New report reveals financial pressures facing academy trusts
The Kreston UK Academies Benchmark Report, which covers the 2023/2024 academic year, found that cost pressures have outstripped income in the academy trust sector for two consecutive years.
The report, co-authored by Chris Beaumont, partner and head of academies at Darlington-based accountancy practice Clive Owen LLP, revealed that the percentage of trusts making in-year financial deficits has tripled since 2021.
Chris Beaumont, partner and head of academies at Darlington-based accountancy practice Clive Owen LLP (Image: Chris Booth) This means that around three in five trusts are now in deficit.
The report found that most trusts (81 per cent) indicated that their biggest financial challenge is the cost of teaching and support staff.
A key contributing factor is government funding for teachers’ pay, which has not kept pace with rising costs.
The growing demand, coupled with significant budget deficits in special educational needs and disabilities (SEND) provision, are adding further financial pressure on the sector.
Single academy trusts (SAT) have been hit hardest by cost rises, where staff costs as a percentage of revenue income exceeded 75 per cent for the first time since 2022 in both primary and secondary schools.
While on average multi academy trusts (MATs) have made surpluses, they have dwindled significantly.
Small trusts averaged surpluses of just £1,000 compared to £203,000 in 2022.
Larger trusts reported just £99,000 surpluses, down from £1,564,000 over the same period.
The data analysed in the report reveals a net deficit of £8 million in free reserves for 2023/24.
Additionally, trusts’ financial safety nets are collapsing, with reserves as a percentage of income showing a clear downward spiral as more were forced to tap into them in 2023/24.
Almost a third (31 per cent) of trusts are now holding less than 5 per cent reserves as a percentage of income, a threshold the Education and Skills Funding Agency (ESFA) considers to be a sign of potential financial vulnerability.
This figure has risen from 17 per cent in 2022.
As a result, many trusts have been left with no choice but to draw down from already shrinking reserves to cover the cost of essential buildings maintenance and repairs.
The removal of the Trust Capacity Fund (TCaF), financial aid to support trusts when they take on more schools, has thwarted many trusts’ plans to grow, with more than half (50 per cent) expecting growth plans to slow in 2024/25.
However, there were some positives to draw from the report, demonstrating the resilience of the overall academies trust sector.
These included increased investment income generated in some trusts that have actively sought out more favourable banking interest rates for their cash balances.
Some trusts have made over £1m in the year 2023/24, with increased financial returns on surplus cash deposits and managing multiple savings accounts to spread risk.
Only around 12 per cent of trusts listed the cost of heat and electricity among their top three financial concerns as prices have fallen and schools continued to reduce their carbon footprint.
Commenting on the findings of the report, co-author Mr Beaumont said: “The Kreston UK Academies Benchmark Report delivers a considered state of the nation evaluation of the sector, and this year’s report highlights the myriad of challenges facing academies.
“It is worrying that around three in five trusts are reporting financial deficits, which will only be exacerbated further by the changing political landscape, rising operational costs and wage increases.
“This has the potential to deplete smaller trusts, in particular, of their reserves entirely.
“They should only be used as a measure for unexpected financial emergencies or planned projects, not day-to-day running costs that some trusts are having to draw down from, which is not sustainable in the long-term.
“Now more than ever, trusts must scrutinise their budgets even further and be bold when making tough decisions in order to offset the multiple challenges affecting the sector as a whole.”