Financial Outlook

The starting point for the new authorities is the aggregation of all 12 existing councils' approved 2026/27 budgets, with Surrey County Council's budget split between East (47%) and West (53%) based on council tax base. An indicative £65m has been removed for the Combined Fire Authority.

The year-one budget gap is built up from existing Medium-Term Financial Strategy (MTFS) pressures, known efficiencies, and the additional costs of the reorganisation itself. Both authorities face a shortfall — but West Surrey's is roughly 4.5 times larger.

By 2028/29, the budget gap based on current MTFSs is set to exceed £171m across Surrey (£30.5m in the East and £141.4m in the West). When LGR costs are added, the annual gap rises to £191m — £39.5m in the East and £151.7m in the West.

The cumulative gap across 2027/28 and 2028/29 is over £384m (£74.7m East, £309.5m West). This assumes no further Exceptional Financial Support from government after 2026/27.

The government's recently announced three-year financial settlement and Fair Funding Reforms make the outlook harder. Based on government calculations, the collective Core Spending Power of all Surrey councils increases by just £25m (1.75%) over the multi-year settlement. This consists of approximately £186m in government funding reductions, offset by approximately £211m of council tax increases.

In practice, this means Surrey will be increasingly reliant on council tax as the primary source of income, with annual increases at the maximum referendum threshold needed simply to maintain current funding levels.

The borrowing positions of the two authorities are vastly different. West Surrey's net borrowing is over 8 times that of East Surrey, driven by the toxic legacy debt in Woking, Spelthorne, and Runnymede.

The cost of servicing debt consumes a portion of each authority's revenue budget. For most councils this is manageable — but several West Surrey councils have financing costs that exceed their entire net revenue budgets.

Each new authority must harmonise council tax across predecessor areas within 7 years. Officers recommend doing so in year one for financial certainty. The current Band D rates (combined district/borough + county council) vary significantly:

Total forecast reserves across all 12 authorities are £884.9m by March 2026. But once ringfenced balances (schools, housing, grants) are excluded, only £224.5m is genuinely available for financial resilience.

Across all 12 authorities, £513m of capital investment is planned in 2026/27 (prior to vesting day), of which £233m is to be funded by additional borrowing. Over the following three years to 2029/30, a further £954m of minimum capital investment is indicated, with £440m proposed to be borrowing-funded.

Each additional pound of borrowing adds to the revenue cost through interest payments and Minimum Revenue Provision — further pressuring already-stretched budgets.

The original LGR business case estimated that from year 5 onwards, annual net savings of £23.2m could be achieved. In the early years, transition costs outweigh efficiencies — meaning the reorganisation itself adds to the financial pressure.