National Audit Office report on the financial sustainability of schools in England

The National Audit Office (NAO) has found that the financial health of the mainstream school system has held up well in recent years despite funding and cost pressures. Most maintained schools and academy trusts are in surplus, although some maintained secondary schools are under significant financial strain.

The school system has faced considerable financial pressures in recent years. The Department for Education (the Department) estimates that cost pressures on mainstream schools exceeded funding increases by £2.2 billion between 2015-16 and 2019-20.¹ Local authorities have also reduced support services for children and young people due to the financial pressures they have experienced. The COVID-19 pandemic has had a significant impact on the school sector, but its impact on schools' financial health is not yet clear as most data are not yet available for 2020-21.²

Despite these financial pressures, most maintained schools were in surplus from 2014-15 to 2019-20, although the proportion reporting a deficit more than doubled. In 2019-20, 88% of maintained schools reported a cumulative surplus and 11% reported a cumulative deficit, up from 5% in 2014-15.

A larger proportion of maintained secondary schools have been in deficit than primary schools. The proportion of maintained secondary schools reporting a cumulative deficit peaked at 30% in 2017-18, falling to 27% in 2019-20. In contrast, the proportion of maintained primary schools in deficit was 10% in 2019-20, although this was up from 4% in 2014-15.

Some academy trusts have built up substantial reserves, meaning they are spending less than their annual income on their pupils. In 2019/20, 93% of trusts reported a cumulative surplus, up from 88% in 2017/18. In 2019/20, 22% of trusts reported surpluses equivalent to 20% or more of their annual income.

Ofsted has consistently graded more than 80% of mainstream schools as good or outstanding, but has found that the steps schools have taken to remain financially sustainable may have affected aspects of their provision. The Department has not researched the impact of financial pressures on schools' provision, but Ofsted's research and feedback from stakeholders the NAO consulted suggest some schools have reduced staffing levels or changed the support provided to pupils with special educational needs and disabilities.

The Department has a range of programmes to help schools improve their financial sustainability. In 2018, it published a strategy setting out how it would support schools to manage their resources and reduce costs. The strategy covered spending on workforce and procurement, and tools such as the schools financial benchmarking service, which allows schools to compare their income and spending with those of similar schools. The support being offered is sensible, and the stakeholders the NAO consulted said that the Department's guidance and tools are useful resources for schools.

The Department has lacked reliable data to assess the impact of its financial support programmes, but is taking steps to improve the quality of its data and analysis. The Education and Skills Funding Agency (the ESFA) runs the school resource management advisers programme, which deploys practitioners who work with schools and academy trusts to help them improve efficiency and resource management. By March 2021, the advisers had identified total potential savings of £303 million. Schools and academy trusts reported that they had made savings of £16.9 million in the six months after the advisers' visits but this is not a complete picture of performance. The Department has also helped schools to make procurement savings, in particular by offering a cheaper alternative to commercial insurance. However, it does not have reliable data to demonstrate how effective its procurement frameworks with recommended deals have been.

The NAO recommends that the Department and the ESFA should establish why maintained secondary schools are under particular financial pressure and why some academy trusts have built up substantial reserves. They should also develop further their performance management systems so they can effectively monitor and evaluate the effectiveness of their programmes to support schools' financial sustainability.

Gareth Davies, the head of the NAO, said:

"A financially sustainable school system is vital to the learning and development of the country's children. The Department for Education implemented a range of sensible programmes in recent years that have helped schools to achieve savings. However, until it improves the reliability of its data, it will not be able to make fully informed decisions about the support it offers to schools."

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 Notes for Editors

1. Mainstream schools are general primary schools and secondary schools, as distinct from special schools.
2. Comparable financial data are reported at school level for local authority maintained schools and at academy trust level for academies. Maintained schools report their finances for the year ending in March (for example, 2019-20); academy trusts report their finances for the year ending in August (for example 2019/20).
3. For more information about school funding see the NAO's report: School funding in England, 2 July 2021.