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Lockdowns and temporary closures result in a record financial year for schools

| Duncan & Toplis | 27 January 2022

Academy schools across the UK have had their best financial year on record, despite the pressures of COVID-19, according to a major report out today.

The Kreston Academies Benchmark Report 2022 surveyed more than 300 academy trusts and 1,500 schools across the country, assessing their financial performance for the 20/21 academic year; the first full year since the start of the pandemic.

The schools, which account for 16% of all academies in the UK, recorded fewer in-year deficits, increased reserves and increased cash balances, with just 3.8% of trusts running at a cumulative deficit (down from 5.4% in 2020). However, the authors warn that the in-year surpluses will quickly be wiped out as schools spend to meet rising costs.

The record performance is largely due to the spending reductions which were possible through temporary school closures and lockdowns, with exam fees, supply costs, utilities and facilities management savings outweighing any resulting financial losses.

While many trusts are now - for the first time - forecasting a budget surplus within the next three years, the report’s authors warn of troubling uncertainties which could stretch budgets further. These include the longer-term impacts of the pandemic, further disruption to the educational timetable, staff shortages, inflation and soaring energy costs.

Our director and head of academies, Rachel Barrett who co-authored the report, said:

“Schools faced a myriad of challenges of the last academic year, as they played the critical role of educating children while responding to changing restrictions and public health measures which included lockdowns, temporary and partial closures, and isolation periods. 

“While these figures paint an encouraging picture, this is really a reflection of the unusual circumstances of the last academic year and the long term situation isn’t nearly as positive: School funding is still very much uncertain but costs are likely to rise quickly, primarily due to staffing pressures, rising energy prices and operational costs. Of course, the savings that were possible during lockdowns and temporary closures may never be available again, and there may well be some long-term impacts of the pandemic from an educational and resourcing perspective which will have to be overcome. Budgeting will be very difficult due to all this uncertainty so schools may choose to seek efficiency savings through centralisation and the formation of more, larger MATs (multi-academy trusts).”

During the year, MATs saw their in-year financial surpluses rise the most, with average surplus doubling to more than £460k in 2021, up from £221k in 2020. Overall, this equates to a 94% uplift per academy from 2020 to 2021 – representing the sector’s highest-ever surplus.

Academy trust cash balances have also been bolstered through the injection of government funding earmarked for COVID testing, education catch-up programmes and other COVID-related costs that schools have not yet had the time or capacity to spend due to the pandemic. The report’s authors also warn that these in-year surpluses will be needed to fund the recovery effort.

Pam Tuckett, chair of Kreston International’s academies group and head of education at accountants Bishop Fleming, said:

“There’s no denying that on paper, multi-academy trusts have had a record-breaking year in terms of their financial health. But the story behind the data reveals a much more complex picture. 

“Government funding to cover COVID testing, additional staffing and other costs relating to the pandemic has largely not been spent as time constraints saw existing school staff bear the burden of introducing new measures to support pupils and tackle the spread of the virus. This money will be swiftly invested to address the colossal toll the pandemic has had on pupils’ education and wellbeing. 

“Additional spending resulting from rising inflation, soaring energy prices and the increased cost of plugging staff shortages will rapidly eat into financial gains across the sector too.” 

Leora Cruddas CBE, chief executive of the Confederation of School Trusts, said:

“The Academies Benchmark Report shows that the sector is generally in the robust financial health it will need to face the considerable challenges ahead.

“Trust leaders continue to respond to immediate pandemic related issues, with a firm eye on the horizon as the impact of staff absence and the price tag associated with the recovery effort come to bear. We may well have seen the high point in terms of trust surpluses.”

Jonathan Jackson, Chief Financial Officer at the Voyage Education Partnership, which operates eight academy schools in Lincolnshire, said:

 “Our experience from the last financial year is quite similar to the overall trends in this report - there have been some savings due to school closures, but, with staff remaining in employment and with teaching having continued throughout the year, the reduced spending on utilities, food and similar costs wasn’t so significant. Planned capital spending had to be delayed due to supply chain issues and the availability of suppliers.

 “Overall, we are in a strong financial position, but there are plenty of uncertainties that are a concern for us. One of these is the anticipated rise in the teacher starting salary and the uncertainty surrounding pension contribution rates and general inflation pressures. These are all costs that must be covered and we are planning for, but more information on the long-term funding position would be welcomed to assist with future financial planning. Now face-to-face teaching is back, we’re also investing a lot of resources into helping our learners catch up on any lost learning from the pandemic, so I certainly wouldn’t say that schools are doing well financially at the moment.”

The report shows primary academies have fared less well than secondary trusts or MATs, with average surpluses at just £14k in 2020/21. It is likely that this smaller surplus reflects the costs primary schools have incurred in managing the administrative burden of COVID-19 and being open to more pupils for a longer period of time during the pandemic. 

Other findings from the report include:

  • Staff costs as a percentage of total costs remained static for the 2021 academic year, with the average across all schools only moving up by 0.1% to just over 75%. The average for secondaries continued to creep up, as it has done for the last 8 years. This position could change significantly in 2021/22.
  • MATs have continued to grow in the last 12 months, with the average size of a trust increasing from 6.8 schools last year to 7.5 in 2020/21. Nearly 65% of trusts reported expected growth in 2022/23 too, with 57% forecasting up to three additional schools joining their group. 
  • 61% of trusts predicted their reserves will be lower in three years’ time and just 14% of trusts were confident they would remain the same. 
  • 97% of trusts are now partly or fully centralised, where tasks such as finance, HR, estates and school improvement are managed by the trust rather than its individual schools.
  • There has been an 11% increase in the average surplus for trusts comprising a single secondary school and a small reduction in the average in-year surplus for single academy trusts overall 
  • The number of trusts with in-year deficits (19%) has halved since 2019 and trusts showing a cumulative deficit position have dropped for the third consecutive year to just 3.8% in 2021 from 8.2% in 2019
  • The percentage of academy trusts GAG (general annual grant) pooling, where funds are collated from all schools in the group and distributed centrally according to need, has risen from 11% in 2020 to 14% in 2021, showing that they are in a small but growing minority

Published annually by Kreston International’s academies group, the report is a financial state of the national survey of over 300 trusts representing over 1,500 schools. The survey covers the 2020/21 academic year. 

Click here to download the 2022 Kreston Academies Benchmark Report.

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