Schools’ budgets could be under even more pressure in the future if the government goes ahead with plans to limit local authorities powers to plug deficits in schools funding, heads are warning.

Under current arrangements, local authorities can use “general resources” to fund overspend on the Dedicated Schools Grant (DSG), the grant through which local authorities receive cash for schools, early years and special needs.

However in a consultation document published today, the Department for Education says: “The government’s intention is that DSG deficits should not be covered from general funds.”

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It says the increasing cost of special needs provision has led to “more and larger overspends in recent years” and that local authorities were forecasting a net national overspend in the DSG budget of £230 million at the end of 2019-20.

It states: “Given the size of some authorities’ DSG deficits, and the other pressures on authorities’ reserves, there is a risk that covering DSG deficits from general funds may lead authorities to make spending reductions in other services that they would not otherwise make.

“The government’s intention is that DSG deficits should not be covered from general funds but that over time they should be recovered from DSG income. No timescale has been set for the length of this process.”

Julia Harnden, funding specialist at the Association of School and College Leaders (ASCL) said the government was proposing to “limit options” for local authorities to address school deficits, which could put school budgets under more pressure.

She said: “There’s a risk that the impact will be felt by schools in years following an overspend because their budgets will be cut to repay it.

“We believe the DSG should be sufficiently funded such that schools do not need to be looking elsewhere for money.”

The DfE has been approached for comment.