Severe financial challenges facing academies in 2017 | HCSS Education

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Severe financial challenges facing academies in 2017

Managing an academy trust’s finances has been a difficult job in recent years, but as the calendar year closes new problems have come into focus for 2017 and beyond. 

HCSS Education investigates some of the biggest financial challenges academies will face in the new year and beyond. 

No relief from cost pressures 

This week, the nation’s public spending watchdog issued a grave warning to schools that they would have to make £3 billion of savings before 2020. 

This, the National Audit Office (NAO) said, equated to an eight per cent funding decrease in real terms – the worst since the mid-1990s.

Amyas Morse, head of the NAO, criticised the Department for Education for failing to play its part. 

He said: “The department is looking to schools to finance high standards by making savings and operating more efficiently, but has not yet completed its work to help schools secure crucial procurement and workforce savings.”

Much of the reasoning behind the funding crisis relates to rising cost pressures, as Phil Andrews, a Senior Consultant with HCSS Education, explains. 

“Funding for maintained schools and academies has all but flat lined at a time when expenditure, in particular expenditure on staff, has gone through the roof. 

“Higher employer contributions to national insurance and pensions continue to hurt schools but there are also new cost pressures on the horizon next year and subsequent years.” he said.

Deeper deficits

The NAO’s report showed that more and more academies were overspending and getting into a state of budget deficit.

Overspend on income was up in both primary and secondary schools, affecting 44% of primary school academies and 60% of secondary school academies, compared to 38% in 2013. 

“With no new funding in sight, it seems likely that this trend will continue,” said Phil.

The amount by which academies are overspending is also rising, according to the NAO data. This indicates that the deficits facing academies are growing larger. 

Before joining HCSS Education in June, Phil Andrews worked at Hampshire County Council where one of his key roles involved school deficit reduction.

He said: “Most schools have already cut non-staffing costs down to the bone and now it seems like more painful cutbacks will be on the way. 

“Staffing cuts are more difficult to make for a whole range of reasons, not least because they usually have a more direct impact on education standards. My job with the local authority, and now at HCSS is to get schools to think more carefully about where cuts are possible and how they can maintain and improve educational outcomes while also saving money.

“It sounds like an impossible task, but it is possible with careful planning and a healthy measure of creativity and vision.”

A new funding formula

Also this week, the government announced that it would re-distribute income between schools starting in the 2018/19 academic year. This news was welcomed by some schools, but sat uncomfortably with many others. 

The government says that the new formula will make school funding fairer, eliminating some ingrained disparities between areas and school types. It will result in 54% of schools receiving extra funds and 46% losing money. 

In effect, the policy will take some funds away from schools, primarily located in major cities like London, Manchester and Birmingham, and re-distribute that income to schools in more rural areas, as well as schools with high levels of low prior attainment pupils. 

Phil said: “When funds are re-distributed, and no new funds are added to the pot, there will always be winners and losers. 

“Now, at least, school leaders have more clarity about what their budgets will look like in a few years’ time and it means they can start budget planning with a bit less uncertainty.”

Apprenticeship levy 

While it may not have as larger impact as some of the cost pressures that have already come, the apprenticeship levy will have a negative impact on some larger organisations when it comes into effect in April 2017. 

The levy will only be applied to employers that have a total annual wage bill of more than £3 million. 

These employers will be forced to pay 0.5% of the total wage bill to help promote apprentice training. 

Phil said: “The relatively high threshold means that many academies won’t be affected by this change. However, for MATs, this extra 0.5% increase could cause some serious damage, especially if trusts have failed to properly account for it in their budget plans.”

Recruitment challenges 

At a time when many academies will be looking to make savings on staff costs in the short, medium and long-term, there are parallel recruitment challenges facing the sector. 

The NAO report found that many academies and maintained schools were cutting their staff costs by replacing higher-paid teachers with younger recruits, using interim staff and promoting unqualified staff. 

But there is a growing teacher shortage problem. The government trained 6,000 fewer teachers in the last three years than it had originally planned to and there are some concerns that this reduction in supply might make it harder for schools to make the required staff savings. 

Phil said: “The teacher shortage has got particularly bad with some subjects, particularly maths, physics and languages. 

“The most worrying trend, however, is the growing shortage of headteachers. Huge numbers of schools and pupils will suffer if there aren’t enough good quality heads around and academies might have to pay a lot more to get them.”