SEND deficits risk bankrupting almost three quarters of England’s largest councils by 2027, with government urged to take action

CCN Latest News, CCN News 2024 | 21 October 2024

Twenty-six of England’s largest councils could have to declare bankruptcy by 2027 if the multi-billion special educational needs and disabilities services (SEND) deficits they are grappling with are placed onto their budget books, a dramatic new survey reveals.

The warning comes from the County Councils Network (CCN), with the analysis revealing the scale of the financial challenges facing county authorities in England, with these authorities projected financial deficits potentially tripling overnight and pushing 60% more councils into insolvency.

New data analysis by the Society of County Treasurers and the Association of Local Authority Treasurers shows rising demand and costs has resulted in England’s 38 county and largest unitary authorities in England amassing ‘unmanageable’ SEND deficits of £2bn this year, a figure projected to rise to £2.7bn in 2025/26. Nationally, these deficits are now estimated to be £4bn this year, growing to £5.9bn next year. These deficits are being kept off councils’ budget books due to an accountancy method called the ‘statutory override’ which is due to expire in March 2026.

Research by CCN and the Local Government Association earlier this year showed these deficits are driven by record expenditure as a result of an explosion in the number of children on specialist Education, Health and Care Plans (EHCPs) and an overreliance on special school placements, particularly in the independent sector. High-needs expenditure in county areas has jumped from £2.5bn in 2018/19 to an estimated £5bn next year.

The CCN’s submission to the government’s Budget and Spending Review consultation calls on the government to provide ‘immediate clarity’ and a ‘national solution’ on how the Treasury plans to manage councils’ high needs deficits if the override comes to an end in March 2026 as currently planned.

But 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 government must set out ‘root and branch’ reform of the SEND system which does not work for parents, young people and councils alike and to address demand and costs that are spiralling out of control.

A new survey of local authority chief executives and new analysis of SEND deficits reveals that:

  • Due to surging costs in adult social care, children’s services and home to school transport, and in the absence of additional funding, 16 county and rural unitary authorities predict they are at risk of issuing a Section 114 before 2027.
  • In addition to this, if the statutory override expires then the number of councils at risk of declaring bankruptcy increases by 60%. A total of 26 of the 38 county and rural unitary authorities would be at risk of issuing a Section 114 notice before 2027, including 18 authorities who would be insolvent ‘overnight’ in March 2026. Only four councils believe they can remain solvent by the end of the parliament if their SEND deficit was transferred to their revenue budget.
  • This is because accumulated SEND deficits at this point would almost triple the revenue funding gap facing these councils. New analysis shows that SEND deficits for county and rural unitary authorities currently stand at £2bn but will grow further: reaching £2.7bn by the end of 2026. These councils are already estimated to face a growing revenue funding gap of £1.1bn next year, and £1.6bn in 2026/27, despite predicated council tax rises.
  • Because of these significant financial challenges, eight in ten respondents said they were unable to build up more reserves to offset their SEND deficits if the override came to an end.
  • But councils say writing off deficits up to 2026 or extending the statutory alone will not deal with the fundamental financial challenges caused by the SEND system. Unchecked, the new analysis shows that SEND deficits would continue to grow into 2026/27 by a further £1bn in county areas, reaching £3.8bn by the end that year, while nationally they could reach £8bn. As a result, 95% council chief executives in the survey said ‘comprehensive and fundamental reform’ to the system is ‘essential’.

The CCN says that is vital reforms are implemented within the next 18 months and should include a new national framework, reforms the tribunal system, while implementing changes to make mainstream schools more inclusive and supportive for SEND pupils to reduce the overreliance on special school placements.

The calls come amidst an increasingly precarious financial situation for councils. Analysis released recently by CCN showed England’s county and largest unitary authorities face a £20.3bn black hole over the next five years before council tax rises and excluding SEND deficits. Unless action is taken to reform services such as adult social care and children’s services, the CCN warns that councils could effectively become little more providing care services by the turn of the decade.

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

“The current SEND system works for no-one. It does not work for parents, young people and councils alike and during the last decade demand and costs have spiralled out of control, leaving local authorities with deficits that are unmanageable. This is despite local authorities doing everything in their power to address costs.

“Today’s survey shows the reality of what would happen if these deficits are not addressed and the statutory override removed: an immediate financial emergency that would lead to dozens of councils declaring bankruptcy in the next 18 months, and only four out of 38 surveyed surviving the decade. Considering only six councils in the whole of England have declared bankruptcy in the last ten years, this is an eye-opening figure and each and every S114 Notice would be catastrophic for local services.

“With the clock ticking to March 2026 when these deficits are placed back onto councils’ budget books, the government must provide immediate clarity on a national solution to  eliminating or managing councils’ deficits. But this is only one part of the solution. We also need root and branch reform of the SEND system to address the key issues driving demand and cost, including flipping the system to make mainstream schools more inclusive for SEND pupils.”