School funding: Number of English secondary schools in deficit trebles in just four years says EPI report

A new report by the Education Policy Institute (EPI), published on Friday, examines the latest trends in local authority maintained school balances, and assesses whether all schools will be able to meet cost pressures over the next two years, following recent government funding reforms.

This new analysis, School funding pressures in England, builds on EPI research last year on the implications of the government’s National Funding Formula for schools and changes in real per pupil spending.

School funding rapidly rose to prominence as a key domestic policy issue in the 2017 General Election, and remains a crucial area of concern for the public today. In one of his first major speeches last week, the Secretary of State for Education, Damian Hinds, stated that the government was committed to ensuring that the education system is “properly resourced”.

Key findings

Schools’ financial deficits: the latest trends

Assessing the state of school balances for local authority maintained schools (1,136 secondaries, 13,404 primaries) over the last 7 years, we find that a number of schools have been struggling financially, and are now in deficit:

• The number of local authority maintained secondary schools in deficit reduced from 14.3 per cent in 2010-11 to 8.8 per cent in 2013-14. Strikingly, however, over the period of four years up until 2016-17, the proportion of local authority secondary schools in deficit nearly trebled, expanding to over a quarter of all such schools – or 26.1 per cent. The average local authority maintained secondary school deficit rose over this 7 year period, from £292,822 in 2010-11 to £374,990 in 2016-17.

• The number of local authority maintained primary schools in deficit has also risen. In 2010-11, 5.2 per cent of local authority primary schools were in deficit - this reduced in the following year to 3.7 per cent, before staying at a level of around 4 per cent until 2015-16. However, in 2016-17, the proportion of primary schools in deficit increased significantly, to 7.1 per cent. The average primary school deficit also noticeably increased, from £72,042 in 2010-11, to £107,962 in 2016-17.

• At a regional level, the South West had the highest percentage of local authority maintained secondaries in deficit over this period - with 22.1 per cent of schools in deficit in 2010-11, rising considerably to over a third of schools (34.9 per cent) in 2016-17. The East had the lowest - with 7.5 per cent of local authority maintained secondary schools in deficit in 2010-11, rising to 17.5 per cent in 2016-17.

• The North East had the highest number of local authority maintained primary schools in deficit in 2016-17 at 10.1 per cent. The East of England consistently had the lowest, with 2.6 per cent in deficit in 2010-11, rising to 3.4 per cent in 2016-17.

• A large proportion of local authority maintained schools are now spending more than their income. Over two-thirds of local authority maintained secondary schools spent more than their income in 2016-17. Significantly, such events are not just occurring for one year – we find that 40 per cent of local authority maintained secondaries have had balances in decline for at least two years in a row.

• Similar figures are found for local authority maintained primary schools – in 2016-17, over 60 per cent were spending more than their income. A quarter of local authority maintained primaries have had a falling balance for two years or more.

Cost pressures for schools

Examining the financial impact of the annual 1 per cent pay settlement for school staff, for all state-funded mainstream schools (including local authority maintained, academies, free schools, UTCs, studio schools and CTCs) we find that:

• Funding allocated by the government through its new National Funding Formula for schools (NFF), fails to meet pressures on schools budgets produced by this cost alone. This is despite the announcement of an extra £1.3 billion in funding for schools by the government in July 2017.

• As many as 40 per cent (around 7,500 schools) are unlikely to receive enough additional government funding in 2018-19 to meet these pay pressures alone. For 2019-20, this proportion rises to nearly half of state-funded mainstream schools in England (around 9,000 schools).

• Schools are facing a variety of cost pressures, yet this analysis shows how many schools are struggling just from this staffing cost alone. In addition, our assumption of 1 per cent staff pay increase over the next two years is cautious – with the government having signalled that future rises in teachers’ pay may be higher than the current 1 per cent cap over the next few years.

Implications for schools: financial pressures and deficits

• For a significant proportion of schools in England, being able to meet the cost of annual staff pay increases from a combination of government funding and their own reserves looks highly unlikely, even in the short term.

• In response to pressures, schools have undertaken various efficiency measures to deliver cost savings, such as switching suppliers, reducing energy usage and reducing the size of leadership teams.

• However, education staff account for the majority of spending by schools - around two-thirds. It is likely that schools will find it difficult to achieve the scale of savings necessary without also cutting back on staff. Many schools will face the challenge of containing budget pressures and reducing staffing numbers without impacting on education standards.

Jon Andrews, Director for School System and Performance at the Education Policy Institute, said:

"Over the past decade we have moved from a situation where schools were frequently building up excessive reserves of money, to one where over a quarter of local authority maintained secondary schools are in deficit - neither are indicators of a well functioning funding system. 

We are seeing an increasing number of schools spending more money than they have coming in and our analysis shows that increasing costs on staff are going to add to that pressure, even with the additional funding being delivered by the National Funding Formula."

Rt Hon. David Laws, Executive Chairman of the Education Policy Institute, said:

“This analysis highlights the nature and scale of cost pressures facing England’s schools. After 15 years in which school funding has either been growing healthily or has at least been protected from inflationary pressures, school budgets are clearly now being squeezed. This is evident from the sharp rise in the number and proportion of local authority schools which are in budget deficit. The trebling of the proportion of maintained secondary schools over recent years is particularly striking. 

Many schools will need to find savings and it will not be easy to do this without reducing staff numbers. Schools and the Education Department will need to work hard to ensure that reduced staff numbers do not impact on education standards.”