Government's response to PAC report on financial sustainability of schools

The Public Accounts Committee has published the government's response to its report on financial sustainability of schools in England. 

Download the government's response

Report conclusions and recommendations

1. The Department does not understand well enough why there is so much geographical variation in maintained schools’ financial health and why maintained secondary schools are under particular financial pressure. In the year ending 31 March 2020, 11% of maintained schools were in deficit overall. However, the proportion of maintained schools that reported a cumulative deficit varied considerably between local authorities in England, ranging from 0% to 46%. In 26 local authorities, more than 20% of maintained schools were in deficit. Maintained secondary schools are under particular pressure: more than a quarter of these schools were in deficit in 2019–20, compared with one in ten maintained primary schools. The Department emphasises that the financial health of the school system overall has held up well and that most maintained schools are in surplus. It suggests that there are a variety of possible factors that may be causing the geographical variation in schools’ financial health and the difference between primary and secondary schools, such as historical patterns of funding and the condition of school buildings. It lacks robust evidence, however, and accepts that it needs to do more work to understand better the variability. Recommendation: The Department should thoroughly investigate the geographical variation in in the financial health of maintained schools, determine the underlying causes and decide whether some schools or local areas need extra support from 2022–23 to be sustainable.

2. The large reserves that some academy trusts are building up mean that a significant amount of funding is not being spent on educating pupils currently in school. In the year ending 31 August 2020, nearly a quarter of academy trusts (22%) had reserve balances equivalent to more than 20% of their annual income. Taken together, academy trusts had a cumulative surplus of £3.1 billion. The average balance per pupil held by academy trusts was £689, up from £608 in 2017/18 and more than double the average balance per pupil held by maintained schools. Academy trusts may build up reserves for a range of reasons, such as when they are planning capital works. Where reserves are not being held for specific purposes, the ESFA considers balances of more than 20% of a trust’s income as excessive given the low level of risk in the academy sector. It asserts that it challenges academy trusts with excessive reserves, particularly if it has concerns about educational outcomes. However, the Department is not in a position to do this effectively as it does not have information on whether academy trusts have earmarked reserves for particular projects.

Recommendation: The Department should:

• write to us, within one month of this report being published, with details of the specific actions it has taken where it has concerns about academy trusts holding significant reserves; and

• investigate those academy trusts with reserves equivalent to more than 20% of their income to establish whether the reserves are justified (including the extent to which they are designated for specific purposes), and write to us within six months with an update on the results of this work and any action it plans to take.

3. We are concerned that financial pressures faced by schools could damage children’s education. Research by Ofsted in 2019 found that a high proportion of headteachers reported reducing staffing levels, narrowing the curriculum and changing how they support pupils with SEND because of financial pressures. We have heard similar examples of our own local schools having to curtail provision, such as cutting teaching assistants, to balance the books. Some of these actions risk harming education. The Department asserts that pupil-teacher ratios and the hours taught in different subjects have remained largely stable at national level. It acknowledges, however, that there is cause for concern about a small number of subjects, such as design technology. We also note that the pupil-teacher ratio has in fact risen in secondary schools. The Department’s school resource management initiatives aim to help schools to squeeze non-staff spending rather than cutting back on education provision. To date, however, it has not properly researched the impact of cost pressures on schools. The ESFA has now committed to carrying out its own study to assess the impact on provision of the measures adopted by schools in response to financial pressures. Recommendation: In carrying out its research, the ESFA should collect sufficient, reliable evidence on the impact of financial pressures on schools at local level, including on whether they are leading to schools narrowing their curriculum and reducing staffing. The Department should set out, in its Treasury Minute response, when it plans to publish the results of the ESFA’s research.

4. While we wait for the much-delayed SEND review, the support system continues to fail many children and remains financially unsustainable. In May 2020, we reported that many children with SEND were being failed by the support system and recommended that the Department should, as a matter of urgency, complete its SEND review which it had begun in September 2019. The SEND review has still not been completed, and families continue to be frustrated by the support system. The Department has now committed to publishing the results of the review in the first quarter of 2022, alongside the Schools White Paper. The aim of the review is to improve outcomes for children and young people with SEND. The Department says that, as well as educational attainment, the impact measures will cover life outcomes, such as the number of young people with SEND not in education, employment or training, and health and wellbeing. It is essential that the review is completed so improvements can be made. We are also concerned about the financial sustainability of the SEND system, for example some local authorities are struggling to cover the high costs of places in some private special schools. The Department expects that increased funding, including for more places in state special schools, and extra support for some local authorities with large high-needs deficits, will help to improve the sustainability of the system.

Recommendation: The Department should set out in the SEND review (which it has committed to publish in the first quarter of 2022) what improvements it is aiming to achieve and over what time period, and make clear what specific metrics it will use to assess whether the support system is improving and becoming more sustainable.

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