Sutton Council is grappling with a significant £12m deficit in its dedicated schools grant (DSG), which funds education-related services. The shortfall was revealed during a Strategy and Resources Committee meeting on Monday, 8 December 2025, where councillors discussed the council's financial performance for the second quarter of 2025/26.
The report presented to the committee highlighted that the forecast DSG revenue outturn overspend for 2025/26 is £11.979m, leading to a forecast deficit balance of £22.552m. This financial strain is largely attributed to the High Needs Block (HNB) within the DSG, specifically the increasing demand for services supporting children with special educational needs and disabilities (SEND). The number of Education Health and Care Plans (EHCPs) has risen from 2,469 in April 2024 to 2,675 in September 2025, driving up expenditure.
Richard Simpson, Strategic Director of Resources, addressed the committee, stating that the DSG overspend is a long-standing challenge
for the local authority and many others across the country. He noted that the government has acknowledged the need for change, as the current system is no longer affordable
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Mr. Simpson also informed the committee that the council is awaiting a policy paper from the government in the new year, outlining proposed changes to the policy landscape. He added that the local government settlement for 2026-27, expected in the week commencing 15 December, should provide insight into how the government intends to address the accumulated deficits faced by local authorities.
The report indicated that the DSG deficit is costing the council approximately £1 million per year in lost interest or additional borrowing costs, despite a statutory override being in place. This means that the deficit impacts the council's general fund budget, even though it's carried forward separately due to the government's statutory override. 1
Sutton Council is not alone in facing these financial pressures. According to Mr. Simpson, a recent survey of London boroughs revealed that 26 out of 31 respondents are forecasting an overspend this year, averaging 2.5% of their revenue budget. Sutton's forecast overspend, at under half a million pounds, is below this average.
To address the DSG deficit, Sutton Council has already implemented measures, including a SEND transformation programme that has reduced the number of learners in independent and out of borough special schools from 244 to 235 as of September 2025.
Councillor Sunita Gordon, Lead Member for Resources, acknowledged the financial pressures faced by councils across the country. She stated that Sutton is staying on top of these pressures and managing them responsibly
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Despite the challenges, Councillor Gordon assured the committee that the council would not compromise its financial stability. We will keep making the responsible choices, even when they are not the easy ones,
she said. That's how we protect services and keep this council in a strong position.
Should the government's proposed policy changes prove insufficient, and the statutory override is not extended, Sutton Council would require exceptional financial support from the government to manage the deficit.
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The report notes that
the DSG deficit is carried forward but is separate to the council's revenue budget due to the Government's statutory override. As a result, whilst the override is in place, the deficit does not have a direct impact on the council's overall financial position.
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