This booklet, one of 16 designed for use in an Open Universtiy course on the education of handicapped students in the United Kingdom, deals with the formation and implementation of relevant legislation and policy. The legislative foundations of the special education system in England and Wales, namely the Education Act 1944 and the Education (Handicapped Children) Act 1970, are reviewed. The evolution of policy regarding the largest category of handicapped pupils, moderately educationally subnormal (ESN(M)) students, is described. Factors involved in structuring the present system of special education are grouped under three categories: finance, people (including parents, teachers, and specialists), and knowledge (research and development and the politics of knowledge). Examples of the impact of social/economic factors on policies and practices are cited for the period of school expansion shortly after World War II and the controversy between psychologists and physicians regarding ascertainment is detailed. A synopsis of the current forces affecting special education touches upon such aspects as parents' increasing participation in the assessment of and provision for the special educational needs of their children and a continued shortage of resources. (CL)