Recommendation 5

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.