Councils warn of financial catastrophe in 12 months time, with ‘unmanageable’ SEND deficits risking bankruptcy

Councils today warn that there is just 12 months to avert a financial catastrophe for local authorities, with £6bn in special educational needs and disabilities (SEND) deficits set to be placed on their balance sheets in March 2026 unless government takes action.

These ‘unmanageable’ deficits have been rapidly growing for years as demand and costs for SEND services has soared. Since 2020 councils have been given accountancy immunity, meaning they do not have to include these giant and growing deficits in their budgets.

But that accountancy trick – called the statutory override – is due to end in March 2026.

The County Councils Network (CCN), which represents England’s largest councils, says if government does not urgently address this issue and if these deficits are placed onto council budgets in 12 months’ time, it could trigger a wave of bankruptcies.

A survey carried out by the CCN found that if the override ends in March next year with the deficit placed onto budget books, 18 county and unitary councils will be insolvent overnight: half of its member councils. A further six would follow in 2027, bringing the total to 24 councils.

Research by CCN has shown that these deficits are being driven by councils spending record amounts on SEND services as a result of an explosion in young people in receipt of Education, Health and Care Plans and the costs of specialist school placements. These cost on average £58,000 per pupil: seven times higher than placing a child with an EHCP in a non-special school.

Nationally, the number of young people on EHCPs has soared from 240,183 in 2015, when government introduced reforms which widened eligibility, to 575,973 in 2024.

At the same time, SEND deficits which have been kept off councils’ books due to the statutory override have ballooned in tandem with increased demand, and are set to more than double in just a 24-month period.

These deficits were estimated to be £2.4bn nationwide last March by the Association of Local Authority Treasurers and the Society of County Treasurers, and are in line to rise to £5.9bn by the time the override runs out in March 2026.

County and unitary councils account for half of that national figure – amassing deficits of £2bn last year, which are projected to increase to £2.7bn by the time the override runs out.

Despite the government announcing it was to reform the SEND system with a white paper promised, it has not given local councils clarity on how it intends to manage these gigantic deficits.

In a November policy paper, the Ministry of Housing, Communities and Local Government said it would set out government’s plans for the future of the statutory override in December’s provisional Local Government Finance Settlement.  But when the settlement was published, it only stated that ‘the government intends to set out plans for reforming the SEND system next year’.

But with less than 12 months now on the clock, the CCN says it is urgent that government provides immediate clarity to councils and a national solution on how the Treasury intends to manage councils’ high needs deficits.

In addition, the CCN warns that removing or limiting councils’ exposure to high-needs deficits is only one part of the solution. In tandem with action on the statutory override, the forthcoming white paper must set out ‘root and branch’ reform of the SEND system which does not work for parents, young people and councils alike and must address spiralling demand and costs.

Cllr Kate Foale, Special Educational Needs and Disabilities Spokesperson for the County Councils Network, said:

“The clock is ticking to March 2026 and we are now just twelve months away from what would be a financial catastrophe for local councils if these unmanageable SEND deficits are placed onto local authority’ budget books.

“If that happens, half of England’s largest county and unitary councils will be insolvent overnight and virtually every upper-tier council across the rest of England will tell you that the prospect of having to address and pay down these deficits would risk their financial sustainability.

“We know that the government has committed to reforming the SEND system, which is a vital step in the right direction, but the future of the statutory override is not a can to be kicked down the road. We need urgent clarity on how the government intends to manage these deficits, including a national solution to the issue. We also would like to know how addressing these deficits will fit into the government’s reform agenda, bearing in mind that solving this financial crisis will only ever be one part of the solution to the wider SEND crisis”

Notes to editor

• Estimates on SEND high-needs deficits are taken from an Autumn 2024 survey by the Association of Local Authority Treasurers (ALATs) and the Society of County Treasurers (SCT), asking for estimated deficits between 2024/25 and 2026/27 after adjusting for the use of reserves and ‘Safety Valve’ agreements.

• For the figures covering county and unitary authorities (including non-CCN member Leicestershire County Council) the survey received a response rate of 95% (36 out of 38 councils). To gain a full estimate for the 38 county and unitary authorities, responses were scaled by population to estimate the deficit for the two councils that did not respond to the survey. 
• For national figures covering all upper-tier authorities in England, 100 out of 153 responses were received (65%). To gain a full estimate for responses were scaled by population to estimate the deficit for councils that did not respond to the survey. 

The CCN undertook a separate survey with chief executives of 38 county and unitary authorities last Autumn, with a response rate of 97%. The survey asked councils when they would have to issue a S114 notice if the statutory override was not in place