More signs of funding woes for some

This week the DfE published the annual update on revenue balances and deficits for schools across England. Once again the data for 2017-18 shows a deteriorating position for many schools. It will also fuel the debate about how London schools are funded compared with those in the rest of the country.

Overall, the figures seem to show schools diverging between those with a surplus and a growing number with a deficit. The percentage deficit as a share of revenue budgets is also increasing, especially among local authority maintained secondary schools. Data for schools that are academies or free schools is published separately and covers a different period of the year to the budgetary cycle for local authority maintained schools.

As a result of the conversion to academy status by some schools, the number of schools in the tables differs from year to year. However, the last two years have seen a slowdown in conversion to academies and there enough schools in each cohort to suggest the trends might be worth monitoring across all schools.

All maintained schools with revenue balances saw those balances, on average, hold steady at 6.3% of revenue (6.4% in 2016/17). However, those schools with deficits saw these increase from 6.3% to 7.3% on average. The number of such schools also increased, despite conversions to academies reducing the overall number of schools in the table this year.

In the primary sector, schools with positive balances slightly increased them as a percentage of income from 7.4% to 7.5% whereas primary schools with deficits saw those widen from 3.5% to 3.9% of income.

There must be more concern over the secondary sector, where those remaining maintained schools with a positive balance saw it decline to just 1.9% of income. The previous year the percentage was 3.0% across all schools. Of even more concern is the 300 or so maintained secondary schools with deficits where the figure increased from 8.4% of income to 9.8%.  Will these deficits increase in future or, as pupil numbers start increasing in the secondary sector, stabilize and eventually reduce in percentage terms?

Might the end of rising pupil numbers in the primary sector lead to an erosion of the relatively more favourable financial position of this sector when compared with the secondary sector? Certainly, the cash injection from the Chancellor in his budget might help at the margins, but, if there is a snap general election in 2019, school funding might just play a part in some contests alongside the dominant issue of Brexit.

Looking at the geographical distribution of schools with large percentage balances compared to income, the North East London area that includes, Tower Hamlets, Newham and Barking & Dagenham seems to be over-represented with schools showing large percentage balances; several for a number of years. Many schools, and especially secondary schools in f40 authorities will no doubt gaze in amazement at schools where the percentage balance is more than 20% of revenue.  Some might question why the percentage has stayed so high for a number of years in a few schools and whether these schools are producing the best possible outcomes for their pupils.

Personally, I believe that schools revenue is largely to be spent in the year it is received, with cash only set aside into reserves for the consequences of the depreciation of long-term assets to be added to reserves to ensure that these assets can be replaced. I don’t think such reserves require to be more than 50% of revenue, as is the case in a school that has been increasing its percentage each year for the past few years. I would be especially unhappy if that school were saving for a building project at the expense of the education of their present pupils.


Blog post supported by EPI Report

Last December this blog published a post headed ‘Figures back heads views on funding pressures’. it was, therefore, interesting to read the report issued by the Education Policy Institute that appeared today and effectively says much the same thing.

You might want to compare Education Policy Institute’s (EPI) key finding with my post last December. EPI have said that:

  • The number of local authority maintained secondary schools in deficit reduced from 14.3 per cent in 2010-11 to 8.8 per cent in 2013-14. Strikingly, however, over the period of four years up until 2016-17, the proportion of local authority secondary schools in deficit nearly trebled, expanding to over a quarter of all such schools – or 26.1 per cent. The average local authority maintained secondary school deficit rose over this 7 year period, from £292,822 in 2010-11 to £374,990 in 2016-17.
  • The number of local authority maintained primary schools in deficit has also risen. In 2010-11, 5.2 per cent of local authority primary schools were in deficit – this reduced in the following year to 3.7 per cent, before staying at a level of around 4 per cent until 2015-16. However, in 2016-17, the proportion of primary schools in deficit increased significantly, to 7.1 per cent. The average primary school deficit also noticeably increased, from £72,042 in 2010-11, to £107,962 in 2016-17.
  • At a regional level, the South West had the highest percentage of local authority maintained secondaries in deficit over this period – with 22.1 per cent of schools in deficit in 2010-11, rising considerably to over a third of schools (34.9 per cent) in 2016-17. The East had the lowest – with 7.5 per cent of local authority maintained secondary schools in deficit in 2010-11, rising to 17.5 per cent in 2016-17.
  • The North East had the highest number of local authority maintained primary schools in deficit in 2016-17 at 10.1 per cent. The East of England consistently had the lowest, with 2.6 per cent in deficit in 2010-11, rising to 3.4 per cent in 2016-17.
  • A large proportion of local authority maintained schools are now spending more than their income. Over two-thirds of local authority maintained secondary schools spent more than their income in 2016-17. Significantly, such events are not just occurring for one year – we find that 40 per cent of local authority maintained secondaries have had balances in decline for at least two years in a row.
  • Similar figures are found for local authority maintained primary schools – in 2016-17, over 60 per cent were spending more than their income. A quarter of local authority maintained primaries have had a falling balance for two years or more.

Where the EPI report does go further than I did last December is in looking at implications as well as the regional breakdown of schools for concern. However, the latter points may be affected by the asymmetric distribution of academies across England.

Implications for schools: financial pressures and deficits – EPI report

  • For a significant proportion of schools in England, being able to meet the cost of annual staff pay increases from a combination of government funding and their own reserves looks highly unlikely, even in the short term.
  • In response to pressures, schools have undertaken various efficiency measures to deliver cost savings, such as switching suppliers, reducing energy usage and reducing the size of leadership teams.
  • However, education staff account for the majority of spending by schools – around two-thirds. It is likely that schools will find it difficult to achieve the scale of savings necessary without also cutting back on staff. Many schools will face the challenge of containing budget pressures and reducing staffing numbers without impacting on education standards.

Either way, the outlook for schools and their pupils is bleak, but so it is across the whole of the public sector just as George Osborne warned it would be in the second half of this decade when he became Chancellor. It was just that few wanted to believe him.




Figures back heads views on funding pressures

Most commentators will be focusing on the primary performance data published today. I am sure that is not why the DfE also chose to publish the annual update on maintained school finances for 2016-17 today.

Although this is time series data, comparisons from year to year are handicapped by the conversion of schools to academy status and their removal from these tables. Nevertheless, at the national level, some pointers do become clear, especially as the funding between academies and maintained schools is now roughly the same for most of their government funded revenue income. They do, of course have different accounting years, and this can affect issues such as spend on salaries and the payment of increments.

If the average percentage of revenue income held as balances by maintained schools  is considered, this has now started reducing after a long period when the percentage was on the increase in both the primary and secondary sectors.

Maintained  Schools:

Total revenue balance as a % of total revenue income

Primary Secondary
2009-10 5.9% 3.2%
2010-11 6.6% 3.9%
2011-12 7.9% 5.6%
2012-13 7.9% 6.2%
2013-14 7.9% 6.4%
2014-15 8.2% 5.0%
2015-16 8.4% 4.6%
2016-17 7.4% 3.0%

This is the first year that the primary sector has recorded a decline in balances as a percentage of revenue income. In the secondary sector, the decline started in 2014-15 and there has now been three years of declining revenue balances overall.

For schools with a deficit, overall the aggregate position is also deteriorating:

Primary Secondary
2009-10 (3.5)% (4.0)%
2010-11 (3.6)% (4.8)%
2011-12 (3.7)% (5.7)%
2012-13 (3.1)% (5.2)%
2013-14 (2.9)% (5.8)%
2014-15 (3.3)% (7.3)%
2015-16 (3.0)% (7.7)%
2016-17 (3.5)% (8.4)%

Again, the position is worse in the secondary sector. This may be partly due to the remaining secondary schools that haven’t converted to academy status being more likely to be in deficit. Of the remaining maintained secondary schools included in the data for 2016-17, 26% had a deficit budget compared with just 7% of primary schools. This may also reflect the fact that rolls have been rising across the primary sector but falling until this year across the secondary sector.

The average spend on teaching staff increased in the primary sector by £68 per pupil and in the secondary sector by £58 per pupil over the two years 2015-16 and 2016-17. In the same period, the primary sector reduced running costs by £30 per pupil and secondary sector by £25 per pupil.

Schools overall increased non-government revenue income by £25 per pupil in the primary sector and £13 in the secondary sector in this period. Some of this is just income taken in to cover the costs of trips, meals and other expenses, but it also includes parental contributions and donations.

Overall, the figures show that the squeeze on income is now really beginning to affect schools, especially in the secondary sector. These figures back up the complaints of secondary head teachers about their funding levels. With general inflation now over three per cent and the  need to offer recruitment and retention payments to counteract below inflation pay increases, the next few years are going to be challenging times for maintained schools, and almost certainly for academies as well.

Schools can no longer rely on dipping into their saving for a rainy day: that day has now arrived and the cash is being used up.




Another aspect of the funding problem

What happens if a large secondary school at the centre of a multi-academy trust comprising a mix of both primary schools and a secondary school goes bust, perhaps because the original founders made some unwise decisions and there was then a drop in applications from local parents to send their children to the secondary school, aware that teachers were leaving the schools and concerned that standards might slip as a result? Or because there was an outflow of EU nationals from the area now Article 50 has been triggered.

Does the failure of the secondary school bring down all the primary schools in the MAT as well or can they survive on their own. At what point should the trustees decide to cut a financially unviable school adrift and will the Education Funding Agency allow them to do so if there are other assets in the MAT that might keep the school going for longer?

I am sure that there are civil servants in Coventry thinking about these types of scenario and perhaps role-playing them with Regional School Commissioners. How far have they progressed in their thinking should the MAT has a faith base and all the schools within it belong to the same faith or Christian denomination?

Sitting in the wings is the local authority, with whom the ultimate authority for providing every pupil with a school place still resides. What happens if the school that has just become financially unviable is in a rural area and the places at other schools require a large increase in the school transport bill? Who picks up the tab?

Obviously, the ideal solution is for the school buildings to open under a new administration, but will the government allow that to happen if it means writing off the debts of a school. To do so might encourage other schools to run up large deficit budgets, secure in the knowledge that the government will bail them out. One answer might be for the government to replace the trustees. But at what point? As soon as a deficit budget position is reached? When the deficit going forward looks as if it will reach a pre-determined percentage of current turnover after taking any falling rolls and thus falling income into account? If the financially unviable school is a faith school, can a new faith school replace it? To do so might well save on transport costs, but a replacement school that wasn’t faith-based might allow for transport savings. Of course, much will depend upon who has the ownership of the buildings?

With the demise of several UTCs and studio schools, plus a small number of other academies, these scenarios are no longer in the realm of the unthinkable. But, does there need to be a level playing field with some clear and open guidelines that don’t encourage schools to create deficits on their revenue spending.

At present, there is the ‘financial notice to improve’ from the EFA, but, the issue is what happens when the school or MAT doesn’t do so for reasons beyond its control? Time to re-read the Academies Financial handbook.


Pension Fund concerns

No, for once this isn’t about the Teachers’ Pension Fund, partly because there isn’t one: the government pays the difference between receipts paid into the scheme and the pensions payable to pensioners each year. There is an issue about why private schools are in the Scheme, but that may be for another post.

This post is about the report by UHY Hacker Young, the national accountancy group that was released earlier today. According to the authors, the Local Government Pension Scheme fund deficits around the country have increased between 75-100% on average over the last year, following Brexit-related market turbulence. This change affects all academies directly because nearly all non-teaching staff in schools are members of these schemes, unless they have chosen to opt out. As academies publish accounts each year, the scale of their deficit is easy to uncover

I raised concerns about growing deficits among academies in Oxfordshire earlier this year at a meeting of the county council, as they are the body that administers the scheme. Apparently, in 2013 the DfE gave some form of guarantee about under-writing the deficit. However, that seemingly has yet to be challenged, presumably because if an academy changes hands the deficit just passes to the new body running the school. I am not sure what has happened when a school closes completely as happened with at least one UTC in the West Midlands.

Of course, pension deficits are to some extent an a figure on a balance sheet of the type accountancy standards require, but most ordinary mortals pass over very quickly and nod sagely when it is explained to them at the meeting where the annual accounts are presented and discussed. However, with staff costs making up around 75% of the total costs of the average school, according to UHY Hacker Young, something will eventually have to be done to prevent these deficits overwhelming the education budget as a whole, so trustees might want to start asking questions when the accounts are presented to them later this term for sign-off.

As UHY Hacker Young explain:

“Pension deficits fluctuate each year according to market rates and other complex assumptions, however the trend over recent years, even before this latest increase, has been upwards. A deficit means the pension fund does not currently have sufficient assets to pay pensions that will fall due in the future to retired staff, so trustees are rightly questioning how the gap will be funded and where costs can be cut to plug the deficit.”

One option would be for the government to nationalise the fund rather than continue to allow a significant number of different local authority schemes to operate. This would, presumably, reduce the cost of administration, but some well-run schemes might see their returns reduce. However, schools would be secure in knowing that non-teaching staff were now being treated in the same manner as teachers. I assume if this somewhat drastic approach were to be chosen there would have to be a new Scheme, since taking away current assets from the market would be unthinkable.