Nearly 70 local authorities across England have warned they will become insolvent unless Labour provides a multibillion-pound rescue package to tackle rapidly rising special educational needs and disabilities deficits.
A survey conducted by the Local Government Association (LGA) found 79 per cent of councils with education responsibilities cannot produce balanced budgets once current emergency accounting measures expire in 2028.
Accumulated deficits built up over years of overspending on special educational needs and disabilities provision are projected to reach £14billion, according to analysis by the Office for Budget Responsibility (OBR).
Of the 87 councils that participated in the survey, just seven expressed confidence in their ability to balance their finances when the statutory override mechanism ends.
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The remaining councils reported uncertainty about their financial stability once existing protections are removed.
The financial pressure stretches across the majority of upper-tier councils responsible for education spending in England, highlighting the widespread scale of the issue facing local authorities.
Among the 153 authorities with education responsibilities, 95 per cent of those responding to the LGA survey confirmed they had exceeded their special needs budget during the current financial year.
Looking ahead, 77 councils said they expect to continue running deficits into the 2028/29 financial year without major structural reforms, based on 82 responses to that specific question.
Rising numbers of pupils are now receiving education, health and care plans that entitle them to additional specialist support funded by local authorities.
Councils have called for a multibillion-pound Government rescue
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This support can include one-to-one classroom assistance or placements at specialist schools designed to meet complex educational needs.
Growing demand has pushed annual spending on special needs education above £12billion in 2023/24, with a further 13 per cent real-terms increase forecast for the current financial year.
Ministers are expected to unveil reforms later this month that could limit children’s legal rights to specialist assistance in certain circumstances.
The proposed changes are intended to increase the capacity of mainstream schools to support pupils with special educational needs within standard classroom settings.
However, key elements of the planned reforms have been delayed until the next parliament as ministers attempt to manage opposition from parent campaign groups and concerns raised by Labour backbenchers.
The delay creates an immediate funding challenge because central Government is due to assume responsibility for financing the system from local authorities from April 2028.
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Uncontrolled spending is threatening councils with insolvency
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At that stage, ministers will need to find a solution for an estimated £6billion in accumulated overspends currently held on council balance sheets.
The statutory override, introduced in 2020 to allow councils to exclude these deficits from their budgets, will no longer be available once the policy expires.
Council deficits have increased sharply over recent years, rising from £200million in 2020/21 to £2.5billion in the current financial year.
The statutory override has allowed councils to disregard high-needs overspends when setting annual budgets during a period of rapidly rising demand.
The mechanism was introduced by ministers in 2020 as financial pressures linked to special educational needs spending intensified across England.
The OBR estimates that total accumulated deficits will reach £14billion by the time the statutory override ends in 2028.
The issue presents a significant policy challenge for the Government as ministers attempt to reform an increasingly expensive system while avoiding criticism that support for disabled children is being reduced.
Spending on special needs provision has more than doubled to £12billion in 2023-24, largely driven by increasing numbers of pupils qualifying for education, health and care plans.
Ministers are expected to unveil reforms later this month
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Amanda Hopgood, chair of the LGA children, young people and families committee, said: "Under the current system, the rise in support need has left many councils buckling under the strain.
"The huge costs in providing support are threatening most councils with insolvency."
She said ministers should "write off councils' high-needs deficits" as part of a wider local Government funding settlement expected to be finalised next week.
Luke Sibieta, research fellow at the Institute for Fiscal Studies, said: "It is clear the Government will cover some of the deficits but they have not been clear on how much or how they keep kicking the can down the road".
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