Councils face a 鈥渃liff-edge鈥 of effective bankruptcy notices without accounting immunity and extra SEND funding which is currently 鈥渇ar from sufficient”, a cross-party group of MPs has warned. The Levelling-Up, House and Communities committee has urged ministers to agree 鈥渞ealistic鈥 steps and additional cash with councils by April to eliminate high needs budget deficits. These deficits have soared to 拢1.58 billion, but councils have been allowed to keep them off their books as part of a 鈥渟tatutory override鈥 due to expire in March 2026. How investors are making millions from the 鈥榖ankrupt鈥 SEND system Thirty four councils have also been subject to safety valve agreements, where the government offers bailouts totalling nearly 拢1 billion in exchange for sweeping reforms. It comes amid a 46 per cent increase in the number of statutory education, health and care plans for youngsters with special educational needs since 2019. In a report on 鈥渇inancial distress in local authorities鈥, MPs said council funding is 鈥渇ar from sufficient to meet demand鈥 and 鈥渘ot sustainable in their current form鈥. They added the override and safety valve programme were 鈥渢emporary measures and do not address the underlying mismatch between demand, costs and annual dedicated schools grant funding鈥. ‘Significant’ extra funding needed 鈥淭hey will not prevent local authorities from accumulating further deficits until the underlying mismatch is resolved, and we do not believe it is realistic to expect local authorities to manage down deficits of the scale of many billions of pounds in total over a period of two or three years. 鈥淲ithout significant additional funding via the DSG to match service demand and costs, or a further extension to the statutory override – which would, at most, offer a further period of temporary respite – the sector faces a cliff-edge of section 114 notices.鈥 Several councils have issued section 114 notices since 2020, which means they are unable to set a balanced budget. Schools Week previously reported how 10 councils were on the brink of issuing a notice last year before the override was extended. Bournemouth, Christchurch and Poole (BCP) warned it would have to issue a notice this year if its black hole is not resolved. MPs said the government had provided 鈥渘o clarity鈥 on whether it will fund, or expect councils to fund, deficits remaining when the override ends. ‘Give councils realistic steps’ They added that ministers鈥 aims to improve existing mainstream and locally available special school provision 鈥渨ill not be sufficient on its own to influence parents鈥 or carers鈥 views鈥 on EHCPs. Local provision will also 鈥渢ake time to realise and is not likely to address the financial pressures affecting local authorities in the short-term鈥. By the end of March, ministers should provide councils 鈥渃larity on its specific expectations鈥 for resolving existing deficits. They should also agree on a 鈥渟et of realistic and achievable steps, supplemented by sufficient additional funding, for eliminating these existing budget deficits鈥. MPs urged ministers to commission a cross-government independent review of EHCPs and consider 鈥渇undamental reform of the system鈥. Government should also assess the benefits of introducing new statutory guidance on home-to-school transport aimed 鈥渁t encouraging the use of less costly forms of shared transportation鈥. The committee also looked at wider council costs, such as social care and homelessness, urging government to 鈥渇ix鈥 a 拢4 billion hole in funding for 2024-25. Clive Betts, the committee’s chair, said there was an 鈥渙ut-of-control financial crisis鈥 as councils are 鈥渉it by a double harm of increased demands for services while experiencing a significant hit to their real-terms spending power in recent years鈥. DfE referred our request for comment to the DLUHC, which said: “We recognise councils are facing challenges and that is why we recently announced an additional 拢600 million support package for councils across England, increasing their overall proposed funding for next year to 拢64.7 billion 鈥 a 7.5 per cent increase in cash terms. 鈥淭his additional funding has been welcomed by leading local government organisations, but we remain ready to talk to any concerned council about its financial position.鈥