NEW RESEARCH REVEALS LOOMING CASH CRISIS FOR ACADEMIES

 By Joe Scaife,

Head of Academies at accountants, Bishop Fleming, and Chair of the Academies Group at Kreston UK

This is among the top line findings of the latest independent benchmarking survey of more than 500 Academy schools, conducted by the UK Academies Group of Kreston International – the global network of independent accountancy firms.

Increases in staff pension and National Insurance costs, plus predictions of almost half a million more pupils by 2020, have contributed to six out of 10 Academies now expecting to run into deficit within two years.  At the same time, as expected, the Government has reduced funding available to existing Academies for capital projects and maintenance work.

That reduction is nearly £30m, and equates to a 25% cut on a school by school basis.  On the other hand, the Government plans to invest £23bn over the rest of this Parliament to build new schools and to increase capacity to meet the needs of growing pupil numbers.  However there is currently no further funding available for the additional children, resulting in an expected fall in funding per pupil.

Consequently, this latest benchmarking survey – Kreston’s fifth annual report – reveals blunt warnings of cash shortages, buildings not being properly maintained, and pressure on teacher numbers.  Those factors will have a direct impact on pupil-teacher ratios, the scope of subjects being taught, the experience of teachers being recruited, the upkeep of school buildings, and even the ability of some schools to continue in their present guise.

 

Most Academies have limited options on how to resolve the imminent dangers, so the next 24 months could be a crucial period for many schools.  Many schools are now looking at focusing on ways in which they can increase their income, as many have already cut costs as far as they can without impacting on the education provision.

One option is to join with other schools to form Multi-Academy Trusts (MATs), and the latest benchmarking survey demonstrates a rapid growth in MATs.  This is a route that has a lot of government support.  While there have been high-profile news stories about problems encountered by some of the large, national MATs, it is clear that clusters of local schools make good sense.  Indeed, almost 25% of my firm’s 350 Academy clients are now members of a MAT, while many others are actively exploring the option of joining with neighbouring schools in a MAT.

While some of those MATs span both primary and secondary schools, making comparisons difficult, our latest survey has been able to isolate the benefits to primary schools combining in a MAT, which has reduced their cost per pupil by almost £150.

As the move towards MATs accelerates, it is worth noting that policy makers have changed their view on MATs.  They now view an ideal MAT size as being at least 15-20 schools.  This is a larger grouping than many schools would currently feel comfortable to join and may be difficult for many rural schools to achieve.

Meanwhile, many Academies are already trying to address the looming cash challenge by looking at techniques for increasing their income, at a time when the Government seems to have devolved responsibility to fill the funding gap to the schools.

One option is for schools to ask parents and alumni to dig deep into their pockets to help out.  We already know of several of schools that have now asked for parental contributions to help them fill the funding gap.

Other options will include seeking corporate sponsorship and creating new sources of income from hiring out buildings and sports facilities.  There is no doubt, though, that every Academy must find ways to be even more business-like, which might include recruiting entrepreneurial managers who can generate new revenue streams while leveraging the most out of existing resources.

Not all schools are struggling though, in part due to the large regional variations in how our schools are funded.  A school in the West and South West can expect to receive £1200 less per pupil than a London school.  For a large secondary school this extra funding could pay for an extra 30 teachers.  The government has announced plans to make this funding fairer, but this will result in winners and losers.

For the moment, most of the 500 schools surveyed still have relatively strong cash balances, with the average for primary schools having risen from £271,000 to £363,000, although the average for Secondary schools has dipped from £1,187,000 to £1,093,000.

MATs are averaging a cash balance of £1,859,000 (up from £1,717,000), while a small number of MATs have cash balances of more than £5m.

There seems to have been little change in the average salary for secondary school Head Teachers, at £91,880, while the average salary for primary school heads has risen by 5% to £63,809.

One significant cut in costs for many schools has been the uptake of the Government backed RPA insurance scheme.  37% of Academies have swapped their cover to the RPA scheme in the first year alone.

On the other hand, Academies are under threat of local authorities seeking to pass over a much bigger share of their pension deficits, after the Deputy Pension Ombudsman approved a changed methodology which nearly doubled the cost for one new academy.  The overall LGPS pension deficit has risen for the fourth year in a row, and now stands at £1,272 per pupil.  We are not expecting to see this fall any time soon.

All in all, the latest benchmarking study should provide the Heads, Governors, and Managers of Academies with a clear pointer to the financial challenges ahead, and how some of their peers are already making changes to meet those challenges.

     
   
   
 
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