January 9th 2024
Council warns of looming insolvency over special needs education costs
The troubled Bournemouth, Christchurch and Poole Council (BCP) has warned that it may be forced to declare itself effectively insolvent at the end of this year due to government rules over education deficits.
Long-term underfunding has left many councils running large deficits on special education needs and disabilities (SEND) services, creating often huge cumulative deficits on their Dedicated Schools Grant (DSG) budgets.
A recent BCP council report warned that it was expecting to run a £27.6m in-year deficit on high needs education in 2024/25 Simply servicing the deficit is expected to cost the council £2.5m in the next financial year.
The report said the huge cumulative DSG deficit meant the council was forecast to have negative reserves by this March – which under normal council finance rules would render it insolvent. However, since 2020, the government has temporarily ignored DSG deficits in assessing councils’ financial health.
This ‘statutory override’ was extended in 2022 to run until March 2026 – at which point DSG deficits will once again have the capacity to render councils insolvent. But the council report warned that this deadline have a much earlier impact if it is not again extended.
‘When the statutory override falls away, the accumulate DSG deficit will be greater than the council’s total reserves and the council will technically be insolent,’ the report warned. ‘If the deadline is not extended, then it is expected that the council’s Director of Finance would need to issue a section 114 notice in December 2024 as it would not be possible to set a balanced budget for 2025-26.’
A section 114 notice is effectively a declaration of insolvency. Growing numbers of councils have been forced to issue such notices in recent years, most notably Birmingham – England’s largest council – in 2023.
BCP is currently negotiating a so-called ‘safety valve’ agreement with the Department for Education (DfE), under which progress on agreed council actions to reduce SEND expenditure are rewarded by DfE funding to help erase in-year DSG deficits over five years. However, the council report warned that this timeframe would be impossible while still maintaining an acceptable level of SEND provision.
As a result, the council is seeking an alternative agreement which would stabilise the in-year deficit at current levels – but without extra funding, this would leave the cumulative deficit rising to £198m after five years.
‘Financial support is needed from the DfE and DLUHC [Department for Levelling Up, Housing and Communities] to prevent the DSG deficit from being a serious threat to the financial stability of the council,’ the report said.
Image: Openverse
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