The critical report states that "some parents and carers choose to electively home educate their children" with special educational needs and disabilities (SEND) "because they feel that schools cannot meet their needs".
The report also refers to a high proportion of children and young people known to the youth offending team, having unidentified needs relating to their speech, language and communication.
It also highlights "significant variation" in the ability of schools to identify need - resulting in many children arriving at pupil referral units with "unmet needs that have caused a deterioration in their behaviour".
The report - published last week following a joint inspection by Ofsted and the Care Quality Commission in March - also describes a "significant increase in the number of children and young people who are permanently excluded from school.
"In some cases, this leads to children and young people being out of formal education for a considerable period."
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Concerns have been raised repeatedly about the numbers of children with SEND ending up outside of mainstream education, with a ban on "off-rolling" featuring in Ofsted's latest inspection framework.
The report describes how many parents and carers have "lost faith and trust in the local area" and a "battle to gain access to the services that their children require".
It adds: "Some report how weaknesses across the local area have taken their toll on their own wellbeing and that of other family members."
The statement from Cumbria must address nine areas of significant weakness, including: a lack of understanding of the needs of the local SEND population; limited joint working across services; and, limited involvement of children, young people and their families in the co-production of services.
Department for Education and NHS England advisers will then carry out a minimum of four "support and challenge" visits to the local area.
In response to the report, Cumbria County Council launched a consultation on the reform of SEND provision in the region.
It proposes to move away from the current system, which funds 24 schools across the county, to create five "resourced provision hubs", based in special schools.
The hubs would then place teachers and support to schools in their area depending on the needs of the children attending individual schools.