The government will take over full responsibility for special educational needs spending from local councils, it was revealed at the budget, prompting warnings that the Department for Education could be facing a £20bn timebomb in two years.
The Office for Budget Responsibility said the annual costs of special educational needs and disability (Send) spending in England would reach £6bn a year by 2028, increasing the urgency of a potentially decisive overhaul of Send provision in a schools white paper expected early next year.
The government must also decide how to deal with historical council Send deficits, projected by the OBR to reach £14bn by 2028. This sum is made up of Send overspending incurred by English councils since 2020.
Although the government announced in the budget it was to take over full responsibility for Send spending from April 2028, it has yet to reveal how it will pay for the accumulated council deficits and the ongoing extra spending.
“The government has not set out how this would be addressed and so it represents a significant fiscal risk,” the OBR said.
If the projected £6bn-a-year extra costs were to be fully funded through the DfE’s core schools budget, this would “imply a 4.9% real fall in mainstream schools spending per pupil” from 2028-29 rather than a planned 0.5% real-terms increase, the OBR said.
A DfE spokesperson said the OBR’s forecasts for Send spending did not include future policy changes. “We are clear that any deficit will be absorbed within the overall government budget. These projections also do not account for the much-needed Send reforms this government will bring forward,” they said.
Asked if the decision would mean cuts to schools or Send spending after 2028, the chancellor, Rachel Reeves, said the imminent reforms were “not about money” but about “creating a system that works for kids, their parents and for schools”.
She added: “I believe wherever possible we should integrate children into mainstream schools. That’s not always possible but I would like to see it happening more. It would be up to Bridget [Phillipson, the education secretary] to set out those reforms.”
Helen Miller, the director of the Institute for Fiscal Studies, said the OBR warning “greatly sharpens the government’s incentives to introduce reforms that might slow the growth in spending”. She said that the government was “running out of time for reforms to deliver significant savings in this parliament”.
Natalie Perera, the chief executive of the Education Policy Institute, said: “While there is a clear and imminent need to address the rising costs of Send provision, the government must not cut school funding to meet these pressures.”
Councils warned this month that Send services in England faced “total collapse” without structural reforms. But attempts to restrict access to Send services were likely to put ministers at loggerheads with parents.
Local government leaders welcomed the decision to remove what they regard as an increasingly unsustainable Send spending burden – but said there was still uncertainty over how the £14bn deficit would be cleared.
The deficit is held off council balance sheets using an accounting fix known as an override. This allows councils to meet their legal duties to set a balanced budget each year and it has prevented many from becoming insolvent.
However, the override is due to be lifted in 2028. Councils have said that at this point the accumulated Send deficits would return to council balance sheets, leading nine out of 10 upper tier authorities to in effect declare bankruptcy.
Send spending has been largely driven by a rise in demand for education and health care plans (EHCPs). These give children and young people up to the age of 25 the legal right to educational support from councils for conditions including autism, speech and language difficulty and mental health needs.
Surging numbers of EHCPs – which have more than doubled to 639,000 in the past decade – have forced councils to increasingly rely on expensive private special schools, some owned by private equity investors, to meet the surge in demand.
Matthew Hicks, the chair of the County Councils Network, said: “With OBR red-flagging these existing deficits to the chancellor as an issue that could lead to council bankruptcies, the government must move beyond promises of a solution and set out decisive action to wipe historical deficits at next month’s local government settlement.”
William Burns, the social care policy adviser for the Chartered Institute of Public Finance and Accountancy, said centralising Send spending from April 2028 would “ease the intense financial pressure” on councils.
He added: “The government must grasp this opportunity to build a Send system that works for children and their families, and which pulls councils back from the financial cliff edge.”
