Auditors have flagged "significant concerns" at Tower Hamlets Council’s "deteriorating financial position" with the local authority set to overspend by £19m this year.

A report by professional services firm EY said the budget-busting figure was “not consistent with effective financial planning and budgetary control”.

EY said the overspend “raises significant concerns” about the “robustness of the council’s budget-setting assumptions".

In July, the east London council revealed it was on track to spend £19.2m beyond its budget for the financial year ending in March 2027. It spent £19.4m over its budget during the previous year.

The majority of the unplanned expenditure is driven by growing demand and rising costs for adult and children’s social care, as well as temporary accommodation for homeless residents – services councils are legally obliged to provide.

Prime Minister Andy Burnham has vowed to provide a solution to the social care crisis in Britain. Care provision is currently causing a major burden on local government and household finances.

Council tax bills are set for huge hikes across five London boroughs

PA Wire

His pledge comes as councils across London face financial difficulties. London Councils, a local government collective in the capital, says that, by 2030, the city’s 33 councils face a collective shortfall of £5.2 billion.

More than half a dozen London local authorities are on the verge of effective bankruptcy.

Nine town halls in the capital receive Exceptional Financial Support from the UK Government, a scheme that allows struggling councils to take out emergency loans to balance their budgets to avoid going bust.

The nine councils are Barnet, Croydon, Haringey, Havering, Hillingdon, Lambeth, Redbridge, the City of London and Waltham Forest.

Ministers have separately given the green light for five boroughs – Kensington and Chelsea, Westminster, City of London, Wandsworth and Hammersmith and Fulham – to hike council tax by more than 5%, the usual ceiling for increases without requiring a local referendum. Bromley Council has asked for permission to do the same.

A Tower Hamlets spokesperson insisted that the borough had not been given permission to increase bills by more than the cap and it was not applying to the government for emergency loans.

EY’s warning about spending at Tower Hamlets came in a report it presented to councillors at an audit committee meeting last week.

Adult and child social care is one of the areas putting pressures on council finances

PA Wire

Stephen Reid of EY told the committee, while the work to examine the council’s financial management was “still ongoing”, the auditing team had identified the !deteriorating financial position” at the council.

Chris Leslie, the town hall’s senior manager in charge of strategic and corporate finance, said overspends were driven by “demand-led services” where extra costs had arisen late last financial year.

“In children’s social care we have a high number of high complexity cases coming in at year-end,” said Leslie.

“Where we’ve had those cases appear later towards the end of the year we’ve had them feed through to the next year, hence the overspend.”

Leslie added that it was “important” for the council to look at how it predicts demand and costs “so we can produce a robust budget for the future years”.

EY’s report also said the predicted overspend posed a threat to the council’s reserves – the pots of money it keeps to cover unexpected or one-off spending.

The council planned to increase its risk reserve by £20m this year, £20m next year and £10m the year after that.

However, EY said this plan had not taken the forecast £19.2m overspend into account.

In total, the council had some £40.5m in “unrestricted” reserves – meaning there are no restrictions on how it can be spent – in March this year.

This was down from £55.5m the year before. Including other reserves, EY said the council’s total reserves "reduced by more than £50m” during last year.

Auditors said the council would find it harder “to respond to future financial shocks, service pressures or adverse events” due to the reduction in its cash reserves.

A spokesperson for Tower Hamlets Council said: “In recognition of the significant financial risks all local authorities are experiencing around issues including temporary accommodation and adult and children’s social care, the council’s budget set aside £30m to mitigate these additional pressures. This prudent approach means the council can fully draw down these funds should the projected overspend materialise.

“Tower Hamlets always balances it budgets year on year, and we are not one of the 14 London boroughs which have either applied to the Government for emergency loans or have been told they can raise council tax by more than 5% to plug gaps.”