Five councils have been told to cut special needs and disabilities (SEND) spending and reform services in exchange for government bailouts totalling almost £100 million to fill black holes in their budgets.

The Department for Education has reached deals with five local authorities which have some of the largest dedicated school grants deficits in England. Similar agreements are expected to be reached with other local authorities with high deficits as part of the new programme.

Councils will receive millions a year in extra funding but the packages come with strings attached aimed at wiping millions off historic deficits.

Details of the ‘safety valve’ contracts struck with Bury, Hammersmith and Fulham, Kingston upon Thames, Richmond-upon Thames and Stoke on Trent were published on the DfE website today.

School funding with strings attached

Officials described the reforms included in the deals as “tough,” with funding only disbursed each year if conditions are met.

Bury, Hammersmith and Fulham, and Stoke on Trent all agreed to “support and drive schools” to meet a higher level of need in a “more cost-effective way within mainstream settings,” without compromising on quality.

Bury, in Greater Manchester, will receive £20m if it can cut its deficit from £25.5m this year to £16m by 2025. It agreed to “develop a culture in which demand is more effectively managed throughout the authority”.

Stoke on Trent was handed £10m, and is expected to bring its deficit down from £25.5m this year to £9.1m by 2024. It will have to launch a review of its early years, post-16 provision and its EHCP offer.

In Hammersmith and Fulham, west London, the council agreed to review its alternative provision and outreach services to find savings in exchange for £20m.

It also agreed to increase early intervention for children receiving SEND support, in order to “reduce escalation” to children receiving education health and care plans (EHCP). It is expected to cap its deficit at £22.9m this year and £20m by 2026.

Kingston upon Thames, south-west London, will receive £27m if it can limit the growth of its deficit, with a cap of £25.1m this year and £30m in 2026.

Neighbouring borough Richmond upon Thames will get £20m if its deficit stays below £17.6m this year and £20m in 2025.

Both south-west London boroughs were told to expand specialist provision and improve support available in schools to cut placements in more expensive non-maintained and independent special schools.

The two councils each agreed to “improve efficiency of commissioning services to drive down costs,” and use “alternative council funding sources” to contribute to deficit reduction.

Consultants will continue to be used to scrutinise EHCP provision and “manage demand.”

DfE scrutiny of spending

The DfE said last year increased high needs funding should ensure most councils can bring their high needs budgets into balance, but acknowledged some could not do so without extra cash.

It said such cash would come alongside “appropriate” conditions, such as changing SEND policy or management or requiring departmental sign-off for budgets.

Documents show the five authorities are expected to report at least every quarter on how their plans are progressing, and to hold meetings with DfE officials.

The department will also send a ‘commission’ to scrutinise councils’ capital plans for SEND and alternative provision, and could provide further funding.

Bailout ‘one of the first of its kind’

Janine Bridges, cabinet member for education in Conservative-run Stoke, welcomed the deal as a “vote of confidence” in its plans to improve its finances and provision, calling the agreement “one of the first of its kind in the country.”

Robin Brown, lead member for finance on Liberal Democrat-run Richmond council, said he was “delighted that our sustained lobbying efforts have finally led to this welcome agreement with the DfE, although in an ideal world I would have preferred the deficit to be paid off immediately”.

“The ever-growing SEND deficit has been a cloud overshadowing our financial position for some time.”

He added that there was a “lack of clarity” remained over future funding.

Judith Blake, chair of the Local Government Association’s Children and Young People Board, also welcomed the funding. But she warned the government’s approach “addresses a symptom and not the cause of these deficits,” highlighting growing demand for Education Health and Care Plans, and a lack of council powers to manage it.

“It is even more urgent that the government complete its positive ongoing review of the SEND system,” she added. “This review needs to set out reforms that increase mainstream inclusion, provide councils with sufficiency and certainty of funding to meet significantly increased demand for SEND support, and give councils the power to hold academies to account if their provision for identifying and supporting children with SEND is not adequate.”

Reforms to high needs cash

It comes amid an ongoing government consultation on distributing high needs cash as “fairly as possible” to cash-strapped councils.

High needs funding is issued to local authorities based on nationally-set criteria.

It funds places for pupils with a statement of special education needs or an education, health and care plan (EHCP).

For some councils, the funding isn’t enough to cover growing demand – resulting in cash being diverted from core budgets to make up shortfalls.

The government has increased high needs funding by £780 million, but most of it was swallowed up to plug existing deficits.

A DfE spokesperson said: “We have put conditions in place which we expect the local authorities with the most significant deficits to meet, driving reform and improvement in their high needs systems and associated spending to make them more sustainable long-term and stop deficits growing. Any additional funding will be subject to strict monitoring of their progress, and will be allocated over several years.

“Longer term, our cross-government SEND review will continue to build on this support, and will look at ways to make sure the SEND system is consistent, high quality, and integrated across education, health and care.”

The remaining councils were approached for comment.