"Almost a third of local authority maintained secondary schools now in deficit" says new Education Policy Institute report

• 1 in 10 maintained secondary schools now have large deficits, representing over 10% of their income.
• Deficit problem far more acute for secondary schools than primary schools. 
• Proportion of special schools in deficit has almost doubled since 2014. 
• Half of secondary academies are spending more than they have coming in – though this proportion is less than local authority schools. 
• Academies in larger multi-academy trusts are less likely to spend more than they have coming in. 
• In spite of these financial pressures, the majority of local authority schools have surpluses – overall the value of surpluses exceeds that of deficits. 
• The Department for Education deems over half a billion (£580m) of local authority school surpluses “excessive”. Of this, around £250m is unallocated by schools. 

___________________________________________________

School funding remains a major issue in 2019. As pupils in England return to the classroom this week, many will be attending schools that are feeling growing financial pressures.

This new report from the Education Policy Institute (EPI) employs the latest data to build a detailed picture of the current state of school finances. To understand how schools are faring financially, the research considers:

• School revenue balances: examining schools’ balances, and whether they are in surplus or deficit (using data for local authority schools, data for individual academies in multi-academy trusts are not available on this measure).
• School in-year balances: examining the income and expenditure for a given year only, and whether schools are spending more money than they have coming in for that year (using data for both local authority schools and academies).

School revenue balances (LA schools)

• Almost one in three (30.3 per cent) of local authority (LA) maintained secondary schools were in deficit in 2017-18 – almost four times that of 2014 (8.1 per cent).
• The average secondary school deficit was nearly half a million pounds (£483,569).  
• Significantly, there is a marked contrast between the proportion of secondary schools and primary schools in deficit – only 8 per cent of primaries were in 2017-18.
• Some schools have very large deficits: 1 in every 10 LA secondary school has a deficit of over 10 per cent of their total income.
• The proportion of special schools in deficit has nearly doubled since 2014 (to 10.1%), with an average deficit of nearly a quarter of a million pounds (£225,298). 

School in-year balances (academy schools and LA schools)

• In the latest year, the proportion of academies spending more than their income is less than for LA maintained schools. (Using data for the 2016-17 academic year to allow for comparison).
• 38 per cent of primary academies were spending more than their income, compared to 51 per cent of LA primary schools in 2016-17.
• Similarly, for secondaries, the figures were half for academies (50 per cent) and just under two-thirds (64 per cent) for LA schools.
• Academies that are part of large multi-academy trusts (MATs), are generally less likely to have in-year deficits than stand-alone academies or those in small ‘starter’ trusts. However, academies in the very largest ‘system-leader’ trusts, are more likely to have in-year deficits than those in ‘national’ and ‘established’ trusts.
• The propensity to have an in-year deficit is lower in academies in multi-academy trusts than for local authority schools. This could be because of the ability of academy trusts to move part of their budgets between schools.

Schools with excess surpluses (LA schools)

• While the proportion of local authority schools in deficit has increased, there are a large number of schools with significant surpluses.
• A substantial proportion of schools have balances deemed as “excessive” according to the Department for Education (DfE): 40.7 per cent of primary schools, 46.4 per cent of special schools and 34.1 per cent of secondary schools.
• Overall, the value of surplus balances far exceeds that of deficit balances. In 2017-18, deficit balances totalled £233m, while the total value of surplus balances was £1.794bn, of which over half a billion (£580m) met the DfE’s “excessive balance” threshold.  
• In theory, nearly four-fifths of LA school deficits could be eliminated if local authorities were able to redistribute reserves from excessive balances within the authority into deficit balances.
• However, in practice, over half of the “excessive” balances are already committed by the schools to specific projects, and given the priority which the government attaches to school autonomy,there would likely be serious policy challenges involved in trying to reallocate such surpluses.

Policy recommendations 

1. With increasing financial pressures on schools – particularly in secondaries – the government should consider before the Spending Review whether higher per pupil funding is needed, or whether efficiency savings can make up part of the current shortfalls. It should especially focus on the strains faced by many secondary schools, and assess whether changes in pupil numbers are likely to ease financial pressures, or whether these will prove more enduring.

2. Further consideration should be given to what extra help or advice can be offered to those schools facing large deficits.

3. The government should determine the reasons for the lower level of in-year deficits in academy trusts, and whether there are any lessons to learn from this.

4. The government should also look closely at the level of “excessive”, unallocated, surpluses and consider if existing rules allow for these resources to be used effectively.

Jon Andrews, report author and Deputy Head of Research at the Education Policy Institute, said: 

“These statistics highlight again the financial pressure that schools in England are under, particularly at secondary level. But they also show that a large number of schools are maintaining significant surpluses. In fact, by the Department for Education’s definition, nearly a quarter of a billion pounds is in accounts deemed ‘excessive’ and uncommitted to any specific expenditure. The challenge for government, local authorities, and school leaders, is whether that money should now be redistributed.”  

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

“These figures highlight some of the financial pressures currently facing schools in England – and they particularly demonstrate the marked deterioration in secondary school finances since 2014. Almost one third of maintained secondary schools are now in deficit – close to four times the figure in 2014. 

“The government needs to understand whether these trends are likely to be reversed by a growth in pupil numbers, or whether extra financial support will be needed in the Spending Review. In the short term, the Department for Education should prioritise advice and support for the 1 in 10 maintained secondary schools with excessive deficits. 

“It is notable that while some schools have large deficits, others have surpluses which the Department considers ‘excessive’. The government needs to understand the reasons for these variations and the extent to which this is due to lack of funding fairness, or relative differences in school ‘efficiency’". 

Notes to editors

1. The Education Policy Institute (EPI) is an independent, impartial, and evidence-based research institute that promotes high quality education outcomes, regardless of social background. We achieve this through data-led analysis, innovative research and high-profile events. Find out more about our work here: https://epi.org.uk/

1. School revenue balance data, displaying deficits and surpluses, is available at an LA school level, but not for individual academy level. The DfE does publish this data at a wider, academy trust level, however, this is a less useful indicator of the overall health of the academy system (see p.14).

1. When comparing in-year balances for LA schools with those of academies, we report on data from 2016/2017. This is because academies report on data for the academic year, and LAs report on a financial basis (see p.15).

1. The DfE defines an “excessive” balance as one above 5 per cent of income in secondary schools, or above 8 per cent in primary schools, special schools and pupil referral units.