School funding

Investigate trusts amassing ‘substantial reserves’, watchdog tells DfE

A report found mainstream school finances had “held up well" in recent years, despite austerity cuts and other funding pressures

A report found mainstream school finances had “held up well" in recent years, despite austerity cuts and other funding pressures

25 Nov 2021, 0:01

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school funding

A spending watchdog has told government to investigate academy trusts building up “substantial reserves”, while the number of local authority schools in deficit has doubled.

A report by the National Audit Office today found mainstream school finances had “held up well” in recent years, despite austerity cuts and other funding pressures.

Around nine in 10 schools reported having cash leftover in their 2019-20 accounts. The report even found a “sizeable minority” of trusts were building up “substantial reserves”.

But the picture for council schools was more bleak, with those in deficit doubling. Meanwhile councils’ core school funding deficits have surged from £11 million to £675 million in five years.

The NAO noted figures would not fully capture Covid’s impact, however. School leaders’ union NAHT also warned many schools are obliged to balance their books, and surpluses may have required cutbacks.

Quarter of SATs had 20% of unspent income …

One in four standalone trusts and one in five multi-academy trusts ended last year with 20 per cent of their annual income unspent, according to the NAO. Just one in 20 maintained schools recorded similarly large surpluses.

The NAO said a “sizeable minority of academy trusts are building up sizeable reserves, meaing they are spending less than their annual income on their pupils”.

It recommended the Education and Skills Funding Agency investigate to “develop its understanding of why trusts are acting in this way, seek assurance that levels of reserves are acceptable, and take action where it has concerns that this is not the case”.

A Schools Week investigation in March revealed the biggest multi-academy trusts had managed to ride out Covid’s toll on their finances – using savings, donations and reserves to pump millions into catch-up schemes and laptops.

We also reported last month how a handful of trusts were making six-figure sums by using wealth managers, stocks and other investment strategies to generate cash from their reserves. 

Ministers have now told trusts to tap large reserves to cover repairs.

The NAO’s figures also reveal the number of trusts in deficit shrank from 7 per cent in 2017-18, to 4 per cent last year.

… but councils in trouble

By contrast, the number of maintained schools outspending income had more than doubled in five years to 11 per cent

For maintained secondaries, the average cumulative deficit is now £669,000.

The NAO said secondaries are under particular pressure as sixth-form funding has been slashed and councils have protected primary funding more.

The National Education Union described sixth-form colleges’ situation “truly dire”, forcing closures and mergers.

Geographic divides are also clear. While 14 areas had not a single school in deficit, another 26 areas had more than a fifth of schools outspending their income last year. NAO analysis “did not indicate a link” between such figures and deprivation.

Councils’ education finances overall have also deteriorated nationwide, attributed to rising special education needs and disabilities spending pressures.

Ninety-four authorities overspent their main funding pot, the dedicated schools grant, last year, up from just five authorities in 2014-15.

Local authorities in deficit spent £675 million more than they received last year, versus an £11 million overspend five years ago.

The NAO urged officials to research how schools had responded to mounting financial pressures, such as slashing staffing or SEND support, and why secondaries faced particular challenges.

DfE bad loans and cost-cutting under scrutiny

The watchdog also scrutinised the DfE’s bad loans and cost-cutting initiatives.

It noted the ESFA, which funds academies, has handed trusts in financial trouble £45 million in grants and £79 million in loans since 2014.

But it does not expect to recover more than a third of the loans, according to the NAO. 

The number of trusts whose finances are of “significant concern” to regulators has dropped from 66 in 2017 to 53 last year, however.

Meanwhile the watchdog praised the DfE’s “sensible” and “well-received” efforts to find savings in schools, including benchmarking tools.

The school resource management advisers programme identified potential savings worth £303 million from 979 visits up to March this year.

But only 313 schools and trusts updated regulators as requested six months later, and only £16.9 million savings had been made so far. 

NAO head Gareth Davies urged the DfE to make its data more reliable, and the NEU warned the cost-cutting initiatives “ignored its very obvious role creating such a difficult situation”.

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