How the Iran war impacts your school’s budget - and what to do next

Most of us went into half-term in February without a thought about the Strait of Hormuz. Six weeks later, it is the biggest external risk to school budgets in England.

Since the US and Israel launched strikes against Iran on 28 February, oil prices have rocketed. Gas prices have nearly doubled. The Bank of England has shelved planned interest rate cuts and warned that inflation - which was nosing down towards 2 per cent - will now sit between 3 and 3.5 per cent through the summer.

While improvements in prices are being reported, they could easily be reversed if peace talks break down.

If you run a school or a trust, all of this matters. And it matters across more budget lines than you might think.

Iran war hitting school budgets

If your energy contract was locked in during 2024 or early 2025, you are protected for now. Wholesale prices were falling then, and many schools and trusts secured reasonable rates.

If yours is due for renewal in the coming months, though, the market has transformed.

For a large multi-academy trust running 30-plus schools, energy costs can easily run to £3 million to £5 million a year. A 30 per cent increase, which is well within the range of what we might now see, adds £1 million to £2 million to the annual bill. That is the equivalent of up to 50 teaching posts.

Cost of operation increases

The Department for Education’s latest technical note assumed that non-pay costs would rise by just 1.9 per cent over the next two years. While that was a reasonable projection then, it isn’t any more, and school business leaders need to be modelling a very different scenario now.

Next, let’s look at teacher pay. Before the Iran conflict, there were real grounds for optimism about the direction of travel on this issue. The government fully funded the 2024-25 pay award and the schools White Paper set out a serious vision for the profession. Relationships between the DfE and unions, while not without tension, were more constructive than in previous parliaments.

The School Teachers’ Review Body has been weighing a two-year settlement. The DfE signalled affordability of around 6.5 per cent over three years. Unions pushed back - the NEU called it “entirely misguided” - but the shape of a deal was emerging.

Teacher pay deal

The Iran crisis has changed the arithmetic. If inflation reaches 3.5 per cent by September, anything below that figure is a real-terms pay cut. The NEU is already running an indicative ballot on industrial action and with it, the spectre of the 2023 strikes is back in the room.

Of course, none of this is the government’s doing. This is a global energy shock caused by a war on the other side of the world.

But the consequences land on the education secretary’s desk, nonetheless. Bridget Phillipson has built credibility with the profession through serious engagement and straight talking. She will need to draw heavily on these qualities now because the honest answer is that there is no easy way to square a more generous pay settlement with a deteriorating fiscal position.

Stress-test budgets

For school leaders, the practical implication is straightforward: model your staffing costs against multiple inflation scenarios, and do it now.

If your budget assumed 2.5 per cent on the pay line, stress-test it at 3.5 per cent and 4.5 per cent.

Teachers are also feeling this as consumers. The Resolution Foundation estimates the war will cost the average UK household £480 in 2026 through higher energy costs alone. For a teacher outside London on £30,000, that is not trivial. For many lower paid support staff, it will be crippling. Wellbeing conversations with your staff should factor this in.

Wider cost rises

While, understandably, energy and pay dominate the conversation, the Iran war is feeding into a range of other costs that rarely make national news and yet land directly on school budgets.

Food: the Persian Gulf region accounts for roughly 30 per cent of globally traded fertiliser. Disruption to fertiliser supply pushes up food production costs, with a lag of a few months. Food prices will rise. If you are providing free school meals to large numbers of pupils - and in the most disadvantaged communities, that can be 50 per cent or more of your roll - the per-meal cost is going up. Your catering contract may or may not absorb that. Disruption now will continue to spike food prices into next year.

Transport: the price of diesel is up 8 to 15 per cent since February and climbing. If your trust runs minibuses, funds home-to-school transport for pupils with special educational needs and disabilities, or is planning summer term trips, the costs have shifted. Some schools will quietly cancel enrichment activities rather than pass costs to families. That is a loss, and it falls hardest on the children who benefit most. And what about our staff? The cost of getting to work is significant and if we see the fuel crisis that some predict, should the government introduce key worker fuel cards or further subsidise travel for teachers, doctors and nurses?

Maintenance and capital: petroleum derivatives are in roofing materials, floor coverings, paint and plastics. If you have building projects in progress, expect cost overruns. If you have been deferring maintenance, the price of delay just went up.

Technology:  data centres run on energy. As energy prices rise, the costs of cloud hosting, software licensing and managed IT services follow, not immediately but within a contract cycle or two. There is also a cybersecurity dimension. Iran-linked threat actors have historically escalated cyber operations during conflicts. Schools are soft targets. If your trust has been putting off investment in cyber resilience, this is the wrong moment to keep waiting.

Every cost pressure described above ultimately lands on children. Not equally but rather disproportionately on children from the poorest families, in the communities that schools and trusts exist to serve.

Pastoral interventions

Research from Citizens Advice around the 2022 energy crisis showed a direct link between energy price spikes and increased demand for pastoral support, food bank referrals and safeguarding interventions. If the current disruption persists into the autumn, school leaders should expect a repeat at exactly the moment when their own budgets are under greater strain.

So what steps should we take now? There are five things worth doing this week:

1. Review your energy contract renewal dates and model costs at current wholesale rates. If renewal is imminent, talk to your broker or framework provider now.
2. Stress-test your 2026-27 budget at Consumer Price Inflation (CPI) scenarios of 3.5 per cent and 5 per cent. Identify the point at which your operating model becomes financially unviable.
3. Check your catering contract for inflation clauses. Understand whether rising food costs will be absorbed by the provider or passed to the school. Risk-assess other contractors and supply chains.
4. Review your transport commitments, including SEND transport and costs associated with trips and visits.
5. Brief your board or trustees. Governors and trustees need to understand that budget assumptions made three months ago may no longer hold. Drafting a short paper setting out the risks and the mitigations is time well spent.

The war in Iran is not something any school leader can influence. But its consequences are already in the system, and they are heading for your budget. The schools that come through this best will be the ones that saw it coming and planned accordingly.

Tom Campbell is CEO at E-ACT, a multi-academy trust running 37 schools