Escalating cost pressures, dwindling reserves and difficulties in maintaining financial stability are all challenges facing academy trusts, as outlined within the Kreston UK Academies Benchmarking Report.
Data from the report validates the fact that financial pressures in the academy trust sector persist, and have intensified – specifically for smaller Multi-Academy Trusts (MATs) and Single Academy Trusts (SATs), as they endeavour to contend with rising costs and restricted public sector funding.
Financial deficits
The report attests to the fact that the percentage of academy trusts making in-year financial deficits has tripled since 2021, increasing from less than 20% reporting deficits in 2021/22 to nearly 60% in 2023/24.
The primary driver of deficits is the rising cost of teaching and support staff, a concern cited by 81% of respondents. Successfully managing staff costs has always been a core part of an academy trust’s ability to maintain a surplus and, according to The MAT Finance Sector Insight Report 2024, keeping staffing costs around or below the 80% threshold is essential.
The MAT Finance Sector Insight Report predicts that by 2026/27, the average cost per teacher will exceed £70,000, up from under £60,000 in 2022/23. Government funding for teachers’ pay has not kept pace with increasing costs, making this a significant hurdle when attempting to address any financial deficit. tes magazine stated last year that “Only a third of academy trust finance chiefs say a 3% teacher pay rise will be affordable next year on current funding levels.”
In addition, the growing demand for special educational needs and disabilities (SEND) provision and SEND budget deficits; rising energy costs; requirement to invest in school buildings and equipment; and falling pupil numbers, are combining to increase the financial strain.
Diminishing reserves
The level of reserves held within an academy trust often depends on its size and approach to forthcoming risks and opportunities. According to the Department for Education (DfE), many trusts “choose to hold around one month’s salary costs or expenditure as a minimum to protect cashflow, around 6 to 8% of income” and “For some trusts a lower level of reserves could suggest financial vulnerability and challenge, especially if much below 5%.”
It is therefore concerning that, according to Kreston’s Benchmarking Report, almost a third (31%) of academy trusts are now holding less than 5% reserves, this figure has risen from 17% in 2022 and there has been “an overall net deficit on free reserves across our data population this year of c£8million.”
The MAT Finance Sector Insight Report 2024 shows that 37% of trusts expect to be holding revenue reserves of less than 5% by the end of 2026/27 – a position that is even more pronounced in those trusts with mostly primary schools in their mix of schools.
Future outlook
Data from Kreston’s Academies Benchmarking Report indicates that larger MATs are coping more favourably with current financial pressures than smaller academy trusts. More than 60% of large MATs reported feeling confident in their financial stability.
With more confidence sitting with MATs, it would be natural to conclude that an increase in volume of larger MATs would improve the financial picture, delivering economies of scale and the ability to pool resources. However, certain legislative changes on the horizon may hinder this as a solution, potentially inhibiting growth for academy trusts.
- The Children’s Wellbeing and Schools Bill is currently working its way through Parliament as a means to ‘smooth out the differences’ between local authority maintained schools and academy trust schools.
There are concerns that the Bill will revoke many freedoms academy trusts were given when the current framework was established. Proposed revisions include a requirement for academy trusts to teach a revised national curriculum, follow national pay and conditions rules for teachers, employ qualified teachers in most circumstances, and admit particular children if directed to do so by a local authority.
The Confederation of School Trusts responded to the Bill, saying: “We must ensure that the enabling conditions for excellence and innovation are protected and indeed enhanced going forwards.”
- The Trust Capacity Fund (TCaF) and start-up grants, which helped cover due diligence, integration and risk mitigation, are being phased out. Over 50% of academy trusts surveyed within Kreston’s Academies Benchmarking Report stated this would negatively impact their growth plans.
Challenging decisions may be necessary to bridge financial gaps if additional funding is not secured – with academy trusts looking at options such as reducing teacher and teaching assistant numbers.
Looking to the positives – it is indicated that the predicted decline in pupil numbers will not be as significant as initially expected over the next few years, with figures potentially bolstered due to an influx of pupils from the independent sector. Astute financial planning and drawing on alternatives forms of income, such as hiring out facilities or providing consultancy services to other schools, may also help with financial sustainability. Strategies to generate extra income may benefit from a trading subsidiary being established, professional advice should be sought if academy trusts are considering this option.
How M+A Partners can help
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M+A Partners’ benchmarking data will be released shortly, including detailed analysis for schools in Norfolk and Suffolk.