Ministers are seeking to end the "perverse incentive" which encourages schools to seek statements of special educational needs for pupils in order to attract cash and support.
A Green Paper on special needs, expected in the next fortnight from the Department for Education and Employment, is expected to outline ways of cutting the number of children put through the expensive and time-consuming statementing process and to examine ways of intervening in conflicts between parents and local education authorities before they reach the special needs appeals tribunal.
The Green Paper will attempt a delicate balancing act: maintaining parents' and children's rights while ensuring that resources for special needs are better used. It comes as the pressure on the statementing and appeals systems is increasing rapidly.
A survey for the DFEE by Coopers and Lybrand last year reported that the number of statements issued had risen by almost 40 per cent in five years. Three per cent of children now have statements compared to the 2 per cent envisaged by the Warnock Report which led to their introduction in 1981.
Many are children with moderate learning difficulties, when the system was originally envisaged for children with more severe conditions, such as autism, or with specific physical disabilities. Appeals registered with the SEN tribunal, set up in September 1994, rose by half in its first two years to 1,622 in 199596.
Special needs cost Pounds 2.5 billion a year - 12.5 per cent of schools' budgets. But attempts by cash-strapped local authorities to cut SEN funding to schools have been ruled illegal by the High Court.
Education Secretary David Blunkett is understood to have taken a personal interest in special needs funding. Local authorities will be waiting to see if that means more cash.
The Green Paper will draw heavily on Every Child is Special, Labour's policy document, published in March. The watchword of that paper was "inclusion" - bringing children with special needs into the mainstream more effectively.
Robert Green, manager of the SEN policy division at the DFEE, hinted at the paper's content when he told the Association of Educational Psychologists' annual conference last week: "Funding is crucial. There are perverse incentives which force people to put children through the system."
Partnership - that other New Labour watchword - was the key to reducing the number of parents who felt the need to appeal or hire private psychologists whose reports had to be expensively rebutted by the local authority, Mr Green said.
"We want to reduce the sense that so many parents need to go down that route," he said.
One way might be to make the "named person" - someone who gives independent advice and support to the parents of a statemented child - available earlier. At present, LEAs are only obliged to provide a named person after a statement has been issued.
Educational psychologists have long complained of the rise in statementing, saying they spend too long assessing individuals and not enough time helping teachers develop whole-school strategies which benefit every child.
That was echoed by Christine Gilder, director of education for the cerebral palsy charity, Scope, as she called for a "complete overhaul" of the system. "We welcome these indications of a much greater focus of energy on intervening and supporting pupils' needs rather than supporting the process," she said.
But teachers needed better training, more resources needed to be focused on the classroom, and there needed to be a better spread of information, she said.
Psychologists' protest, page 11