A council has warned that it could in effect become insolvent this year because of the huge financial deficits it has racked up on special education needs, in the latest development in the local government funding crisis.

Most councils in England have overspent their budgets on special education needs and disabilities (Send) since 2015, when the government extended the age range of young people who qualify for Send support without providing councils with the necessary funding. These deficits have fed into councils’ overall education budgets – known as the dedicated schools grant (DSG).

Bournemouth, Christchurch and Poole (BCP) council has accumulated a combined deficit of around £60m on its DSG budget in recent years and says it cannot eradicate it without making unacceptable cuts to Send services and mainstream school budgets. Moreover, a recent BCP council report warned that its financial solvency is at imminent risk because of government accountancy rules.

Normally, education deficits impact on councils’ overall financial health. However, because so many councils have been overspending their education budgets, since 2020 the government has put in place a “statutory override” under which these deficits are excluded from assessments of councils’ financial health – in effect placing them “off the books”.

This override, which has already been extended once, is set to run out at the end of March 2026 – just inside the 2025-26 financial year.

“When the statutory override falls away, the accumulated DSG deficit will be greater than the council’s total reserves and the council will technically be insolvent,” the BCP council report says. “If the deadline is not extended, then it is expected that the council’s director of finance would need to issue a section 114 notice in December 2024 as it would not be possible to set a balanced budget for 2025-26.”

The Local Government Association is calling for the government to write off all high-needs deficits as a matter of urgency. Photograph: Danny Lawson/PA

Since 2018, eight councils in England have issued section 114 notices, signalling they do not have the resources to balance their budget – effectively declaring themselves bankrupt.

So far none of these have been due to the crisis in Send education, but BCP council’s report shows how the end of the statutory override could trigger more council insolvencies – potentially before the override actually runs out.

The Local Government Association, which represents councils across England, said: “We continue to call for the government to write off all high-needs deficits as a matter of urgency to provide certainty and ensure that councils are not faced with having to cut other services to balance budgets through no fault of their own or their residents.”

Adam Sofianos, who lives in the BCP area, told the Observer that while it was a “comparatively smooth” process to get an education, health and care plan (EHCP) – which details the legally required provision for Send children – for his neurodivergent son in 2021, the system is now disintegrating. “Because there’s no funding for extra staff, the experience now is much worse. The school has only one full-time Send team member to support 600 children. It’s a similar story in most schools across the country: the work has increased, but the workforce hasn’t,” he said. “We’re currently seeking referrals to identify additional needs, but this is a much longer process now.” He also rejected recent claims that Send demand was rising because middle-class parents see EHCPs as a “golden ticket”.

“An EHCP is not a golden ticket or a free pass. It’s a lifeline. It’s a safety net that protects a Send child in their school journey.”

A government spokesperson said: “We are working with councils who are affected by deficits from the dedicated schools grant to ensure they can move to a more sustainable position in the future.

“Councils are ultimately responsible for their own finances, but we remain ready to talk to any concerned about its financial position.

“We recognise councils are facing challenges and that is why we have announced a £64bn funding package to ensure they can continue making a difference, alongside our combined efforts to level up.”

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