Ten councils were on the brink of declaring effective bankruptcy this year over black holes in education budgets until the government stepped in, a senior official has admitted. Schools Week can also reveal some councils are draining reserves to plug high-needs deficits while their other services face cuts, while another pleaded for government help with cashflow problems. Tony McArdle Tony McArdle, a former council chief now working on special educational needs and disabilities reforms for central government, told Schools Week that 鈥渢en or 11鈥 local authorities had been facing an 鈥渆xistential risk鈥. In 2020, the government gave councils breathing space over soaring SEND budget shortfalls by effectively suspending ordinary accounting rules. Normally they must fully balance the books, but the so-called 鈥渟tatutory override鈥 placed a 鈥渞ing-fence鈥 around dedicated schools grant (DSG) budgets. The temporary move allowed an estimated 拢2.3 billion in historic council deficits to sit unaddressed. Last year, ministers pressured councils to rein in SEND spending, warning normal budgeting rules would return this April. But in December they changed course 鈥 extending the temporary relief until 2026. Officials say it gives flexibility to implement the government鈥檚 looming SEND improvement plan. McArdle said nearly a dozen councils would have otherwise had to issue section 114 notices 鈥 the council equivalent of declaring bankruptcy. 鈥淭here is no doubt the need to cover that deficit would have been an existential risk to them,鈥 he said. ‘Unclear how the situation is retrievable’ Louise Gittins, the children lead, said the extension 鈥 and 拢400 million high-needs funding announced last year 鈥 would provide 鈥渟ome short-term assistance鈥. A budget report for an upcoming Leicester council meeting warned that without the extension, it would have had to reduce its reserves, 鈥渁nd hence our ability to balance this and future budgets鈥. It added that it was 鈥渦nclear how the situation is retrievable without further government support, given the relentless increase鈥 in children requiring SEND support. McArdle acknowledged the scale of deficits reflected a system that 鈥渄oesn鈥檛 work鈥, and that inflation too was 鈥渨orrying everybody鈥. The ring-fence鈥檚 role staving off bankruptcy signals how far councils鈥 positions have deteriorated. It was initially intended to stop councils having to tap reserves or slash non-education services, with the government keen for councils to plug deficits only from education budgets. DfE let three councils ignore ring-fence But Schools Week has learned the government permitted three authorities to ignore this policy and raid non-education budgets to cover DSG funding gaps. Data obtained under freedom of information requests shows Dorset was allowed to transfer 拢5 million, Kirklees 拢2.15 million and Manchester 拢300,000 from general funds into education this financial year. No requests were made the previous year. Dorset and Kirklees have among the largest budget gaps nationally. Each recently received multi-million pound DfE bailouts and embarked on SEND cost-cutting drives as part of so-called 鈥渟afety valve鈥 deals with the government 鈥 both of which should help rein in deficits. But Dorset warned the using reserves curbed its 鈥渞esilience鈥 against future events. The council hopes to close a 拢29 million budget gap across all services this year, while Kirklees is tackling a 拢34.3 million shortfall. Town halls freeze recruitment and pause capital projects Dorset鈥檚 plans include saving 拢3 million from children鈥檚 services through transformation plans, pausing and reviewing capital projects, hiking fees across services by about 5 per cent and raising council tax. In November Kirklees said it was freezing recruitment, cutting 鈥渘on-essential鈥 spending and agency staffing, 鈥渞ationalising鈥 buildings, reviewing fees and capital spending, and scrutinising 鈥渁ll new expenditure鈥. Meanwhile Schools Week has also learned Cambridgeshire asked the DfE for an advance on DSG funding, part of a scheme to cover 鈥渃ashflow difficulties鈥. An FOI shows the request was rejected, although it is unclear why. A council spokesperson said it could not comment further, but was working with the department on a potential safety valve deal. Joanne Pitt, the policy chief at the Chartered Institute of Public Finance and Accountancy, said government support was welcome, but added: 鈥淲e don鈥檛 want to find ourselves having the same discussions when this ring-fence ends.鈥