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Council begs for bailout as high needs deficit soars

A council has begged the government for a bailout amid warnings its spiralling SEND deficit will mean it won’t be able to set a balanced budget next year.

Bournemouth, Christchurch and Poole council had its proposal for a “safety valve” deal – which provide bailouts in exchange for cost-cutting efforts – rejected earlier this year because the government could not “reasonably afford” it.

The council’s SEND deficit stands at £64 million and is expected to rise to £92 million next year. It has just £65 million in reserves.

‘Grave concern’

In a letter to the ministry of housing, communities and local government, BCP council finance director Adam Richens warned its forecast high needs funding position was causing “grave concern”.

The letter was sent to the previous government, but has only just been published because of the pre-election “purdah” period. It will be up to the new Labour government to respond.

Next year’s deficit of £92 million “will exceed our forecast reserves … and will continue to increase while our reserves are forecast to reduce, all of which makes the council technically insolvent as soon as the statutory override finishes on March 31 2026″, Richens said.

A statutory override put in place to allow councils to keep SEND deficits off their main books, effectively preventing them from going bust, comes to an end in 2026.

The situation in the Dorset borough shows the scale of the council cash crisis challenge facing the new Labour government.

Ministers will have to either extend the override, scrap it and let councils go effectively bankrupt, or bail them out.

Schools Week recently revealed that more than a third of councils with government safety-valve deals to plug high-needs deficits face bankruptcy.

BCP council took part in the government’s delivering better value (DBV) in SEND programme, and had started a conversation last year with the DfE about joining the safety valve programme, which offers bailouts in exchange for cost-cutting.

But an agreement was “not possible earlier this year as the council’s 15-year recovery programme, which was endorsed by the DfE SEND and finance advisors as robust, was not within the normal five to seven-year timeframe to enable an agreement to be reached”.

‘We will run out of cash’

“The safety valve conversations appear to have stalled because of the size of our financial challenge.”

Richens also warned that the council was facing a “severe shortage of cash, which looks likely to create a financial emergency for the council before the statutory override finishes”.

“Our cabinet has considered the position at its meeting in May, but, in summary, from current forecasts, it looks likely that we will not be able to continue to provide enough cash to cashflow the deficit for the 2025-26 financial year.”

Until the second quarter of the 2025-26 financial year, the council “can make the case that it is using normal treasury management activity, principally in the form of internal cash resources via reserves, balances etc, to avoid the need to externally borrow to finance these costs”.

But from July next year, this flexibility “will have been fully exhausted, at which point we will run out of cash”.

He said the situation “could be resolved by DfE or [Ministry of Housing, Communities and Local Government] providing the cash to fund the accumulated deficit until an alternative solution is provided”.

He asked for “urgent consideration to the support that government can give BCP Council to manage this shortfall in funding and to consider solutions that would prevent the cashflow crisis” outlined.

Budget won’t balance next year

He warned that “without government support it is currently my judgement that BCP Council will be unable to continue to support either the accumulated or growing annual deficit on its [dedicated schools grant] and will be unable to set a legally balanced budget for 2025-26 because of the forecast cash shortage”.

“In such circumstances I am legally required to consider the necessity for statutory intervention. I am very keen to work with your department and DfE to obtain your advice and guidance on these matters and any potential mitigation strategies.”

Statutory intervention would involve a section 114 notice – effectively declaring the council bankrupt.

The DfE was approached for comment.

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