The Local Government Association has called for “urgent” government action after promised clarity for councils on the brink of collapse over SEND deficits was delayed.
Government was due to set out plans for the future of the statutory override, an accountancy immunity for councils, this week.
Local authorities have been allowed to keep high needs budgets sitting off their balance sheets since 2020.
This was due to end in 2024, but was extended until 2026 because 10 councils would have effectively gone bankrupt overnight if they had to move their deficits back onto their balance sheets.
Ministers had pledged to set out government’s plans for the future of the statutory override this month, which would have provided much-needed clarity for councils.
But in the provisional local government settlement for 2025-2026, published Wednesday, government kicked the decision down the road.
An LGA spokesperson said it’s “vital the Government sets out urgent reform to the SEND system”.
“This must include writing off councils’ high-needs deficits, otherwise many councils will face a financial cliff-edge and be faced with having to cut other services to balance budgets through no fault of their own, or their residents.”
Labour delays SEND debts decision
In a November policy paper, the Ministry of Housing, Communities and Local Government said they would “set out government’s plans for the future of the statutory override at the provisional settlement in December”.
But the provisional settlement, published Wednesday, only states: “The government intends to set out plans for reforming the SEND system in further detail next year.
“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.”
The Department for Education believes councils’ cumulative deficit could be up to £4.9 billion when the override ends, and the cash-strapped Labour government must decide if it will allow the deficits to move back on to councils’ balance sheets, or clear the debts.
The National Audit Office has warned four in 10 councils may be at risk of declaring effective bankruptcy if the override ends in March 2026.
Councils have asked for clarity so they are able to factor the outcome of the decision into budgets for the coming years.
The NAO warned in October that, “as a matter of urgency”, the DfE should work with the Treasury and the local government ministry to share with councils its plans for how they can “achieve a sustainable financial position” once the statutory override ends in 2026.
This should include how “cumulative deficits will be treated and any wider financial impact managed”, the public spending watchdog added.
Government estimates 50 councils – a third – will have cumulative deficits larger than their whole reserves by the end of 2025-26.
And a further 16 were estimated as needing to spend three-quarters of reserves to clear deficits.
An NAO and LGA-commissioned survey previously found a quarter of the 74 local authorities responding said they would be insolvent within a year of the override ending.
And a quarter said they’d be insolvent within three years.
DfE support schemes won’t ‘eliminate’ deficits before 2026
Since 2020, the DfE has introduced three tiers of support, such as “safety-valve” deals to plug high-needs deficits, to help councils manage SEND budgets and slash costs.
But the NAO has said these programmes will not “eliminate” the deficits before the statutory override ends in March 2026.
The DfE designed the safety valve scheme to balance council in-year funding and spending as soon as possible, with agreements lasting between four and nine years and extending up to 2031-2032, a report by the watchdog noted in October.
Of 97 local authorities receiving support, estimated forecasts for cumulative deficits totalled £9.4 billion in 2028-29, of which £9.1 billion is forecast by local authorities participating in the safety valve or delivering better value programmes, the NAO noted.
It comes amid a bleak fiscal backdrop for the new government, which has repeatedly claimed it inherited a £22 billion “black hole” in the public finances from the previous government.
Rachel Reeves, the chancellor, warned of “difficult decisions” in her budget in July as she announced £5.5 billion of immediate cuts, with a further £8.1 billion planned for next year.
The DfE has been approached for comment.
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