The IFS said local authorities face a funding deficit of £3.3bn this year which could rise to £8bn in 2027 if reforms are not made.  

Darcey Snape, IFS research economist and an author of the report, said: ‘The special educational needs system in England clearly requires urgent, radical change. Without reform, rises in need will push up annual spending up by at least £2–3bn in the next three years. The Government has a clear preference for expanding core provision for special educational needs in mainstream schools. This would represent a massive change to the school system, necessitating major reform of the funding system, increased staffing and training, and much else. Any transition could also entail significant costs in the short run and the public finances are very tight. The crucial first step for the Government is to set out a clear long-term vision. The transition path to a better system may run slowly, but it is necessary to take it given the present path of financial unsustainability.'

The report calls for expanding capacity in state-funded special schools and delivering a larger core offer for special educational needs in mainstream schools.

Findings in the report include:

•         the number of school pupils with EHCPs rose by 180,000 or 71% between 2018 and 2024 meaning  nearly 5% of all school pupils now have EHCPs. This rise has been driven by three specific types of needs: autistic spectrum disorders (ASD); social, emotional and mental health needs (including ADHD); and speech, language and communication needs
•           funding for high needs rose by 59% or £4bn in real terms between 2015 and 2024. However, funding has not kept pace with rises in numbers and needs. As a result, spending by local authorities on high needs exceeded funding by about £200–800m per year between 2018 and 2022
•          local authorities have accumulated large deficits in their high needs budgets, which are estimated to be £3.4bn this year
•           spending by local authorities on fees for pupils in independent special schools is up by over £1bn or 138% since 2015, reaching at least £1.8b in 2024
•          the Government's own forecasts show that annual spending on high needs will rise by at least £2–3bn between 2024 and 2027 potentially leading to widespread local authority bankruptcies. 

-         Cllr Arooj Shah, chair of the Local Government Association's Children and Young People Board, said: ‘Reform of SEND services is urgent and essential.

‘While the funding announced in the Budget was helpful, we are calling for action which builds new capacity and creates inclusion in mainstream settings, supported by adequate and sustainable long-term funding, and the writing off of councils' high needs deficits.'

 A Department for Education spokesperson said: ‘This is the latest addition to the mountain of evidence on the failings of the SEND system which we inherited.

‘Work has already begun to rebuild families' confidence. The Budget invested £1bn in day-to-day services and last week £740m was directed to support local authorities create more specialist places in mainstream schools. 

‘Every child should have the best start in life and through our Plan for Change we will deliver this priority for the British people.'