IFS: System for funding special educational needs is broken

Funding for pupils with special educational needs in England increased by 59% or £4 billion between 2015 and 2024. A further £1 billion announced in the recent Budget will take total funding to £12 billion in 2025. About half of the increase in total school funding since 2015 has gone towards special educational needs.

Even these big increases have not been sufficient to cover rising levels of need. As a result, local authorities have built up deficits that are likely to total £3.3 billion this year. Continued rises in needs mean that the government is forecasting a further £2–3 billion increase in annual spending by 2027. These forecasts are credible. Without reform, local authority deficits could easily reach absurd levels of over £8 billion in 2027. 

Reforms to the system could save money and provide better provision in the long run. This includes expanding capacity in state-funded special schools and delivering a larger core offer for special educational needs in mainstream schools. Such reforms would require fundamental changes to the education system. Any transition would also be costly in the short run.

These are some of the key findings of a new report on spending on special educational needs in England by researchers at the Institute for Fiscal Studies, published today and funded by the Nuffield Foundation. This complements the recent National Audit Office report showing the significant problems families and children face in accessing effective special educational needs provision.  

Pupils with the highest levels of special educational needs and disabilities (SEND) are those with education, health and care plans (EHCPs), which can cover pupils aged 0–25. Local authorities and schools are legally obliged to deliver the provision set out in EHCPs.

Key findings include:

• There have been rapid rises in highest needs. The number of school pupils with EHCPs rose by 180,000 or 71% between 2018 and 2024. As a result, nearly 5% of all school pupils now have EHCPs. This rise has been driven by three specific types of needs: autistic spectrum disorders (ASD); social, emotional and mental health needs (including ADHD); and speech, language and communication needs. The rises in ASD, ADHD and mental health needs all appear to be global phenomena across high-income countries. This could reflect increases in need and/or better identification of needs.
• Funding has gone up massively but has still been insufficient. Funding for high needs rose by 59% or £4 billion in real terms between 2015 and 2024. However, funding has not kept pace with rises in numbers and needs. As a result, spending by local authorities on high needs exceeded funding by about £200–800 million per year between 2018 and 2022.
• Local authorities have built up large deficits. With spending exceeding funding, local authorities have accumulated large deficits in their high needs budgets, which are estimated to be £3.4 billion this year. An accounting fudge known as the ‘statutory override' has kept these deficits off local authorities' balance sheets and prevented many from declaring bankruptcy. This short-term fix is due to end in March 2026.
• There have been large increases in spending on fees for independent special schools. Spending by local authorities on fees for pupils in independent special schools is up by over £1 billion or 138% since 2015, reaching at least £1.8 billion in 2024. This only accounts for a small number of pupils with EHCPs (nearly 30,000 in total or 5% of pupils with EHCPs). However, placements are extremely high-cost in independent special schools (£61,500 per year, on average) compared with state-funded special schools (£24,000). Local authorities have probably had to rely on such provision because of capacity constraints in state-funded special schools and a lack of effective provision in mainstream schools.
• Spending is set to rise further without reforms. The government's own forecasts show that annual spending on high needs will rise by at least £2–3 billion between 2024 and 2027. This largely reflects projected increases in EHCPs. Even with the additional £1 billion announced in the recent Budget, these increases in spending would imply cumulative local authority deficits of over £8 billion by 2027. This could lead to widespread local authority bankruptcies.
• Reforms are required, but costly and complicated. Reform is likely to require a significant expansion of the core SEND provision available in mainstream schools and an expansion of state-funded special school places. Such reforms would require big changes to the education system. Any transition to a new system would also be costly as it would likely entail some double-funding in the short run.

Darcey Snape, IFS Research Economist and an author of the report, said:

‘The special educational needs system in England clearly requires urgent, radical change. Without reform, rises in need will push up annual spending up by at least £2–3 billion in the next three years. The government has a clear preference for expanding core provision for special educational needs in mainstream schools. This would represent a massive change to the school system, necessitating major reform of the funding system, increased staffing and training, and much else. Any transition could also entail significant costs in the short run and the public finances are very tight. The crucial first step for the government is to set out a clear long-term vision. The transition path to a better system may run slowly, but it is necessary to take it given the present path of financial unsustainability.'

ENDS

Notes to Editors

1. ‘Spending on special educational needs in England: something has to change' is a report written by Luke Sibieta and Darcey Snape, which will be on the IFS website at 0001 Tuesday 10^th December via this URL: https://ifs.org.uk/publications/spending-special-educational-needs-england-something-has-change.

2. This research has been funded by the Nuffield Foundation (grant number EDO/ FR-000024394). The support of the Economic and Social Research Council via the ESRC Centre for the Microeconomic Analysis of Public Policy (grant number ES/T014334/1) is gratefully acknowledged.