Expanding the SEND offer in mainstream schools could reduce spending and improve equity, but would need a “degree of double funding” in the short term, the Institute for Fiscal Studies has said.
The think tank has warned in a new report that “something has to change” in the way money is spent on SEND to avoid “absurd” council deficits of £8 billion by 2027.
But creating an “appropriate transition path” to a new system “not simple”.
It follows a damning National Audit Office report which found the current SEND system is “financially unsustainable”.
The government has said it wants to meet far more pupils’ needs in mainstream schools, but has said little about how it will achieve this aim.
In a new report, the IFS argued “one can easily imagine a preferred policy package that involved more state-funded special school places for those with the highest needs and more early intervention services in mainstream schools to make up an expanded core offer for those with less severe needs”.
“In the long run, one could credibly claim that such a system would reduce future spending needs and improve equity. In the short run, however, the transition is likely to pose major challenges.”
Schools will need ‘up-front investment’
Delivering an expanded core offer “is a big change to schools and requires up-front investment in people and buildings, but it is a necessary first step to build parental confidence”, the report said.
“Savings will only then accrue as the mix of provision changes in the future or early intervention services bear fruit.
“In the short run, to deliver current obligations while expanding alternative forms of provision, a degree of double funding is almost certainly a necessary feature of an effective transition. This is an expensive and challenging thing to do at a national level.”
The report pointed out that almost 5 per cent of pupils now have education, health and care plans, with a 71 per cent rise in numbers since 2018 driven by increases in the prevalence of autistic spectrum disorder, social, emotional and mental health needs and speech, language and communication needs.
At the same time, high needs funding has soared, increasing by 59 per cent in real-terms between 2015 and 2024. Despite this, funding has not kept pace with the increase in EHCPs, cutting per-EHCP funding by around a third in real terms.
‘Default’ option risks £8bn deficits
Because councils have a statutory obligation to deliver provision set out in EHCPs, they have accumulated large deficits. These are estimated at £3.3 billion this year.
The report found government forecasts “imply things are likely to get much worse without extra funding or significant reform to the system”.
Despite the £1 billion injection at the budget, the gap between spending and funding “would still likely rise to about £2.4 billion in 2027–28 under current forecasts for spending and assuming a real-terms freeze in funding”.
“If realised, the implied spending gaps over the next three years would add about £4.7 billion to local authority accumulated deficits.
“These are already estimated to be at least £3.3 billion in 2024–25. Adding these together would give a total accumulated deficit of over £8 billion by 2027–28.”
What are the options?
The report assessed several options for reform.
It noted “the ‘right’ option will depend on how much of the rise in EHCPs is due to an objective rise in very high needs among young people or increased recognition of needs, as opposed to financial and legal incentives for less severe needs to be met by the costly statutory system of EHCPs”.
“Both effects are likely to be at play.”
Option 1 – leave things as they are
The default option – continuing with the current system of pupil-led top-up funding – would likely increase deficits to over £8 billion.
“If accounted for in the normal way, this would lead to widespread local authority bankruptcies.”
Option 2 – try to cut costs
Option two is to deliver provision in a more cost-effective way, as the safety valve programme has tried to do.
“This programme has seen some financial success”, but the “vast majority of the deficits will not be closed until between 2026 and 2032”.
Option 3 – get rid of EHCP obligations
Option three is to change the system so EHCPs no longer create statutory obligations, requiring schools and councils only to “make best endeavours to deliver such provision and ration scarce resources”.
The report pointed out the “present system already includes rationing; it just happens through accessing assessments and legal tribunals”.
But the option “could be incredibly challenging from a political perspective given parents’ lack of trust in the current system to meet their children’s needs”.
Option 4 – improve other services and early intervention
Option four is to provide further specific services to support children, including earlier interventions “before problems become more severe and costly”.
However, it is “uncertain exactly how much of the increase in numbers could be avoided, or reduced in cost, by earlier intervention services”.
Option 5 – increase capacity in special schools
This is “almost certainly needed”, but is a “costly and relatively slow process”.
Option 6 – more support in mainstream
The last option is to deliver more support within mainstream schools, the approach favoured by the government.
But the option is “not simple”.
Schools would need extra staff with the required skills, teachers would need to have further good-quality training, and extra physical space would be needed. The funding system “would need to totally change”.
‘Set out a long-term vision’
The report concluded that “in the end, one must confront powerful arguments and constraints working in opposite directions”.
“On the one hand, the system is clearly in need of urgent, radical change and will push annual spending up by at least £2–3 billion in three years’ time without reform.
“On the other hand, the public finances are incredibly tight and the likely set of reforms represent controversial, massive changes to the school system. With this in mind, the most important thing the government can do is set out a clear long-term vision.”