How do LAs set up personal budgets and direct payments?

The steps in order

Set up a personal budget when a request is made while the draft EHC plan is prepared or at review: identify the funding, agree how it is held, confirm the recipient can manage it, then set conditions in writing. A personal budget exists only where you maintain an EHC plan or are finalising a draft one. It is the amount you identify to deliver agreed provision in the plan where the parent or young person helps secure that provision. The order of steps is:

1. Take the request. A request for a personal budget, including direct payments, may be made at any time while the draft plan is being prepared, or when the plan is reviewed or re-assessed (regulation 4).
2. Identify the funding. Work out the amount tied to the specific provision in the plan, drawing on the education, health and social care money that can lawfully be disaggregated.
3. Agree how it is held. A personal budget is not automatically a direct payment. It can be delivered four ways: a direct payment to the recipient; a notional arrangement held and managed by you, the school or the college; a third-party arrangement; or a combination. You agree the mix with the family.
4. Confirm the recipient can manage it and consents. Direct payments may only go to someone who appears capable of managing them, with or without help, and who does not lack capacity under the Mental Capacity Act 2005 to consent (regulation 5).
5. Set the conditions in writing. Record what the money buys, how it is monitored, and the review points (regulation 8), then monitor and review use (regulation 11).

What direct payments can and cannot fund

Two limits decide most cases. You must not make direct payments where doing so would have an adverse impact on services you provide or arrange for other children and young people with an EHC plan, or where it is not an efficient use of your resources, and direct payments can never fund a place at a school or post-16 institution (regulation 6). Where the special educational provision is to be delivered on a school or college site, you can only make the direct payment with the agreement of the head teacher, principal or proprietor (regulation 9). For social care elements, see how LAs assess social care needs within an EHCP.

What to do if you refuse

If you decide not to make direct payments, you must set out your reasons in writing, and the parent or young person may ask you to review the decision (regulation 7). A clean written-reasons record is what makes the decision lawful and reviewable, so treat it as part of the process rather than an afterthought.

Your standing duties

Separate from any individual request, you must publish a personal budgets policy in your Local Offer. The SEND Code of Practice (2015) expects that policy to set out the services that lend themselves to a personal budget, how the funding is made available, and clear eligibility criteria and a decision-making process (paragraphs 9.95 to 9.99). The mechanics here are stable, but the EHC plan framework they sit on is under consultation: the Schools White Paper (February 2026) signals a longer-term narrowing of EHC plans toward the most complex needs, with no changes before September 2030. State current law and note the direction of travel without committing to a timeline. The SEND Code of Practice and the Personal Budgets Regulations 2014 are the sources to cite. For the parent-side route, see what a personal budget in an EHCP is and how a parent asks for direct payments.

This page is general information, not clinical or legal advice.

This page is general information, not clinical or legal advice.