Rising costs affecting confidence in academy sector

There is a growing nervousness in academy trusts about what the future might hold for the health of the sector’s finances, according to the 11th annual Kreston Academies Benchmark Report.

Although significant surpluses are being reported in the sector, per pupil income has increased by just 1% in the last year against a backdrop of inflation rates of more than 10%, increased energy costs and teacher pay hikes. As a result, 88% of trusts are expecting future reductions in surpluses and reserves.

Whilst the sector has seen in-year financial surpluses once again, these surpluses are lower than the previous record-breaking year. However, a significant proportion of single academy trusts (SATs) in the primary sector (47%) have reported in-year deficits for 2021/22, suggesting larger trusts are faring better financially.

This is the first time in four years that on average, in-year deficits have been seen in primary SATs. This is due to a small number of primary SATs with very large deficits, resulting from capital and maintenance expenditure that has dragged the overall average down.

Pam Tuckett, chair of Kreston Global’s academies group and head of education at accountants Bishop Fleming, said: “This year’s figures are a reflection of the significant political and economic uncertainty that has sent ripples through the education sector at a time when trusts are still feeling the financial impact of the post-Covid catch up.

“While the data shows surpluses, they are much more modest than we have seen in previous years, and for the first time ever, nearly all trust leaders we spoke to have expressed serious concern over the future financial position of their trusts.

“Many trusts are expecting that any surpluses will be needed to help them navigate their way through soaring energy bills, inflationary pressures and future pay awards for staff.”

Primary SATs reported a significant jump in per pupil energy costs, which climbed from £58 in 2020/21 to £84 per pupil – a rise of 45%. While average gross teacher salaries in secondary SATs increased by 14% since 2021/22.

Other costs have risen substantially too. Some schools have seen food prices increase by 20% in the last year, which completely outstripped funding for free school meals in two thirds of trusts.

Leora Cruddas CBE, chief executive of the Confederation of School Trusts said: “The publication of the Kreston Academies Benchmarking report continues to be a significant moment in the trust sector landscape. It provides us with a snapshot of the issues – in particular the financial issues – faced by the sector.

“This year, the report offers a cautionary tale about continued uncertainty, rising cost pressures and the impact of the cost of living on children and young people. Trusts have once again proved to be the most financially resilient school structure, but leaders have concerns about rising costs which are impacting on financial confidence.”

There has been a 30% increase in capital spending compared to 2022.

Pam Tuckett said: “These figures reflect the struggle trusts had to spend capital grants last year as they emerged from the pandemic. We’ve seen trusts accumulating huge shopping lists as post-Covid investments in capital items and fixed assets such as building maintenance, renovations and investment in IT take shape after plans were shelved when schools were dealing with Covid-related disruption. The impact of this delayed spend on budgets could be significant.”

The challenge of falling pupil numbers could be acute for primary schools in the years ahead. The Office of National Statistics (ONS) has reported that numbers attending primary and nursery schools peaked in 2019 and are predicted to fall by at least 12% in the next 6 years.

Pam Tuckett said: “We have already seen many primary schools having to restructure to cater for lower numbers of pupils, and therefore falling income. Although Covid-19 funding has provided some protection, this is an issue which could have a much longer-term impact for the sector as a whole.”

Overall, MAT revenue reserves per pupil have fallen by 7.4% from £802 to £743. This is partly because of rising pupil numbers in secondary schools.
As The Education & Skills Funding Agency (ESFA) has indicated reserves above 20% of income could be subject to scrutiny, the report highlights 11% of MATs are carrying reserves equal to or above this threshold.

Pam Tuckett said: “Conversations with our clients have revealed that a significant number of trusts with above 20% reserves are thinking about how to spend or designate their funds so they fall below this threshold.”

Larger trusts with more than 7,500 pupils have achieved surpluses this year broadly in line with the strong financial performance of 2021, when the average in-year financial surplus doubled to £1.7m.

Some of this could be explained by the fact that all large trusts within this band receive School Condition Allocation (SCA) funding, which means they do not have to make any additional contributions to secure capital funding. In contrast, smaller trusts are subject to the terms of the Condition Improvement Fund (CIF), which requires individual schools to make financial contributions in the form of bids to secure funding for projects such as renovations and building maintenance.

70% of MATs said they expected to grow in 2022/23, with 92% forecasting growth by the end of 2023/24. Over 5% of trusts expected to grow by 7+ schools in 2023 and also 7+ schools in 2024.

There has been a slowdown in the number of schools moving between trusts. 176 academies (1.8% of open academies) moved trust in 2021/22 and only 23% attracted grant funding, a massive decrease from the peak of 63% back in 2014/15. The actual level of funding was £1.73m, substantially down on the £3.16m in 2020/21.

Pam Tuckett said: “These figures underline the increasing difficulty in securing funding to take on new schools and highlights the critical due diligence needed to ensure new schools will be financially viable.”