Hounslow Cabinet to Receive Report on Worsening Finances
Budget gap forecast to reach £91.3 million within three years
Council faces real risk of being unable to present balanced budget
July 4, 2025
Hounslow Council’s cabinet is to receive a report on the worsening state of the borough’s finances at its next meeting on Tuesday (8 July).
This document is an update on the borough’s medium-term financial strategy, covering the period from 2026/27 to 2028/29. It outlines a deteriorating financial position, highlighting a significant and growing budget shortfall that requires ‘immediate and robust’ action to ensure the council's future financial sustainability. The core of the challenge is a projected recurrent budget gap which stands at £51.5 million for 2026/27, and is forecast to increase substantially to £91.3 million by 2028/29.
Several converging factors are driving this adverse financial outlook. On a national level, the economic environment remains volatile. The Bank of England has revised its inflation forecast upwards, predicting a peak of 3.5% in the final quarter of 2025, contrary to previous assumptions that it would settle at a 2% target. For Hounslow, every 1% increase in inflation translates to approximately £4 million in additional cost pressures, particularly impacting the £200 million it spends annually on contracted services.
Furthermore, the government's recent Spending Review, while providing a three-year outlook, represents a tight settlement for local government. The headline annual increase in core spending power of 2.3% is predicated on councils levying the maximum permitted Council Tax increase of 4.99% each year, with the actual increase in central government grant funding being a much lower 1.5% annually. Compounding this is the uncertainty of the forthcoming Local Government Funding Reform, which is widely expected to redistribute funds away from London boroughs.
Locally, the council faces escalating demand for its services. Costs for Adult Social Care placements continue to be the largest single pressure and are projected to double over the six years to 2029/30. Hounslow also contends with challenges unique to its geography, such as the high number of unaccompanied asylum-seeking children, and a significant growth in the need for Temporary Accommodation, which places further strain on budgets.
The council's immediate financial health shows signs of stress. The 2024/25 financial year concluded with a £14.8 million overspend on the General Fund, necessitating an unplanned drawdown from reserves. This has had a significant impact on the council's financial resilience. The total value of "usable" reserves, which are the only funds available to mitigate overspends, fell from £81.3 million to £48.7 million in 2024/25. These are projected to decrease further to just £27.3 million by the end of the 2025/26 financial year, severely limiting the council's ability to manage future financial shocks or bridge budget gaps.
Other ring-fenced accounts also face pressure. The Housing Revenue Account (HRA) has reserves of £4.9 million, significantly below the recommended £14 million, leaving it exposed to volatility. It must also find £3 million in new savings to support its house-building ambitions. Similarly, the Dedicated Schools Grant (DSG) carries a cumulative deficit of £12.3 million due to sustained pressures in high needs services, representing a significant ongoing financial risk.
To address the increasingly alarming budget gap, the report confirms a robust savings identification process is required. The council has a starting point, with over £20 million in potential savings options already identified from previous work although there is a question mark over how much of these are realisable. The strategy to find the remaining savings involves implementing thematic reviews of operations like commissioning and income generation, alongside a detailed line-by-line analysis of all service budgets. The Chief Financial Officer stresses that without delivering a significant savings programme, the council faces a very real risk of being unable to set a balanced budget, which could ultimately lead to a request for Exceptional Financial Support from the government and a loss of local autonomy.
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