The latest Kreston UK Academies Benchmark Report has found that more trusts are having to eat into their reserves as they cope with financial uncertainty
The number of academy trusts reporting in-year deficits has risen substantially, a major new report into school sector finances has revealed.
The Kreston UK Academies Benchmark Report 2024 has found 47 per cent of trusts now have an in-year revenue deficit for 2022-23. This is up from 26 per cent the year before and more than double the figure in 2021 when it was 19 per cent.
The authors of the report warn that there has been “a marked increase in the number of academies dipping into their reserves to keep up with the significant costs” facing the sector.
They also said the worsening financial picture has led to a reduction in the number of multi-academy trusts (MATs) planning to grow.
Accountants at Kreston and Bishop Fleming surveyed nearly 300 academy trusts that are responsible for more than 2,200 schools.
Here are eight key findings from the report.
1. Energy prices driving up non-staffing costs
The report said that non-staff costs have risen by up to 16 per cent for some schools. Energy costs were a big part of that, rising by 49 per cent from the previous year.
Staff costs remained relatively controlled.
Schools have had some additional funding through the Mainstream Schools Additional Grant, Schools Supplementary Grant and Energy Efficiency Grants.
But sector experts saidthat schools’ costs are rising beyond the support to meet them.
Benedicte Yue, chief financial officer at River Learning Trust, said despite trusts doing everything they can to control costs, “the simple fact is that costs are increasing faster than funding and schools are constantly asked to do more with less”.
2. Teaching costs are trust’s biggest concern
Staff costs as a percentage of total costs have reduced from 75 per cent in 2021-22 to 72 per cent in 2022-23 for a large MAT and from 74 per cent to 71 per cent in a primary single-academy trust (SAT).
Despite this, 93 per cent of trusts said that teaching costs were their biggest concern.
When asked: “What are the biggest financial challenges facing your Trust?” 128 of the 137 responses said teaching costs.
The Kreston report adds: “This is hardly surprising after a year of uncertainty including teacher pay disputes not being accepted until July 2023, which resulted in a 6.5 per cent pay offer from September 2023.”
3. Trusts face depleting reserves
As a result of growing costs, there has been an increase in the number of academy trusts having to use their reserves to cope.
Over the next three years, 75 per cent of trusts told accountants their reserves would either be lower or have entirely run out.
Many trusts are still holding significant amounts of free reserves, but this does differ across the sector.
On average, large MATs are holding around £7.84 million in free reserves (compared with an average of £8.02 million last year).
Primary SATs, predictably, hold the lowest average free reserves at £346,000, compared with £398,000 last year.
Commenting on the findings, Leora Cruddas, chief executive of the Confederation of School Trusts (CST), said: “Using reserves is not a sustainable way forward for the system at all.”
4. Trusts warn of uncertainty
One of the main problems facing trust finances is the uncertainty of future funding, according to the report.
As the report authors note, trusts will often report deficits further into their three-year financial forecasts because they do not have the information available to make more optimistic projections.
This impacts their ability to plan: several trusts told accountants they have had to postpone investment projects because of fears they would not have the reserves.
Ms Cruddas said: “CST wants to see a fair per-pupil settlement that is sufficient, sustainable and equitable, and includes weighting for disadvantage.
“As the Kreston UK Academies Benchmark Report says, we need a longer notice period for funding decisions to enable good strategic planning. It is essential that the next government addresses this.”
5. Fewer MATs expect to grow
The Kreston report also showed a drop in the number of trusts that were expecting to take on more schools.
In today’s report, 73 per cent of MATs said they expected to grow in the next two years, compared with 92 per cent last year.
The authors of the report said the government’s focus on all state schools being part of a MAT by 2030 “appears to have very much diminished”.
The report also found that the pace of academisation has slowed over the past five years. It noted that there was a 100 per cent increase in the number of academy schools in the five years to 2019, but only a 19 per cent increase in the past five years.
“One of the ways in which you secure the strength and sustainability of your organisation is to secure growth,” Ms Cruddas said. “But I don’t think it is a strategy in itself.”
She added: “It should be about building organisational strength and sustainability and your ability to impact positively in relation to the improvement of your schools.
“But when you are having to make really difficult financial decisions, your risk appetite becomes less and you cannot afford to bring in another school that could create an additional risk to your finances.”
Kevin Connor, head of academies at Bishop Fleming, said the reduction in potential growth plans “is a symptom of this worsening financial position overall”.
6. GAG pooling and centralisation
The number of MATs pooling their income and reserves has also increased in 2022-23 compared with the previous year (32 per cent compared with 23 per cent in 2021-22).
It also found that just over 60 per cent of MATs included in the Kreston report are also now fully centralised. This is defined as a trust where all functions are centralised across all schools, such as finance, estates, HR, IT and procurement.
The report said that fully centralised MATs tended to have higher free reserves per pupil, which the authors said would suggest their financial performance is better.
”We expect to see the number of MATs becoming fully centralised increase in an effort to identify financial efficiencies,” the authors said.
7. Problems for primaries
Primary SATs are often the worst hit by financial struggles and were the only type of trust on average in a revenue deficit for the second year in a row.
The authors also said that MATs who do not GAG pool will have to start “looking creatively” at how much they charge for central functions to balance budgets, particularly if they are primary-only.
One trust included in the report charged a flat rate for its primaries, and another reported waiving central charges for some struggling primaries altogether.
8. Planning for falling rolls
Another financial issue trusts are facing is the expected drop in pupil numbers, which will in turn impact their funding.
Bishop Fleming and Kreston accountants advised that trusts should be planning at least five years ahead to consider how to cover their costs as this hits them.
Accountants also warned that trusts will need to consider the cut to their budgets when Covid-19 recovery funding is removed next year, as it represented 1.3 per cent of total income in 2023.
“Across our clients, a lot of trusts are still forecasting in-year deficits next year,” said Mr Connor. “They need early communication with the government and as much advance notice as possible about what funding they will be receiving.”
A DfE spokesperson said school funding is rising to the highest ever level in real terms per pupil next year.
The added: “While the vast majority of schools are operating with a surplus, we are providing up to £40 million in 2023-24 to support schools which find themselves in financial difficulties.”
For the latest education news and analysis delivered directly to your inbox every weekday morning, sign up to the Tes Daily newsletter
You need a Tes subscription to read this article
Subscribe now to read this article and get other subscriber-only content:
