Local government finance settlement details plans to write off 90% of council SEND deficits

The review also includes the first multi-year settlement in a decade, and reforms "to realign funding" with deprivation and need, Whitehall has said.

In documentation confirming the details of the funding review, the Government confirmed it would resolve 90% of local authorities’ Dedicated Schools Grant (DSG) High Needs deficits accrued to the end of 2025-26, projected to be worth over £5 billion.

All local authorities with a SEND deficit will be eligible to receive grant funding, subject to submitting and securing the Department for Education’s approval of a local SEND reform plan, it said.

Whitehall claimed this move could cut the cost of financing existing SEND deficits by an estimated £300 million by 2027-28, and see the "vast majority" of social care authorities see their core spending power increase in real terms.

Commenting on realigning funding with deprivation need, the Government claimed that only around a third of councils were previously given the funding to broadly match their assessed need, "but that will rise to nine in ten councils by the end of the multi-year settlement".

It added: "Our decision to provide transition funding means a minority of councils will receive more funding than their assessed need, but our view is that this remains the right decision to protect their financial sustainability over the medium term. As a result of these changes, the most deprived places will receive 45% more funding per head than the least deprived by 2028-29."

Overall, the Government also claimed that the review marks a 24.3% increase in core spending power in 2028-29 compared to 2024-25.

Changes to the funding approach also include simplification of the funding system "through consolidating nearly £57 billion of grant funding", a reset of the business rates retention system and a commitment to "transformational reforms and investment in social care, SEND, and homelessness and rough sleeping services".

The Government also announced £5.6bn worth of grant funding to be delivered through the settlement for 2026-27 to 2028-29.

This grant funding package included:

• £2.6bn via the Recovery Grant and Recovery Grant Guarantee over the multi-year settlement.
• £2.7bn via the Homelessness, Rough Sleeping and Domestic Abuse Grant, in order to assist council housing services.

Elsewhere in the review, the Government approved requests from seven councils for bespoke additional council tax referendum principles.

The approvals will see an additional 4% in Shropshire, North Somerset and Worcestershire, an additional 2.5% in Trafford, Windsor and Maidenhead, and Warrington, and an additional 1.75% in Bournemouth, Christchurch and Poole.

Secretary of State for Housing, Communities and Local Government, Steve Reed, said: "This £78 billion settlement is about real change – potholes filled, streets kept clean, older people looked after, and young people having somewhere to go in their area.

"And with an extra £440 million for areas hardest hit by historic cuts, we’re making sure every community gets its fair share."

The Local Government Association has welcomed the Government's efforts to assist councils with their SEND deficits.

Cllr Louise Gittins, Chair of the LGA, said: “We are pleased the Government has announced a significant funding package to tackle 90 per cent of the historic high-needs deficits which removes the immediate threat of insolvency for many councils.

“This is recognition that these costs are not of councils’ making and have accrued due to a broken system that is urgently in need of reform. However, fully writing off historic and future high needs deficits remains critical."

She added that the forthcoming Schools White Paper must deliver "much-needed reform of the SEND system".

Cllr Bill Revans, SEND spokesperson for the County Councils Network (CCN), said the SEND pledge would be a "significant relief to our member councils with the deficit set to reach £6.6bn nationally by the end of next month and direct recognition of the CCN’s advocacy".

He also echoed the LGA's calls for the Schools White Paper to set out "comprehensive" reform to the SEND system.

Commenting broadly on the funding review, Cllr Steven Broadbent, Finance Spokesperson for the CCN, said: "The final Local Government Finance Settlement confirms that the government will correct the distribution of business rates pooling gains from the provisional settlement, meaning that county councils will rightly receive their fair share of these resources to support upper-tier services.

"But while this is welcome news to those councils, we are disappointed that, having found some of the additional funding the County Councils Network (CCN) has been calling for, ministers have chosen to yet again unfairly target even more resources on a select cohort of urban and metropolitan councils."

He said that the recovery grant "overwhelmingly benefits urban metropolitan borough councils", despite CCN analysis suggesting that they collectively face a funding gap of £180m next year, whereas county and rural unitary councils "face a colossal £2.7bn funding black hole".

Cllr Jeremy Newmark, Finance Spokesperson for the District Councils’ Network (DCN), said: “Inevitably, the funding redistribution reflected in the final settlement has created winners and losers. Some district councils will benefit from meaningful funding boosts. Others will be forced to rely on transitional arrangements to help them balance their budgets. It is clear that district and unitary councils, especially in more remote and rural areas, will struggle to preserve the full range of services that residents need and value.”

“The transitional funding protection is welcome. But, for many districts, the settlement still amounts to a real-terms reduction in core spending power. That is why we will be asking Government to act beyond the finance settlement to help councils support themselves and continue delivering high-quality services. We will be urging them to swiftly progress the review of fees and charges. Councils need to be able to recover the full cost of services they provide.

Adam Carey