Academy schools’ finances Contents

2Financial sustainability

Financial pressures on schools

18.The academy sector reported an operating surplus of £534 million for the year ended 31 August 2016, representing an average of approximately £90,000 for each individual academy school. However, 165 academy trusts had a cumulative deficit, with a total deficit of £50 million (an average of around £306,000 per trust in deficit).46

19.As a whole, the academy sector had cash reserves worth £3.2 billion at 31 August 2016. Under the last spending review all schools, academies and Local Authority Maintained schools are required to make efficiency savings worth a total of £3 billion.47 We reported on the financial sustainability of schools in March 2017. We concluded that savings would be harder to achieve without detrimental effects on the quality of education and educational outcomes, and that it was not clear how the Department would monitor both spending and performance so that it could intervene quickly where schools were making efficiency savings in ways that risked educational standards.48 We asked how schools were managing. The Department told us that 2017–18 was the final year of reduction in per-pupil spending and that real-terms spending per pupil was now protected until 2019–2020.49

20.The Department and ESFA told us that they were working to identify academy trusts which were in financial difficulty in a number of ways, including reviewing schools’ annual budget forecast returns and encouraging all schools to prepare three to five year budget plans. ESFA told us that it was working with both academies and local authority maintained schools to understand the robustness of their three to five-year plans.50 Where it has concerns, it is now able to provide additional support to schools using efficiency advisors, although this work is still at a very early stage. The Department confirmed that around forty schools would be working with efficiency advisors by the end of February 2018.51 ESFA told us that national contracts will also be made available to academies and local authority maintained schools to obtain savings in the procurement of ICT, energy supply and office equipment. It estimated that the energy costs of schools could be 10% cheaper under the new contracts, and that office equipment would be around 40% cheaper.52 On 21 February 2018, the Parliamentary Under Secretary of State for the School System wrote to all chairs of academy trusts emphasising the importance of ensuring the financial health and sustainability of their trust and reminding them of the national deals that are available to them on items such as energy and printers.53

21.ESFA asserted that it is confident that it has an up-to-date picture of schools facing financial difficulties. It told us that its internal audit team reviews the accounts of all academy trusts and conducts a further review of some 500 trusts’ accounts.54 ESFA told us that it also carries out risk assessments designed to identify trusts at risk of financial difficulties. These assessments are designed to identify when the resources given to a trust are not being managed in a proper and effective manner.

22.Despite these efforts to identify schools at risk of financial difficulties, we were concerned when the Department told us that information on the level of deficits across the sector in 2016–17 would not be available until October 2018.55 Recent press reports have noted that eight of the largest 13 academy trusts, including Ormiston Academies, Academies Enterprise Trust, Greenwood Academies and Ark Schools, have issued warnings that funding was not sufficient to meet expenditure pressures.56 ESFA confirmed that 39 academy trusts were still operating under a Financial Notice to Improve, which means that the trust has serious financial problems.57 The Department was unable to tell us the number of times that it had had to intervene in an academy trust in difficulties, but reported that around 2.5% of trusts had to be re-brokered in 2016–17.58

Impact of multi-academy trust failure

23.In July 2016, 3,636 (63%) of academies were part of a multi-academy trust (trusts that run more than one school).59 The Department told us that it sees no issue in principle with trusts running a large number of academies, but admitted that in the early days of the academy programme some academies grew too big too fast.60 It asserted that it did not consider any multi-academy trust too big to fail, and that it took appropriate action when a trust failed.61

24.We asked how the Department safeguarded the assets of schools, especially cash, which were transferred to a multi-academy trust in the event that a multi-academy trust failed.62 Three schools transferred a total of £800,000 to the Wakefield City Academies Trust by schools when they became part of the multi-academy trust, which subsequently failed. The Department stated that the transfer of surpluses from individual schools to the academy trust was in the nature of the academy system. The Department agreed to look into the specific example of St Gregory the Great Catholic School in Oxford, identified as having a £900,000 deficit, which was being subsidised by other academies in the trust.63

25.We were concerned that some multi-academy trusts were so big, that any failure of the multi-academy trust would have a negative impact on the education of a large number of children.64 Finding new trusts to take on these schools is time-consuming, which further impacts on children’s education.65 We asked what incentives were in place to encourage other trusts to take on schools with substantial problems, either financially or in terms of performance. Recent high profile cases, such as Wakefield City Academies Trust,66 and Bright Tribe Trust67 are case studies in what can go wrong and the consequences for pupils when they do. The Department told us that it would provide money to academies to take on new schools where an academy trust had failed and to fund any improvement that the school needed to turn around, but only where it had confidence that the trust would spend it well.68

26.The processes put in place to deal with the failure of a large multi-academy trust are still relatively new.69 ESFA told us that it had learned lessons from previous monitoring arrangements and was now monitoring the performance of multi-academy trusts much more closely and more rigorously. This included working closely with the national schools commissioner and the regional schools commissioners to examine schools’ finances, improvement and educational performance. ESFA told us that the national schools commissioner examines the top ten largest trusts, meets with them regularly and follows their progress. ESFA feeds into this process through its examination of the academies’ financial reports. A similar arrangement exists with the regional schools commissioner, where ESFA’s local teams feed into the regional schools commissioners’ intelligence on educational performance, leadership and management. ESFA told us that to stop multi-academy trusts growing too big, too fast, it now has growth checks in place, and arrangements to examine the financial capacity and capability of a trust before it is allowed to grow.70

46 Department for Education, Academy Schools Sector in England: Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017, Financial Overview, paragraph 1.12, p 15

47 Q 95

48 Committee of Public Accounts, Financial sustainability of schools, Forty-ninth report of session 2016–17, HC 890, 28 March 2017

49 Q 95

50 Qq 81, 96

51 Q 94

52 Q 81

54 Q 96

55 Q 80

56 Q 23

57 Q 98

58 Q 100

59 Department for Education, Academy Schools Sector in England Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017, paragraph 2.10, p 19

60 Q 72

61 Qq 69–70

62 Q 71

63 Q 93

64 Q 71

65 Qq 41–46, 70–72

66 Q 30

67 Q 99

68 Qq 101–105

69 Q 69

70 Q 71

30 March 2018