School leaders and sector experts have condemned as “worrying” and “fantasy economics” a government suggestion that schools could use reserves “earmarked for other purposes” to respond to financial challenges this autumn.
In response to a Tes query about school requests for financial assistance, the Education and Skills Funding Agency (ESFA) said that many trusts were “well placed” to respond to current financial “challenges”, and that this may mean “using reserves, which we know trusts have worked hard to build up and may well have been earmarked for other purposes”.
But sector experts have taken issue with the suggestion that schools can use reserves to pay for day-to-day running costs, saying it would be an “unsustainable” strategy.
The full letter, sent to Tes in response to a Freedom of Information request, also stated that the financial health of the academies sector is, “in general, strong and across the sector”.
As well as saying that some trusts could manage challenges using reserves, it added that the DfE’s School Resource Management offer would help all schools, and that in cases of “significant financial difficulty”, the department was open to having “a supportive conversation to explore the challenges trusts are facing.”.
The Academies Financial Handbook says that trustee boards must set a policy for holding reserves and explain it in their annual report, but school leaders have said using these reserves to cover recurring cost pressures is not “sensible”, as they can only be spent once.
Schools are facing what leaders have described as a “perfect storm” of financial concerns this autumn, with rising energy bills, staff costs and other inflationary pressures hitting budgets at the same time.
Rising energy prices have been partly offset by a government support scheme - though this is only guaranteed to last until the end of March.
Schools are also facing having to fund a 5 per cent teacher pay rise from September, which the DfE announced after budgets had been set earlier this year. Support staff have also been offered an increase.
This has culminated in many schools running deficits or making drastic cutbacks to make ends meet.
Using reserves ‘unsustainable’
Luke Sibieta, a research fellow at the Institute for Fiscal Studies, said that using reserves to respond to the financial challenges in play would be “especially” unsustainable, given that school funding was only projected to rise by 2 to 3 per cent next year.
He added that although the recent announcement on energy support would offer schools some “temporary respite” from rising costs, “it will be a worrying sign if schools have to use reserves to cover day-to-day running costs”.
Leora Cruddas, chief executive of the Confederation of School Trusts, said that while recent energy support plans were “welcome in the short term”, it was “not sensible fiscal policy to assume that reserves are the solution to the enormous cost pressures facing schools and trusts”.
“Reserves can only be spent once and are not part of a medium- or long-term solution. The state must fund state education in a responsible and sustainable way. And we must build financial resilience into the system,” she added.
Geoff Barton, general secretary of the Association of School and College Leaders, said he was “pleased” the ESFA letter had acknowledged the pressures schools were facing but that, in the absence of additional financial assistance, it was likely that many schools would need to use what reserves they have “as a stopgap measure while they restructure their finances for the following year, with potential cuts to teachers and support staff”.
School development opportunities ‘wiped out’
Trust leaders also responded negatively to the suggestion that reserves may be used to offset financial pressures and that the financial health of the sector was “strong”.
Rachael Warwick, executive teacher at Ridgeway Education Trust in Oxfordshire, said reserves at her school were generally used to pay for urgent work, and that the word “reserves” itself was misleading because it “suggests additional money that is held to one side for use on a rare occasion”.
She said her trust had previously used the cash to replace a boiler at imminent risk of failure, to resurface a pedestrian route through a school that had become a health and safety risk, and to erect a canopy to provide outdoor shelter from the rain, and that without having reserves set aside, she would not have had the money to complete these works, as applications to the government’s Condition Improvement Fund had been unsuccessful.
She added that an online conversation she had with an ESFA caseworker had been ”neither supportive nor practical” and “frankly, underwhelming” (they offered a visit from a school management resource adviser but the trust already had one).
Another trust leader, who asked to remain anonymous, said that asking schools to use reserves only “kicked the can down the road”.
They also said that the idea that schools could use reserves to fund additional costs was “fantasy economics”, and it was “wildly imprudent to use reserves to mitigate recurring costs, as you can, after all, only spend the same reserves once”.
Trust and school leaders have also suggested that an expectation for schools to use their reserves to fund ongoing costs could have negative long-term implications.
Anne Slade, chief operating officer at The Pioneer Academy, a trust of 14 schools in the South of England, said the trust had “carefully” accrued reserves over a number of years and had plans to invest the money into “environmental projects”, and to “continue capital building projects”.
But she said that an increased cost of £550,000 for staff salary increases, alongside other rises, including energy bills, could mean the reserves were “wiped out”.
The DfE has been contacted for comment.
