(England) What will happen when govt covers $5.2B special ed debt of local councils?

Feb 16, 2026, Special Needs Jungle: SEND cash splash: What does it all add up to—and will ditching debt improve provision?

https://www.specialneedsjungle.com/send-cash-will-ditching-debt-improve-provision/

Last week, the government published details of the Final Local Government Financial Settlement the package that sets out what funding Whitehall provides to councils each year.

Normally, education doesn’t feature front and centre here. But it did this time. The headline announcement was that the government is ‘forgiving 90% of council SEND debt.’ Tania had an initial look at this here, and today we’re looking more closely at everything the settlement included.

The 90% sounds like good news. Is it? 

Yes, it is—but there’s a bit more to the story than that. The “good news” won’t make a difference at the SEND frontline any time soon, if at all.

Funding background, in brief . . .

Each year, Whitehall hands over education funding to England’s 153 upper-tier local authorities, in a package known as the Dedicated Schools Grant (DSG).

Over the last eight years, most councils have racked up deficits on their DSG account. That’s almost always because they’ve spent more funding on high-needs SEND provision than the government gave them.

These DSG deficits have now become huge: totalling £3.8 billion [$5.2B] at March 2025, and they are continuing to grow.

The DSG deficits currently sit in a form of accounting purgatory (called a statutory override), where these deficits don’t count towards council debt. 

Until recently, the statutory override was going to end this March, and it would have wrecked dozens of councils’ finances. But late last year the government extended the deadline, and the statutory override will now end in March 2028. 

Nine in ten LAs now have DSG deficits. The deficits are continuing to grow, and they’re growing more quickly. We estimate that at the end of March 2026, combined DSG deficits will stand at around £6.6 billion. 

In November, the Office for Budget Responsibility (OBR, the government’s independent financial watchdog) estimated that cumulative DSG deficits could rise to £14 billion when the statutory override ends in March 2028.

The OBR estimate didn’t assume the government would do anything about these deficits. They couldn’t assume anything, because the government hadn’t provided them with any details about what any intervention might look like.

But now, the government has provided some of that detail, so let’s look at where we stand.

Rescue package with strings attached

For those LAs that are running a DSG deficit at the end of the 2025-26 financial year, Whitehall has agreed—with conditions—to provide a grant that will absorb 90% of each LA’s accumulated DSG deficit as it stands in March 2026. This grant is called the High Needs Stability Grant, and you can find more details here.

There are no official figures yet, although there is a government estimate of “over £5 billion”.

No explanation has been offered for that estimated figure,—but it doesn’t make much sense, given how big the DSG deficit will be.

Based on individual council forecasts, we estimate it’s more likely to cost Whitehall around £6 billion to absorb 90% of council DSG deficits. It’s not clear yet who in Whitehall is picking up the tab.

What about the remaining 10%? That’s left with LAs to deal with. Collectively, it’ll probably be around £600 million and LAs will need to pay it back by March 2028. The precise amounts will vary hugely from LA to LA, and not every LA will have something to pay back. 

Each LA in this position will have to decide how to deal with this residual DSG deficit. Some will be able to absorb it by using their financial reserves. Others won’t be able to do that so easily, if at all. Some LAs might choose (or be effectively compelled) to cut back on DSG spending to make the books balance by March 2028.

So even with 90% DSG deficit forgiveness, it’s still pretty likely that some LAs will need to suppress demand and curb SEND provision to keep on financial track.

A welcome respite—but at what cost to families?

Forgiving 90% of council DSG deficit is very welcome. It takes a lot of financial pressure off councils. That’s good, because there’s almost zero chance that organisations make good decisions under that type of pressure.

But as we pointed out last week, there are strings attached—and we don’t yet really know what those conditions will mean for the future of SEND provision.

Before an LA can get its 90% DSG deficit forgiveness, it’ll have to submit something called a local SEND reform plan to the Department for Education (DfE). If the DfE is happy with an individual LA’s plan, it will get its High Needs Stability Grant at some point this autumn.

The DfE has yet to publicly explain what a local SEND reform plan actually is. All will apparently become clear when the Schools White Paper is finally published.

What do we know so far?

But we know a bit, thanks to some leaked information that the DfE and NHS England provided to local authorities and health bodies in December. In short: 

Each local SEND reform plan will set out how ready the local partnership is to implement SEND reforms, and what it’ll need to do to make itself more ready

The local SEND reform plan will look at reform readiness across seven pillars, and local partnerships will assess their own reform maturity as part of this plan

DfE guidance suggests that more ‘mature’ readiness involves things like having more pupils with SEND in mainstream, fewer pupils in specialist provision, and strong mainstream support leading to fewer EHCPs. Emerging (i.e., poor) readiness involves things like too many kids in specialist provision, LAs building up deficits, and ineffective mainstream provision.

The DfE is working up metrics to judge local partnership performance under the local SEND reform plans, but these haven’t been leaked or revealed yet. 

If you live or work in an LA with a Safety Valve agreement—the DfE’s previous tool of choice for financial intervention—then all of this will sound very, very familiar to you. Because this approach has been pretty much how Safety Valve agreements have worked.

The Safety Valve scheme received its death notice last week. This new approach will be its replacement—implemented much more widely, but not necessarily as sharply.

How much the new scheme works like Safety Valve worked will depend on how much financial pressure the DfE chooses to exert, and how quickly schools and LAs can transform the quality and quantity of mainstream SEND provision. All of those things are still unclear.

Will this improve provision for children?

So, with 90% of the DSG deficit set to be wiped out, can LAs, schools and families all breathe more easily? 

The answer is: a bit, but not by much, and not for long.

Because the pressure will keep on coming after March 2026, and it’s currently unclear who’s going to bear most of it.

There’s a two-year period, from April 2026 to March 2028, where the future of SEND funding arrangements looks murky.

As things stand, it’s pretty much guaranteed that LAs will have to continue to spend more on high-needs SEND provision than they receive from Whitehall for the next couple of years.

The Office for Budget Responsibility (the government’s independent financial watchdog) believes that the gap between DSG funding and LA DSG spending will be £8.6 billion from 2026-2028. The government disputes this, saying that these estimates don’t take the impact of future SEND reforms into account. 

But no one outside the magic circle is saying what difference these reforms will make. And there are already signs that the insidious drip of leaks and the lack of clear detail on reforms are prompting people at the front-line to secure more specialist SEND provision while they can – actions that’ll probably mean the OBR’s figures will probably end up being an underestimate. . . .

What about future funding commitments?

Whitehall’s agreed to absorb 90% of DSG deficits up to March 2026. It’s agreed to take on all DSG deficits from April 2028 onwards. But it’s made no commitment at all to absorb anything yet for the period between April 2026 and March 2028.

What they have said is this:

“We know that SEND reform will take time to fully embed and local authorities will need further support. For deficits that arise in 2026–27 and 2027–28, local authorities can expect that we will continue to take an appropriate and proportionate approach, though it will not be unlimited.” . . .

As things look now, even after the government swallows billions in debt this autumn, by the time March 2028 ends, the DSG deficit looks set to be somewhere around £9 billion. And it’s totally unclear who’s going to be on the hook for it.

That’s a big, big sum. It would financially cripple most councils if they had to absorb it all. And if central government takes it on—plus any further deficits that get racked up after April 2028—then we’re talking about sums huge enough for the bond markets to sit up and take notice. 

So over time, cost control will become an ever more important part of the SEND reforms, and we don’t yet know what’s going to happen with future SEND funding. Various leaks have suggested that those leading reforms want to change the way that EHCPs are funded, most likely by breaking the link that’s supposed to fund EHCPs at the level of individual plans. . . .

But on the funding side, the government also said that:

“This ambition is underpinned by more than £3.7 billion of investment, creating 60,000 places for children and young people with SEND all over the country, and marks a significant moment in re-shaping schools to meet the needs of every child.”

The £3.7 billion figure given here isn’t NEW funding. Some of it was announced in March 2025, and most of it was announced in December 2025. It’s a SEND capital grant that’ll be doled out to councils from 2025 to 2030. 

The first £740 million of this grant has already been released: if you want to see how it’s been used, then this article is worth reading.

This is capital investment. It’s welcome, but it can only be used for buildings and kit. By itself, it can’t ‘re-shape schools to meet the needs of every child’ unless there are also enough practitioners with the skills, time and capacity to do that.

And despite all the changes announced last week, it’s not at all clear where those people are coming from, and whether there’s going to be enough funding to pay for them.