£5bn debt crisis of special educational needs ‘could bankrupt’ English councils

A £5bn debt crisis caused by out-of-control overspending on special educational needs could explode in less than two years, bankrupting scores of England’s local authorities, the UK government has been warned.

The crisis stems from the failure to properly fund a huge increase in demand for Special Education Needs and Disability (Send) services over the past decade, triggering an “existential” crisis for councils which have “no obvious means of paying off the debt”.

Council leaders have told ministers the Send system, which was introduced by the Con-Lib government 10 years ago, is in meltdown, and have described it as broken, unaffordable and failing hundreds of thousands of children and their parents.

The overspend is the legacy of the last Tory government’s decision to allow Send overspending to continue for years under a special “override” arrangement that allowed councils to keep these rapidly mounting debts off municipal balance sheets.

The huge off-balance sheet debts are due to be settled in April 2026, making it the latest financial headache to hit the Labour government as it takes stock of the costs of repairing a public sector depleted by years of austerity.

A highly critical report published by the Local Government Association (LGA) and the County Councils Network (CCN) on Thursday said Send services in England were overwhelmed and dysfunctional. Fundamental reform to the system was not only inevitable but unavoidable, it said.

It called for fundamental reform – likely to take two parliaments to implement – to ensure more Send provision is delivered in mainstream schools rather than expensive private special schools, as well a short-term injection of £2.2bn to ensure mainstream schools have suitable Send staffing levels and infrastructure.

Despite the vast increases in Send spending – up from £4bn a decade ago to £9bn in 2023-24, reflecting a near doubling in numbers of children in the system – the report said there was no evidence that educational outcomes had improved for Send supported children, and that on some measures they had deteriorated.

While some children and young people with Send were doing well, supported by outstanding teachers and staff, the system was fundamentally not working, the report said. “Where young people are thriving and practitioners are going the extra mile this is in spite of the system not because of it.”

The education secretary, Bridget Phillipson, said the report was “damning” and promised a fresh approach. “We will restore parents’ trust that their child will get the support they need in mainstream school, if that is the right place for them,” she said. “And that there will always be a place in special schools for children with the most complex needs.”

She added: “We have a broken system in desperate need of long-term renewal. I won’t make false promises, change won’t feel as quick as parents, or I, would like. I will make sure our approach is fully planned and delivered in concert with parents, schools, councils and everyone who works with children.”

The report described how long waiting lists for Send assessments and a shortage of places had triggered often litigious conflict between parents and councils. Access to support was often dependent on parents’ ability to navigate an adversarial system described by one practitioner in the report as “survival of the fittest”.

The current Send arrangements were introduced by Michael Gove, who was the education secretary in 2014. Since then the number of children with Education Health and Care Plans – which place a legal duty on councils to provide the support the child needs – has risen by 140%, from 240,000 a decade ago to 576,000 last year.

Although some commentators have blamed middle-class “pushy parents” for the increase in children in the Send system, the report says parents cannot be blamed. “The challenges in the Send system are not the result of any group behaving in unreasonable ways, but instead the result of an incoherent system that inadvertently perpetuates tension, creates adversity and sets everyone up to fail,” the report said.

Rising demand has driven up spending on Send by English local authorities from £4bn a decade ago to £10.8bn last year, and an estimated £12bn by 2026. Government funding has failed to keep pace, with council Send deficits, currently at £3.2bn, expected to reach £5bn by 2o26.

Although the last government recognised the growing problems with Send, it decided in 2022 to effectively duck tough decisions about reform and allowed councils to continue to run up huge off-balance sheet debts to keep the system running. This has in effect created a “back hole” in local government finances, the report said.

It also said councils “have no obvious means of paying off or reconciling the money that has already been spent” and without reform have “no realistic prospect of being able to reduce expenditure in the future”. The government must now decide whether to write off the debts or maintain the debt override.

Tim Oliver, chair of the CCN, said the Send system had failed. “Parents often feel they struggle to access services, schools lack the capacity to support pupils and councils have seen a doubling in needs over the last 10 years and have amassed deficits that threaten their financial solvency,” he said.