Half of councils face insolvency over £5bn SEND deficit ticking timebomb

More than half of councils have warned they will become insolvent when a measure keeping spiralling SEND deficits off their balance sheets expires next year.

Ministers are facing growing calls to write off high needs budget deficits, which the Department for Education believes will total £4.9 billion by 2026.

Local authorities have been allowed to keep the deficits off their main balance sheets since 2020, under a measure called a “statutory override”. This prevents them from effectively declaring bankruptcy.

The government has still not said what it will do when the override expires next year.

The Local Government Association surveyed its members with responsibility for SEND, receiving 105 responses.

Fifty-three per cent of responding councils said that if the override ended as planned with no alternative to address deficits, they would not be able to set a balanced budget in 2026-27.

This would rise to 63 per cent in 2027-28 and 65 per cent in 2028-29.

‘Write off high needs deficits’

The LGA said it was “calling on the government to urgently address the issue in the spending review, as part of a wider programme of reform of the SEND system”.

Government should write off high needs deficits, they said, which have followed a huge surge in demand for support since reforms to the system were made in 2014.

The number of children and young people with an education, health and care plan, which is supposed to guarantee funded support, rose to 575,963 last year, up 11.4 per cent on the previous year.

The chancellor Rachel Reeves allocated a £1 billion increase in high needs funding at her autumn budget. But the LGA said this was “likely to be consumed by partially plugging existing deficits”.

Arooj Shah, who chairs the association’s children and young people board, said: “The ending of the statutory override threatens councils’ financial viability.

“Only by taking bold and brave action in the spending review and writing off councils’ high needs deficits can councils have the financial stability they need to ensure children with SEND get the support they need.”

A system in crisis

However, she warned funding was “only one of the challenges facing the SEND system”.

Last year, a report by the National Audit Office found the system was “financially unsustainable”, with current intervention programmes inadequate to resolve the issues and urgent reform required.

Despite costs rising, by 58 per cent in a decade, it has “not led to better outcomes for children with SEN”, the NAO found.

The previous government tried to support councils with bailouts in exchange for cost savings under so-called “safety valve” agreements.

But Schools Week revealed last year that more than a third of councils such deals faced bankruptcy, despite being set to receive more than £1 billion in government bailouts before the end of the decade.

FE Week also investigated cash-strapped councils under safety valve deals were offering possibly unsuitable placements to high-needs young people.

‘Sobering’

“Putting councils on a stable financial footing has to be part of a comprehensive reform plan, which focusses on boosting inclusion in mainstream schools, early years settings and colleges, ensuring they have the capacity and expertise to meet the needs of children with SEND,” added Shah.

Natspec chief executive Clare Howard said: “Natspec supports the LGAs’ call for high needs deficits to be written off as this will provide a stable financial basis on which to move forward.

“The ‘statutory override’ or ‘safety valve’ was always going to be a short-term solution. From our perspective, it was also a highly unsatisfactory one, as FE Week has previously reported, in that it encouraged LA decision making which was led by financial considerations rather than by meeting needs of CYP or respecting their legal right to support.

“However, we will find ourselves back in the same position in a few years’ time unless DfE comes up with a fully costed plan and a commitment to invest the money needed to ensure children and young people have the high quality SEND provision they need and deserve. In arriving at its costings, DfE should be considering where there is wastage in the current system.”

A DfE spokesperson said: “The system we’ve inherited has been failing children with SEND and their families for far too long – this is unacceptable and is why we set out our Plan for Change to ensure no child is left behind.

“We recognise the strain that SEND provision is putting on local government’s finances, and we are working with the sector on how to improve outcomes for children with SEND whilst ensuring the system is financially sustainable. 

“We are already making progress by investing £1 billion into SEND and £740 million for councils to create more specialist places in mainstream schools, paving the way for significant, long-term reform.”