Councils face a “cliff-edge” of effective bankruptcy notices without accounting immunity and extra SEND funding which is currently “far from sufficient”, a cross-party group of MPs has warned.
The Levelling-Up, House and Communities committee has urged ministers to agree “realistic” steps and additional cash with councils by April to eliminate high needs budget deficits.
These deficits have soared to £1.58 billion, but councils have been allowed to keep them off their books as part of a “statutory override” due to expire in March 2026.
Thirty four councils have also been subject to safety valve agreements, where the government offers bailouts totalling nearly £1 billion in exchange for sweeping reforms.
It comes amid a 46 per cent increase in the number of statutory education, health and care plans for youngsters with special educational needs since 2019.
In a report on “financial distress in local authorities”, MPs said council funding is “far from sufficient to meet demand” and “not sustainable in their current form”.
They added the override and safety valve programme were “temporary measures and do not address the underlying mismatch between demand, costs and annual dedicated schools grant funding”.
‘Significant’ extra funding needed
“They will not prevent local authorities from accumulating further deficits until the underlying mismatch is resolved, and we do not believe it is realistic to expect local authorities to manage down deficits of the scale of many billions of pounds in total over a period of two or three years.
“Without significant additional funding via the DSG to match service demand and costs, or a further extension to the statutory override – which would, at most, offer a further period of temporary respite – the sector faces a cliff-edge of section 114 notices.”
Several councils have issued section 114 notices since 2020, which means they are unable to set a balanced budget.
Schools Week previously reported how 10 councils were on the brink of issuing a notice last year before the override was extended.
Bournemouth, Christchurch and Poole (BCP) warned it would have to issue a notice this year if its black hole is not resolved.
MPs said the government had provided “no clarity” on whether it will fund, or expect councils to fund, deficits remaining when the override ends.
‘Give councils realistic steps’
They added that ministers’ aims to improve existing mainstream and locally available special school provision “will not be sufficient on its own to influence parents’ or carers’ views” on EHCPs.
Local provision will also “take time to realise and is not likely to address the financial pressures affecting local authorities in the short-term”.
By the end of March, ministers should provide councils “clarity on its specific expectations” for resolving existing deficits.
They should also agree on a “set of realistic and achievable steps, supplemented by sufficient additional funding, for eliminating these existing budget deficits”.
MPs urged ministers to commission a cross-government independent review of EHCPs and consider “fundamental reform of the system”.
Government should also assess the benefits of introducing new statutory guidance on home-to-school transport aimed “at encouraging the use of less costly forms of shared transportation”.
The committee also looked at wider council costs, such as social care and homelessness, urging government to “fix” a £4 billion hole in funding for 2024-25.
Clive Betts, the committee’s chair, said there was an “out-of-control financial crisis” as councils are “hit by a double harm of increased demands for services while experiencing a significant hit to their real-terms spending power in recent years”.
DfE referred our request for comment to the DLUHC, which said: “We recognise councils are facing challenges and that is why we recently announced an additional £600 million support package for councils across England, increasing their overall proposed funding for next year to £64.7 billion – a 7.5 per cent increase in cash terms.
“This additional funding has been welcomed by leading local government organisations, but we remain ready to talk to any concerned council about its financial position.”