Ministers mull school funding black hole immunity extension

Ministers are considering a U-turn on plans to force councils to fill a huge black hole in school budgets next year, as some local authorities say they risk bankruptcy.

Soaring demand for support for pupils with special educational needs and disabilities has left councils with a £1.9 billion deficit on everyday school funding, according to Local Government Association (LGA) estimates.

The government issued a “statutory override” of standard accounting rules in 2020, letting councils leave dedicated schools grant (DSG) deficits unaddressed. It acknowledged they may otherwise have to raid reserves or cut wider services.

Earlier this year the Department for Education said that the reprieve would end next April.

It ordered councils to make SEND spending “sustainable”, issuing savings guidance and programmes. Only a few dozen authorities were offered bailouts, with cost-cutting strings attached.

But this week Hampshire and Kent county councils warned that without “immediate” aid, they would consider declaring effective bankruptcy through so-called section 114 notices.

The LGA then warned councils faced “existential crisis” amid £2.4 billion a year of unforeseen energy, pay and other costs.

Councils need ‘certainty’ over the future

Devon County Council said its school budget deficit would reach £124 million by March. Its SEND task group said councils needed “certainty” about the future of the statutory override.

Only the tweaked accounting rules are protecting Bournemouth, Christchurch and Poole (BCP) Council from “non-viability and therefore…[consideration of] a section 114 notice”, according to LGA analysis.

Ministers lifted the cap on council tax hikes on Thursday, given authorities’ “additional flexibility” to hike charges by up to 5 per cent without a referendum.

But Schools Week can reveal the government “is consulting on the need to extend” the override on school deficits, according to Devon Council documents. A government source said details would be set out in due course.

Micon Metcalfe, a school funding expert, said extension would be a “helpful stopgap”, adding: “If it wasn’t, you could see immediate pressure to take more from other services or the schools’ budget. It highlights the SEND funding black hole.”

An LGA spokesperson backed an extension, but said the government must also help councils to eliminate high-needs deficits.

A Hampshire spokesperson suggested extension would be “welcome” – but said it did not “adequately deal with the fundamental issue” of insufficient resources. BCP and Kent were also approached for comment.

‘Only a sticking plaster’

Stephen Morales, the chief executive of the Institute of School Business Leadership, agreed it would be “positive, but only a sticking plaster”.

Joanne Pitt, the local government policy manager at the Chartered Institute of Public Finance and Accountancy, which sets council accounting standards, said it would give councils time to engage with the DfE’s “safety valve” and “deliver better value” programmes to rein in deficits.

But she warned such programmes would “take time to realise future benefits”. More than 50 councils were not invited on to either scheme, and Schools Week recently revealed inflation risked jeopardising cost-cutting drives in bailed-out councils.

Pitt added that statutory overrides should generally be “used sparingly”.

The Department for Levelling Up, Housing and Communities has previously admitted tweaking budgets rules to make accounts less transparent and comparable with other bodies, and should only be used where “absolutely necessary”.