An “emergency meeting” will now be held today (February 25) where the representative group for the county’s schools, the Schools Forum, will discuss the consequences.
The government has blocked the county council's attempt to move more of its education funding to special educational needs and disabled (SEND) pupils.
Extra support services for those children now face "immediate changes" in Cambridgeshire, the county council has warned.
Cambridgeshire County Council said it was notified on February 11 that the secretary of state for education, Conservative MP Gavin Williamson, has refused its request to transfer £6.6million from the county's main schools grant to its high needs budget.
An "emergency meeting" will now be held today (February 25) where the representative group for the county's schools, the Schools Forum, will discuss the consequences and be asked for its recommendation on how to proceed.
"The implication of this decision is that we will we have £6.6million less for high needs funding in 2020/21 and we will have to make some immediate changes to the support what we provide for children with special educational needs and disabilities," a Cambridgeshire County Council spokesperson said.
Funding for the county's schools is due to rise this year. The total schools grant from government to Cambridgeshire will be £368.2million, up 6.7 per cent compared with 2019/20, the latest council figures show.
Funding for pupils with SEND has also increased, by around nine per cent, to £75million. But the council says demand is increasing faster, and the sector has overspent for several years, leaving a deficit.
The latest figures show big increases over the past two years in the "high needs" budget for SEND pupils. The amount spent on out-of-school tuition rose by more than half - 58 per cent, from £3.1million to £5million - between 2018/19 and the 2019/20 end of year forecast.
Every one of the main high needs budgets rose in the same period, except for the council's budget for "SEND Special Support" which is forecast to have dropped by eight per cent, to £5.5million.
The number of Education, Health and Care Plans (ECHPs), which outlines the special educational needs of children to the council so it can provide the appropriate support, rose by 11.7 per cent last year. But that increase itself - the number of new plans issued - rose by more than half.
The council had planned to shift 1.8 per cent of its "schools block" budget - a government grant directly for primary and secondary schools - to the high needs block.
Both the schools block and high needs block are "ring-fenced" grants, meaning the government provides the money for spending for a specific purpose, which prevents the council from using one grant to compensate for another without government permission.
The Schools Forum had been asked to approve a 1.8 per cent transfer request to the secretary of state, but for the first time found itself rejecting the council's funding proposal, even when the council asked twice in only a matter of months this winter.
The council's service director for education, Jonathan Lewis, had made the case that the high needs block needs more funding to cope with its deficit and reduce the scale of cuts.
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Any transfer of funds would impact on the increases schools were expecting from the 2019 Conservative manifesto promise of an increase in per year per pupil funding to £3,750 for primary schools and £5,000 for secondary schools.
The Conservative council's children and young people's committee had voted for a reduction of those minimum funding figures of £50 per pupil to rebalance budgets for its anticipated 1.8 per cent transfer to high needs education - which now will not be going ahead. The move would still have left schools with more money than the year before, the council argued at the time.
The council says the Department for Education has said there will be "no flexibility" on the per pupil minimum funding promised by the Conservatives at the last election. Many regional authorities - including Cambridgeshire County Council - made use of the transfer mechanism in previous years to cover shortfalls.
Overspending on SEND budgets is a "national issue," Mr Lewis said earlier in the year.
The council said it believes only two out of 29 councils received permission for their proposed grant transfers for the upcoming financial year.
In addition to the problem of funding for SEND pupils this year, the council says government statutory guidance says councils must carry their schools funding deficit forward to be "dealt with" from future grants, meaning the £18million cumulative deficit on the high needs block expected by the end of March this year will need to be balanced out in the future.
When discussing the proposed budget transfer earlier this year, the council declared the MP for South East Cambridgeshire, Lucy Frazer, had arranged a meeting with the school's minister so the county could make its case for more SEND funding ahead of the government decision.
The Schools Forum will now be asked to approve a transfer of 0.5 per cent, or £1.85million, of its schools block to its high needs block, which is the most the council can move without the approval of the secretary of state.
Headteacher of St Matthew's Primary School, Tony Davies, told a meeting of the Schools Forum last year that regardless of the outcome of negotiations with government, "there isn't enough money there, so I don't see how we come out of this without services to our most vulnerable children being cut to some extent".
That remark was made when a 1.8 per cent transfer to top up the high needs block was proposed - now the services are facing larger cuts than anticipated.
A Cambridgeshire County Council spokesperson said: "In November Cambridgeshire County Council made a request to the secretary of state for education to transfer 1.8 per cent of the school budget to the high needs block to support children with special educational needs and disabilities (SEND).
"Due to ongoing demand for Education, Health and Care Plans (EHCPs) from schools, we are expecting a cumulative £18million deficit on the Dedicated Schools Grant (DSG) at the end of this year. Unfortunately we have received a letter from the Education Skills Funding Agency declining this request.
"The implication of this decision is that we will we have £6.6million less for high needs funding in 2020/21 and we will have to make some immediate changes to the support that we provide for children with special educational needs and disabilities.
"An emergency meeting of the Schools Forum will be held today (February 25) at 2.30pm to reconsider a block transfer of 0.5 per cent (£1.85million) from the schools block to the high needs block which is the maximum that can be transferred without the approval of the secretary of state.
"The high needs block of the DSG provides top-up funding for pupils in mainstream schools that need additional support and funding to support pupils in special schools, out of county placements, alternative provision and special education needs units.
"The majority of the budget (circa 84 per cent) directly funds support for learners in schools and other providers, including out-county provision, with the remainder funding teams within the authority that support pupils with SEND."