Academy trusts – are increased reserves sustainable?

In January, Kreston International published its 10^th annual Academies Benchmark Report. The survey of over 300 Trusts representing over 1,500 schools reported key highlights for the sector, including:

• 94% uplift in surplus per academy from 2020 to 2021
• 65% expect to grow in 2022/23 by at least 1-3 schools
• 97% of trusts are now part or fully centralised
• 80% of income is approximately spent on staff

In the first of three articles, Kelly Goodwin explored the strengthening financial performance across the sector.

In this, the second article, we will ask whether these increased surpluses and strengthened financial positions are sustainable? To answer this, we need to look further into why the sector is showing record breaking financial results.

Over the past two years schools and Academy Trusts have faced a period of unprecedented change as they have dealt with and adapted to the restrictions enforced during the COVID-19 pandemic and while many of us may now be finding our new normal, Academy Trusts are playing a continuous game of catch up in terms of both education and operational performance.

Trusts have therefore found that they ended the 2021 academic year with an increased level of surplus’s due to a number of factors outside of their control, including;

• Additional COVID funding
• Reduced capital spending
• Reduced expenditure
• Limited strategic growth

Covid funding

The Government was quick in its promise of support to schools and the new package of additional funding was announced as the biggest increase to core funding in a decade. Intended to help Trusts deal with the educational disruption experienced over the last two years, from early exceptional costs claims of 2019-20 to COVID-19 catch up premium granted during 2020-21 and paid to Trusts in installments throughout the year.

Yet whilst the promise was there, Academy Trusts were still experiencing a high level of disruption during 2020-21 academic year. With constant guidance updates, remote learning, class bubbles and higher absence rates than ever, events that were out of their control and unpredictable, restricted management’s ability to be able to implement the additional measures needed.

Pairing this with the staffing challenges caused by isolation rules and a high demand for supply staff and the result is in many cases, funding allocated has not been used due to the lack of availability resources.

Reduced capital spending

In addition to the educational disruption, many Trusts have also faced disruption and delays when completing ongoing and new capital projects. Schools have had extended periods where they have only been open to key workers and vulnerable children and have been implementing a variety of enforced COVID restrictions that have limited access to sites in order to reduce the spread of the virus. This has meant that contractors have not be able to complete planned work.

From our recent survey, there is significant work to be undertake across our schools, with the majority of repairs to estates in excess of £500,000. For new capital projects, Trusts have reported noticeable difficulties obtaining the required three quotes, with contractors either being fully booked with a backlog of work or being unprepared to quote for the work due to uncertainties within the construction sector due to labour shortages, rising material costs and increasing supply chain issues.

As a result, there is a backlog of maintenance work and capital constructions projects within sector that are leading to increased unspent capital funding and bolstering Trusts apparent surplus position.

Reduced expenditure

The pandemic and subsequent school closures have also resulted in a number of cost savings across the Trust’s with reduced exam fees, lower energy bills, maintenance projects, and after-school club costs that have helped fuel Trust’s increased reserves.

However, energy costs are likely to be one of the biggest costs to effect Trusts in the next few years. Gas prices are increasing and the conflict in the Ukraine energy prices is likely to push energy prices higher than many Trusts will have planned. As deals end and new deals are brokered academy trusts are likely to find themselves in a position where costs significantly exceed their budgets.

Teaching costs have remained fairly static over the past year two years. Trusts have seen a notable saving in the cost of supply teachers during 2020-2021 while children were remote learning and this will have only added to the increased surpluses. It is likely that Trusts will see supply teaching costs increase as schools look to fully implement Covid catch-up programmes.

Are Trust reserves sustainable?

So, with the reported sector trends are the reported significant increases to Trust’s reserves sustainable?

Whilst the Government imposed restrictions have now been lifted, the Covid-19 virus has not disappeared and future outbreaks cannot be ignored. Trusts remain on high alert, and the effect of the pandemic on the attainment gap and staff recruitment remains the single biggest concern for Trust leadership teams.

The demand for teaching staff remains high and will continue to do so for the foreseeable future. Teaching staff who contract Covid are still likely to isolate pushing the demand for supply teachers alongside the ESFA pledge to increase starting salaries to £30,000 Trust are will likely see a sharp increase in staff costs in the next few years.

Inflation, the highest for over two decades, will also be a concern, adding cost increases to salaries and supplies. It is predicted that Trust costs could increase by as much as 7%.

As indicated, energy costs will increase and by significant amounts. This will be a particular issue for Trusts where supply agreements have ended and they are looking to negotiate new energy contracts.

And as strategic plans for growth start to be restated the need for Trusts to look at their future growth plans and invest in bridging the gap COVID has created has never been greater.

Therefore, sustained levels of high reserves are unlikely, as Academy Trust start to path the road to the new normal, which is not going to happen overnight, the need for management and trustees to work closely together to prioritise spending is paramount to a Trusts success.

In a third and final article will we explore what the future may potentially hold for academies and the impact this will have on financial performance and position.

For more information about the topics explored in this article, contact us here.