Councils in England, facing a funding shortfall of more than half a billion pounds for educating children with special needs, are planning spending cuts and service reviews, according to figures compiled by the Observer.

Campaigners fear children could lose some of their support as local authorities try to clear yawning historical deficits, with government rules stopping them using other reserves to help to fund the special educational needs and disabilities (Send) system.

Figures covering 131 of England’s 151 “upper tier” local authorities show the combined forecast “overspend” on high needs budgets comes to £503m for the 2020-21 financial year.

The figures were obtained from freedom of information requests and council documents, and show forecasts made late in the financial year.

Surrey council confirmed it overspent its high needs budget by £35m in 2020-21, and is forecasting a further overspend of £24m in 2021-22. Kent forecast an overspend of £35.8m in 2020-21, and 14 other councils forecast overspends of £10m to £18m.

Cambridgeshire has a forecast deficit of £13.7m in 2020-21. It is planning to reduce top-up funding for Send children in mainstream schools, as well as launching a variety of reviews covering individual support packages. A council spokesperson said: “In addition to the continuing rise in the number of education, health and care plans (EHCPs) being allocated to those in need, we are seeing an increase in the complexity of need among our children and young people. Our funding allocation is not sufficient to adequately match the increase in demand.”

Cheshire East is planning to encourage older students with EHCPs to take up “supported internships”, which normally last a year and include unpaid work placements of at least six months, as an explicit way of reducing the council’s support costs and shortening the time for which it has to fund EHCPs.

“You can expect councils to look much more closely and engage in more sharp practice around when and how to cease post-16 placements,” said Tania Tirraoro, co-director of campaigning website Special Needs Jungle. “Because long-term structurally that’s a large part of the increase in costs.”

Many councils are increasing the number of local special school places to cut costly placements outside the area. Annual reviews of EHCPs are also set to increase. “The strong implication from some of these plans is that the local authority will be seeking to cease to maintain EHCPs more aggressively than they previously have been,” said Tirraoro.

The Send system has been engulfed in a crisis of underfunding since 2014, when the Children and Families Act increased the range of ages of children and young people with Send that councils had to support – but the government didn’t provide the necessary money.

The government is now sharply increasing high needs funding – by £780m in 2020-21, with a further £730m in 2021-22 – but while overspends have fallen since last year, they remain doggedly high.

“The additional funding is not sufficient,” a Surrey council spokesperson said. “The 2021-22 increase for Surrey was 9%. However, as demand for EHCPs is increasing at 10%, it does not address the historic shortfall. To put this in context, demand and inflation is likely to lead to increased costs of £34m compared with the grant increase of £16m.”

Surrey now has a high needs deficit of more than £80m, accumulated over successive years. It is not among the five councils to have reached a “safety valve” agreement with the government that will provide additional funding in return for under taking certain savings measures.

Gillian Doherty, of campaign group Send Action, said: “Early intervention and the strengthening of mainstream provision can only happen if there is serious and sustained investment in support. What we’re actually seeing is the opposite, with the Department for Education using safety valve agreements to coerce councils into making cuts in return for financial bailouts, for example by driving mainstream schools to meet a higher level of need in a more cost effective way while miraculously maintaining the quality of provision.”

A spokesperson for the department said: “We recognise that pressures on high needs have contributed to some councils facing large deficits on their dedicated schools grant. We are working through a range of means to tackle these, which includes a targeted intervention programme for those local authorities with the highest deficits to rapidly improve their high needs systems and make them more sustainable long-term.”