Dudley Council claims of financial recovery left in balance by changes to accounting rules

In its cost-cutting budget for the current financial year, the authority aimed to shave £42m from its spending to balance the books and avoid the danger of effective bankruptcy.

The council’s leaders say it now has a surplus of £17m and has ‘turned a corner’ in getting back on track - but there may be trouble ahead.

A temporary measure called a ‘statutory override’ keeps deficits relating to spending on children with special educational needs or disability (SEND) off the main balance sheet.

This override is due to end in March 2026 and could add tens of millions of pounds to what Dudley needs to find to balance its books.

The latest report on the council’s finances said: “The council, in common with many other councils, have been experiencing significant financial pressures from increasing demand for children that require additional educational support.

“The service has a high level recovery plan that has been agreed, however there is a cumulative deficit of £44.8m on the High Needs Block, resulting in an overall DSG (Dedicated Schools Grant) deficit at 31st March 2025 of £38.1m.”

Currently the £44.8m is not included in the council’s general balance but if the Westminster Government does not extend the override there could be dire consequences.

The Local Government Association (LGA) said: “With no clarity on what will happen once the mechanism that enables them to do this, known as 'statutory override', expires in March 2026, many councils have said they will not be able to balance their books when this runs out.

“If the override ends as planned with no alternative method for addressing deficits, 53 per cent of councils responding to the survey, responsible for SEND provision, say they will not be able to set a balanced budget in 2026/27, rising to 63 per cent in 2027/28 and 65 per cent in 2028/29.”

The LGA called on Chancellor Rachel Reeves to announce what happens next with the override in her latest Spending Review.

When Ms Reeves revealed the contents of the review on June 11, there was no clarification on whether millions will suddenly be added to council debt, leaving some experts predicting around half of local councils in England could be pushed into insolvency.

The Government is due to release details of its plans for reform of SEND funding in the autumn, which it says will include plans for how it will support councils with ‘historic deficits’.

Councillor Steve Clark, Dudley cabinet member for finance, hopes to avoid a Section 114 notice under local government law, where the council declares it cannot pay its bills.

Cllr Clark said: “In the Spending Review last week, government confirmed its intention to produce a White Paper in the autumn on local authority SEND deficits but announced in advance, £760 million to reform the current SEND system to improve pupil outcomes.

“More than half of education authorities have SEND deficits and in Dudley this now stands at £44.8m.

“Currently councils have a dispensation from government allowing them not to recognise the impact of SEND deficits in their accounts. The sector is lobbying hard for a sustainable long-term solution to what is a national issue and are awaiting proposals in the white paper.

“However, as long as this dispensation is in place, SEND deficits will not by themselves lead to a higher risk of a S114 or impact its improvement plans.

“The council, through strong financial management and controls, underspent its 2024/25 budget by £17m and will continue to manage spending tightly whilst it rebuilds its reserves and ensure that it delivers the best services for its residents.”