The entire academy sector could be “on the verge of insolvency” within two or three years unless the government provides further support, a new analysis has warned.

The annual Kreston Academies Benchmark report, released this afternoon, says the number of trusts with in-year deficits rose from 42 per cent in 2015-16 to 55 per cent in 2016-17.

It says the picture is “even more alarming” when depreciation of assets is considered, taking the proportion recording deficits to “nearly 80 per cent of trusts”.

At the same time, the authors highlight a “marked increase in the number of trusts that have been asking for parental contributions to cover the running costs of the school”.

It says these are “simply to help the trusts to balance their budgets”.

The authors say outcomes ranged from “raising almost nil and antagonising the parents”, to generating tens of thousands of pounds.

The authors write that the trusts in its survey have a combined net deficit for the year of more than £100 million, with reserves of £240 million.

They say: “Therefore it would only take two more years like the one that they have just had to leave the entire sector on the verge of insolvency.

“Given that we are already nearly halfway through the financial year and our clients are telling us that there is no evidence that the situation has improved then it is hard to draw any other conclusion than the sector will run out of money fairly quickly and will need further support from the government.”

‘Tough decisions’

The report says that many academy trusts had made “tough decisions” about staff numbers, the breadth of the curriculum and the number of school trips, but “even with these steps they have not reversed the financial decline”.

The analysis says 73.6 per cent of primaries are making deficits, compared to 54.6 per cent of secondaries, and 44.3 per cent of multi-academy trusts, suggesting that from a financial point of view there was “safety in numbers”, although MATs were still making a large collective net deficit.

The report says the extra £1.3 billion that Justine Greening announced for schools last year will “simply maintain funding per pupil”.

Combined with cuts to local authority funding, it says this means trusts need to plan for flat funding levels at best, “but more likely a reduction in real terms”.

The report also highlights inconsistencies in funding provided for trusts in difficulties, saying some are able to access extra money through “skilful negotiation”.

The authors write: “There have been many trusts that have used up all of their reserves, or have financial pressures due to falling pupil numbers, that have been able to obtain additional money from the local authority or ESFA.

“Often there is further negotiation as to whether this funding needs to be paid back or can be treated as a grant. There does not appear to be a formula as to which it should be, so rather than funding being equitable, the outcome can be down to the trusts’ powers of persuasion.

“So at a time where the official messages are that there is no further funding available, there appears to be a pool of money that can be accessed through skilful negotiation.”

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