UK school budgets eroded by spiralling special needs costs, report shows

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Schools in England are braced for a fresh round of belt-tightening as a result of the spiralling cost of special educational needs provision, higher wages and pension contributions, new analysis has warned.

The squeeze on school finances comes despite the Department for Education being a relative winner in the October Budget, with a £2.3bn cash-terms increase in core school funding for 2025-26.

However, the Institute for Fiscal Studies think-tank warned on Wednesday that despite the spending boost, budgets would feel “very tight” for school heads as they wrestled with cost pressures that would mean little extra got passed through to pupils.

“On paper the settlement looks relatively generous, but when you look under the bonnet the story is much less good because so much is swallowed up by special educational needs in other areas where schools can’t quite cover their costs,” said Luke Sibieta, IFS research fellow and co-author of the report.

The findings come on the same day that the children’s wellbeing and schools bill will have its second reading in parliament. The legislation intends to improve the safeguarding of children and educational standards.

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The IFS annual report into education spending in England warned of growing pressure on the Labour government, as it undertook a review to determine Whitehall budgets for the remainder of the parliament.

Daniel Kebede, the general secretary of the National Education Union, one of the UK’s largest teaching unions, said the analysis made the case for higher spending on schools and colleges.

“Keir Starmer was elected on a promise to put more resources into schools after 14 years of austerity. Schools have no capacity to make savings without cutting educational provision,” he added.

The IFS found that out of the £2.3bn increase, £1bn was earmarked for SEN costs. This left a balance of £1.3bn amounting to a 2.8 per cent rise in cash terms in funding per pupil in mainstream schools for 2025-26.

“We estimate that school costs are likely to rise by about 3.6 per cent, which includes the effect of government proposals for a 2.8 per cent pay rise. If these projections are accurate, then core school budgets will feel very tight in 2025-26,” the report added.

The findings underline the growing challenge of meeting the soaring cost of the SEN system, which the National Audit Office warned last year was financially “unsustainable”. 

The spending watchdog found that the number of children with legal entitlements to additional SEN support had more than doubled since 2015 when it stood at 240,000.

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The NAO estimated that local councils would face a £3.4bn “funding gap” by 2027-28 as result of meeting the increased demand.

The IFS said the government was likely to “come under huge pressure” to increase spending to meet SEN demands, with reforms requiring costs “probably in the billions rather than hundreds of millions”.

The rising SEN bill also gobbled up potential savings of £1.2bn as a result of a 2 per cent fall in the number of school-aged children in England between 2025 and 2027 as a “demographic bulge” caused by a historic spike in the UK birth rate passed through the system.

The shift had put renewed pressure on sixth forms and colleges that were absorbing higher numbers of students at a time when their budgets were still more than 10 per cent below 2010 levels in real terms. 

David Hughes, chief executive of the Association of Colleges, said: “Expecting the colleges to do more with the same money” was not sustainable and curtailed available support.

“In turn this will be a brake on economic growth, hinder opportunities and undermine the government’s efforts to deliver on its five missions,” he added. 

The Department for Education said it was “determined to fix the foundations of the education system” and would work with schools and local authorities to ensure there was “a fair education funding system that directs public money to where it is needed to help children achieve and thrive”.