Redbridge Council is predicting an annual overspend of more than £40million just two months into the financial year.
The town hall projects it will go over budget in 2025/26 by £45m, based on figures from May.
The two biggest strains on the council are the costs of housing and social care, which is echoed across London, councillors say.
Deputy leader Vanisha Solanki, also the cabinet member for finance, said the early forecast was of “particular concern” and could carry over to the next financial year if action was not taken.
She said it would make the “challenge of setting a balanced budget even more difficult,” after the council was forced to make a string of cuts to rein in a £33m black hole in February.
The bulk of the overspend, some £21m, is focused in the council’s ‘people’s’ directorate, which covers public health, social care and education.
Image: Redbridge Council
The town hall is predicting a further deficit of £18.5m across its ‘communities’ department, which oversees housing and leisure.
In an early bid to reduce pressure on the council’s coffers, the deputy leader said departments were prioritising early intervention and prevention and developing more “sustainable” ways to access help.
This is “not only more cost effective in the long term but delivers better outcomes for our residents,” she added.
A fundamental cause for the difficult situation the council faces is an “unfair” funding formula, the cabinet says.
Redbridge is the fourth lowest funded London borough per head, based on a government formula unchanged since 2010.
Councils receive 22% of their total funds from the government, while 54% comes from council tax. Redbridge councillors voted to raise council tax in February by 4.99%.
The Labour government has recently completed a spending review, but specific details on how local authorities will be funded going forward are yet to emerge.
Cllr Solanki said the “fundamental inequalities” in how the money is distributed meant Redbridge had a “structural disadvantage”.
She said that council services were still “efficient but that can only take us so far”.
“Boroughs like Redbridge need sustainable, needs-based funding that reflects the growing population and the real issues we face on the ground,” she said.
Council leader Kam Rai said the town hall would “redouble our efforts to control the forecast overspend”.
