Rachel Reeves faces a challenging task as she prepares to address the UK's public finances in the face of a £6 billion annual bill for special educational needs and disabilities (SEND). The pressure is on to reassure MPs and ensure the government's financial stability. The issue at hand revolves around the rising costs of SEND, which could potentially leave a significant gap in the government's financial reserves. This has sparked concern among analysts and the public alike, as the government's financial buffer, which was more than doubled to £22 billion in the November budget, may be at risk.
The controversy centers around the Office for Budget Responsibility's (OBR) statement that the £6 billion SEND bill was unaccounted for in the budget, and the potential increases in the bill over the next decade pose a risk to public finances. The government has responded by announcing plans to cover up to 90% of historical debts related to SEND services provided by English councils. However, the handling of expected overspends between April 2026 and April 2028 remains uncertain, with ministers indicating a need for a balanced approach.
The situation has been exacerbated by the Treasury's historical practice of rolling over excess costs as debts at arm's length, or off the balance sheet, to protect spending on other services. This has led to successive chancellors delaying the allocation of costs since 2014, a maneuver known as a 'statutory override'. In the November budget, Reeves hinted at a potential shift in responsibility for SEND costs from 2028-29, but the specific department in charge remains unclear.
The OBR estimates a backlog of historical spending on SEND, mostly funded by local authorities' borrowed funds, reaching £18 billion by 2028-29. This has raised concerns about the transparency of the Treasury's spending plans and the potential impact on the government's financial headroom. The education secretary, Bridget Phillipson, is tasked with improving the effectiveness of SEND services, but critics suggest she may be planning to ration access, which could further impact the OBR's budget projections.
Experts, such as Luke Sibieta from the Institute for Fiscal Studies, propose various options to address the £6 billion gap, including reforms to the SEND system, finding additional funds within the government's budget, or reducing mainstream school funding. However, the government's financial buffer may be at risk if borrowing is increased to address the issue. Ruth Gregory, a UK economist, highlights the broader implications of heavy commitments to increase spending across Whitehall departments, including defense, on the government's financial stability.
The markets' reaction to the potential increase in borrowing remains a concern, with Philip Shaw, a senior analyst, suggesting that investors would be very concerned if a large portion of the £6 billion bill is added to borrowing. The Treasury's response to these challenges and the potential impact on public finances will be crucial in shaping the future of the UK's financial stability.
