Ministers are considering backtracking on plans to force councils to plug a huge black hole in schools budgets next year as some local authorities say they risk bankruptcy.
Growing demand for support for students with special educational needs and disabilities left councils with a £1.9billion shortfall in day-to-day school funding, according to estimates by the Local Government Association (LGA).
The government issued a “statutory waiver” to standard accounting rules in 2020, leaving councils to leave Dedicated School Grant (DSG) deficits unresolved. He acknowledged they might otherwise have to attack reserves or cut wider services.
Earlier this year, the Department of Education said the reprieve would end next April.
He ordered councils to make SEND spending “sustainable”, publishing advice and savings schemes. Only a few dozen authorities have been offered bailouts, with cost-cutting conditions.
But this week, county councils in Hampshire and Kent warned that without ‘immediate’ help they would consider declaring effective bankruptcy through so-called Section 114 notices.
The LGA then warned councils were facing an ‘existential crisis’ amid £2.4billion a year in energy, wages and other unforeseen costs.
Councils need ‘certainties’ about the future
Devon County Council has said its school budget shortfall will hit £124million by March. Its SEND task force said the councils needed “certainty” about the future of the statutory waiver.
Only the amended accounting rules protect Bournemouth, Christchurch and Poole (BCP) council from ‘unviability and therefore…[consideration of] notice under Section 114,” according to LGA’s analysis.
Ministers on Thursday lifted the ceiling on housing tax increases, given the authorities’ “additional flexibility” to increase charges by up to 5% without a referendum.
But School week may reveal that the government is “consulting on the need to extend” the school deficit waiver, according to Devon Council documents. A government source said details would be worked out in due course.
Micon Metcalfe, a school finance expert, said the extension would be a “useful stopper”, adding: “If it wasn’t, you might see immediate pressure to take more from other departments or from the budget. This highlights the black hole in SEND funding.
An LGA spokesman backed an extension, but said the government must also help councils eliminate high-needs deficits.
A Hampshire spokesperson suggested the extension would be ‘welcome’ – but said it did not ‘adequately address the fundamental problem’ of insufficient resources. BCP and Kent were also approached for comment.
“Only a Band-Aid”
Stephen Morales, chief executive of the Institute of School Business Leadership, agreed it would be “positive, but just a band-aid”.
Joanne Pitt, local government policy manager at the Chartered Institute of Public Finance and Accountancy, which sets accounting standards for councils, said this would give councils time to engage with the DfE’s ‘safety valve’ schemes and to “deliver better value” to curb deficits.
But she warned that such programs “would take time to realize future benefits”. More than 50 councils have not been invited to participate in any of these programs, and Schools Week recently revealed that inflation risks undermining cost-cutting efforts in bailed-out councils.
Pitt added that statutory waivers should generally be “used sparingly.”
The Department of Levels, Housing and Communities has previously admitted to changing budget rules to make accounts less transparent and comparable with other agencies, and should only be used where “absolutely necessary”.