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State of play

A report from Bishop Fleming has scrutinised academy finances; Tallulah Speed examines finances for the current academic year

Posted by Hannah Oakman | April 24, 2015 | Law, finance, HR

Still in their infancy, the boom in academies has led to a good deal of debate on the new education model, on everything from school reports to independent curriculum bodies. However, one of the litmus tests for any sector is, of course, its financial health, which is why benchmarking reports are so vital. Bishop Fleming’s recent Academies Benchmark Report 2015 highlighted the state of play for academies, looking at the current financial performance of academies and the projected future.

The 46-page behemoth is available to view on the academy accountants’ website, covering everything from staff costs to teachers and pupils to pensions. For this review we have concentrated on its report on income, looking at funding and changes to funding models, new school places, the new government and generating trading income.
 Now in its fourth iteration, the report was drawn from data collected from nearly 300 academy trusts, including over 400 schools. It is produced to give academy leaders a fuller understanding of the past and present financial performance of their academy, providing a basis for comparison by setting them alongside academies of a similar nature.

The document was prepared in conjunction with Kreston International – an association of independent accountancy firms. Data was taken from financial statements for the period ended 31 August 2014, from a range as diverse as primary schools with less than 30 pupils to Multi-Academy Trusts (MATs) with over 30 schools.

Cautious cashflow
The evergreen concern regarding future funding continues to loom large in the minds of academy leaders, exacerbated by the political and economic instability ahead. The report quotes Lord Nash’s comments, speaking at the Academies Show in April 2014: “Whichever government is in power, there is going to be a shortage of money for schools for the foreseeable future… Schools should plan for flat line revenues, which, bearing in mind that schools are having to do much more, means they have to start thinking out of the box in terms of their financial management.” These gloomy portents appear to have been accurate to some degree, with many schools reporting budget deficits, and “a flurry of activity” from the Education Funding Authority as they issue a number of Financial Notices to Improve.

While Bishop Fleming anticipated “minimal income increases” in the 2012/13 financial year, large growth in Academies Capital Maintenance Funding (ACMF) came out of left field and resulted in a significant overall income increase for the sector in 2012/13. This growth has continued, with the report listing ACMF funding for the 2011/12 year as £85m, jumping to £299m in 2012/13, and £393m in 2013/14. However, the report warns that this funding is not guaranteed for each year and therefore the new or continuing government is under no duress to remain committed to these figures - it further adds, “it seems hard to believe that after the election any government will be able to afford to continue funding at this level.”

A new way
For the current academic year, ACMF has been replaced by the Condition Improvement Fund (CIF). It is unclear whether the level of funding will remain the same, but the report does highlight a couple of key differences between the two funding bodies, the principal change being the ability of academies to borrow through the CIF. Additionally, while under the ACMF fully funded projects would not have any cost implications (leading many academies to apply as a matter of course), with the CIF most successful projects will require some financial commitment from the applicant. “This changes the landscape,” says the report, as, “it would only be worth applying if the academy believes that there will be a tangible benefit.” This change to the application and actualisation process puts academies more in line with charities, the report notes, who are typically expected to self-fund an aspect of a project they successfully pitch for.

The growth in population is likely to have a significant impact on all UK schools’ finances as education business managers attempt to balance finances with the growth in class sizes - and indeed the creation of more classes and classrooms. Academies are gearing up for the recognised need for the nationwide creation of one million extra school places over the next eight years, at an estimated cost of £8bn. “Unless new funding is available, then spending on maintenance and similar projects will have to fall.”

A full register
When it comes to General Annual Grant (GAG) funding, the report makes the observation that, “while there has been variability in the less politically controversial income streams, the core funding, via, GAG, has remained very consistent year-on-year.” Figures taken from primary and secondary schools show that across three years the variance has been less than £150 per pupil. In multi-academy trusts the figure has dipped (by £566 per pupil), however this is due to the rise in the number of primary schools having converted to academies, as primary school pupils have a lower funding allocation. The swift rise in the number of primary schools means there are now more primary academies than secondary academies in the UK, over 2,300.

With the new funding models in place and an uncertain financial future ahead, the report draws the conclusion that, “currently there does not appear to be any financial incentive for new schools to convert to academies. The reasons for converting are now purely academic and governance related.” A given example of this comes from the recent difficulties many academies have experienced in trying to access funds to improve kitchen and dining facilities ahead of the Universal Infant Free School Meals (UIFSM). For the second funding round last year academies had less than a month to apply – often an impracticality – contrasting with local authority-controlled schools, who received automatic allocations.

According to the report we can expect to see a large rise in trading incomes for academies, with survey results suggesting that 71 per cent are already generating trading income, and 52 per cent of all academies have plans to increase this further.

It seems that academies are in line for a tough few years as squeezes in funding coupled with a growth in pupil numbers threatens budgets. However, new financial streams are available and resourceful schools are already taking advantage of these to ensure their pupils receive the best education possible. 

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