COUNCILLORS have been told Somerset Council is ‘running out of time’ to avoid having to declare bankruptcy, partly due to rising special needs spending.

Somerset schools which are not academies are funded through a ‘dedicated schools grant’ (DSG) provided to the council each year by the Department for Education (DfE).

DSG covers individual mainstream primary and secondary schools budgets, along with early years provision such as nursery places, and children with special education needs and disabilities (SEND).

Demand for SEND resources has outstripped Government funding for several years, with Somerset’s DSG deficit predicted to break £100 million by the end of next month.

A DSG ‘statutory override’ was introduced by Government in 2020 to allow local authorities to keep the debt off their balance sheets and ward off the threat of bankruptcy, known in local government as a Section 114 (S114) notice.

The Government confirmed last June the ‘override’ would end on March 31, 2028, with Chancellor Rachel Reeves saying in her autumn Budget any DSG debt incurred after that date would be absorbed by the DfE.

However, debt run up before then would appear on a council’s books, a change which could lead to Somerset immediately becoming insolvent.

Despite Somerset having a deficit reduction plan to bring down the debt, councillors fear it will not be enough to avoid issuing a S114.

Somerset’s audit committee chairman Cllr Mike Hewitson, said: “I personally remain extremely concerned about the implications of the increasing trajectory of the higher needs block, and potentially the risk of a Section 114 notice in future years, when it comes to the statutory override potentially being removed.”

Executive Cllr Heather Shearer said: “We are running out of time without a shadow of a doubt.

“It is an existential problem.”

Interim chief financial officer Clive Heaphy said the DSG deficit could reach £250 million by 2028.