A crisis in funding for children with special educational needs is plunging councils across the country deeper into the red and forcing parents into lengthy legal battles to secure support, according to an Observer investigation that reveals a system at breaking point.

Council overspending on children’s special educational needs and disabilities (SEND) has trebled in just three years and is continuing to increase, with councils having to raid hundreds of millions from their overall schools budget to cope. The Observer has identified 40 councils that have either cut special needs funding this year, are considering making cuts or are raiding other education budgets to cope next year.

Data from freedom of information requests and council reports shows that the combined overspend on “high needs” education budgets among councils in England soared from £61m in 2015-16 to £195m in 2017-18. It is already expected to hit £200m this year. The figures cover 117 of England’s 152 councils, meaning the true figures will be higher.

It comes with legal action being threatened across England against councils considering cuts to SEND funding, which supports children with conditions such as autism, attention deficit hyperactivity disorder and physical disabilities. Cases have already been launched in London and Surrey after a successful challenge to proposed cuts in Bristol. Campaigns are also being planned in Portsmouth and Yorkshire, while a case is being drawn up against central government for failing to properly fund the system.

Despite the prime minister’s promises, it is clear that austerity is not over for our most vulnerable children Angela Rayner, shadow education secretary

By the end of this financial year, councils will have raided nearly £315m from mainstream and early years schools’ budgets since 2015 in order to plug gaps in special needs funding. However, recent rule changes have cut their flexibility to do so.

Ministers have hinted that a cash injection may be needed as the system struggles. Nadhim Zahawi, the children’s minister, said the government recognised “that local authorities are facing cost pressures on high needs” and that overall funding was being kept under review.

Attempts by struggling councils to turn down requests for support are regularly being overturned. Almost nine in 10 cases taken to a tribunal find in favour of parents.

The emerging crisis will be debated at a conference of education and council figures this week. Anntoinette Bramble, chair of the Local Government Association’s children and young people board, said the new figures “emphasise the significant financial challenges councils are facing”.

“We urge the government to address this in the local government finance settlement next month,” she said. “Unless councils are given the funding they need, they may not be able to meet their statutory duties, and children with high needs or disabilities could miss out.

“We are also concerned about the extent to which schools use informal exclusions to remove vulnerable pupils, particularly those with SEND, from mainstream education.”

Robert Halfon, Tory chair of the Commons education committee, said: “Parents have told our inquiry that they are simply not getting the support that their children need … Local authorities have a duty to provide support – and they need to be financially supported to be able to meet this duty. We do have concerns about how SEND money is spent but it is clear there are significant financial pressures on the system.”

Shadow education secretary Angela Rayner has spoken of ‘devastating cuts’. Photograph: Gareth Fuller/PA

Angela Rayner, the shadow education secretary, said there were now “devastating cuts” being imposed on both schools and local authorities. “It has brought services for children with special educational needs and disabilities to a dangerous tipping point,” she said. “Despite the prime minister’s promises, it is clear that austerity is not over for our most vulnerable children.”

The crisis stems from rising demand for special needs places that has not been matched by the necessary funding. Many councils blame a 2014 reform that extended their responsibilities for special needs children without providing sufficient resources.

Analysis by the Observer found that four of the five councils with the largest forecast overspends this year are counties, with Hampshire top of the list. It is considering reducing top-up funding for special needs students and raiding £3.7m from mainstream schools funding – with the schools’ agreement – in order to tackle its expected £10.5m overspend.

A council spokesperson attributed the overspend to a rise in the number of pupils with special needs: “The high needs block funding has increased year on year, but not sufficiently to meet rising demand for support.”

Other councils have seen their finances dramatically worsen. Southwark’s high needs overspend has more than quadrupled since 2015, while Lancashire has gone from a £5.6m underspend in 2015-16 to an £8.5m overspend this year. Southwark councillor Jasmine Ali said the council would “not turn our backs on those who need our support but unfortunately the funding we receive from central government doesn’t come close to paying for the support that is needed”.

Zahawi said: “In 2018-19 councils will receive £6bn of funding specifically for children with complex special educational needs and disabilities, up from £5bn in 2013.”