Multi-billion pound SEND funding crisis leaves councils on edge of bankruptcy as 2026 deadline looms

Since 2020, local authorities have been able to leave huge and growing overspends on SEND services off their main balance sheets under a short-term workaround introduced by the Conservatives amid soaring numbers of children in need of Education, Health and Care Plans (EHCPs) for a wide range of conditions, including autism or ADHD.

But that ‘statutory override’ is due to expire in March 2026 – meaning there is now a “fast-approaching cliff edge”, with combined deficits totalling billions of pounds leaving many councils facing financial catastrophe.

A new report published by the Public Accounts Committee today accuses Labour of having “no proposed solution in sight” to deal with the crisis and of having added to town halls’ financial burdens through increases to national insurance contributions, branding it “unacceptable” that no assessment was done of the indirect costs it will cause for councils.

The Local Government Association (LGA) has previously estimated that councils’ combined SEND high needs deficits are projected to rise to £5 billion next year and that more than half of all local authorities will become insolvent if the statutory override is allowed to lapse.

Newcastle City Council last week passed a motion calling on the Government to extend that March 2026 expiry date and rapidly accelerate plans to deliver a long-term solution for the SEND funding emergency.

The Local Democracy Reporting Service has detailed previously how Newcastle is failing to meet a legal deadline to deliver EHCPs for children within 20 weeks of a request being made, with the city’s average wait time being 35 weeks as of January this year.

However, city officials have said it is not in as precarious a financial situation as many others – despite having estimated a £7.8 million overspend of its Dedicated Schools Grant in 2024/25.

Northumberland County Council has predicted that it will need to find almost £8 million of savings to make up for overspending in its high needs block budget in 2025/26, while Durham County Council has warned that it could have a cumulative deficit of circa £38 million by March 31, 2026.

Newcastle Lib Dem councillor Colin Ferguson warned that the system for supporting children with SEND is “financially unsustainable”.

Speaking at a full council meeting last week, the city opposition party leader said Labour should have come into power with a solution for what was a known problem and demanded that the Government now produces a “clear plan” to resolve the crisis for good.

Labour councillor Adam Walker, a parent of a child with Autism Spectrum Disorder, agreed that the system is “failing” children and admitted that Newcastle’s record in producing EHCPs is “quite frankly shocking”.

Coun Walker, the council’s cabinet member for adult social care, health, and prevention, said more funding was needed to ensure faster diagnosis of conditions like autism and give families access to early help – and that an extra £1 billion being handed out to support English councils’ high needs costs needed to be “backed up by meaningful reform” of the entire system.

Coun Tracey Mitchell of the Newcastle Independents, who has worked in SEND for 27 years, added that the funding crisis only adds to “constant stress” faced by families and leaves children “forgotten”.

She said: “If we cannot give the correct support to the lives of the most vulnerable, what does that say about us as a society?”

Sir Geoffrey Clifton-Brown MP, chair of the Public Accounts Committee, said: “Our inquiry heard that the government is concerned about local authority finances. But the lack of urgent action to come forward with a plan to address the fast-approaching cliff edge for under-pressure authorities would seem to suggest it is comfortable with the current state of affairs as normalised background noise.

“Alarmingly, scrutiny of council finances can now provoke a sense of déjà vu, with the same unfixed issues seen over and over. We would urge the government to use the funding announced in this spending review as a starting point for the paradigm shift required.”

LGA chair Coun Louise Gittens added: “We expect government to provide urgent clarity on how it plans to address high needs deficits, which are projected to rise to £5 billion next year, as part of its forthcoming SEND reforms. Over half of councils have warned us they will become insolvent next year when the statutory override flexibility ends and we continue to urge government to write off these deficits.

“This needs to be part of a comprehensive SEND reform plan, which focusses on boosting inclusion in mainstream schools, early years settings and colleges, ensuring they have the capacity and expertise to meet the needs of children with SEND.”

Minister of State for Local Government and English Devolution, Jim McMahon OBE MP, claimed that the PAC report was “not supported by the evidence” and that Labour had a “clear plan to fix the foundations of local government”.

He said: “The results speak for themselves. Over 95% of audited accounts were submitted for the deadline we set, no S114 were issued by councils as a result of financial distress, and claims against Exceptional Financial Support were £1bn less than the previous year.

“We have also brought forward a package of reforms – including to local government funding and key services such as SEND – to ensure the sector is fully supported and empowered to deliver on people’s priorities over the long term.”