Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Acknowledged
Require central government to involve local authorities in solving critical SEN financial challenges.
Conclusion
Departmental witnesses could not provide any potential solution to the critical and immediate financial challenges facing many local authorities due to persistent and significant SEN-related overspends. The impact of these are being deferred under the temporary “statutory override” scheme, which is due to expire in March 2026. This is currently expected to cause nearly half of all English local authorities to be at risk of effectively going bankrupt. With increasing demand for EHC plans, most local authorities have overspent their annual high-needs budget each year since 2016–17. This has contributed to growing cumulative deficits for many 5 local authorities within their dedicated schools grant budgets, with others using reserves to cover SEN costs. Since 2020, local authorities have been able to exclude these deficits from their main revenue budgets, so avoiding these overspends impacting their overall financial position. However, this only hides the deteriorating financial situation. When this arrangement ends in March 2026, 66 local authorities (43%) could be at risk of breaching their statutory duty to set a balanced budget, and so would be effectively bankrupt. Despite the obvious urgency, there is no solution in place to what will be an estimated £4.6 billion cumulative deficit. The Department is discussing the issue with the Ministry for Housing, Communities and Local Government (MHCLG) and HM Treasury, but says the issue is complicated given local authorities’ differing financial situations. There is a real risk of unfairness in the treatment of local authorities given some have accrued SEN-related deficits and others have avoided doing so. Left unresolved the issue risks undermining the whole of local government finance. recommendation Given the risks to local authorities’ finances, central government must urgently involve local authorities in conversations to develop a fair and appropriate solution for when the statutory override ends in March 2026, clear
Government Response Summary
The government agrees with the urgency of addressing local authority SEND overspends and Dedicated Schools Grant (DSG) deficits but states it could not set out plans by March 2025. It intends to set out further details for reforming the SEND system later in 2025, which will include how local authorities will be supported with deficits and the transition from the statutory override scheme.
Government Response
Acknowledged
HM Government
Acknowledged
The government agrees with the Committee’s recommendation. are putting on local government, and in particular, the impact of the Dedicated Schools Grant (DSG) deficits on councils’ finances. It will work with the sector on a way forward, and agree that the matter is urgent, but has been unable to set out plans by March 2025. The government intends to set out plans for reforming the SEND system in further detail in 2025. This will include details of how the government will support local authorities to deal with their historic and accruing deficits and any transition period from the current SEND system to the reformed system. This will inform any decision to remove the statutory override. It will be underpinned by our objective to ensure local authorities can deliver high quality services for children and young people with SEND in a financially sustainable way. It will continue to work with the sector on the detail of our approach.