In its January 2025 report on education spending, the Institute for Fiscal Studies (IFS) contrasts the government's “high ambitions to improve education and reduce inequalities” with the likely reality of “minimal room to manoeuvre against its fiscal rules” and promises of “no further tax rises”.
The IFS concludes that once higher spending on the NHS, defence and early years entitlements are factored in, other areas are likely to face cuts in June's Spending Review, which will set out government department budgets for three years from 2026/27.
In its submission to Chancellor Rachel Reeves ahead of the review, the Local Government Association (LGA) predicts “systemic financial failure” without a sustainable programme of investment in services and highlights its analysis that councils are facing an £8bn funding gap by 2028/29 – the result of a projected 30% rise in the cost of delivering services since 2024/25.
The organisation says that addressing shortfalls in early years, special educational needs and disabilities (SEND), and children's social care budgets, will be key to the success of the government's “mission” to tackle barriers to opportunities.
The LGA goes on to warn that without urgent action in the Spending Review, councils face “impossible choices on what desperately needed services they can provide in the future” as well as missed opportunities to boost growth.
Here are the key issues the sector wants to see addressed in the Spending Review.
EARLY YEARS
Several organisations make the case for the government to spend more to support early education for disadvantaged children.
The economic case for lifting barriers to children with additional needs in this area is compelling, according to the New Economics Foundation, which found in 2023 that “high-quality, universal early years education is likely the highest-returning investment a government can make”.
Several factors are combining to threaten the impact of the funded childcare expansion. Despite government annual spending in this area predicted by the IFS to reach £8bn in 2027/28, two in five providers are set to cut the number of funded-entitlement places pushing up costs for families, according to sector body the Early Years Alliance.
Pressures include higher employer national insurance contributions and the living wage, as well as rates for three- and four-year-olds being “8% lower in real terms in 2024/25 than in 2016/17”, the IFS states.
These challenges call into question councils' ability to meet their statutory duty to provide places to families, the LGA says. It calls for local authorities to be given “sufficient powers, resources and levers” to address this.
Children's charity Coram goes further, calling for the 30-hour entitlement to be universal from the age of nine months to school age rather than limited by earnings, as well as “ensuring that families below the poverty line are not required to pay for childcare”.
EDUCATION
Inclusion is at the heart of the government's stated education mission, and the LGA urges it to set out its plans for SEND reforms at this Spending Review, adding that “sustained increase in council funding recognising cost pressures” must be included, along with the writing off of all high needs deficits – currently, at £3.2bn but projected to rise to £5bn by 2026 - “so councils are not faced with having to cut other services to balance budgets”.
An LGA survey found that if the statutory override allowing council deficits to be kept off their balance sheets ends next March, 53% of councils would not be able to set a balanced budget for 2026/27.
Legislation governing home-to-school transport should also be overhauled, amid a two-third rise in the cost of providing this, alongside a similar rise in the number of children with an education, health and care plan (EHCP) since 2018/19.
Recommendations for reforming SEND from a July 2024 report commissioned by the LGA and County Councils Network should be adopted, it adds, including the creation of a framework describing level of need, accompanied by evidence-based best practice guidance, that would be overseen by a new body called the National Institute of Inclusive Education.
HEALTH
Intervention to diagnose and treat health conditions as early as possible in childhood is known to be cost effective, and the LGA has the expansion of family hubs among its list of prevention must-haves.
It says hubs should be rolled out across England beyond the 75 areas currently in receipt of funding, with further investment in child health services including health visiting.
The government should also implement a national approach to automatic enrolment for free school meals and review the current £7,400 income threshold for free school meals, to address food insecurity and malnutrition.
With unaddressed need mainly in mental health and SEND in young children driving a widening attainment gap, according to the Education Policy Institute (EPI), there is a further economic incentive to raising spending in this area.
The EPI urges the government to prioritise tackling the root causes of these inequalities through the future Spending Review and Child Poverty Strategy, adding: “Too many disadvantaged children are facing barriers to access and that is having a detrimental effect on their outcomes.”
The Future Minds campaign echoes concerns over insufficient services to meet children's mental health needs – it says one in five young people have a diagnosable mental health condition but the NHS is only able to support 40% of them, with “major implications for the public purse and wider economy”.
It urges several measures to tackle the problem, including a commitment to meet 70% of diagnosable need, full roll out of mental health support teams both by the end of this parliament, as well as delivery of open-access mental health services for children and young people in every community, initially through the Young Futures programme.
In a bid to avert costly oral health issues later in life, the government has announced supervised toothbrushing will be rolled out across England, amid data showing that children living in the most deprived areas are nearly 3.5 times more likely to have tooth extractions due to decay.
SOCIAL CARE
Councils are dealing with growing complexity of need and rising use of residential placements, including for unaccompanied asylum-seeking children, with resulting budgetary pressures leading to a “reduction in spend on preventative services and a greater focus on reactive, demand-led provision, despite evidence highlighting the financial and societal benefits of earlier support”, says the LGA submission, before suggesting several budget-heavy solutions.
As highlighted in 2022 by the Independent Review of Children's Social Care, the cost of whole-system reform could be £2.6bn in new spending.
The LGA's submission states that in 2022/23, councils paid for over 1,500 placements costing £10,000 or more per week – compared with 120 placements in 2018/19.
Measures in the Children's Wellbeing and Schools Bill, and the creation of the Children's Social Care Prevention Fund, as well as combining several individual funding streams into the Children and Families Grant, “are very helpful” says the LGA, but it cautions that “neither is currently sufficient to meet the scale of the challenge”.
It calls for funding to invest long-term into family help, child protection, and child in care and care leaver services and for the development of a cross-government strategy for children, young people and families.
In addition, the LGA calls for a cross-departmental approach to the procurement of housing and funding support for cohorts at risk of homelessness.
The Association of Directors of Children's Services also calls for a review of the costs allocation for former unaccompanied asylum seeking children care leavers, which leaves councils with a “direct cost shunt from the Home Office to children's services” and suggests a time-limited leave to remain is granted for this group pending a final decision, to enable them to access benefits.
YOUTH WORK
UK Youth highlights the range of ways in which investment in youth services could benefit the economy. The charity wants the National Youth Strategy to reverse cuts of £1.2bn since 2010 that has led to the loss of hundreds of youth centres and thousands of qualified youth workers.
Meanwhile, the government's commitment to halve knife crime and violence against women and girls, “cannot be achieved without the expansion of youth work services”, claims UK Youth head of policy and public affairs Laura Cunliffe-Hall.
She says: “Investment in youth service infrastructure is a necessary and high-value intervention that will deliver long-term economic and social benefits.
“Strategic investment in youth services reduces pressure on acute public services, including mental health, criminal justice, education, and welfare, and reduces anti-social behaviour and crime – including violent crime – by providing young people with trusted mentors and safe spaces.”
Cunliffe-Hall also calls for the National Youth Strategy “to put the views of young people at the centre of decision-making on policies that affect them”, alongside a new youth guarantee “to ensure every 18–to 21-year-old in England is earning or learning”.
YOUTH JUSTICE
Funding services that address adverse childhood experiences and mental health and wellbeing have far-reaching implications, including crime prevention, which the LGA argues would align with another key government mission – to create safer streets.
The link between declining mental health, poor education outcomes and youth offending has also been made by Children's Commissioner for England Dame Rachel de Souza, in her report, ‘The educational journeys of children in secure settings’, in which she calls for a “complete redesign” of youth custody that prioritises education, therapeutic care and rehabilitation over punishment.
On knife sales to young people, the LGA argues that trading standards plays a “vital role” in regulating this issue and urges the government to work with councils to help address youth offending by “ensuring that the outcomes of the current Home Office legislative review on knife sales to children are funded”.
Youth justice leaders are also hoping for more details on the roll out of 95 Young Futures hubs in the most deprived areas of England, funded through VAT on private schools.
