SEND spending needs reform to stop local authorities going bust

Local authorities across England are in financial distress, with six issuing section 114 notices – often described as declaring effective bankruptcy – in the past four years after being unable to balance their budgets.  

So what has gone wrong? A mixture of high-risk investments, rising social care demand and increasing costs have left local authorities unable to balance their budgets – but another, less well known, problem is lurking within local authorities’ books. Deficits – some huge – have built up in local authorities’ schools’ budgets due to special educational needs and disabilities (SEND) spending. Whoever forms the next government needs to explain how they would address this problem.

Deficits in education budgets are large and growing

New figures show that, as of March 2023, two-thirds (65%) of local authorities had cumulative deficits on the part of their budgets reserved for schools spending, ²⁰ GOV.UK, Financial year 2022-23 - LA and school expenditure, 25 January 2024, https://explore-education-statistics.service.gov.uk/find-statistics/la-and-school-expenditure/2022-23  with the primary reason being the cost of meeting their statutory duties to those with SEND. The combined deficit of these local authorities totalled £1.6bn, up on £1.5bn the year before (both figures in 2022/23 prices).

This equated to 5.5% of these local authorities’ ‘dedicated schools grant’ funding for 2022/23, but the figure for some individual councils was much higher. In the case of Devon, for example, it was 39% of that total.

But for an accounting fudge from the Department for Levelling Up, Housing and Communities that allows local authorities to keep the deficits off their balance sheets, ²⁹ Knott J, SEND deficits kept off budgets for another three years, Local Government Chronicle, 12 December 2022, www.lgcplus.com/services/children/send-deficits-kept-off-budgets-for-another-three-years-12-12-2022  several councils would likely have to issue a s114 notice. ³⁰ Rudgewick O, ‘Numerous authorities’ at S114 risk due to DSG deficits, Public Finance, 31 October 2023, www.publicfinance.co.uk/news/2023/10/numerous-authorities-s114-risk-due-dsg-deficits  We are talking about a major financial challenge.

Reforms carried out in 2014 lie at the root of spiralling SEND spending

The problem can be traced back to 2014, when reforms increased the amount of support available to children and young people with SEND – something that was widely acknowledged as needed. The 2011 green paper that kicked off the reforms describes “a system where parents feel they have to battle for the support they need, where they are passed from pillar to post, and where bureaucracy and frustration face them at every step”. ³¹ Department for Education, Support and aspiration: A new approach to special educational needs and disability, 2011, https://assets.publishing.service.gov.uk/media/5a751423e5274a3cb28697c7/Support_and_Aspiration_Green-Paper-SEN.pdf

But variable levels of inclusivity in mainstream schools and limited capacity in state special schools meant the state school system was not able to absorb all the rapidly increasing demand. This has led to widespread use of independent provision – funded by local authorities, at a cost far greater than that of a place in a state school.

The Department for Education is taking action to try and reduce the deficit. Under a programme named ‘safety valve’ a large proportion of local authorities have signed deals with the DfE that commit them to actions intended to eradicate their deficits.

Thirty-four such deals had been agreed by the end of 2022/23, ³² Department for Education, Dedicated schools grant: very high deficit intervention, www.gov.uk/government/publications/dedicated-schools-grant-very-high-deficit-intervention  under which the DfE has promised to supply local authorities with up to £1bn additional funding if they carry out reforms intended to bring down SEND spending (a further five deals are reported to have been being agreed recently ³³ Norden J, DfE in bid to sign 5 new SEND bailout deals, Tes magazine, 5 January 2024, www.tes.com/magazine/news/general/dfe-5-new-send-funding-council-bailout-deals ). The injection of extra DfE funds has seen deficits go down in these local authorities, but the deals – which can include measures such as requiring a local authority to “repatriate” pupils from the independent sector back to the state sector ³⁴ Department for Education, Dedicated Schools Grant ‘Safety Valve’ Agreement: Bexley, https://assets.publishing.service.gov.uk/media/64118d68e90e077697b99bbf/Bexley_Safety_Valve_Agreement_2022-2023.pdf  – are proving controversial.

For now, however, the deals with the DfE are the only option on the table for local authorities with big deficits. The government’s SEND and alternative provision improvement plan, ³⁵ HM Government, Special Educational Needs and Disabilities (SEND) and Alternative Provision (AP) Improvement Plan, March 2023, https://assets.publishing.service.gov.uk/media/63ff39d28fa8f527fb67cb06/SEND_and_alternative_provision_improvement_plan.pdf  published last year, is designed to make mainstream education more inclusive and to standardise provision nationally, which could reduce the need to use independent provision. It also promises earlier intervention, which can help prevent a child’s needs from escalating. But this is not a quick fix – it will take years to implement in full. ix

All parties need to explain how they would fix this problem

The fact that deficits are big enough to sink the finances of some local authorities makes this a pressing issue for the education secretary. Unfortunately for Gillian Keegan, that list also includes a teacher recruitment crisis, the problem of RAAC, exceptionally high pupil absence and large post-pandemic disadvantage gaps, as described in the latest Performance Tracker report from the Institute and CIPFA.

The statutory override allowing local authorities to keep deficits off their balance sheets currently runs up to March 2026. At least one council has warned that if the statutory override is not extended it will have to issue a section 114 notice as soon as December 2024, as it will be unable to set a balanced budget for 2025/26. ³⁶ Local Government Lawyer, Council warns of likely section 114 notice if Dedicated Schools Grant statutory override not extended, 17 January 2024, www.localgovernmentlawyer.co.uk/education-law/394-education-news/56141-council-warns-of-likely-section-114-notice-if-dedicated-schools-grant-statutor…

But an extension is not a long-term solution. Finding a way to control SEND costs without unwinding the 2014 reforms’ vision of better support – most likely building on the steps set out SEND and alternative provision improvement plan – needs to be a key manifesto pledge of any party seeking to form the next government.