There is a film called Margin Call that tells the story of a Wall Street investment bank at the start of the 2007 financial crash.

The key plot is that the bank has already gone bust without anyone knowing this to be the case. 

This is now the very real situation faced by many of our schools.

School leaders will have gone on their summer holidays content in the knowledge that their budget plans for the coming year stacked up. However, given the events during the recess, only on their return will they realise that their balance sheet is in the red.

This is not how things should be.

School funding: the impact of staff pay rises

Schools in the maintained sector are already five months into their annual budgetary cycle, given that they set their budgets in April, but for academies, the new financial year is about to begin. 

Furthermore, for the academies sector, where budgets are submitted for September, Section 2.9 of the Academy Trust Handbook requires that “the board of trustees, and any separate committee responsible for finance, must ensure rigour and scrutiny in budget management”.

Dutifully, academies will have followed this requirement rigorously, and, over a five-month period, worked with headteachers, governors and trustees to produce accurate budgets for the forthcoming year. 

As academies are required to do, they will have then duly submitted the culmination of this hard work to the Education and Skills Funding Agency (ESFA) just prior to the summer break.   

Then, within a matter of days, those budgets were not worth the paper they were written on.  

First, the education secretary announced the teachers’ pay award at the end of July, which proposed pay rises between 8.9 per cent and 5 per cent, the latter being an increase on the 3 per cent proposed by the secretary of state in his own submission to the School Teachers’ Review Body (STRB) in March. 

This was quickly followed by the higher-than-expected pay offer from the employers’ representatives for local government, who offered a pay rise between 10.5 per cent and 4.04 per cent, along with other benefits that add additional costs. 

No one denies that staff deserve these pay rises, but without extra financial support for schools to cover these rises, the impact will be huge.

For my trust, these two factors alone add an additional £2 million of staffing costs that have not been planned for.

‘The perfect financial storm’

Then add three more ingredients into the mix; the rising inflationary costs of school consumables, the spiralling costs of energy and the implications of the Harpur Trust v Brazel court ruling on holiday pay. 

These are not insignificant numbers either. By way of example, the increase in the costs of materials for some of our capital building projects have forced us to cancel important works, as prices have arrived in 30 per cent higher than we expected.  

All of this amounts to the perfect financial storm that has hit schools in the past few weeks with no advance warning. 

Of course, it is possible that some schools and trusts have reserves to buy themselves a little time - but many more will not be in this position, having been teetering on a financial cliff edge for some time. 

These rising costs will push them over the edge. 

Even those with reserves may not be safe, though, as these reserves will be too small to absorb the scale of these cost rises.

Smaller schools always operate on the tightest of margins at the best of times and so will feel this hit hardest.

And reserves will only buy schools a bit of time: they can only be used for this purpose once. 

Consequently, as school leaders return from the summer break, the budget-setting process will have to begin again. 

The danger of job cuts

All this brings me back to the film Margin Call. The bank knowingly sold off its toxic assets and put itself out of business, with all of its staff losing their jobs.

For schools, our story will end differently, of course.

But in the end, to balance our books, all school leaders will know what has to be done and this, inevitably, will require us to reduce our own staffing levels. It is the worst part of our job and yet one that is now a very real possibility.

If we are to avoid this, we need the Treasury to fully fund this year’s pay settlements, along with additional assistance to respond to rising costs that are being driven by record inflation. 

Perhaps our one hope is that the present chancellor is ideally placed to understand the financial pressures that our schools now face.

After all, it was Nadhim Zahawi, when he was education secretary, who wrote to Rishi Sunak, when he was chancellor, earlier this year asking for more funding to fund these pay rises.  

Rob McDonough is CEO of the East Midlands Education Trust (EMET), comprising over 20 schools in Nottinghamshire, Derbyshire and Leicestershire