Tower Hamlets Council faces a projected deficit of £21.7 million in its Dedicated School Grant (DSG) for the current financial year, a significant concern highlighted during a meeting of the Overview & Scrutiny Committee on Tuesday, 28 July 2026.
The substantial overspend, detailed in the Budget Monitoring Report for 2026-2027 Period 2, was brought to the committee's attention by Councillor Iqbal Hossain. He questioned the growing deficit, seeking to understand its causes and the evidence that would demonstrate the impact of the SEND reform plan.
Steve Reddy, Corporate Director of Children's Services, acknowledged the deficit as a national issue affecting all councils, but stated that Tower Hamlets' situation compares favourably to some other boroughs. He explained that the primary drivers behind the deficit are increased demand for Education Health and Care Plans (EHCPs), rising costs of specialist placements, and insufficient funding to meet the complex needs of pupils. Tower Hamlets has the second highest number of children on an EHCP in London, contributing to the pressure on its high needs block.
Mr Reddy further elaborated that the council is working closely with partners, including headteachers, to promote mainstream school provision and invest in making schools more adaptable for children with additional needs. This includes capital investment to support mainstream schools in accommodating children with additional needs, helping them to remain in mainstream settings rather than requiring more expensive special school placements. Staff in mainstream schools are also receiving training to better support these pupils.
The SEND reform plan, which has been submitted to the Department for Education (DfE) and is currently under review, aims to manage spend pressures within the high needs part of the DSG. The DfE's approval of this plan could lead to the write-off of up to 90% of the brought-forward High Needs deficit.
Richard Ennis, Interim Corporate Director for Resources, added that successive governments have struggled to resolve funding issues in social care, and that the DSG budget deficit is a national concern. He noted that while the meeting did not provide a specific national average for DSG deficits, some councils are facing deficits running into hundreds of millions. He highlighted that Tower Hamlets' deficit, while significant, compares quite well to other boroughs, especially given its high number of children with EHCPs.
The committee also reviewed other budget monitoring reports, including the Strategic Delivery and Performance Report for Quarter 4 of 2025-2026 and the Budget Monitoring Report for 2025-2026 Provisional Outturn. While overall performance measures showed a majority of strategic indicators in the 'green' category, the DSG deficit emerged as a key financial concern.
The projected long-term financial implications of the DSG deficit are substantial. The provisional outturn for 2025-2026 forecasts a £15.1 million DSG overspend, and the cumulative deficit is projected to reach £83 million by March 2028. The deficit will be held in an unusable reserve until April 2028, after which the statutory override ends. The council anticipates government support to write off 90% of the brought-forward High Needs deficit, but the remaining 10% (£3.5 million) may fall to reserves. If 10% of the deficits for 2026/27 and 2027/28 also need to be funded by the Council, an estimated £8.3 million would be required as a one-off cost in 2028/29. The report also notes that the council has been effectively cash flowed, um, the underprovision of funding for SEND
for many years, indicating a historical financial strain.
More information can be found in the Public reports pack 28th-Jul-2026 18.00 Overview Scrutiny Committee.
