The City of London, one of the 12 top-rated councils for children's services, is having to cut back after a projected overspend of £1.4m by adult social services in the 2007/08 financial year.

The director of community and children's services, Jenny Goodall, has told managers to terminate all agency contracts, including consultants, in order to claw back some cash.

In a memo obtained by CYP Now, she also announced a complete recruitment freeze until the start of the 2008/09 financial year and no further expenditure on services and supplies such as stationery, professional fees and communications.

But trade union Unison has claimed the council has untapped reserves, which it is refusing to spend on local services and accused it of pretending to be strapped for cash.

Malcolm Key, the City of London branch secretary for Unison, which is not recognised by the council, said the situation was a scandal. "Members in community and children's services have been used to restructuring, cuts and freezes for a decade now," he said. "Currently teams are being run down and vacancies left unfilled and the union is beginning to deal with issues of failure to meet contractual terms of employment."

He said the council had funds that it is not spending on public services in order to avoid central government capping rates revenue any more than it did already. "It is a scandal that frontline services are being hit as a result of the council's attempt to behave like a poor London borough," he said.

Goodall said: "We are experiencing financial pressures arising from the growing demands for adult social services. A recovery plan has been agreed. There are no plans to make reductions or redundancies in other services, including children's services.

"However, the progress in achieving the recovery plan has not been sufficient to cover this year's budget, and some additional measures are being taken. These will not affect critical frontline children's services."