The watchdog's annual survey of regional partnerships, which work to improve the inclusion of special needs and looked-after children in schools, found that while spending grew by 15.8 per cent in 2005/06 growth declined to 0.2 per cent in 2007/08.

Ann Baxter, chair of the healthcare and additional needs policy committee at the Association of Directors of Children's Services, said the slowdown suggested the government's Removing Barriers to Achievement strategy was working. The 2004 strategy aimed to make mainstream education better prepared for special needs pupils.

But Brian Lamb, chair of the Special Educational Consortium, said the figures could also reflect cost cutting by councils reacting to criticism that local authorities are not doing enough to ensure value for money in placements.

Jenny Robson, director of programmes at the Who Cares? Trust, said while the economic slowdown would restrict spending, it was vital that pupils who would benefit from special schools were "not disadvantaged through circumstances over which they have no control".

- www.cypnow.co.uk/doc.