90.Funding and support for children and young people with special educational needs (SEN) is provided by a variety of mechanisms, underpinned by statutory guidance in the SEND Code of Practice and the provisions of the Children and Families Act 2014. As of January 2018 there were 1,276,215 pupils in England with SEN, accounting for 14.6% of the school population. Teachers, parents, and students have become increasingly concerned about the level of SEN funding pressures and the impacts on children and young people. Our examination of this topic was necessarily restricted, given the breadth of the subject. During a parallel inquiry into Special educational needs and disabilities (SEND) we looked in greater detail at the implementation of the 2014 SEND reforms and how the system could be improved. For the purposes of this Report, we maintained our focus on issues most relevant to funding, the spending review, and the prospects for a long-term plan.
91.The introduction of the Children and Families Act 2014 brought substantial reforms to the way in which children with SEN requirements were identified, assessed, and supported. Among the principal changes were the extension of statutory support provision up to the age of 25; the replacement of School Action/School Action Plus with a single category of ‘SEN Support’; the replacement of statements of special education need with Education, Health and Care (EHC) plans; improved integration with health and social care provision; and a commitment to place families at the centre of the process.
92.In September 2017 the Department set out how, under the new high needs national funding formula, high needs funding would be provided to local authorities using a formula that took into account a range of factors. These factors included a basic per-pupil funding unit for students in specialist SEN institutions, and proxy measures (for example deprivation, school attainment, poor health, and population). To prevent radical budget changes, half of the block was based on planned local authority spending on high needs for 2017–18.
93.Changes to the rules surrounding the DSG blocks prevented local authorities from transferring money from the schools block to another block without the consent of the Schools Forum. Permission from the Secretary of State would be required for transfers exceeding 0.5% of the schools block. The Department said it would maintain the schools and high needs block of the Dedicated Schools Grant per pupil funding in real terms up to 2019–20, with a further £350 million SEN allocation announced in December 2018. The Department issued a consultation in May 2019 on the financial arrangements for the SEND and alternative provision (AP) system.
Fig 7: The factors and calculations in the high needs national funding formula
Source: Education & Skills Funding Agency
94.There have been deep concerns around long-term strategic planning and financial prudence regarding high needs funding. Witnesses from the education sector told us that the funding levels were unsustainable and had not kept pace with increasing demand. Edward Timpson CBE, Chair of the Child Safeguarding Practice Review Board, told us that SEND funding and support measures needed to be a “real priority” in the spending review. As Dave Hill, Executive Director of Children, Families and Learning at Surrey Council, noted, “demographic growth and the complexities of the SEND system [ … ] is where the real pressure is going to come [ … ] Unless we can address the issues about SEND funding, the whole system will implode at some point”. The additional £350 million SEND allocation has been deemed inadequate and incapable of addressing wider systemic problems. We heard that an effective response would need to consider the myriad inter-related reasons contributing to the funding pressures, including:
95.Unexpectedly high demand: The number of young people receiving statutory support between 2014 and 2018 rose by 35% between 2014 and 2018. As of January 2018, 16–19 year-olds accounted for fully 70,100 of the 84,260 EHC plans in the 16–25 bracket, placing substantial pressure on the FE sector.
Fig 8: Growth in EHC plans
Source: House of Commons Library research briefing
96.Justin Cooke believed that the scale of the increase in EHC plans had exceeded initial expectations, and insufficient thought had gone into how the extension of support up to age 25 would be funded. Some local authorities said that the threshold for assessment had been lowered in the 2014 reforms, leading to increased workloads and resource pressures. Additional drivers—such as increased diagnoses of certain conditions; medical advances that have enabled children born prematurely or with disabilities to live longer than previously; and population growth—also played a role.
97.Parental expectations: Dame Christine Lenehan told our inquiry into Special educational needs and disabilities that the 2014 Act had set high expectations for parents, and codified their rights to services which the system had then been unable to deliver.
98.Vicious cycle: The neglect of lower-level interventions under SEN support was singled out as a key underlying factor driving increasing system-wide costs. As Justin Cooke of Ambitious about Autism explained to our SEND inquiry, future requirements for more costly EHC plans could be reduced by ensuring children received appropriate care early on under the SEN support system. Widespread perceptions and experiences of inadequate lower-level support in mainstream schools appeared however to be driving a crisis of confidence among parents, who were increasingly viewing EHC plans as a “golden ticket” to ensuring adequate support provision. Dr Jackie Lown, Head of Children and Young People at East Riding of Yorkshire Council, outlined the difficulties of this vicious circle: the increase in parental pressure to obtain an EHC plan was diverting resources away from SEN Support, thereby providing further impetus to obtain an ECH plan.
99.Perverse incentives: The lack of incentives for inclusive practice was of further concern. Schools that had a good reputation for inclusivity were likely to attract higher rates of pupils with SEND. As the Parliamentary Under-Secretary of State for Children and Families Nadhim Zahawi acknowledged on 18 July 2018, inclusive schools often witnessed “perverse behaviours, where the other schools—whether by design or otherwise—just brush away those kids and push them towards that particular [inclusive] school”. Because of the requirement for schools to fund the first £6,000 of SEND provision out of their ‘notional budget’, those with a good reputation for inclusivity were facing disproportionately high costs. The lack of flexibility to transfer money to the high needs block was said to exacerbate this problem, as there were insufficient funds to proactively address the expenses incurred by more inclusive schools, or support interventions that might address the cycle of spiralling costs.
100.Lack of inclusion leading to rising overall funding needs: According to Ofsted’s annual report for 2017–18, pupils with SEN support were five times likelier to receive a permanent exclusion than those with no SEND. The cost of exclusions to the taxpayer has been estimated at £370,000 per pupil (taking into account lifetime education, benefits, healthcare and criminal justice costs), or £2.1 billion for each year’s total cohort of excluded pupils. The practice of informal exclusions and ‘off-rolling’ has also received substantial attention, most recently in the Timpson Review which prompted Government pledges to tackle the issue. Justin Cooke highlighted that the current system provided schools with unfortunate financial incentives for off-rolling or permanent exclusions:
particularly when they get to the point of needing extra help that they do not get via an EHC plan or SEN support. They know those children will then be the local authority’s responsibility. If they are placed in a special school, it comes out of the high-needs block, whereas if they aided inclusion and kept them in the school, it would come out of their school block [ … ] If you have a school budget that is so tight you simply cannot pay teachers, there is an incentive to off-roll or exclude.
101.The number of pupils with SEND going to more expensive specialised schools has also been increasing, resulting in an estimated additional cost to the high needs budget of around £200 million between 2014 and 2018. The trend towards more specialised provision was reportedly driven by funding constraints, curriculum changes, and accountability pressures in mainstream schools that had reduced both the capacity and willingness to provide for children with SEND–a situation that simultaneously diminished parental confidence in the mainstream sector.
102.The cumulative impacts of these various pressures have been severe. A report by ISOS Partnership estimated a national high needs spending deficit of between £1.2 billion and £1.6 billion by 2021. The report noted that even local authorities currently in a comparatively strong financial position spoke of ‘when’ not ‘if’ their high needs budget would go into deficit. Local authorities have been accused of using the EHC assessment process to act as a ‘gatekeeper’ to accessing high needs block funding, and attempting to avoid granting approvals due to financial constraints.
103.The number of cases going to tribunal has been increasing, with an estimated £100 million spent by local authorities since 2014 on tribunal defence. On average, judgements were found in favour of families in 89% of cases. We noted the importance of the tribunal system as a mechanism for accountability and redress, though we heard that improvements could be made. Dave Hill, Executive Director of Children, Families and Learning at Surrey County Council, described the tribunal process as “massive amounts of wasted energy” which “play[ed] into an adversarial scenario where parents are almost encouraged through the tribunal to fight the local authority”. He stressed the emotional, financial and impact benefits of developing a more positive relationship with families and sitting down to tackle issues collaboratively, rather than resorting to costly formal escalations.
104.Further education institutions have faced particular funding challenges. The Association of Colleges told our inquiry into Special educational needs and disabilities that a significant number of college students had a degree of SEND but had not received an EHC plan or support from the High Needs Funding block. Colleges therefore had to provide for them out of the Disadvantage Fund – a pot that was being spread across “several competing groups of students including the large number of students who require additional support in their compulsory retake of English and maths GCSE and the sharp increase of students with mental health difficulties”. In addition, colleges were not receiving any additional funding to cater for the increasing number of students coming from Alternative Provision, where these students would have been attracting between £10,000 and £18,000 in financial support. Delayed payments from local authorities and insufficient financial flexibility to deal with influxes of high needs students have put further strain on the system, leading to calls for a different funding system that provided longer-term financial certainty.
105.Special educational needs and disability funding is completely inadequate. There is simply not enough money in the system to provide for the scale of demand. Local authorities are expected to face a funding shortfall in excess of £1 billion by 2021. The post–16 sector in particular is having to deal with significant challenges in the context of enormous funding constraints. This is not sustainable.
106.The Department must make the strongest possible case to the Treasury for sufficient funds to finance the widening high-needs deficit, projected to be over £1 billion by 2021, and address the underlying drivers of spiralling costs at an early stage. The funding uplift must include a thorough assessment of the cost implications of local authorities’ duty to maintain an Education, Health and Care Plan up to the age of 25.
107.The Department’s assessment of the core school funding uplift requirements must include a thorough analysis of the role that sufficient core school funding plays in facilitating early intervention and avoiding more costly interventions later on.
108.The tension between resource-led provision and needs-led provision has been a longstanding issue in the debate around SEND funding. We examined what changes would be needed to provide an appropriate level of support to children and young people given the reality of fiscal constraints. The evidence submitted to our inquiry was clear that periodic top-ups would not be enough to address the systemic drivers exacerbating the funding crisis. Rather, the accumulation of problems in the SEND funding system pointed towards the need for longer-term thinking and a co-ordinated effort to tackle the crisis of confidence, funding sufficiency, and operational delivery.
109.Better early intervention was consistently cited as one of the best ways to manage SEND requirements in an inclusive and cost-effective way. Evidence submitted to our inquiry into Special educational needs and disabilities indicated that schools felt unable—and were perhaps insufficiently willing—to provide a graduated response to additional needs before resorting to statutory support systems. This was said to foster a lack of inclusive practice within schools, and the diminishing faith among parents in SEN Support was associated with the increase in EHC plan requests.
110.Addressing this would require improvements to the notional budget system. In theory, mainstream maintained schools would fund the first £6,000 of a pupil’s SEN requirements out of the ‘notional budget’ – a proportion of the individual school’s budget that had been earmarked to cover SEN-related support. Additional funding requirements beyond the £6,000 should come from the local authority’s high needs block, subject to local authority approval. In practice, however, we heard that the notional budget was not always spent on its intended purposes or was overly-focused on fulfilling EHC plan requirements, largely due to wider funding pressures. At the same time, schools faced difficulties accessing top-up funding from local authorities.
111.We heard that effective interventions could often be quite simple, particularly for children below the threshold of an EHC plan, but required an ethos of inclusion and appropriate teacher training. This could require clearer national expectations for mainstream schools on what they could and should be delivering. In terms of tracking the spending, Justin Cooke said it would be useful to know how many pupils the budget was expected to support, what interventions were being funded, and long-term outcomes for pupils. Additionally, the notional budget system could be made more forward looking to support schools’ strategic planning for anticipated trends in the number and complexity of needs requirements. These changes would need to be linked to a review of incentives for inclusion, addressing in particular the perceived financial benefits of passing EHC plan or permanent exclusion costs onto the high needs block rather than engaging in quality preventative support.
112.We questioned the Ministers on potential improvements to the notional budget system and inclusive practices within schools. The Minister for School Standards did not endorse the idea of improved notional budget tracking, arguing that “the problem with that line of thinking is you can end up telling schools that they have to identify every element”. He noted the financial challenges faced by inclusive schools, stating that the Department was “looking very seriously at that element [ … ] It is an issue that we absolutely acknowledge”. The Government’s subsequent engagement on the Timpson recommendations around off-rolling and accountability indicated a positive first step in this area.
113.We also heard that the national funding formula needed to be more responsive to changes in high need. According to the Department’s high needs funding formula guidance for the year 2018–19, local authorities received £5.8 billion per year to fund high needs. This was allocated on the basis of local authority spending patterns in 2012–13, which in turn was derived from local authority patterns and decisions in 2005–06. The guidance stated that the Department had
updated the distribution for 2017–18 to reflect 2016–17 spending levels, but this remains directly linked to spending levels rather than to any estimate of levels of need [ … ] We are committed to moving to a more rational basis for distributing funding for children and young people with high needs, taking into account an up-to date assessment of the level of need in each area.
114.The Government’s response to its 2017 consultation on the high needs national funding formula noted concerns over the 50% weighting for the historical spend factor, and the lack of responsiveness to population growth. It nevertheless concluded that “setting this factor at 50% of local authorities’ current spending on high needs strikes the right balance”. Julie Cordiner told us however that the system remained insufficiently responsive: the weighting of the historical spend allocation acted as a “massive brake” on changing funding according to need; half of the 2017–18 local authority spend on high needs was locked into the high needs funding formula for the next four years; the population aspect of the formula did not capture fluctuations in special needs incidence; and the other weightings did not properly capture post-16 support needs.
115.The Department should review and revise the high needs funding formula to ensure it is sufficiently responsive to changing needs. The factors and weightings in the formula should be amended to develop a more forward-looking approach that is less reliant on historical factors, and takes greater account of projected trends and requirements for financial flexibility. As part of this review, the Department should assess the extent to which notional budget allocations take sufficient account of future trends, and facilitate adjustments to the notional budget allocation methodology to make funding arrangements more forward-looking.
183 Department for Education and Department of Health and Social Care, , January 2015, p12
184 Department for Education, , 26 July 2018, p1. Note that this figure provides a snapshot in time and may not reflect the dynamic and fluctuating nature of SEN identification.
185 For an overview of the key issues, see House of Commons Library, , 7 May 2019. For a definition of special education needs and disabilities used in England, see GOV.UK, , 11 June 2014. See also Schools Week, , 30 May 2019
186 Education Committee, , HC 968, 18 April 2018
187 Children and Families Act 2014, , Part 3
188 Department for Education, , September 2017, p33
189 Department for Education, , September 2017, p5
190 Department for Education, , 16 December 2018
191 Department for Education, , 3 May 2019
192 Education & Skills Funding Agency, , June 2019, p21
193 Education Committee, , HC 968, 23 October 2018, Q44
194 Education Committee, , HC 341, 2 July 2019, Q2486
196 Schools Week, , 16 December 2018; National Education Union, , 15 April 2019; BBC, , 30 May 2019;
197 Education Committee, , HC 968, 23 October 2018, Q46
198 House of Commons Library, , 17 May 2019, p3
199 House of Commons Library, , 17 May 2019
200 Education Committee, , HC 968, 23 October 2018, Q45
201 East Sussex County Council () para 1.6, Devon SEND Improvement Board () para 1.3
202 Education Policy Institute, , p3
203 Education Committee, , HC 968, 20 November 2018, Q149
204 Education Committee, HC 968, 23 October 2018, Q74
205 See for example National Education Union, , 23 August 2018; Schools Week, , 20 November 2017
206 Education Committee, HC 968, 23 October 2018, Q99
207 Education Committee, , HC 341, 18 July 2018, Q1370
208 Local Government Association, , 12 February 2019, p2
209 Ofsted, , HC 1707, December 2018, p51
210 Institute for Public Policy Research, , October 2017, p22
211 Defined by Ofsted as “The practice of removing a pupil from the school roll without a formal, permanent exclusion or by encouraging a parent to remove their child from the school roll, when the removal is primarily in the interests of the school rather than in the best interests of the pupil. Off-rolling in these circumstances is a form of ‘gaming’”. See Ofsted, , September 2018, p8
212 GOV.UK, , 7 May 2019
213 Education Committee, , HC 968, 23 October 2018, Q46
214 ISOS Partnership, , 2018, pp22–23
215 Ibid., pp21–22
216 Ibid., p5
217 Education Committee, , HC 968, 23 October 2018, Q51
218 Special Needs Jungle, , 14 December 2018
220 Association of Colleges () para 18
221 Ibid., para 19
222 Ibid., paras 16–17
223 Staffordshire County Council () para 9; Cambridgeshire County Council () para 1.15
224 North Yorkshire County Council () para 3d; Northamptonshire County Council () para 3
225 Telford and Wrekin Council () para 2.2; Calderdale MBC () para 3.3; Essex County Council () para 1.5
226 Education Committee, , HC 968, 23 October 2018, Qq75–78, and , Q274
227 Education Committee, , HC 968, 23 October 2018, Q58
228 ISOS Partnership, , 2018, pp31–32
229 Education Committee, , HC 968, 23 October 2018, Q77
232 GOV.UK, , 7 May 2019
233 Education Committee, , HC 968, 23 October 2018, Q55
234 Department for Education, , September 2017, p30
235 Department for Education, , September 2017, paras 3.11–3.13
236 Education Committee, , HC 968, 23 October 2018, Qq55–56
Published: 19 July 2019