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Why are academies’ balance sheets showing a surplus?

| Rachel Barrett | 30 August 2022

Some academies across the UK are experiencing huge surpluses on their balance sheets - but this is not a case of trusts hoarding funds. Instead, many are simply exercising caution with their cash after the abrupt spending cuts imposed by national COVID-19 restrictions and uncertain income streams.

After the challenging circumstances facing Multi Academy Trusts (MATs) over the past two years, it’s little wonder that they are now looking to spend on less urgent items. After all, costs have been reduced across the board - from exam fees, education resources and staffing to building maintenance.

When schools are used to careful budgeting to make the most of their annual allowances, sitting on a surplus from months of prolonged absence or lessened attendance is only logical - and I’m sure they’d have faced much more vocal criticism had they spent every penny despite missing months of in-person learning.

Tallying up the totals

Each year, Duncan & Toplis co-authors a major report into the finances of nearly 1,500 schools in 300 academy trusts across the UK. The Kreston Academies Benchmarking Report represents the finances of 17% of all academy schools in the UK, making it one of the largest surveys of its kind.

With academies accounting for 35% of all state-funded schools in the UK, this report provides an essential insight into an element of the education sector which is normally excluded from official government and local authority data.

The data from the 2022 report shows that cash balances and free reserves (such as unrestricted funds or restricted funding like GAG) are higher across each type of school - but reserves for MATS are significantly higher.

On average, MATs have just shy of £2 million in their budgets from 2021 - a £500,000 increase on the preceding academic year. Cash balances yield a similar story, with an average of £3 million plus, which is a jump of 160% from pre-pandemic figures.

The Kreston report isn’t the only source of such figures. In fact, the National Audit Office (NAO) issued their ‘financial sustainability of schools in England’ report last November which outlines that the average cumulative surplus per pupil is over double for the academies sector compared to the maintained sector, with £689 versus £337 in 2020. Fast forward to 2021 and that figure has climbed higher still, to £820pp for MATs.

It asserts that 93% of academy trusts experienced a surplus in 2019/20 - which equates to £16.9 million in savings, based on 313 returned responses.

It might sound excessive, but context is key here. We should note that the academy sector will, by and large, have larger schools, which would make the seemingly stark difference in reserves simply an issue of proportion.

In the same vein, the clear majority (61%) of those academies questioned said that they expected their reserves to be measurably lower in three years' time. This is logical - given that costs that were avoided during lockdowns are impossible to ignore long-term. In the coming months and years, there will be costs such as essential estate repair costs and building maintenance - which seem to have been put on hold due to schools closing and the logistics to supply during the pandemic.

Concrete capital: exploring estate repair

Part of this will be supported by the Schools Rebuilding Programme (SRP) which was announced last June. This promises to carry out major rebuilding and refurbishments across education settings across the UK for the next decade.

Unfortunately, not every school in the nation will be able to be included - not by a long shot. The scheme only aims to support 500 schools over its projected 10-year run, which amounts to just 2.04% of the 24,413 schools in England.

In a survey to the 300 academy trusts, the Kreston report asked “what will it cost for you to repair your estate?” Over two thirds of respondents (67%) said they expect it to exceed half a million pounds. This likely means that only the largest among the MATs will be able to afford such costs - unless of course they are lucky enough to be included among the confirmed schools for the SRP.

The EdTech avalanche

Before the last two years, I dare say that no-one thought school children would be learning from their homes and remotely contacting teachers and classmates - so the Covid-induced changes we’ve all seen develop have meant that spending on fixed assets beyond land and buildings has been on the up.

A 2021 EdTech survey showed that only 3% of secondary schools haven’t upgraded their technology in the last twelve months - which of course suggests that a staggering 97% have. The ICT budget, once perhaps something of an afterthought, is suddenly the least likely to be cut, given that it’s now an essential part of everyday learning.

Costs beyond control: pension schemes

One of the largest figures on the balance sheet - and one that trustees can usually do nothing about - is the pension deficit. Contributions to both the LGPS and TPS schemes are expected to increase, meaning each will become more expensive. Unfortunately, trusts have no choice but to remain in the fold for now given the lack of alternatives - but with 25% of the 1,200 independent schools on the scheme having already bowed out of the traditional pension schemes, this is expected to put further sustained pressure on those managing it. This is almost unavoidable, given that under the scheme, employer contribution would equate up to 33% - based on figures from the Independent Schools Bursars Association’s actuarial report.

While the reality of academy finances has felt like it’s in freefall since the start of the pandemic, the clear patterns we’ve seen emerge over the past two years mean that the academy sector’s future now seems much more stable.

While balance sheets might seem somewhat bloated at the moment, this could easily change. With pupils now learning physically within the walls of schools, impending or overdue estate repair costs racking up (which have risen significantly over the last year or so), continued investment in EdTech and climbing energy bills set against a backdrop of 40-year high inflation rate of 10.1%, many factors are combining to challenge the stability of the academy sector’s balance sheets. So, while long-delayed spending will be essential in the months to come, caution is still crucial.

 

Click here to download the Kreston Academies Benchmark Report 2022 or click here to find out more about Duncan & Toplis’ services for academies.

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