There has been a 42 per cent jump in the number of multi-academy trusts with reserves at levels seen as suggestive of “financial vulnerability”,Tes can reveal.

The increase in trusts with reserves at 5 per cent of their income or less shows how they are being forced to “mitigate the impact of government underfunding”, according to a headteachers’ leader.

In the 2022-23 financial year, the reserves of 152 MATs out of 1,153 (13 per cent) had fallen under this threshold.

This amounts to a 42 per cent year-on-year increase, figures analysed by the Education Policy Institute (EPI) for Tes show.

The Education and Skills Funding Agency (ESFA) says in its guidance that it “does not set a required level of reserves”.

However, the threshold for the ESFA to contact a trust to understand its position and any potential support needed is when reserves reach 5 per cent of income or below.

‘Economic shock’ forced some trusts to use reserves

Leora Cruddas, chief executive of the Confederation of School Trusts, said some trusts have had to use their reserves to deal with “the economic shock of inflation”.

The figures are “a sign trusts are having to use their reserves to fund in-year deficits while they implement cuts to balance the books further down the line”, according to Pepe Di’lasio, general secretary of the Association of School and College Leaders.

He added: “At the moment, they’re being used to mitigate the impact of government underfunding while difficult choices are being made about cost reductions, which are likely to reduce educational provision. It is death by a thousand cuts.”

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While some trusts are financially sustainable with reserves at 5 per cent or less, “the majority of the agency’s proactive engagement with trusts has been with those with reserves below that level, as it might indicate financial vulnerability”, the guidance states.

At the other end of the scale, the ESFA is also “likely to seek further information” from a trust if its reserves reach 20 per cent or more of its income.

But there has been a 28 per cent fall in the number of MATs falling into this category, from 271 in 2021-2022 to 196 the following year, the analysis shows.

While real-terms per pupil funding is set to return to 2010 levels this year, the rate does not fully account for the increased costs facing schools, Jon Andrews, EPI director for school system and performance, said, adding: “In reality, the system is still dealing with a prolonged funding squeeze.”

Calls for investment ‘have been ignored’

Paul Whiteman, general secretary of the NAHT, said the figures showed that calls from the union to invest in education “have been ignored”.

Ebor Academy Trust, which has 23 academies in Yorkshire, held revenue reserves of more than £1.5 million in 2021-22.

But in 2022-23, while the trust’s income increased to £36.5 million, its revenue reserves dropped to £727,000 - just 2 per cent of its income.

Its finance director, Andrew Robinson, said the trust operates in four of the lowest-funded local authorities in the country and is concerned about unfunded pay rises for staff.

Similarly, Landau Forte Charitable Trust, which has six schools in the Midlands, saw its revenue reserves drop to -£690,000 in 2022-23 against an income of £27.94 million.

A spokesperson said the trust “has a plan to resolve this cumulative position” to address these challenges after the “financially challenging” past few years, and still holds £1.78 million in physical cash.

While small trusts tend to be more financially vulnerable, several bigger trusts are seeing depleted reserves too.

The Diocese of Norwich Education and Academies Trust, which has 40 schools, reported revenue reserves of £216,000 against a total income of £41.13 million for 2022-23, amounting to 0.5 per cent of income. The trust also reported a negative in-year balance.

All but one of the trust’s schools are primaries and more than half have fewer than 100 pupils.

Chief executive Oliver Burwood said unfunded pay rises, for support staff in particular, had impacted the trust’s reserves “significantly”, alongside higher teacher pay and pension costs.

“The cost of maintaining those small schools in proportion to the budget that we receive is particularly challenging,” he said, adding: “It’s like a double whammy if you’ve got a lot of primaries and small schools.”

He continued: “I know some trusts use funding from large secondary schools to cross-finance their primaries, but why aren’t we just funding primaries properly so we don’t need to do that?”

Age-weighted pupil allowance

Mr Burwood said it would be good for the ESFA to look at the age-weighted pupil allowance.

St Ralph Sherwin Catholic MAT has 25 schools in the Midlands, and its reported revenue reserves are negative for both years, at -£1.67 million in 2021-22 and -£3.74 million in 2022-23.

In those respective years, the trust had a total income of £47.53 million and £50.92 million. The trust has been issued with a notice to improve its financial management and was contacted for comment.

Other large trusts that have seen falling reserves include Astrea Academy Trust and ARK Schools.

Astrea is reported as having revenue reserves of £3.73 million in 2022-23, a fall from £3.98 million the previous year.

A spokesperson said 2022-23 was a “tough financial year” because of unfunded pay awards and energy price rises, but the trust “maintained a healthy revenue position”.

The fall in reserves “reflects a conscious decision by trustees” to bring forward investment in solar panels and school roofs as part of a green initiative, “the savings from which are being realised in 2023-24”, the spokesperson added.

ARK’s reserves are reported as being down to £10.98 million from £14.39 million. This amounts to 4.4 per cent of its income for 2022-23, though a spokesperson explained that some of the trust’s reserves have been set aside for IT and capital investment.

The trust’s chief operating officer, Jacqueline Russell, said finances “are currently very challenging as we are seeing below-inflation increases in per-pupil income” and the trust also needed to continue to invest in its estate and IT infrastructure.

“This will make it difficult to establish reserves over 5 per cent in the coming years,” she said, adding that she and trustees were “confident that we have sufficient reserves to mitigate risk and remain financially stable”.

ESFA ‘not jumping down schools’ throats’

Several trust leaders told Tes that the financial thresholds set by the ESFA for contacting them were generally reasonable and that officials seemed to be taking account of the current difficult financial situation.

The ESFA “isn’t picking up the phone and jumping down schools’ throats”, said Mr Burwood.

Benedicte Yue, chief financial officer at the 28-school River Learning Trust in Oxfordshire, and a trustee at the Institute for School Business Leadership, said the guidance was “sensible”.

“It sets helpful boundaries to prevent excessive reserves, which would indicate not enough is spent on pupils attracting the funding, as well as setting a floor, which might indicate financial vulnerability,” she said. “It is not too prescriptive but asks for more transparency.”

However, some trusts have found the dialogue less helpful. Andrew Frater, chief operating officer at the six-school Empower Learning Academy Trust in Havering, said the trust received a letter from the DfE about its financial position during the Easter holidays this year.

According to financial benchmarking data, the trust has -£593,000 of revenue reserves for 2022-23, against an income of £25.34 million.

But Mr Frater said the reported reserves deficit actually relates to a cumulative deficit and the trust carries about £2 million in reserves.

“We set a positive budget last year and we would have been fine, but the additional over-budget staff costs ended up at about £700,000,” he said.

‘More cautious’ about taking on new schools with deficits

The trust also took on two new schools in December 2022 that came with “big transfer deficits”, he said, adding: “We’d be more cautious with taking new schools on now because of that.”

The trust was asked to confirm receipt of the letter and send back “a load of things, such as bank statements, within a few weeks”, but Mr Frater felt this could have been dealt with more efficiently. “You can see from our accounts what is driving that deficit - or we could have had a 10-minute phone call,” he said.

The findings follow a report by the Kreston Reeves accountancy firm, published in February, that found an increasing number of trusts were having to dip into reserves to keep up with costs for 2022-23.

And many are warning that the financial situation for schools is getting more difficult - and this could leave reserves in an even weaker position.

“We are going to see an increasing number of trusts falling under the 5 per cent floor over the next two years if no additional funding is added to fund the pay awards next year,” predicted Ms Yue.

At the same time as seeing depleted reserves, fewer trusts have reserves exceeding 20 per cent of their income - the point at which the ESFA says it may “seek to ensure that appropriate plans are in place for the total funds held”.

But large reserves are not always deemed to be excessive: sometimes trusts build reserves to fund big capital projects.

For example, the Family of Learning Trust in Halifax had £2.48 million in revenue reserves in 2022-23, nearly half of its income of £5.01 million.

The small trust had two schools during the 2022-23 financial year, and built up its reserves to build a new hall at one of them - Beech Hill School, which had grown since opening in 2011.

“It was no longer fit for purpose,” said Darren Senior, finance director at the trust. He hopes the new hall will generate revenue through leasing it out to community groups.

The trust has since grown to five schools, one of which came over with a significant deficit. Mr Senior said the trust will be using some of its reserves to help that school. The trust is also having to “cut some staff and try not to use supply” to balance budgets.

‘We don’t know what’s around the corner’

“We just don’t know what’s around the corner so we need to keep some reserves for that as these cost increases aren’t being funded,” Mr Senior said.

Larger trusts that maintain reserves above 20 per cent of their income include Outwood Grange Academies Trust (OGAT), which had £43.17 million in revenue reserves against a total income of £215.4 million for 2022-23, and Star Academies, with £38.42 million in reserves against an income of £156.07 million.

An OGAT spokesperson said the trust “holds contingency reserves of three to four weeks’ salary costs in line with ESFA guidance on reserve levels”.

All reserves in excess of this are “committed, primarily to capital projects, addressing a legacy of underinvestment prior to OGAT sponsorship”, they added.

The ESFA guidance acknowledges that trusts choosing to build a high level of reserves “will generally do so because of specific needs”, such as capital projects.

It adds that “it would be unusual and potentially hard for a trust to justify the decision to hold significant reserves at this level for general contingency, given this funding could be used sooner for the benefit of pupils”.

Ms Cruddas said it was important that trusts were able to set their own reserves policy “to reflect their individual circumstances and long-term plans, and that day-to-day funding is sufficient and stable”.

The data used in EPI’s analysis is pulled from the academies’ accounting returns for 2021-22 and 2022-23 and is calculated using DfE financial benchmarking data. It matches that published on the department’s schools’ financial benchmarking website, other than for schools that were not in scope.

Revenue reserves figures reported on schools’ financial benchmarking include restricted and unrestricted funds carried forward from the previous year, and total income in the current year minus total expenditure.

For MATs, the figures are the totals for each of its single academies and the trust’s central services.

The sample includes 1,153 MATs with two or more schools that had published data for both years.

A DfE spokesperson said there are “strong” standards of financial health and governance across the sector, with 98.2 per cent of trusts in cumulative surplus for 2021-22, up from 97.3 per cent the year before.

The spokesperson added that schools are being supported through school resource management guidance and services.

The DfE has received a good amount of detail from the sector about reserves plans, Tes understands, and where this is lacking, expects trusts to put clear plans in place.

All MATs named were contacted for comment.

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