The NAO says SEND support "is not, on current trends, financially sustainable" and is calling on the government to take urgent action to effectively fund help in schools for this group of pupils.
Support for pupils with SEND is made available by the government through the high needs block of funding but the report found that spending on each pupil through this has dropped by 2.6 per cent in real terms over the last six years.
While the government increased the high needs block funding for schools by £349m (7.2 per cent) between 2013/14 and 2017/18 the NAO says this has coincided with a 10 per cent increase in the number of SEND pupils over the same period.
This means that the high needs spending per pupil has dropped from £19,600 to £19,000.
The figures relate to those subject to an education, health and care (EHC) plan and in special schools. The NAO also raises concerns about the level of support being offered to pupils who have a SEND but are not subject to such a plan.
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It points out that this group is among the most likely to be permanently excluded from school.
"How well pupils with SEND are supported affects their wellbeing, educational attainment and long-term life prospects," states the NAO report.
"Some pupils with SEND are receiving high‑quality support that meets their needs, whether they attend mainstream schools or special schools.
"However, the significant concerns that we have identified indicate that many other pupils are not being supported effectively, and that pupils with SEND who do not have EHC plans are particularly exposed."
A total of 122 of councils overspent on their schools high needs budgets in 2017/18, which is 81.3 per cent of local authorities, says the report. Of these, 84 overspent by five per cent or more.
The NAO says that financial pressure of supporting SEND pupils can "make them reluctant to admit or keep pupils with SEND", which is incentivising them to be less inclusive.
"The system for supporting pupils with SEND is not, on current trends, financially sustainable. Many local authorities are failing to live within their high needs budgets and meet the demand for support."
The report adds: "Pressures - such as incentives for mainstream schools to be less inclusive, increased demand for special school places, growing use of independent schools and reductions in per-pupil funding - are making the system less, rather than more, sustainable.
"The Department for Education needs to act urgently to secure the improvements in quality and sustainability that are needed to achieve value for money.
Teachers and councils have backed the report's call for further funding to help pupils with SEND.
Carl Les, the County Councils Network spokesman for children's services and education, and leader of North Yorkshire County Council said: "Today's report from the NAO echoes what county authorities have been arguing for a long time - that funding has not kept pace with well-intentioned reforms which expanded the eligibility criteria of EHC plans and as a result many of us have been forced to overspend in order to provide these vital services."
Kevin Courtney, joint general secretary of the National Education Union, said: "This report makes clear the challenges facing schools and local authorities in their efforts to give the best possible support to SEND pupils.
He added: "The real-terms funding crisis in schools and colleges has damaged the support available to SEND pupils. It has resulted in the letting go of teaching assistants and specialist staff. Meanwhile, the number of children with EHC plans increases."
NAO head Gareth Davies said: "Access to the right support is crucial to the happiness and life chances of the 1.3 million pupils with SEND in England. While lots of schools, both special and mainstream, are providing high-quality education for pupils with SEND, it is clear that many children's needs are not being met.
"I therefore welcome the Department for Education's announcement last week of a review into support for children with SEND, following our engagement with them on this issue over recent months. We hope the review will secure the improvements in quality and sustainability that are needed."
A Department for Education spokesperson added: "Helping all children and young people reach their potential is one of the core aims of this government, including those with special educational needs.
"That is why the Prime Minister has committed to providing an extra £700m next year to make sure these children get an education that helps them develop and thrive as adults."