Council tax payers usually breathe easier in February and March, before the customary ten direct debit payments recommence in April. This year brings yet another big rise – by no means the last – as councils remain perilously close to financial collapse, with the long-running crisis in Special Educational Needs and Disabilities (SEND) funding threatening to tip even more authorities over the edge.
According to the latest sector warnings, as many as eight in ten councils say they could face insolvency without urgent reform. The Local Government Association (LGA) estimates that councils in England face a funding gap of around £6–7bn over the next two years, while cumulative SEND deficits alone are projected to exceed £5bn by 2026. The Chartered Institute of Public Finance and Accountancy (CIPFA) has warned that a significant number of authorities remain at risk of issuing Section 114 notices — effectively declaring bankruptcy and restricting spending to essential statutory services only.
The SEND crisis is central to this instability. High Needs budgets have been overwhelmed by rising Education, Health and Care Plan (EHCP) demand, specialist placements, and independent school fees. For years, councils have been shielded by the ‘statutory override’, an accounting mechanism allowing SEND deficits to sit off balance sheet. That protection is due to expire in March 2026. Without extension or reform, billions of pounds will suddenly crystallise on council balance sheets overnight.
Some councils are already under extreme strain. Authorities such as Nottingham, Birmingham and Woking have issued effective bankruptcy notices in recent years. Others, including large county councils with significant SEND exposure, are carrying nine-figure accumulated High Needs deficits. The problem is systemic rather than isolated.
SEND sits atop a much larger structural challenge. Councils report that only a tiny minority expect to deliver fully balanced budgets in the next financial year without drawing on reserves or exceptional financial support. Since 2010, central government grant funding to councils has fallen by around 40% in real terms, while demand for statutory services — particularly adult social care, children’s services, homelessness support and temporary accommodation — has surged post-pandemic.
The profile of local government spending has fundamentally shifted. A growing proportion of budgets is now locked into legally mandated services, leaving ever less room for discretionary provision such as libraries, leisure facilities and preventative community programmes. As reserves are depleted and borrowing constrained, councils face a stark choice: further service retrenchment, deeper council tax increases, or government intervention.
Whitehall’s reform proposals for SEND have so far focused on system redesign and accountability, but councils argue that structural underfunding remains unresolved. The sector’s warning is blunt: without urgent reform of SEND funding and clarity on the future of the statutory override, a wave of effective insolvencies becomes a real possibility.
This is no longer a story of isolated mismanagement or speculative development schemes. It is a question of sustainability. Councils are being asked to deliver ever-expanding statutory duties with a revenue model increasingly reliant on local taxation and volatile income streams.
The immediate priority must be stability: clarity on the future treatment of SEND deficits, multi-year funding certainty, and a credible pathway to structural reform. Without that, the SEND crisis will not merely strain local authorities — it will push many beyond the brink.
This article is written by Runita Kholia, senior analyst at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.