Rachel Reeves Under Scrutiny Over £6bn Send Costs in Public Finances
Chancellor Rachel Reeves is facing mounting pressure to provide reassurance to MPs regarding the state of the UK's public finances, amid growing concerns that escalating costs for special educational needs and disabilities (Send) could create a significant gap in the government's financial buffer. The issue has prompted calls for clarity as uncertainty looms over how the £6bn annual Send bill will be accounted for by the end of the decade.
Committee Chair Demands Transparency
Meg Hillier, chair of the all-party House of Commons Treasury committee, has emphasised the need for the chancellor to outline her long-term plans for the Send expenditure. Reeves, who is scheduled to appear before the committee next month, indicated in a letter to MPs that a decision on the matter will be postponed until next year, adding to the unease among lawmakers and financial analysts.
City analysts have warned that financial market investors could become alarmed if part or all of the £6bn Send annual cost is deducted from the budget surplus. In last November's budget, Reeves more than doubled this surplus to £22bn, aiming to shield the UK from volatile government bond markets. The potential impact on this cushion has raised red flags, with experts noting that any reduction could undermine fiscal stability.
OBR Highlights Unaccounted Risks
The spat between MPs and the Treasury follows a report from the Office for Budget Responsibility (OBR), which stated that the £6bn Send bill was unaccounted for in the budget. The OBR further highlighted that expected increases in Send costs over the next decade pose a substantial risk to public finances. This revelation has intensified scrutiny on the government's handling of the issue.
In response, the government announced this week that it would cover up to 90% of historical debts related to spending by English councils on Send services. Ministers plan to clear approximately £5bn of debt up to 31 March this year, contingent on councils agreeing to revise how they deliver Send services under plans detailed in an imminent white paper. However, it remains unclear how billions of pounds in anticipated Send overspends between April 2026 and April 2028 will be managed, with ministers pledging an "appropriate and proportionate approach" that will not be unlimited.
Rising Costs and Fiscal Maneuvers
English councils have experienced a surge in Send service costs as the number of pupils qualifying for extra help has increased, and private providers have raised charges. To protect spending on other services, excess costs have been rolled over with Treasury approval as off-balance-sheet debts. Since 2014, successive chancellors have delayed allocating these costs through a "statutory override," a manoeuvre that has now come under fire for lack of transparency.
In the November budget, Reeves stated that from 2028-29, the cost of Send services would be transferred to Whitehall, but she declined to specify which department would account for the spending. Hillier criticised this lack of clarity, stating, "It's extremely important that we can trust that the Treasury is being transparent on its spending plans. As the OBR has identified, this is an obvious risk to the headroom the chancellor created for herself at the budget."
Projections and Potential Solutions
The OBR estimates that the backlog of historical Send spending, largely funded by local authority borrowing, will reach £18bn by 2028-29. In a written response to Hillier, Reeves explained, "From 2028-29, once the statutory override ends, future funding implications for Send will be managed within the government's overall departmental spending limits. Specific department budgets from 2028-29 onwards will be confirmed at the 2027 spending review."
Education Secretary Bridget Phillipson is expected to outline plans to make Send services more effective, though critics argue this may involve rationing access for pupils, potentially allowing the OBR to revise down its projections in the next budget. Luke Sibieta, a research fellow at the Institute for Fiscal Studies, outlined three main options to address the £6bn gap: reforming the Send system to slow spending growth, reallocating funds from other government budgets, or reducing mainstream school funding. He noted that £6bn represents about 9% of the overall schools budget or 11% of mainstream school funding in 2028-29, highlighting the scale of the challenge.
Market Concerns and Broader Implications
A fourth option would involve increasing borrowing, which could erode the government's financial buffer. Ruth Gregory, deputy chief UK economist at Capital Economics, warned that the Send budget poses a "clear risk to the projections for public spending," with heavy commitments across Whitehall departments, including defence spending increases, threatening to consume fiscal headroom.
Philip Shaw, a senior analyst at Investec, commented, "I don't think the markets would panic if a large proportion of the £6bn could not be saved and is added to borrowing. But investors would be very concerned." The Treasury has declined to comment further on the matter, leaving questions unanswered as Reeves prepares for her committee appearance next month.
