Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Accepted
Set out solution for local authority financial sustainability before statutory override ends in March 2026.
Conclusion
Financial pressures have led to short-term and unsustainable approaches to managing overspends in local government. In 2020–21, MHCLG introduced the Exceptional Financial Support (EFS) framework to help local authorities that are in financial trouble. Since then, 42 local authorities have received over £5 billion of support through EFS. While EFS has provided support in the short term, it does not address the underlying cause of overspending and creates longer-term risks for local authorities, as they must borrow or sell capital assets to raise funds. MHCLG acknowledges 6 that EFS was a short-term fix and not a solution to financial sustainability. Many local authorities have seen rises in Special Educational Needs and Disabilities (SEND) demand, resulting in local authorities overspending their SEND-related budgets. The Department for Education estimates suggest that by the end of 2027–28, overspending on SEND-related budgets could be between £2.9 billion and £3.9 billion per year. As a short-term workaround, since 2021 MHCLG has allowed local authorities to exclude these deficits from their main revenue budgets until March 2026. The end is looming without a proposed solution in sight for this ‘statutory override’, leaving hundreds of local authorities in a financially precarious position. Despite us calling before for a solution as a matter of urgency and by March 2025, one has yet to be brought forward. RECOMMENDATION As a matter of urgency, MHCLG, HM Treasury and the Department for Education should work together to set out their solution for ensuring local authorities can achieve a sustainable financial position when the statutory override ends in March 2026. The solution must include how cumulative deficits will be treated.
Government Response Summary
The government agreed and committed to setting out a solution for local authority financial sustainability, including a White Paper on SEND reform in Autumn 2025, a phased transition to a new SEND system, and an extension of the Dedicated Schools Grant Statutory Override until 2027-28, with further details on deficit management at the provisional Local Government Finance Settlement.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Dedicated School Grant deficits. The Department for Education Spending Review settlement confirmed funding for reform of the current Special Education Needs and Disabilities (SEND) system, details of which will be set out in a White Paper in Autumn 2025. The government will commence a phased transition process to a new SEND system which will include working with local authorities to manage their system, including deficits, alongside an extension to the Dedicated Schools Grant Statutory Override, previously due to end in March 2026, until the end of 2027-28. The government will set out more detail at the provisional Local Government Finance Settlement on the plan for supporting local authorities with both historic and accruing deficits.