Department for Education: Managing the expansion of the Academies Programme - Public Accounts Committee Contents

1  Financial implications of the expanding Programme

1.  Academies are publicly funded independent state schools. They are directly accountable to the Department, and outside local authority control. Unlike maintained schools, which receive their funding via local authorities, academies are funded directly by central government, and have greater financial freedoms—for example, to set staff pay and conditions.[2]

2.  The Academies Programme was originally launched in 2002, and was aimed chiefly at replacing underperforming secondary schools in disadvantaged areas.[3] In May 2010, the Government announced its intention to allow all schools to seek academy status. The Academies Act was passed in July 2010, and by September 2012 the number of open academies had increased by 1,037%, to 2,309, compared to 203 in May 2010.[4]

3.  Along with this rapid increase in numbers, the Programme has seen considerable growth in costs. Of the £8.3 billion which the Department spent on academies between April 2010 and March 2012, around £1 billion was an additional cost which it had to meet from existing budgets while remaining within overall spending limits.[5] Some of this expenditure appears to have risen because of errors leading to overpayments.[6]

4.  Some of the budgets the Department drew upon to fund the expansion had been previously earmarked for other purposes - most notably £95 million originally intended for improving underperforming schools. There is a risk that the Department's decision to solely use this money to create academies—many of which were already high-performing—may have been at the expense of weaker non-academy schools which could potentially have benefitted from it more.[7] This is a particular risk in the primary sector.

5.  In due course the Department will have to demonstrate that such funding decisions have achieved value for money, and that it has achieved tangible improvements for the additional public money it has put into the Programme since the expansion began.[8] The Department told us that it will consider value for money to be achieved if academies raise educational standards without receiving additional financial inputs.[9] However, it is not clear precisely how, or when, the Department intends to assess progress and ultimately reach a judgement on value for money.[10] Nor is it clear how, in doing so, the Department will recognise the £1 billion of additional costs already incurred in operating and expanding the Programme since April 2010.[11]

6.  The Department is responsible for the design and operation of the system through which it funds academies. We heard that funding arrangements are very complex, partly because the current system was not designed to fund academies alongside maintained schools as the Department is currently doing.[12] The resultant issues with the funding system have contributed significantly to the £1 billion additional cost of the Programme since April 2010. For example, to avoid double-funding across the system the Department aims to recover from local authorities the majority of the funding it pays to academies.[13] However, between April 2010 and March 2012 the Department paid academies some £350 million which it did not recover from local authorities, creating an additional cost pressure which it had to meet from existing budgets.[14]

7.  In addition the interplay of the local authority and academy systems has generated other costs. For example, to ensure the sustainability of local authority services such as special educational needs support, the Department has chosen not to recover the associated funding from local authorities. The resultant double-funding has cost an additional £21 million since the expansion began.[15] A further cost has arisen because the Department calculates academies' funding for central services using local authority budget returns.[16] This makes academy funding sensitive to changes in local authorities' budget assumptions, and leads to volatility in academies' income from one year to the next.[17] Over the two years from April 2010, the Department spent £59 million topping up academies' income to protect them from the impact of this volatility.[18] The Department has also had to provide an extra £92 million for insurance, which is more expensive for academies as they are unable to benefit from the economies of scale or self-insurance arrangements available to local authority schools.[19]

8.  In addition to these obvious inefficiencies and additional costs, we expressed concern that the Department could not clearly demonstrate that academies are funded on a genuinely equivalent basis to other schools.[20] We heard media reports and analysis suggesting that academies receive more funding than maintained schools in the same local authority area.[21] There is a risk that the expectation of increased funding may be a perverse incentive for schools to convert.[22] The Department acknowledged that its method of calculating academies' funding for central services may result in some academies receiving too much whilst others receive too little.[23] However, the Department told us that, with the exception of the known additional costs identified in the C&AG's report, individual maintained schools and academies are funded on an equivalent basis.[24]

9.  The Department is planning to reform the entire education funding system from 2013-14, including arrangements for funding academies. It told us that it expects these reforms to make the system simpler to manage and more transparent, and that it anticipates the additional cost of the Programme will reduce in future.[25]

10.  Despite some improvements, academies' governance is still not sufficiently transparent for parents to scrutinise how their child's school is spending its money, and for communities to hold their local school to account. There are gaps in the availability of key information such as academy funding agreements and governing body minutes, with less than 20% of academies surveyed by the National Audit Office publishing this information on their websites.[26]

11.  Moreover, individual academies' expenditure is still not sufficiently transparent or comparable with the maintained sector. Maintained schools' spend is recorded and published at individual school level, allowing parents to understand how much money their local school is spending on all aspects of their children's education. However, while academy trusts are required to report their income and expenditure in audited accounts and published summary returns, data for trusts containing more than one academy are not broken down to individual school level.[27]

12.  The Department is seeking to maximise school autonomy and minimise bureaucracy, and is reluctant to impose any requirement for academies to produce and publish individual school-level expenditure data.[28] This means that local parents, Parliament and the public cannot make a proper value-for-money comparison of individual academies and maintained schools. We asked the Department why it was not doing more to ensure publication of academy-level data, as the necessary information must already exist to allow multi-academy trusts to run their operations and prepare consolidated financial statements. [29] The Department told us that it wanted to publish only audited financial information so that it could be sure the figures were accurate.[30] It did not commit to publishing individual academy expenditure data, but said it was prepared to consider including additional information in the trust accounts, for example a segmented note breaking down expenditure to individual academy level.[31]

2   C&AG's Report, para 1 & 3 Back

3   C&AG's Report, para 6 Back

4   C&AG's Report, paras 7, 11, 1.3 Back

5   Q 48; C&AG's Report, para 13, 1.9-1.10, 2.2-2.3 Back

6   Qq 47-54 Back

7   Qq 91-92; C&AG's Report, para 1.9 Back

8   Q 72 Back

9   Qq 238, 245 Back

10   Q 245 Back

11   Qq 23, 72 Back

12   Q 54 Back

13   Q 47 Back

14   Q 48 Back

15   Qq 60-69, 109 Back

16   C&AG's Report, para 2.13 Back

17   Q 109 Back

18   Qq 110-115 Back

19   Qq 82-90, 94-97 Back

20   Qq 47, 54, 74 Back

21   Q 51 Back

22   Q 55 Back

23   Q 54 Back

24   Q 58; C&AG's Report, paras 2.4-2.13 Back

25   Qq 67, 72 Back

26   Qq 98, 171 Back

27   Qq 174-177 Back

28   Q 179 Back

29   Qq 178-189 Back

30   Qq 189, 193-194 Back

31   Q 193 Back

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Prepared 23 April 2013