More than two-thirds councils at risk of BANKRUPTCY within three years

More than two-thirds of England's largest councils could be left bankrupt by 2027 due to the costs of special educational needs and disabilities (SEND) services.

The stark warning has been issued after new analysis showed rising demand and costs had left local authorities in England with 'unmanageable' SEND deficits.

Across the country, these deficits are now estimated to be £4billion this year and growing to a staggering £5.9billion next year.

The deficits are currently being kept off councils' budget books due to an accountancy method called the 'statutory override'.

But this is due to expire in March 2026 and there are fears huge numbers of councils will be forced to declare bankruptcy if the statutory override is removed.

Labour ministers are facing demands by the County Councils Network, which represents England's counties, to provide 'immediate clarity' on how to manage councils' deficits over the coming years.

According to their survey of council bosses, 26 of England's 38 county and largest unitary authorities would be at risk of issuing a Section 114 notice before 2027 if the statutory override expires.

This includes 18 authorities who would be insolvent 'overnight' in March 2026, while only four councils believe they can remain solvent by the end of the current parliament if their SEND deficit was transferred to their revenue budget.

But councils warned writing off deficits up to 2026, or extending the statutory override alone, would not deal with the fundamental financial challenges caused by the current SEND system.

A huge majority (95 per cent) of council chief executives who responded to the survey said 'comprehensive and fundamental reform' to the system was 'essential'.

Cllr Kate Foale, SEND spokesperson for the County Councils Network, said: 'The current SEND system works for no-one.

'It does not work for parents, young people and councils alike and during the last decade demand and costs have spiralled out of control, leaving local authorities with deficits that are unmanageable.

'This is despite local authorities doing everything in their power to address costs.

'Today's survey shows the reality of what would happen if these deficits are not addressed and the statutory override removed: an immediate financial emergency that would lead to dozens of councils declaring bankruptcy in the next 18 months, and only four out of 38 surveyed surviving the decade.

'Considering only six councils in the whole of England have declared bankruptcy in the last 10 years, this is an eye-opening figure and each and every Section 114 notice would be catastrophic for local services.

'With the clock ticking to March 2026 when these deficits are placed back onto councils' budget books, the Government must provide immediate clarity on a national solution to eliminating or managing councils' deficits.

'But this is only one part of the solution. We also need root and branch reform of the SEND system to address the key issues driving demand and cost, including flipping the system to make mainstream schools more inclusive for SEND pupils.'

In their general election manifesto, Labour pledged to provide 'greater stability' to councils by giving them multi-year funding settlements and by ending 'wasteful' competitive bidding processes.

Since becoming Housing, Communities and Local Government Secretary in July, Angela Rayner has vowed to 'rebuild' the 'foundations' of local government and 'reset' Whitehall's relationship with councils.

She acknowledged that councils are currently facing a financial 'crisis' due to increased demand for services and higher costs. 

A Government spokesperson said: 'We are focused on fixing the foundations of local government by rebuilding the sector from the ground up and stand ready to speak to any council that is experiencing financial difficulties.

'For too long children and young people with SEND have been let down by a system that is not working and we are determined to tackle these issues head-on, improving children's life chances with better inclusivity and expertise within mainstream schools.

'There is no 'magic wand' to fix these deep-rooted issues, but we have already started with Ofsted reform, our curriculum review, and more training for early years staff, and will continue to act as quickly as possible to create the change that is so desperately needed.'