Somerset Council will have to declare effective bankruptcy in April 2026 unless the government can change how special needs education is funded.

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).

But this override is due to expire on March 31, 2026 – and without the Labour government either extending it further or drastically reforming how SEND education is funded, Somerset Council will have little choice but to issue a Section 114 notice the following day.

This admission follows a scathing report by Parliament's public accounts committee, 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, which is impacting the cost of delivering adult social care.

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 Department for Education (DfE) was asked by the committee to provide reassurances over the DSG override by March – but no such response has been provided.

The DfE is expected to bring forward plans for SEND reform in the autumn as part of a white paper on schools, but no initial details regarding the DSG have been published.

The committee's report also found that these pressures on SEND provision were holding councils back from investing in early intervention – meaning that providing care for vulnerable children ended up proving more costly in the long run.

As of 2023/24 (the most recent figures available), UK local authorities spend £2.8bn on early support services compared to £12.1bn on "late intervention in children's social care cases".

The committee said there was "significant uncertainty" over the future of local authorities, especially in light of the government's devolution programme and the changes to adult social care which will come about after the Casey Commission publishes its findings in 2028.

Committee chairman Sir Geoffrey Clifton-Brown, the Conservative MP for North Cotswolds, said: "The lack of urgent action to come forward with a plan to address the fast-approaching cliff edge for under-pressure authorities would seem to suggest the government is comfortable with the current state of affairs as normalised background noise.

"Even with concrete measures to put councils back on a proper long-term sustainable footing, once again the government seems not to have taken a holistic view of the butterfly effect of its other policies.

"To introduce major changes to national insurance without taking into account the likely effect on an already tottering local government sector is a major misstep.

"Similarly, aspirations for wide-ranging reforms seem to be un-engaged with a reality in which local authorities do not have good and strong capacity to fundamentally change the way they work.

"Our report gives a wide overview of the various and severe challenges that local government face. For the sake of everyone who relies on local authorities' services, we hope decision-makers begin to take a similar overview in how policy is delivered."

When Somerset Council set its annual budget in early-March, its DSG deficit was forecast to reach just over £62.6m by March 31 – of which the bulk came from overspending in the higher needs block (i.e. SEND provision).

By the time the council's executive committee voted on June 4, the DSG deficit was forecast to reach more than £100m by March 31, 2026 (including the additional funding for Hill View School).

A spokesman said: "We can confirm Somerset Council (along with many other local authorities) will need to issue a Section 114 notice if the override is not extended or otherwise fixed."

If Somerset Council did issue a Section 114 notice, 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.

Iain Murray, director of public financial management at the Chartered Institute of Public Finance and Accountancy (CIPFA) said the government needed to act urgently to prevent Somerset and other local authorities going to the wall in large numbers in the spring.

He said: "This report comes at a critical moment and reinforces the growing chasm between the demands placed on local government and the funding available to meet them.

"Without immediate, urgent and coordinated action, vital services will be placed at even greater risk.

"The committee rightly highlights that the failure to plan beyond the statutory SEND deficit override, and the impact of new burdens like increased national insurance contributions, is creating unsustainable pressure on councils.

"This lack of joined-up government undermines financial resilience and front-line service delivery.

"This isn't just a fiscal issue – it has real consequences for vulnerable people, particularly children and adults in receipt of social care and children with special educational needs and disabilities.The government's recent Spending Review announcements on reform need to have a greater sense of urgency in light of this report.

"We strongly support the PAC's focus on prevention and outcomes. The current model leaves councils stuck in a cycle of reactive spending, with early intervention services underfunded and overstretched.

"To deliver reform, councils need proper tools, support and coordinated action. The government has a narrow window to act – it must seize this opportunity to restore local government sustainability before systemic failure becomes inevitable."

A further update on the DSG override is expected to come before the council's children and families scrutiny committee at its next meeting on June 30.