The government expects most of the £1 billion extra high needs funding for next year announced at today’s budget to plug councils’ SEND deficits.
The investment forms part of a £2.3 billion planned increase in school funding for the 2025-26 announced by chancellor Rachel Reeves today.
The funding relates only to the next financial year, and further years’ budgets will be determined in the second phase of the government’s spending review, due to conclude in March.
Here’s what schools need to know…
1. £2.3bn core schools budget increase
The core schools budget will increase by an extra £2.3 billion for the 2025-26 financial year, which the Treasury said works out as an increase in per pupil funding in real terms.
This takes the budget from £61.6 billion this year to £63.9 billion next year, real terms growth of 1.8 per cent.
It follows several recent increases in school funding, largely to pay for staff pay rises.
2. £1bn for SEND, but most will cover deficits
Of the £2.3 billion schools funding increase, £1 billion is for SEND and alternative provision. The Treasury said this was a 6 per cent real-terms increase.
Councils will have “discretion” on how they will spend the additional cash, but the Treasury predicts “it is very likely that they will use the funding to reduce their in-year deficit”.
The documents suggest it would clear £865 million from SEND deficits in 2025-26.
But a damning report by the National Audit Office last week revealed DfE predicts a cumulative deficit of about £4.6 billion by March 2026.
3. Spending review will ‘build on’ new cash
An accounting immunity – known as the statutory override which allows the deficits to sit off councils’ books – is currently set to expire in March 2026. No news was announced on this today.
The Treasury said the extra cash was an “important step” toward realising the government’s vision to reform SEND provision “to improve outcomes and return the system to financial sustainability”.
This will be “built on” through phase two of the spending review, which is a multi-year settlement next spring, adding: “The government will continue to work with key partners and bring forward further plans to deliver this.”
4. DfE will get extra cash to help schools cover NI
Reeves announced today that an increase in employers’ national insurance contributions of 1.2 percentage points would raise around £25 billion as part of around £40 billion in tax increases.
The National Foundation for Educational Research estimated last week the impact of a rise on schools could run to hundreds of millions of pounds.
The Treasury has told Schools Week that the Department for Education will get some extra money to help schools and colleges towards these costs.
However, the amount it will get and whether costs will be fully-funded won’t be revealed until the spring.
5. More capital cash
Reeves announced today she would hand the DfE £6.7 million in capital funding next year, a “19 per cent real-terms increase” on this year.
However, it’s worth pointing out that documents show this year is a low bar – capital funding fell from £6.2 billion in 2023-24 to £5.5 billion.
The money includes £1.4 billion already announced over the weekend for the current school rebuilding programme, up £550 million on the spend this year.
It also includes £2.1 billion to “improve the condition of the school estate”, up £300 million compared to this year.
The rest is made up of funding for children’s homes, colleges and the existing pledge for 3,000 more school-based nurseries.
6. Ministers expect £1.8bn from private schools policy
Under plans set out in Labour’s manifesto, VAT will be charged on private school fees from January and the institutions will have to pay business rates from April.
Treasury documents show the government is expecting the policies will raise £460 million in the current financial year, £1.57 billion next year and £1.8 billion by 2029-30.
7. 35k extra state pupils to cost £300m
The government’s response to its technical consultation on the proposals estimates that “in the long-term steady state, 37,000 pupils will leave or never enter the UK private school sector as a result of the VAT policy”.
This represents “around 6 per cent of the current private school population”. An additional 3,100 will do so because of the business rates policy.
Government predicts that 35,000 pupils will move into UK state schools “in the long term steady state” following the VAT policy taking effect in January.
The number expected to move before the end of the 2024-25 academic year “is around 3,000”.
The document estimates revenue costs of pupils entering the state sector as a result of the policy to peak at £300 million “after several years”.
Set against the £1.8 billion estimated earnings from the policies, they are “expected to have a very significant positive net impact on the exchequer”.
8. Exemptions for SEND…
To protect pupils with SEND needs that can “only be met” in private school, councils and devolved governments funding these places “will be compensated for the VAT they are charged on those pupils’ fees”.
Private schools which are “wholly or mainly” concerned with providing full time education to pupils with an education, health and care plans “will remain eligible” for business rates relief.
Non-maintained special schools will be brought “within scope” of the policy, but will only be required to charge VAT on placements “paid from October 30 pertaining to terms starting in January 2025 onwards”.
9. …and cash help for military families
One concern about the policy had been over the potential impact on military and diplomatic families.
The government said today it will increase the funding allocated to the continuity of education allowance (CEA) “to account for the impact of any private school fee increases on the proportion of fees covered by the CEA in line with how the allowance normally operates”.
The Ministry of Defence and Foreign Office “will set out further details shortly”.
10. £3m for creative careers programme
The government has also announced £3 million in funding to extend the Creative Careers Programme, which works with schools to give children the “opportunity to learn more about career routes and directly engage with the workplace”.
However, this is not direct funding for schools.
