Sutton and Kingston councils are considering setting up a jointly owned company to manage £38m of shared services.

Related: Job losses on the horizon as Sutton and Kingston share more services

Finance, customer service and town-planning departments are set to merged by the two authorities, which already share IT, transports, legal and waste disposal staff.

From April the two will share human resources and pensions workers, bringing the number of services shared by the two councils to eight.

The authorities are exploring the possibility of establishing a company to manage their joint operations, which are expected to require a combined £38m budget and 700 staff.

They have asked officers to examine the business case for the proposal, which Sutton Council said would cut costs as well as offering “advantages such as service resilience, the pooling of ideas and innovations and career development for staff”.

Ruth Dombey, leader of Sutton Council, told Monday night’s strategy and resources committee meeting: “This isn’t about us becoming one single borough, or about us merging completely.

“This has very much come about when we looked at the number of services that we are already sharing and an increasing number of them are with Kingston. I think there is some merit to do it in a more structured way.

“One possibility is the establishment of a trading company, but there could be others.

“I think it’s important that we explore all other options and see not only what best fits our two councils, but what would be the best response to a changing market.”

Tim Crowley, leader of Sutton’s Conservative opposition, said: “I welcome this, to be honest. It’s good to see that the spirit of coalition still lives on within us all.”

Sutton Council needs to cut its yearly budget by £31m a year as a result of Government funding cuts.

Jill Whitehead, chair of the environment and neighbourhood committee, said: “In the current economic climate this move is allowing us to make savings that we otherwise wouldn’t be able to make.

“It’s good that we’re having an arrangement with Kingston, but I don’t think we should forget the other boroughs as well that are in south-west London. I think going forward it may be useful to make other pacts with other boroughs.”

Backroom staff are expected to lose their jobs as result of service mergers, but neither Sutton nor Kingston council have said how many.