Revenues at privately run special needs schools in England have soared since before the Covid-19 pandemic as cash-strapped local authorities turn to external providers to meet a rising need for specialist education.
Sales at the three largest private providers have nearly doubled since 2019, according to accounts reviewed by the Financial Times, filling a gap left by a lack of capacity in government-funded schools.
The boom in private provision for special needs education comes as the UK’s public spending watchdog has warned that the system is becoming “financially unsustainable”, with already struggling councils running up large deficits to meet demand.
The number of children in English schools requiring special education needs (SEN) support has more than doubled over the past decade to 576,000, according to the National Audit Office, driven by an increase in diagnoses of autism, attention-deficit disorders and mental health problems among teenagers.
The surge has left local authorities unable to accommodate SEN demand from state-maintained places, and more are turning to private providers — many backed by private equity firms — to make up the shortfall.
A private SEN place cost about £62,000 a year on average, compared with approximately £24,000 in the state sector, the NAO said in a report in October.
The number of children in such independent schools had increased by 17,000 to 33,500 since 2018, the watchdog found, with fees costing local authorities £2bn in 2022-23 — a real-terms increase of 46 per cent since 2018.
For business, strained local authority budgets have proven a lucrative opportunity, and several private providers have warned that the prospect of government reforms to cut costs is a key risk to future plans.
In its most recent accounts, Horizon Care & Education Group, which runs SEN schools and residential care homes, listed “changes in government purchasing policy away from the independent sector” and “local authorities’ control of spending” among the principal risks to the business.
The cost of care
When the young teenager in the photo arrived at the Aurora Hanley SEN school, her face was hidden by a mask and a woolly hat. Eighteen months later she is happy to strike a playful pose for the FT photographer. The school asked that young people’s names were not used to protect their identity.
Principal Tracy Whitehurst said such transformations were made possible by small class sizes and the dedicated team of occupational therapists at her school of 90 children with a range of special educational needs, including autism and attention deficit disorders.
“We have students who can’t function in those [mainstream] environments, which is why they move into more specialist schools like this one where we have full-time clinical and therapy teams,” said Whitehurst.
But places at privately run schools such as Aurora Hanley outside Stoke-on-Trent in central England do not come cheap. Fees were £62,000 a year, according to the most recent Ofsted inspection report in 2022, reflecting the cost of hiring teaching staff and clinical teams, acquiring premises, servicing debt and obtaining regulatory clearances.
Aurora’s revenue, the majority of which it says comes from local authorities or other publicly funded bodies, rose 93 per cent over the past five years to £74mn in the year ending April 2024, according to filings at Companies House. Operating profits were £5.4mn in 2024, up from a £2.3mn loss in 2019.
The company is a subsidiary of Octopus Group, the investment firm behind Octopus Energy that has B-Corp status, which designates businesses as “a force for good”.
Aurora’s strategy director Dan Slater cited its Fairway school in Cambridgeshire as an example of how the private sector could move rapidly to meet public need. The company renovated an old golf course clubhouse, hired staff and obtained regulatory clearances in just 18 months.
“Cambridgeshire county council identified a relatively urgent need so we worked to meet their requirements. We work with 97 local authorities, so one question is whether it would be more efficient for a team like ours doing this, or for each local authority to set up its own team,” he said.
Aurora was the third-largest SEN private provider in 2022, according to research by LaingBuisson. The consultancy’s ranking is the most recent comprehensive analysis of the market. The UK government does not compile public figures.
Other leading providers have enjoyed similar financial boosts.
Revenues at the holding company behind Outcomes First Group, which was bought in 2023 by US private equity firm TPG, grew by 87 per cent to £497mn from 2019 to 2023. Operating profits were £27mn that year, up from £3.3mn in 2019. At the time, the company — the largest provider, according to LB — also provided foster and residential care.
The most recent annual report from the holding company SSCP Spring Topco said Outcomes First had been able to maintain revenues despite “ongoing pressure to reduce unit costs for each placement to the local authorities”.
Outcomes First also said it supported children “requiring intensive support that mainstream schools are not in a position to offer” because SEN funding had not kept up with demand in recent years.
Revenue at Witherslack Group, the second-largest provider in LB’s ranking, rose by 130 per cent to almost £173mn between 2019 and 2023. Operating profits grew to £36mn from £11mn over the same period.
Witherslack, which is owned by the private equity arm of Abu Dhabi’s sovereign wealth fund, did not comment. Its most recent annual report in August 2023 showed it had 2,005 places in its schools and 244 places in its children’s homes.
Smaller providers have also capitalised on the SEN boom. Education revenues at Horizon, backed by private equity group Graphite Capital, rose 29 per cent to £11.5mn in the year to December 2023. Operating profits were £500,000 that year, up from a loss in 2022 but lower than in 2019.
It has been acquiring and establishing schools across the country since the mid-2010s, and in October opened three new schools in London and the Midlands, citing “rising demand” for SEN provision.
Horizon said it now hosted “more than 800 children across our independent schools, homes and supported accommodation”, and that it was “constantly reinvesting . . . to provide the highest standards”.
Fixing a broken system
Ministers have admitted that the SEN system is “broken” and urged parents to be patient as they worked out a plan to fix it.
In a first step, the Department for Education last month said it would invest £740mn in order to improve provision for special needs children in mainstream schools in a bid to reduce SEN school demand.
Local authorities in England will have racked up cumulative financial deficits of up to £4.9bn by March 2026, in an effort to meet the demand for SEN places, with two-thirds of councils overspending their high-needs education budgets in 2023, according to official figures.
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Education experts said the surge in demand for SEN places was a result of more parents seeking formal education, health and care plans that legally entitle parents to support for their children.
The increase has been blamed on the impact of a decade of cuts to special-needs support in mainstream schools, leaving parents feeling they have no option but to seek an EHC.
Despite the government’s special needs budget increasing to £10.7bn this year — a 58 per cent increase on 2014 — there is a big gap between the legal entitlements that EHC plans give parents and the resources available to deliver them.
The previous Conservative government announced plans to create an additional 60,000 special needs places between 2022-25, but the record of state expansion is poor.
Almost a third of the 67 new free special schools in the pipeline were approved more than four years ago, according to an FT analysis of official data.
There were 728 independent special schools during the 2023-24 academic year, a 49 per cent rise since 2018-19. The number of local authority special schools increased just 6 per cent to 1,050 in the same time.
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Kate Foale, spokesperson for special needs at the County Councils Network, a representative body, said the current system had created the “wrong incentives”, pitting parents against local councils.
“We cannot go on pushing more children and young people out of mainstream schools into more expensive specialist education where we know outcomes are poorer, reflecting the lower aspirations often held for them once they leave the mainstream,” she added.
Claire Dorer, chief executive of National Association of Special Schools, which represents private providers, said complaints about whether it was right for public funds to go to profit-seeking companies needed to be weighed against the need to meet demand.
“People raise questions about public money being spent in the private sector. But then they don’t get beyond saying, ‘This leaves a bad taste’, to then asking, ‘Is this actually an effective use of public funds and what would the alternative cost?’” she said.
The DfE said it had injected an extra £1bn into the special needs budget, but that the system remained “too skewed” towards specialist provision and “over-reliant” on EHC plans that favoured better-off families with the resources to fight their corner.
“We are determined to rebuild families’ confidence in a system so many rely on. The reform families are crying out for will take time, but with a greater focus on mainstream provision and more early intervention, we will deliver the change that is so desperately needed,” the department added.
