Revenue balances: a waste of money?

The issue of high salaries paid to top officers by some academy trusts, highlighted in the previous post, isn’t the only financial issue facing the sector.  Now that more of the 2017-18 account are appearing a Companies house, it is possible to see the extent of the revenue balances being held by many academies; together with the occasional deficit.

So far, in Oxfordshire, 20 of the 39 Trusts operating academies or free schools across the county have reported their accounts and had them published on the companies house web site. In aggregate, they reveal around £4.6 million of revenue reserves held by primary schools and £4.3 million held by secondary schools. However, the deficits across both sectors total £1.1 million, mostly from one secondary school that has been in financial special measures for a couple of years and is gradually reducing its deficit.

One multi-academy trust, United Learning, operates six schools in Oxfordshire, but does not reveal revenue balances by school in their accounts. This MAT pools the money centrally for all their schools, and can then presumably use it where it can do the most good. Pooling also allows the total amount held in reserves to match the needs across the MAT in any one year and the amount can be set at a lower level than if the figure is chosen by each school. This was the approach taken in the past by local authorities, before schools gained control of their own budgets nearly 30 years ago.

A MAT operating say, 30 schools can decide that a reserve of five per cent overall might be appropriate to meet the contingencies and future needs in any one year of all schools in the MAT, whereas each school governing body might be more cautious and aim for 10% if setting a level on its own.

There is, however, a risk with pooling across geographical boundaries that schools in one area could be subsidising schools in another area. If parents discovered that a school in a MAT was taking this approach, they might choose not apply to that school, but to a school where the full funds were available for the education of their offspring.

This is an argument that balances are reducing because of the financial pressure that school currently face. There are certainly schools where revenue balances were lower in 2018 than in the 2017 accounts. But it is not yet a universal truth for all schools.

Could all schools in a local area be required to bank either with the local authority or an arm of central government? Such pooling would only work if these balances can be used rather than be treated as a deposit accounts. Pooling balances might also free cash being saved by schools for special projects at some point in the future for more immediate use, including cash being accumulated for capital projects. There seems little other justification for revenue balances of more than £1 million being held by some secondary schools other than future capital projects, especially while other school have insufficient funds.

Funding schools is a tricky business, but money should not be tied up in reserves when it can be released for improving teaching and learning.

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Idle cash is not not useful cash?

Is holding some £2.4 billion pounds of public money in reserves a good use of our money? The DfE revealed that in August 2017 academies and their Trusts were holding this sum in reserves against committed and potential future needs. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/728768/Academy_revenue_reserves_2016_to_2017.pdf.

The position seems to have worsened over the most recent period, as the DfE note states that: ‘This is a decrease of 0.6 percentage points from 94.5% of trusts in 2015/16. 95.7% of academies (6,715) were in trusts that were in surplus or breaking even at the end of 2016/17’. Despite noting that figures could not be provided at an individual school level, the DfE does state that:’ Smaller trusts are more likely to have a deficit. This means that only 4.3% of academies (300) were in trusts that were in deficit at the end of 2016/17.’ Of course it is possible for some schools in a Trust to have positive balances and others to have a deficit. Following Lord Agnew’s recent letter to auditors of academies and Trusts, it is perfectly possible to transfer funds between schools in this situation, something not possible in the maintained sector.

The note doesn’t seem to consider whether benchmarks for levels of reserves are appropriate for academies and MATs? In the past 5% of turnover was considered sufficient for secondary schools and 8% for primary schools to hold as reserves. Even allowing for central costs, MATs should not be holding significant amount sin reserves.

Earlier this week, I raised concerns with Oxfordshire’s the accounting for positive balances held by maintained schools and schools with deficits. I have the same concern about the use of a table showing ‘net’ reserves in the DfE’s note. Any lay person looking at the table and associated text might think that the net position was because deficits could be offset against surpluses. As noted, that is possible at the level of the schools within an individual Trust, but not between schools in different Trust as far as I am aware. For MATs the table really needs to be split into two sections; deficits that can be covered within a MAT and MATs where all schools are in deficit or stand-alone academies where there is no current provision for covering the deficit other than by reducing expenditure within the academy to a point where the deficit is eliminated.

The STRB might be helped to be made aware of any regional trends in schools with deficits that might relate to pay decisions. The alternative is that schools and MATs with deficits are randomly spread around the country and are the result of poor leadership rather than the consequence of any policy decision.

Although the Command Paper on Legislating for the Withdrawal Agreement between the UK and the EU (Cm 9674) contains a section on rights to residence of EU citizens, the DfE could usefully publish a paper on how school budgets, including those of academies might be affected, should a percentage of EU citizens decide to return home, possibly because of their jobs transferring to another EU country, after March 2019 and Brexit.

Some five per cent of pupils in Oxfordshire’s schools have EU citizenship of a member state of than the UK. Some 14 schools, mostly in and around Oxford has more than 10% of such pupils at the last count. Any significant withdrawal might put their finance sunder some strain.

Schools still hoarding cash

Figures released by the DfE yesterday at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/264737/SR54-2013Text.pdf suggest that the dwindling band of maintained schools are still not spending all their revenue income. With the revision of the national funding formula yet to see the light of day, these figures might suggest that the current method of funding schools isn’t achieving its key aim of improving teaching and learning as much as possible.

According to the DfE, in 2012-13, the total revenue balance across all Local Authority maintained schools was £2.2 billion, a decrease of £0.1 billion (5.0%) over the 2011-12 revenue balance figure of £2.3 billion. This equates to an average surplus in each maintained school of just over £113,000. However, according to the DfE the total revenue balance of £2.2 billion is 7.5% of the total revenue income across all LA maintained schools. Because of the schools becoming academies that have dropped out of the tables, this is an increase of 0.4 percentage points in revenue balances compared with the 2011-12percentage of 7.1%. So, not only are many maintained schools hording even more cash than last year, but roughly one pound in every £14 the average school receives isn’t spent in the year it is received.

With almost totally devolved budgets, it is legitimate for schools to maintain balances, and the DfE looks at 5% for secondary schools and 8% for other schools as being a reasonable level. There were apparently 464 schools that exceeded this level of reserves. Interestingly, 73 of these schools were in London. Together the London schools were holding in excess of £12 million pounds in reserves above the recommended limit. £2 million of that was apparently held by just four schools in Tower Hamlets: an excess of more than half a million pounds at each school.

By contrast, the average excess reserves in Newham, the next door borough, amounted to just £19,000. Because academies have a different financial year to maintained schools they are excluded from the figures, so comparisons between authorities may not always be helpful, but they do raise questions about what is happening to money lying idle for several years. One Tower Hamlets schools has apparently had over £1 million in uncommitted balances for the past five years since the 2008/09 financial year according to the DfE figures, and appears in the latest table with an uncommitted revenue balance of nearly £1.5 million.

Of course, there are also schools with deficit budgets, but the number has been reducing. According to the DfE, there were 1,111 maintained schools with a revenue balance deficit compared to more than 18,000 schools with a surplus. The total deficit across all LA maintained schools that had a deficit was £81.2 million, a decrease of £28.7 million (26.1%) over the 2011-12 total revenue balance deficit figure of £109.9 million. This equates to an average deficit in each school with a deficit of just over £73,000. The average figure for balances among primary schools in surplus was £93,000 and for secondary schools in surplus it was £405,000.

Last year, I suggested that some of the reserves should be used to create work experience for unemployed young people. In some of the London boroughs with high youth unemployment that might remain a good idea.