Somerset Council has been given a stay of execution after the government ruled it could keep a spending deficit on special needs education off its books for another two years.

Demand for specialist education for children and young people with special educational needs and disabilities (SEND) has soared in recent years, with rising demand and climbing costs putting huge pressure on council budgets.

Demand for SEND education resources has vastly exceeded on government funding for years, with Somerset's own dedicated school grant (DSG) deficit now predicted to exceed £100m by the end of the financial year following the provisional of additional funding to support Hill View School near Yeovil.

The then-Conservative government introduced a DSG statutory override in 2020, allowing local authorities to keep these deficits off their balance sheet and ward off the threat of effective bankruptcy (known as a Section 114 notice).

This override was due to expire on March 31, 2026 – with Somerset Council leader Bill Revans warning MPs in March that councils up and down the country would declare effective bankruptcy "like confetti" without this override being either extended or overhauled.

The Department for Education (DfE) announced on Friday (June 21) that it would be extending the override until April 2028, with more long-term reforms expected to be announced in the autumn as part of a wider white paper on schools.

Somerset Council has welcomed the news but warned it was "not even the beginning of a solution", with months of "uncertainty" still brewing about its finances and those of its neighbouring local authorities.

The DfE's decision comes on the back of a scathing report by Parliament's public accounts committee (PAC), which revealed hundreds of local authorities face a similar "financial cliff-edge" in light of this and other factors – including the rise in employers' national insurance contributions.

The committee – whose membership includes Tiverton and Minehead MP Rachel Gilmour – estimated in its most recent report that councils' overspending on SEND could reach between £2.9bn and £3.9bn a year nationally by April 2028.

The Ministry for Housing, Communities and Local Government (MHCLG) provided details of the direction of travel as part of a wider consultation on the future of council tax, business rates and local government finance in the aftermath of the spending review.

In a joint statement, deputy prime minister Angela Rayner MP and local government secretary Jim McMahon MP said: "This government recognises the pressures local authorities are facing because of their DSG deficits. The spending review confirmed funding to reform the SEND system.

"We will commence a phased transition process which will include working with local authorities to manage their SEND system, including deficits, alongside an extension to the DSG statutory override until the end of 2027/28.

"We will set out more detail at the provisional local government finance settlement."

Documents published as part of the spending review state that the government will spend £547m in 2026/27 and £213m in 2027/28 on SEND reform as part of its core schools settlement.

A white paper will also be published in the autumn which will set out the government's approach to SEND reform and other relevant changes to local education.

Without the DSG override being extended, around £100m of debt would have appeared on Somerset Council's balance sheet overnight on March 31, 2026 – leaving it with little option but to declare effective bankruptcy and issue a Section 114 notice the following day.

In this occurs, it would result in central government sending in commissioners who would have the power to sell off assets, cut services and drastically raise council tax with little or no democratic oversight – charging Somerset taxpayers more than £1,000 a day for their time.

Reacting to the government's announcement, Mr Revans said: "The confetti of Section 114 notices – bankruptcy for councils that would arise from the DSG override – has been postponed.

"This is not a solution. It is not even the beginning of a solution.

"But it is an avoidance of local government collapsing in half the country next year.

"Without a long-term solution to local government finance, all councils will continue to live with uncertainty."

Reports published before a meeting of the council's corporate and resources scrutiny committee on Wednesday (June 25) indicated that the council's overall budget was overspent by £655,000 in the 2024/25 financial year – with this overspend being met through its existing reserves.

This sum was considerably reduced by the government's exceptional financial support in the form of a capitalisation directive – with the council being able to use £36,884,000 from the sale of land, property and other assets to reduce the amount of reserves it would need to balance its books.

The council is expected to publish its long-awaited DSG deficit management plan by the late-summer.