The Department of Education’s approach to managing the risks to schools’ financial sustainability cannot be judged to be effective or providing value for money until more progress is made, according to the National Audit Office.

The Department estimates that mainstream schools will have to find savings of £3.0 billion (8.0%) by 2019-20 to counteract cumulative cost pressures, such as pay rises and higher employer contributions to national insurance and the teachers’ pension scheme. It expects that schools will need to make efficiency savings through better procurement (estimated savings of £1.3 billion) and by using their staff more efficiently (the balance of £1.7 billion). However, the Department has not clearly communicated to schools the scale and pace of the savings required. While it can show, on the basis of benchmarking analysis, that schools should be able to achieve such savings without affecting educational outcomes, it does not know whether schools will achieve them in practice.

The Department’s overall schools budget is protected in real terms but does not provide for funding per pupil to increase in line with inflation. In the 2015 Spending Review, the government increased the schools budget by 7.7% from £39.6 billion in 2015-16 to £42.6 billion in 2019-20. While this increase protects the total budget from forecast inflation, the Department estimates that the number of pupils will rise over the same period, by 3.9% (174,000) in primary schools and by 10.3% (284,000) in secondary schools. Therefore, funding per pupil will, on average, rise only from £5,447 in 2015-16 to £5,519 in 2019-20, a real-terms reduction once inflation is taken into account.

The Department continues to develop and publish advice and guidance to help schools improve their financial management and achieve efficiency savings. It has made progress in some areas, including publishing benchmarking, efficiency tools and guidance, and providing access to framework contracts, such as for energy. However, it has not yet completed work to help schools secure crucial procurement and workforce savings. Without such support, there is a risk that schools may already be making poor decisions about how to cope with the financial pressures.

The National Audit Office’s analysis indicates that while the financial position of primary schools has been relatively stable, there are signs of financial challenges in secondary schools. The proportion of maintained secondary schools spending more than their income increased from 34% in 2010-11 to 59% in 2014-15, and the average size of deficit for those in deficit increased in real-terms from £246,000 to £326,000 during the same period. For secondary academies, the proportion spending more than their income rose from 39% in 2012/13 to 61% in 2014/15. The Department does not know with certainty why schools are overspending, or underspending to build up reserves, or for how long these patterns are sustainable.

The National Audit Office also found that the Education Funding Agency, which oversees the financial management of schools on the Department’s behalf, should intervene earlier and more often with local authorities when it has financial concerns about maintained schools. The Agency has a process for assessing financial risk in academies but its records make it difficult to gain assurance that all academies at potentially high risk have been dealt with consistently. It has also not evaluated the impact of its different financial interventions, whether it has improved academies’ longer-term financial sustainability or which interventions are most effective. The Agency is strengthening its oversight by developing a preventative approach to support academy trusts at risk of getting into financial difficulty.

“Mainstream schools have to make £3.0 billion in efficiency savings by 2019-20 against a background of growing pupil numbers and a real-terms reduction in funding per pupil. The Department is looking to schools to finance high standards by making savings and operating more efficiently but has not yet completed its work to help schools secure crucial procurement and workforce savings. Based on our experience in other parts of government, this approach involves significant risks that need to be actively managed. Schools could make the ‘desirable’ efficiencies that the Department judges feasible or could make spending choices that put educational outcomes at risk. The Department, therefore, needs effective oversight arrangements that give early warning of problems, and it needs to be ready to intervene quickly where problems do arise.”

Amyas Morse, head of the National Audit Office

Read the full report

Financial sustainability of schools

Notes for editors

8.0% Real-terms reduction in per pupil funding for mainstream schools between 2014-15 and 2019-20 due to cost pressures £3.0bn Savings mainstream schools need to make by 2019-20 to counteract cost pressures 60.6% Percentage of secondary academies that spent more than their income in 2014/15 20,179 State-funded primary and secondary schools in England at January 2016 95.7% Of maintained schools' income came from central government grants in 2014-15 £39.6 billion Schools budget in 2015-16, comprising the Dedicated Schools Grant and pupil premium £1.3 billion Savings in procurement spending that the Department for Education estimates mainstream schools can make by 2019-20 to address cost pressures £1.7 billion Savings in workforce spending that the Department for Education assumes mainstream schools will need to make by 2019-20 to address cost pressures 11.6% Of maintained schools had surpluses worth 15% or more of their annual income in 2014-15  
  1. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  2. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.21 billion in 2015.

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