Schools have voiced alarm at the prospect of a 4.9 per cent drop in funding after the government agreed to pick up the tab for councils’ spiralling SEND costs.

The Budget revealed that from 2028-29 councils will no longer have to run deficits to pay for children with special educational needs and disabilities.

Instead ‘future funding implications’ will be managed by central government, with plans promised later to deal with the huge debts already run up.

The move followed warnings that dozens of local authorities are on the verge of going bust following an explosion in autism and ADHD diagnosis.  

However, in an analysis report, the OBR said the Government ‘has not set out’ how this would be paid for, at a starting cost of £6.3billion per year.

The watchdog warned that if the Department for Education – run by Bridget Phillipson – were made to absorb the cost, it could eat into the other money schools get.

The OBR said: ‘If it were fully funded within the DfE’s £69 billion… core schools budget in 2028-29, this would imply a 4.9 per cent real fall in mainstream school spending per pupil rather than the 0.5 per cent real increase planned by Government.’

A 4.9 per cent reduction would be roughly equivalent to £400 a year. 

The DfE said the claim was ‘incorrect’, and that the extra money would be found from across government, rather than from the schools budget.

Union leaders warned that dipping into the schools budget would spell disaster.

Pepe Di’Iasio, general secretary of the heads’ union ASCL, said: ‘Several local authorities are seemingly at risk of financial collapse as a result of deficits relating to SEND spending.

‘Were this risk to be transferred onto schools, in the form of budget cuts to cover the cost of SEND provision being absorbed into departmental spending, it would be catastrophic.’

Laura Trott, shadow education secretary, said it would ‘push already struggling schools further into the red’.

The move comes in response to many councils facing financial collapse due to overspend on SEND.

The number of pupils entitled to council-funded care has soared by 80 per cent since 2019, driven by a rise in diagnoses of autism and ADHD.

The OBR said this crisis is likely to come to a head in 2028-29, when councils will be obliged to acknowledge their deficits in their budgets.

Previously, they have been able to disregard the deficits due to ‘statutory override’.

The Budget document said government would set out plans at a later date to ‘support local authorities with historic and accruing deficits’.

However, the OBR noted: ‘The statutory override is due to end in 2028-29 by when these deficits could have reached a total of £14 billion, and a large number of local authorities would as a result not meet their balanced budget requirement.

‘The Government has not set out how this would be addressed and so it represents a significant fiscal risk.’

Earlier this month, the County Councils Network revealed 59 local authorities face ‘total collapse’ when their deficits are formally added to their books.

The Government plans to reform the SEND system, with proposals due to be released in the New Year.

It is understood ministers want to provide more school-level support so that only high-needs cases get EHCPs.

A Local Government Association spokesman said: ‘While it is positive the Government has committed to absorbing the costs of SEND spending from 2028/29 – and we look forward to clarity on how this will be funded – this does not address existing deficits, which are pushing many councils to the financial brink.’

They urged the Government to ‘write off these deficits’ as part of an upcoming Local Government Finance Settlement.

A DfE spokesman said of the claim about school budgets being squeezed: ‘This claim is incorrect – we are clear that any deficit will be absorbed within the overall government budget. These projections also do not account for the much-needed SEND reforms this government will bring forward.’

Other Budget announcements included an extra £5 million in 2026-27 to buy new books for secondary schools, and £18 million over two years to upgrade 200 playgrounds across England.