Ministers ratchet up scrutiny of academy trusts’ reserves

Trusts say the crackdown disincentivises long-term school rebuilding planning

Trusts say the crackdown disincentivises long-term school rebuilding planning

21 Oct 2022, 12:01

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The government wants reassurance that hundreds of academy trusts with reserves worth a fifth or more of their annual income have plans to spend the cash.

But trusts say the crackdown disincentivises long-term school rebuilding planning. Schools Week investigates

The government is investigating whether academy trusts with reserves worth a fifth or more of their annual income have “robust” plans to use the cash.

Placing a cap on reserves isn’t sound policy

Schools Week analysis suggests hundreds of trusts’ budgets could be under scrutiny, despite many saying the reserves are for Covid-delayed building projects or are helping them stay afloat as costs soar.

But ministers ratcheted up scrutiny after the National Audit Office (NAO) called for “action” over those building up “substantial reserves”.

NAO analysis found 22 per cent of trusts had reserves amounting to one-fifth of annual incomes in 2019-20.

However, one senior trust leader said any potential “cap” would disincentive long-term school rebuilding plans.

Guidance to ensure academy trusts aren’t ‘holding back too much’

In March, MPs on the Public Accounts Committee (PAC) made similar pleas, and in June Labour’s Baroness Wilcox warned that “these institutions cannot be cash cows”.

The DfE said earlier this year it was “strengthening” trust data requirements to help “challenge the robustness of their financial reserves’ plans”.

It was also “exploring” new guidance to help trusts hold cash for contingencies and big investments “without holding back too much that could otherwise be used to benefit current pupils”.

Questions were added to this July’s budget forecast return about how trusts would use reserves exceeding 20 per cent of income, and about planned project costs and timings.

A DfE spokesperson confirmed officials were “working through the data” to ensure it was being “invested back into schools and pupils”.

The latest data has not been published, but last year’s accounts suggest at least 699 trusts would face scrutiny if they have broken even since.

Single-academy trusts were more likely to meet the threshold. Forty-two trusts’ reserves were more than half their annual income, and three had savings exceeding income.

Ashton West End Primary Academy, a 459-pupil standalone trust in Greater Manchester, received about £2.5 million last year with £671,000 not spent, pushing reserves to £3.7 million or about one-and-half times income – the highest of any trust.

Accounts said some of the excess would be used on staffing and infrastructure, but some was held because of the risks of “diminishing funding”. It did not respond to a request for comment.

Reserves now a lifeline for rising costs

Many trusts would bridle at suggestions they are “cash cows”.

Reserves rose in both 2019-20 and 2020-21, partly because of Covid lockdowns limiting everyday and capital spending.

But many trusts are now forecasting deficits. Some 350 leaders warned the government this month that rising inflation and unfunded pay hikes put trust viability at risk. Several chief executives recently told Schools Week reserves were a lifeline amid soaring energy bills.

Stuart Gardner, the chief executive of The Thinking Schools Academy Trust, even warned of a culture of stockpiling if trusts “know government won’t step in”.

Officials are also scrutinising out-of-date budgets. Ministers’ and councils’ unexpectedly high pay decisions came after many trusts had already submitted their budget figures.

Trusts’ circumstances vary too. Thirteen of the 20 trusts with the highest-ratio reserves in 2021 run special schools or alternative provision. Four are multi-academy trusts with one school, suggesting growth ambitions requiring investment.

Reserves rise due to Covid staff shortage

An Apollo Schools Trust spokesperson said its reserves had risen because of Covid-linked staffing shortages in its new alternative provision, and cancelled refurbishment and IT projects.

A National Autistic Society Academies Trust spokesperson said reserves were for planned investments in therapists and IT training.

Delta Academies Trust, the Bishop Hogarth and Bishop Bewick Catholic trusts, Star Academies and the Diocese of Chelmsford Vine Schools Trust were the only five trusts with 20 or more schools to meet the 20 per cent threshold.

The chief executive of Bishop Hogarth, Mike Shorten, said the data was “misleading” as it included 18 schools’ income but 29 schools’ reserves. Some £8.9 million of “essential” maintenance and construction would cut reserves to 8.7 per cent, he said.

A Delta spokesperson said it was set to spend nearly £15 million this year on capital investment across its schools. Projects were delayed during Covid, which led to a “build-up” in reserves. The spend included the Dallowgill outdoor education centre in the Yorkshire Dales, which would give every pupil across the trust a two-night residential experience.

Suthan Santhaguru, the finance director at the Vine Schools Trust, said reserves were paying for material cost increases and urgent capital projects not funded by the government.

‘Capping reserves isn’t sound policy’

Sir Martyn Oliver, the chief executive of Outwood Grange Academies Trust, said placing a cap on reserves “isn’t sound policy”.

“We should be asking all those responsible for public buildings to have a long-term plan in place to maintain them. Reserves should be judged against this.”

The trust, which has 40 schools, boosted its overall reserves from £22.8 million in 2020 to £31.9 million last year.

academy trusts reserves

“We have a long-term estate plan,” Oliver said. “We take on many schools that are broken educationally and which are often in poor buildings with urgent estate needs.

“So we save hard and build up enough money to be ready to undertake capital expenditure projects – without needing to go to the Government to ask for additional funding.”

No large trusts had reserves ratios above a quarter, while some had ratios as low as 5 per cent.

A spokesperson for the David Ross Education Trust, with a ratio of 3 per cent, said it had been “gradually strengthening” reserves after rapid expansion.

A Department for Education spokesperson said schools nationally had “high standards of financial management”.

The government would take current financial challenges “into consideration”, but would take “appropriate action where necessary”.

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