THE money Croydon receives in recognition of its status as a refugee harbour is likely to be cut because the number of asylum-seeking children it looks after has more than halved.
The council has long argued it should be given more cash for caring for unaccompanied children, and even considered taking legal action against the Government.
It eventually secured £6.5 million of extra funding from the UK Border Agency (UKBA) in recognition of its status as the only place in the country where people can make an in-country application for asylum.
Now it expects to lose some of this special grant after the number of children claiming asylum in the borough more than halved in less than five years, from 740 in 2009 to 311 this January.
Croydon Central MP Gavin Barwell said the decline was the result of the changing international picture and stricter border controls, though fewer applications from children under the age of 17 are rejected than five years ago.
He added that it was right for funding to be cut if the numbers had fallen.
He said: "I don't think it should decline proportionately, as there are still significant costs even if we are only looking after a relatively small number.
"But when Mike (Fisher, council leader) and I went to meet ministers to secure additional funding, the agreement was the grant would be reviewed if the situation changed.
"There are two reasons for the decline. Firstly, the picture around the world. The number of asylum-seekers rises when there are major outbreaks of conflict.
"Secondly, we have a more effective system in place. By the last Government's admission, they lost control in the mid 2000s."
The council is responsible for all under-18s who make their claim for asylum at the UKBA's screening unit in Wellesley Road.
Just last April, when there were 353 unaccompanied asylum-seeking children (UASC) in care in the borough, the authority estimated the annual cost at £30 million.
A year later, with the figure dropping to 311, it now puts the money spent on UASCs at £15 million, because the cost per asylum seeker each year, which mainly accounts for foster care, has reduced from £40,000 to an average of £27,000 due to "reduced overheads as the council downsizes".
As well as the gateway money, the authority receives a variable grant based on the amount of support it provides. It is able to claim £95 per day for under-16s and £71 for 16- to 17-year-olds.
Kathy Bee, Labour's shadow cabinet member for children and young people on the council, said the Government should meet all the costs.
She explained: "The council pays more than it recovers so even if the number of asylum-seeking children has dropped the reduction in funding should not be proportionate.
"Local authority funding is being hacked to pieces and on top of that it is being asked to pay for something which is a Government responsibility, a result of national rather than local policies. The council shouldn't be left out of pocket."
Nationally the number of asylum applications from UASCs has dropped 72 per cent in five years, from 4,285 in 2008 to 1,168 in 2012.
A UKBA spokesperson said: "The final figure for this year's grant has yet to be decided but with the number of UASCs in the UK falling it is only natural that the bill for caring for them should decrease too."