’s recent changes to SEND funding for local authorities. Merton’s spending on children and young people (aged 0–25) with complex special educational needs and disabilities has been in a significant deficit since 2018/19.
Under the Government’s High Needs Stability Grant, due to be paid in autumn 2026, 90% of the historic deficit accrued up to the end of 2025/26 will be written off.
The Ministry of Housing, Communities and Local Government said the grants represent “the largest intervention on SEND deficits ever”.
Merton’s two main opposition parties also put forward budget amendments, which were ultimately voted down. The Lib Dem amendment proposed initiatives such as cost-of-living grants, business rates relief, youth social prescribing, and new community safety hubs to address the recent loss of Merton’s two police front counters.
Conversely, the Conservative amendment proposed using £0.915 million from reserves to fund an immediate 1% council tax rebate for Band A–E households.
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