Somerset Council is on the brink of declaring effective bankruptcy by April 2026 unless the government reforms the funding system for special educational needs and disabilities (SEND). The demand for specialist education for children and young people with SEND has surged dramatically in recent years, leading to soaring costs that far outpace available local government funding.
Somerset’s Dedicated Schools Grant (DSG) deficit, which covers SEND services, is projected to exceed £100 million by the end of the 2025/26 financial year, even after provisional funding was provided for Hill View School near Yeovil. This growing deficit results from demand vastly outstripping government allocations, placing enormous strain on council budgets.
In 2020, the Conservative government introduced a DSG statutory override allowing councils to keep SEND deficits off their balance sheets, thereby preventing immediate financial collapse and avoiding the issuance of Section 114 notices — formal declarations of effective bankruptcy. However, this override expires on March 31, 2026. Without either its extension or a fundamental reform in SEND funding under the current Labour government, Somerset Council will be forced to issue a Section 114 notice by April 1, 2026.
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This looming crisis is not unique to Somerset. A recent report by Parliament’s Public Accounts Committee (PAC) revealed that hundreds of local authorities nationwide face a similar “financial cliff-edge.” The report highlighted compounding pressures, including rising national insurance contributions for employers, which have increased adult social care delivery costs.
The PAC estimates that national overspending on SEND could reach between £2.9 billion and £3.9 billion annually by 2028. Despite calls for clarity, the Department for Education (DfE) has yet to confirm its position on the DSG override. Although SEND reforms are expected to be detailed in an upcoming schools white paper this autumn, no specifics have been announced regarding the current funding crisis.
The committee also emphasized that financial pressures on SEND provision hinder councils’ ability to invest in early intervention programs. This underinvestment results in more costly long-term care for vulnerable children. For 2023/24, UK local authorities spend £2.8 billion on early support services compared to £12.1 billion on “late intervention” in children’s social care.
The PAC highlighted significant uncertainty about the future sustainability of local authorities, especially amid ongoing government devolution initiatives and anticipated adult social care changes following the Casey Commission’s 2028 recommendations.
Committee chairman Sir Geoffrey Clifton-Brown criticized the government’s lack of urgency, stating, “The absence of a plan to address the fast-approaching cliff edge suggests government complacency with the current crisis.” He warned that recent policy changes, including national insurance hikes, fail to consider their detrimental effects on local government finances and capacity.
When Somerset Council set its budget in early March 2023, the DSG deficit was forecasted at £62.6 million, primarily from SEND overspending. By June, however, projections rose to over £100 million, factoring in additional funds for Hill View School. A council spokesperson confirmed, “Somerset Council, like many others, will need to issue a Section 114 notice if the override is not extended or resolved.”
Issuing a Section 114 notice would trigger government intervention, with commissioners gaining authority to sell assets, cut services, and significantly increase council tax—potentially costing Somerset taxpayers over £1,000 daily in administrative fees, all with minimal democratic oversight.
Iain Murray, Director of Public Financial Management at the Chartered Institute of Public Finance and Accountancy (CIPFA), emphasized the urgent need for government action to prevent widespread local authority failures this spring. He stated, “This report highlights the widening gap between local government demands and available funding. Immediate, coordinated action is essential to protect vital services.”
Murray added that the failure to extend the DSG override and the impact of new financial burdens threaten council financial resilience and service delivery, especially for vulnerable populations including children with SEND and adults needing social care. He stressed that the government’s recent spending review must respond to these challenges with greater urgency.
He concluded, “Effective reform requires giving councils the tools, support, and coordinated government action necessary for sustainable change. The government’s window to act is narrow — failure to do so risks systemic collapse.”
Somerset Council will discuss the DSG override situation further at its Children and Families Scrutiny Committee meeting on June 30.