Income and expenditure in academies: new data raises more questions than answers

The latest Department for Education (DfE) statistics on income and expenditure in academies in England for 2015/16 were released last week. Press coverage focused on the extent to which academies’ expenditure exceeds their income. This shows that the total excess expenditure for all academies has risen from one per cent of total income in 2014/15 to 1.5 per cent in 2015/16 equating to an overspend of £280m in 2015/16. The DfE states that these figures do not necessarily mean that individual academies are in debt as they could be drawing on their reserves. It is not possible to tell from this Statistical First Release (SFR), which, overall, we think raises more questions than it answers.

Are academies propping themselves up with reserve funds?

In short, we do not know. Overspending academies could be relying on reserves to see them through a period of increased costs but we cannot find any data to back this up. The National Audit Office also referred to this point in its report on the financial sustainability of schools: ‘the Department has not analysed income and expenditure alongside revenue balances.’ (p. 24).

For some time, school managers will have been aware of Government policy to maintain per pupil funding in cash terms. They will also have anticipated increasing costs. In light of this, academies could have planned ahead for difficult times by increasing their reserves. However, even if academies do have reserves to draw on, at some point these are likely to run out if they keep doing so. While the DfE’s recent announcement to increase school funding by £1.3bn over two years will help the financial situation for schools, the Institute for Fiscal Studies argues that schools still face an enormous financial challenge as their budgets will have fallen by 4.6 per cent in real terms between 2015 and 2020.

The issue about the extent to which reserves are being consumed by overspending academies and how long they can last for is a crucial question. We need to know the answer so we can judge whether this is a serious concern or not. To do this, more data is needed, in particular data that tracks academies’ income, expenditure and reserves longitudinally.

Are there differences between SATs and MATs?

We tried to take a deeper look at the SFR to explore differences between single academy trusts (SATs) and multi-academy trusts (MATs), and by phase of education.

Unfortunately, an incomplete picture emerges. As the DfE acknowledges, making comparisons across years is difficult. There is not a consistent baseline from one year to the next for a number of reasons: more local authority maintained schools are becoming academies; there is movement within the academy system such as SATs joining or becoming MATs; some MATs are expanding, and some academies are moving between MATs.

The SFR shows that for the first time in 2015/16, academies in MATs have greater aggregate income and expenditure compared to SATs. It also shows that more MATs were in deficit in 2015/16, with 61 per cent in deficit compared with 49 per cent of SATs. This equates to a deficit of £235m for academies in MATs alone. Furthermore, MATs’ expenditure exceeded their income in 2015/16 by a greater extent than for SATs – by 2.2 per cent for MATs and by 0.5 per cent for SATs. However, SATs had a greater deficit in the previous year, 1.3 per cent of total income compared to 0.7 per cent deficit for MATs.

Do MATs in deficit differ by size?

We wanted to see if smaller MATs were more likely to be in deficit than larger ones because they are less able to achieve economies of scale. Sir David Carter, the National Schools Commissioner, categorises MATs into four groups:

• Starter Trusts comprise up to five academies
• Established Trusts comprise between 6 and 15 academies
• Regional Trusts comprise between 16 and 30 academies
• System Trusts comprise over 31 academies.

In fact, our analysis of the SFR data suggests that the larger the trust, the more likely it will be in a deficit position. Around 7 in 10 Established, Regional and System Trusts are in deficit compared with around 6 in 10 of Starter Trusts. This is despite the findings from the DfE’s Academy trust survey 2017 which states that ‘The majority of MATs, especially those that are larger [those with six or more academies], can provide examples of efficiencies achieved, with trusts able to articulate areas where they have made significant savings including payroll, catering, and grounds maintenance.’ (p. 26).

Are there differences by phase of education?

Our analysis of the SFR data shows that over half of secondary SATs (58 per cent) are in deficit compared to just under two-fifths of primary SATs (39 per cent). Of SATs that are overspending, the average deficit as a proportion of income within the primary sector is seven per cent compared to eight per cent for secondary academies.

Secondary phase SATs face significant difficulties in managing their deficits because of increasing pupil numbers and difficulties in recruiting teachers, as discussed in a previous NFER blog. Pupil numbers are expected to rise by 11.4 per cent in the secondary sector by 2021. The challenge is less stark for primary schools but nevertheless an increase in pupil numbers of 1.9 per cent is expected between 2017 and 2021, at which point pupil numbers are expected to plateau. While schools will get more money as pupil numbers increase and therefore could create economies of scale, they face a worrying financial position if their expenditure continues to exceed income.

Conclusion

Despite the additional information our analysis of the SFR data provides, we still have more questions than answers. As a priority, we call for additional data to enable the real story of academies’ income and expenditure to be told within the wider context of schools’ financial challenges and increasing pupil numbers. Having access to this data would enable users to assess whether or not we should genuinely be concerned about academy funding.