Westminster Hall debate, Dedicated Schools Grant, 23 April 2025

• LGA analysis shows that English councils face a £2.3 billion funding gap in 2025/26, rising to £3.9 billion by 2026/27, creating a £6.2 billion shortfall over just two years.
• A major driver of this shortfall is the growing pressure on councils’ Dedicated Schools Grant (DSG) due to increased demand for services for children with special educational needs and disabilities (SEND). The deficit on these services is projected to reach £5 billion by 2025/26.
• The national high needs block for SEND rose from £5.3 billion in 2014-15, to £9.4 billion in 2024-25. On top of national funding, councils have spent an additional £950 million on SEND support in 2023-24 alone.
• The LGA estimates that nationally local government’s cumulative high needs deficit now stands at £3.15 billion, which is now threatening the financial viability of some councils. (This figure would be closer to £4 billion without additional money being invested via the Department for Education’s ‘Safety Valve’ programme for councils with the biggest dedicated schools grant deficits.)
• We are calling for the write-off all Dedicated Schools Grant deficits to relieve the financial pressures that councils are currently facing, which are forecasted to reach £5 billion by 2025/26. Ahead of this, Government should provide councils with certainty on the future of the statutory override for these deficits. The statutory override allows councils to hold high needs deficits off their own balance sheets – but will come to an end at the end of March 2026, at which point SEND deficits will count against council budgets and will lead to some councils becoming insolvent.
• If the override ends as planned with no alternative method for addressing deficits, 53 per cent of councils responding to the survey, responsible for SEND provision, say they will not be able to set a balanced budget in 2026/27, rising to 63 per cent in 2027/28 and 65 per cent in 2028/29.
• While resolving the issue of high needs deficits is a priority, the Government must also address the immediate financial burden councils face while managing these deficits.

SEND pressures

• DSG and high needs funding pressures are one of the biggest challenges councils with education responsibilities currently face. The rising number of children and young people requiring an Education, Health, and Care Plan (EHCP) is a significant driver of these pressures.
• The number of children with Education, Health, and Care Plans (EHCPs) has surged by 140 per cent since 2014, from 240,183 in 2014/15 to 575,973 in 2023/24. DfE statistics show that in January 2024, nearly 576,000 children had an EHCP, reflecting an 11.4 per cent increase from 2023. This growing demand is a key factor in the escalating DSG deficits councils are facing.
• Independent research commissioned by the LGA and County Councils Network (CCN) has found that, despite some councils receiving targeted financial support through the DfE’s Safety Valve programme, many councils are running significant deficits on their DSG high needs budgets. These deficits have reached £3.2 billion and are projected to rise to £5 billion by 2026. The National Audit Office’s (NAO’s) recent report, Support for children and young people with special educational needs, also states that 43 per cent of councils are on track to have deficits approaching or exceeding their reserves by March 2026.
• DSG deficits are currently excluded from councils’ balance sheets due to a temporary statutory override, which expires in March 2026. If this override is not extended or replaced, 53 per cent of councils could face an inability to set a balanced budget for 2026/27, as indicated by an LGA survey from January 2025. The end of this override presents an imminent financial cliff edge, with councils facing the risk of insolvency unless action is taken. Therefore, The LGA is calling on the Government to urgently address the issue in the Spending Review, as part of a wider programme of reform of the SEND system.
• We do not believe that the proposals set out in the Government’s SEND and Alternative Provision improvement plan will result slow the growth of EHCPs. Furthermore, we do not believe that the ‘Safety Valve’ programme, the Delivering Better Value in SEND initiative, or the additional £1 billion in high needs funding from the 2024 Autumn Budget will be enough to eradicate council high needs deficits in the absence of systemic reform before March 2026.
• The LGA is calling for urgent action to reform the SEND system. Without fundamental reform of the SEND system, these efforts will not eliminate the growing financial pressures councils face. LGA/CCN-commissioned research outlines eight key recommendations to address the crisis and reform the SEND system. The LGA urges the Government to implement these recommendations to prevent further strain on councils and ensure long-term financial sustainability, as well as improved SEND outcomes. 

DSG high needs deficits – cashflow challenges

• In addition to the risk posed by the expiration of the statutory override, the LGA and CCN identified that councils also face significant cashflow challenges in managing high needs deficits. The £3.15 billion currently tied up in deficits could have generated £128 million in interest if it had been invested elsewhere. By 2025/26, this will increase to £200 million in lost earnings based on the forecast deficit of £5.0 billion. This lost income, along with the cost of borrowing to cover shortfalls, places additional pressure on councils' financial sustainability.
• As councils continue to absorb these deficits, there is a real risk that other essential services will be cut to balance budgets. The rising demand for SEND services forces councils to divert resources away from other areas of public service, potentially impacting broader community support and the delivery of vital public services.

Zahraa Shaikh, Public Affairs Support Officer 

Email: [email protected]