Special needs pupils have been denied specialist help because schools used the money for other purposes, according to a highly critical report by inspectors.
LEA support services traditionally provided mainstream help for pupils with complex needs. But under pressure from heads, ministers forced LEAs to cut money they keep for central services, such as special-needs support, and pass more cash to schools. Ofsted said this left local authorities without resources to monitor special needs pupils' achievement or support them where standards were low.
Lack of central funds reduced the range and quantity of specialist help, and uncertainty about funding hampered planning. Problems were made worse because of overlap between services in some LEAs, causing tensions between providers, and wasted resources.
Pupils faced a postcode lottery with varying levels of support.
John Dunford, Secondary Heads Association general secretary, said: "The judgement on what to spend money on has to be made by individual schools.
There is a basic central service of information about available support that LEAs should provide."
Richard Rieser, director of Disability Equality in Education, said: "This is an own goal by the Government. The pressure for delegation did not take account of inclusion and the needs of these children."
The report will fuel debate about the government policy of encouraging mainstream inclusion of special needs pupils. Baroness Warnock, the architect of inclusion, recently called for the policy to be reversed.
This week the Tories launched a special needs commission headed by Sir Robert Balchin, former adviser to John Major. But campaigners have defended inclusion and argued for better support for pupils with complex needs in mainstream schools.
Ofsted said passing cash to schools could help as it enabled them to choose from a wider range of providers, but often schools did not buy wisely. In one mainstream school, a nine-year-old with Down's syndrome was over-reliant on an assistant to communicate for him because his teachers did not appreciate the benefits he would have gained from equipment to aid his communication.
Money for schools was was often not enough to allow them to buy the support pupils needed while other schools got cash, despite not having pupils needing support.
The findings are based on inspections in 20034 and visits to six LEAs.
Inspectors found LEA support services promoted inclusion and improved the life chances of many vulnerable pupils. They were valued by mainstream schools for providing expertise not normally available to them.
Inclusion: the impact of LEA support and outreach services is available from www.ofsted.gov.uk