Ministers are to reduce the rising cost of funding special educational needs provision through their overhaul of the system, as they faced calls to explain how a £6bn funding hole would be paid for.
The government is under pressure to clarify how it will pay for special educational needs and disabilities (Send) spending in England, which is rapidly increasing, after Rachel Reeves said in the budget that she would take over full responsibility for the costs from local councils from 2028.
Ministers have been working on changes to the Send system for months, with a white paper due to be published early in 2026. Reeves, the chancellor, and Bridget Phillipson, the education secretary, say it is intended to benefit children and parents, who are frustrated by a broken system, rather than being aimed at saving money.
However, senior government sources said the changes to the system would substantially bring down the growth of the Send budget as a side-effect. Spending on the Send system by councils has reached £12bn this year – a 66% increase over the last decade – with billions of pounds spent in excess of their budgets on meeting their legal duties to children.
The Office for Budget Responsibility highlighted a £6bn shortfall in funding in 2028-29 rising to £9bn in 2030-31. This comes on top of a cumulative £14bn of extra spending since 2020 that is still being held off balance sheets by English local authorities.
The watchdog said it was a “significant fiscal risk”, as the Treasury has not said how it would be paid for and it could be equivalent to a 4.9% cut in the schools budget per pupil.
Phillipson reassured Labour MPs on Thursday that extra costs of Send would not fall on the core schools allocation but the government budget overall, and suggested the OBR’s presentation was misleading.
She told a WhatsApp group of Labour MPs on Thursday that the changes would “bring cost down – for example, more local specialist places reducing demand for travel/ more costly private provision”, in comments first reported by PoliticsHome.
Another area for reducing costs has been identified as earlier speech and language interventions reducing the need for support later on.
About £740m is already being spent on increasing the provision of more mainstream specialist places, with figures showing the cost of educating a child in a specialist state school place was £26,000 per year, compared with £63,000 in private provision funded.
The issue is already a major concern for Labour MPs who say parents are worried about the prospect of changes to the Send system, with help already slow and difficult to access.
The government has also been nervous about Labour MPs reacting to the Send overhaul in a similar way to its attempted cuts to the disability benefits bill, which was abandoned by Downing Street after a backbench revolt.
Helen Hayes, a Labour MP and chair of the education committee, said the deficits built up by councils “have been a symptom of the wider crisis in the Send system which is failing children and families across the country”.
She said her committee had “set out how the government can reform Send services so that children and young people’s needs are met, but we are clear this will require investment in the large-scale transformation that is needed to get to a more sustainable funding position over time” and this “won’t come for free”.
“It is important in light of the budget announcement that the government provides urgent clarity on how Send reform will be delivered,” she said.
The Treasury has so far declined to clarify where the money for Send will come from, with changes to the system unlikely to cover the whole deficit.
There are questions over whether the current level of Reeves’s headroom in 2028 is realistic if the Treasury were to have to step in with a cash injection for the Department for Education (DfE).
The Institute for Fiscal Studies (IFS) said on Thursday that the government had three choices: reduce the growth of the Send budget, give the DfE more money, or make cuts in the schools budget.
Luke Sibieta, a research fellow at the IFS, said: “First, with a white paper expected in the new year, it could slow the growth in Send spending through reforms to the system – though changes will take time to be felt. Given Send spending is expected to grow by a whopping 14% in real terms this year, this seems like a natural priority. Getting better value for money is particularly important given the poor outcomes for families and schools under the current system.
“Second, it could top up the overall schools budget by finding the money elsewhere in the government’s budget. Third, it could reduce mainstream school funding to pay for high needs funding. To illustrate the impact of these choices, £6bn is equivalent to about 9% of the overall schools budget in 2028-29, or about 11% of the mainstream schools budget in that year.”
The Liberal Democrats said one solution could be a profit cap on private providers and redirecting “millions of public money out of the pockets of private equity and back into frontline support”.
Munira Wilson, an MP and the Lib Dem education spokesperson, said the £6bn funding hole was an “indictment of this government’s failure to get a grip on the system”.
“The government must stop the scandalous profiteering in this sector that is costing the taxpayer millions and harming children’s education,” she said. “We know by the government’s own admission that placing a child in a private special school is nearly two-and-a-half times more expensive than doing so in the public sector. This is simply indefensible.
Laura Trott, the Conservative shadow education secretary, said the “hidden £6bn blackhole will either lead to a cut to schools and mass teacher redundancies, or a £6bn cut to special educational needs provision”.
“Bridget Phillipson needs to come clean about which it is – teachers and parents have the right to know,” she added.
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