A potential financial storm is brewing in the UK, and it's all about the rising costs of special educational needs and disabilities (Send). Rachel Reeves, the Chancellor, is under intense scrutiny to reassure MPs and the public about the state of the nation's finances. The concern? A £6 billion annual Send bill that could leave a gaping hole in the government's financial safety net.
Meg Hillier, chair of the House of Commons Treasury committee, is leading the charge. She wants Reeves to clarify her long-term plans for this significant expense, especially as uncertainty grows about how it will be accounted for in the coming years. Reeves, however, has delayed a decision until next year, which has only added to the worry.
But here's where it gets controversial...
Financial experts are concerned that deducting the Send costs from the budget surplus could rattle investors. The surplus, which was recently boosted to £22 billion to protect against volatile markets, is now under threat. The Office for Budget Responsibility (OBR) has already flagged this as a risk to the public finances, stating that the Send bill is unaccounted for in the current budget.
The government has promised to cover up to 90% of historical Send debts, but ministers are unclear about how they'll handle the expected overspends in the coming years. English councils, which provide Send services, are facing increasing costs as more pupils qualify for extra help, and private providers are raising their charges.
And this is the part most people miss...
The excess costs have been rolled over as debts, kept off the official balance sheet with the Treasury's blessing. This practice, known as a "statutory override", has been used by successive chancellors since 2014 to delay allocating these costs. Reeves has announced that from 2028-29, the cost of Send services will be taken over by Whitehall, but she hasn't specified which department will foot the bill.
Hillier emphasizes the importance of transparency, stating that the OBR has identified this as a risk to the chancellor's financial headroom. She promises to continue seeking answers when Reeves appears before the committee in March.
The OBR estimates that historical Send spending, mostly funded by borrowed money from local authorities, will reach £18 billion by 2028-29. Reeves, in her written response, confirms that future funding for Send will be managed within the government's overall spending limits, with specific department budgets to be confirmed in the 2027 spending review.
The education secretary, Bridget Phillipson, is set to unveil plans to improve Send services, but critics argue that these plans may involve rationing access for pupils, allowing the OBR to lower its projections at the next budget.
Luke Sibieta, a research fellow at the Institute for Fiscal Studies, suggests that while the government could reduce annual spending, it's likely to be marginal. He outlines three main options: slow the growth of Send spending through reforms, top up the overall schools budget by reallocating funds, or reduce funding for mainstream schools to pay for high-needs students. He adds that these choices have significant implications, with £6 billion equating to around 9% of the overall schools budget in 2028-29.
A fourth option, increasing borrowing, would further erode the government's financial buffer. Ruth Gregory, deputy chief UK economist at Capital Economics, warns that the Send budget poses a clear risk to public spending projections, especially with the government's commitment to increase spending across various departments, including defense.
Philip Shaw, a senior analyst at Investec, believes that while markets might not panic if a large portion of the £6 billion can't be saved, investors would be extremely concerned.
The Treasury has declined to comment on the matter.
So, what do you think? Is the government handling this financial challenge effectively, or are there better ways to address the rising costs of Send? Share your thoughts in the comments below!
