No matter how good your organisational skills or mathematical prowess, when it comes to the school budget there are things that no one can predict. One secondary school on the outskirts of London suffered a financial setback in the form of fake pound;1 coins in the canteen.

“They’re so realistic that you can’t really tell the difference,” says John Burns, the deputy business manager. “We’ve probably taken in a couple of hundred pounds.”

The fake coins caused a stir when the bursar realised what was going on. But the resulting shortfall is small fry compared to the sums schools stand to lose in the forthcoming cuts. Despite promises that education will be ring-fenced as an essential front-line service, chancellor George Osborne has warned that spending on schools could still face an average real-term reduction of 25 per cent over the next four years.

Quangos have already felt the sharp edge of his axe. Becta, the education technology agency, and the Qualifications and Curriculum Development Agency have both been given the chop, while the pound;55 billion Building Schools for the Future programme has been swept away, along with the rebuilding hopes of 715 schools. Free swimming and the extension of free school meals were next to go, along with grants for SEN inclusion and ICT.

If nothing else, the scale of the cuts so far should have convinced schools that hard times are on their way, whatever soothing sounds the Government is making. Schools have been told to expect a real-term funding increase of 0.7 per cent over the next three years, but this compares to funding increases of 4 to 5 per cent in previous years. The figures will be finalised in the Government’s comprehensive spending review in October.

The likely result is that headteachers will have to start making teachers redundant early next year. Malcolm Trobe, policy director at the Association of School and College Leaders (ASCL), says he expects schools to start sending out redundancy notices to teachers in February, while support staff on one month’s notice can expect to find out their fate in April. This means the savings can be made by May 31, when headteachers need to know their staffing levels for the coming academic year.

“Teacher salaries make up on average 80 per cent of the budget,” explains Mr Trobe. “There are no two ways around it. It is quite clear that the amount you can save on things such as procurement or energy is only going to be a small part of the budget.”

The impact is likely to be felt in larger class sizes. A poll of headteachers carried out by the ASCL found that 63 per cent were expecting class sizes to increase as a result of budget cuts.

To find out how these cuts might affect schools, TES Magazine was invited into a secondary in Greater London - which we have named Nosuch School to protect its anonymity - to examine its budget. With us were experts from Grant Thornton accountants and Tribal, the consultancy which is delivering the Government’s Value for Money programme.

The school serves a mainly white, middle-class population, and has an annual budget of pound;5 million, bolstered by the pound;150,000 a year it receives for being a specialist languages college.

Nosuch has a business manager and deputy business manager, who are responsible for financial planning and the budget, and can also tap into the expertise of members of the board of governors who have a background in finance.

The headteacher, David Jones (not his real name), took the helm three years ago. “I didn’t want to be too involved with the school finances and letting out the facilities,” he says. “My main job is to be a leader of learning and I was lucky in that I inherited a lot of people who knew what they were doing financially.”

This set-up is common in secondary schools: 90 per cent opt to hire a business manager to free up headteachers’ time. In primaries, by contrast, only 30 per cent have a bursar or business manager. The extra cost might be difficult to find, particularly for smaller schools, but a school business manager can save up to a third of a head’s time and around 5 per cent of non salary-related costs, says Toby Salt, deputy chief executive of the National College for Leadership of Schools and Children’s Services.

The bulk of a school’s budget is spent on staff, and Nosuch is no exception. Around 80 per cent of its pound;5 million income goes on staff, about average for a secondary school. But at Nosuch more of this goes on teaching staff and less on support staff - 61 per cent on teaching staff, compared with an average of 58 per cent across secondary schools and 56.5 in similar schools to Nosuch.

One reason for this is that Nosuch has a higher-than-average proportion of experienced teachers who are higher up the pay scale, as well as those receiving additional payments for extra teaching and learning responsibilities. The school also employs language specialists who work in partnership with feeder primary schools. All of this is good for staff, and opens up greater curriculum choice for pupils, but it is also expensive.

Mr Jones makes no apologies for this. “We spend the lion’s share of our budget on curriculum resources - they’re called teachers,” he says. “I’ve never appointed someone because they’re cheaper than someone else. If you’ve got the right teaching staff, supported by the right support staff, then you can do an enormous amount with relatively modest funds for other resources.”

Before Mr Jones joined Nosuch, the school was relying heavily on supply teachers covering for long-term sick leave, particularly in the maths and science departments. He has since brought in specialist teachers on temporary contracts and is confident that this has resulted in a marked improvement. “I think the school governors will live with 3-5 per cent more on teaching staff if we do achieve better GCSE results,” he says.

Nosuch prides itself on having smaller class sizes than the average secondary. A typical year group has around 180 to 190 pupils, with eight classes of 24 pupils on average. Sometimes more able pupils are in classes of 30 while pupils with statements of special needs are put into smaller classes for some subjects.

Cutting the number of staff would be a last resort for Mr Jones, who says that any reduction in the number of teachers is likely to result in a fall in standards. “It’s a difficult balance to pull off, but it is something of a false economy to save money by reducing the number of forms on entry, or increasing class sizes, if the outcome deteriorates as a result of that.”

An alternative way of saving money is through assessing the cost- effectiveness of the ways staff spend their time, says Rachel Street, associate director at Grant Thornton. “Analysing how staff spend their time often identifies more sharply that some activities have a much greater impact than others on outcomes such as attainment or attendance,” she says.

“Activities with little impact, relating to administration, for instance, can take a disproportionate amount of valuable teacher time,” says Ms Street. “These activities might be either abandoned or reallocated to non- teaching staff.”

Mr Trobe says teachers should be spending around 78 per cent of the time teaching, 10 per cent on management and 10 per cent on planning, preparation and assessment (PPA). “Below 78 per cent and you will be putting the budget under pressure, because your staff are not committed to teaching,” he says. “If you’re going much above that, you run the risk of people being under too much pressure and you are risking illness or imbalance.”

At Nosuch School, Mr Jones believes he has the balance just about right. Teachers have been cleared of additional administrative duties - looking after a uniform shop, for example - so they can concentrate on teaching. Mr Jones brought in the “rarely cover” rule, which specifies that teachers do no more than six periods of cover in a year, in September 2008 - a year before it was made a legal requirement. The average contact time for a classroom teacher is about 80 per cent of their work time.

“In my experience, that’s reasonably generous: it’s not unusual for teachers to have 85 or 90 per cent,” says Mr Jones. “There are some schools that give their staff their 10 per cent PPA time, but then will, where it’s appropriate, timetable their teachers for the rest of the time.”

That might be legal, but Mr Jones believes it is counter-productive. “Clearing staff of non-teaching tasks has also increased the amount of goodwill among staff: people are prepared to go that bit further, not because they’ve been directed to do it, but because they want to,” he says.

For headteachers who are reluctant to implement radical reductions in staff, procurement may seem like the best option to save money. A 2009 report by the Audit Commission found that schools could be much more efficient if they sought competitive prices for services such as cleaning and caretaking. The commission estimated that, nationally, schools could save pound;400 million a year.

But the scope for savings on an individual school level is small. Only 4 per cent - pound;202,600 - of Nosuch’s budget is spent on utilities.

One way that schools reduce spending in this area is by using a wholesale supplier. Often this is the county council, says Ms Street, who has worked with schools in Essex to save money.

“Essex as an authority can purchase utilities at a much cheaper rate than schools can themselves,” says Ms Street. “They do that through the Laser system contract (Local Authorities South East Region Energy Buying Group), which could be cheaper than the current separate procurement of utilities.”

Nosuch was advised by the local authority on its cleaning contract, which is worth more than pound;100,000 a year. Mr Jones is happy with the standard, but is open to his business manager looking elsewhere.

“If I was brutally frank about it, I don’t get turned on by looking at maintenance contracts,” he says. “Which is not to say that they are not incredibly important, and if you can save thousands of pounds that will indirectly have a great impact on education. But there are only so many hours in the day, and that is when you tend to rely on a business manager.”

This approach fits in with a recent Department for Education report, which found that many schools relied on their local authority for procurement but did not necessarily feel in control of the process. Local authorities were sometimes slow to chase orders, the report found.

Whether or not a school purchases utilities via its local authority, it can get a reduced rate by working in partnership with other schools, or even by sharing information about how much it is paying for services.

At Nosuch, Mr Jones has established links with nearby schools as well as with the local authority. This potentially gives the school a major advantage, says Ms Street. “If they use these connections and purchase even more of their services wholesale, they might be in a position to make savings here and there.”

Another way Nosuch can reduce its utilities bill is by using less energy. Nosuch was built in the late 1920s and, with its high ceilings and long corridors, is not very energy efficient. The school’s hopes for refurbishment disappeared with the Building Schools for the Future programme, but Jonathan Bennett, senior consultant for Tribal, says there are still ways to save.

“The price of energy is out of the school’s control, but it’s about how they use it,” he says. “Are there certain aspects of school that are using significant amounts? The swimming pool comes to mind as one of these areas.”

Nosuch is one of only four schools out of the 20 in the immediate area to have its own swimming pool, which is much in demand by community groups and swimming clubs. This generates income, often covering the pool’s running costs. But with energy costs rising and expected to rise still further, reducing the pool’s availability, or even closing it down altogether, could be an option.

“If we were really up against it, then we would have to make some difficult choices,” says Mr Jones, “but I would be loath to do that unless we absolutely had to. It’s a great opportunity for our pupils and it’s good for the school to have that place in the community, which is how it should be in an ideal world.”

A new school boiler might help cut costs, says Mr Bennett. Although it would require a substantial upfront payment, it will yield long-term savings. At Nosuch, a new boiler would cost around pound;250,000, although the local authority has agreed to foot most of the bill, leaving the school to come up with pound;60,000, to be paid in instalments.

“This is one of the reasons why I would be cautious about becoming an academy, or moving away from the local authority,” says Mr Jones. “You might get more money up front, but then if you did need something like a new boiler you would have to find the money yourself.”

On the whole, Nosuch is in a fortunate situation. There are areas that the school business manager and headteacher can explore to make efficiency savings. The school also has a 2 per cent surplus of more than pound;100,000, putting it in a good position to weather the first round of cuts.

Not all schools are so lucky. One in six has a budget deficit and will find it a struggle to make the efficiency savings of 0.9 per cent that the Government has asked of them. ASCL recommends that schools should limit their long-term spending commitments.

“Keep staffing levels as tight as you can in 2010,” Mr Trobe recommends, “and don’t make long-term curriculum decisions which could have budget implications in the coming year.”

Most headteachers will share Mr Jones’s reluctance to cut staff. Staffing may take up most of a school’s budget, but saving on salaries by making teachers redundant will inevitably have an impact on achievement.

At Nosuch, Mr Jones is aware that difficult decisions will need to be made, but will start by looking at efficiency savings in procurement and energy before looking at staff restructuring.

“I can sleep soundly at night if the only problem is that we are spending more on our teaching,” he says. “Really it’s about being efficient and effective, and the balance of those two. What’s primarily important in this is that children get the right quality of service.”

But as the cuts begin to bite, he will not be the only headteacher trying to juggle balancing the books with making sure standards do not slip.

HELP WITH BALANCING THE BOOKS

- Free consultancy advice www.consultancyforschools.co.uk

- Compare your budget with other schools https:sfb.teachernet.gov.uk

- Help with procurement www.dcsf.gov.ukopen

- Advice on improving staff efficiency www.tda.gov.ukremodelling.