Cash crisis looms as school deficits soar

4th December 2015 at 00:00
Figures suggest school borrowing is set to double in two years

State school debt is on course to more than double in just two years, exclusive new research suggests.

TES asked local authorities in England and Wales how much money maintained schools had asked to borrow from them to cover their budget deficits in each of the past three years.

Results came in from more than threequarters of the councils – 137 of the 174 – and the numbers paint a worrying picture. The total amount they gave schools permission to borrow rose from £35.8 million to £51.7 million between the 2013-14 and 2014-15 financial years.

The total in November for 2015-16 already stood at £56.7 million with nearly half the financial year to go.

The figures, obtained under the Freedom of Information Act, also reveal that the average permitted deficit per school is now £122,828, approaching double the £66,580 figure from 2013-14.

“The cost pressures on schools are really biting,” said Malcolm Trobe, deputy general secretary of the ASCL school leaders’ union.

He said many of the deficits had been caused by “the simple fact that there has been no real-terms increase in schools’ budgets, and schools have had to deal with extra costs and inflationary pressures”.

In the first seven months of 2015-16 the local authorities that responded said they had allowed 462 schools to go into the red.

These are cases in which a council in effect lends money to maintained schools to cover their deficit, in return for a commitment from the school to restore its finances over an agreed period. The figure is expected to rise further in 2015-16 because schools apply for deficits throughout the financial year.

The statistics have been revealed ahead of the publication of government data next week, which will show the value of schools’ deficits in England in 2014-15. But the FoI data, which include permitted deficits in 2015-16, suggest that the problem has worsened since then.

The TES figures will not reveal the full scale of schools’ financial problems because they do not cover academies – which are not overseen by local authorities.

Each council’s figure reflects the maximum deficit permitted for each of their maintained schools and so in theory could be higher than the final amount borrowed. But the data provide an accurate year-on-year comparison.

Experts said the impact of rising pay and pension costs, combined with real-terms budget cuts, was likely to have triggered many of the problems.

Other causes include falling pupil numbers, especially at schools that were avoiding cutting staff numbers because they expected numbers to rise in the next few years.

Some schools are likely to have been caught out by a system of “lagged funding” – in which funding is based on the previous year’s pupil numbers even if numbers have since risen.

Mr Trobe warned schools to “do their utmost not to get into a deficit budget unless there’s a cast iron increase in pupil numbers coming up”.

“It’s very difficult to get out of a deficit if you’ve got increasing cost pressures,” he said. “If you can’t balance the budget this year, you’re going to struggle to balance the budget next year and to pay off the deficit. Nobody is going to come charging over the hills to the rescue with bag-loads of silver.”

Hampshire had the highest-value deficits this year, with deficit agreements totalling £3.9 million. It was followed by Liverpool with £3.7 million.

Nick Small, Liverpool City Council’s Cabinet member for education, told TES that many of the deficits belonged to secondary schools whose pupil numbers were falling but were expected to rise in two to three years’ time.

In such cases, he said, it was often more efficient for a school to run with a deficit for a short time than to make teachers redundant only to have to recruit when pupil numbers rose.

“We’ve put together action plans with the schools to tackle the deficits,” he said. “But I’m worried about the impact of any possible changes to the national school funding formula [which may redistribute funding from schools in Liverpool to other areas of the country], and other financial pressures on schools.”

A Department for Education spokesman said: “It is up to individual schools to ensure that they manage their budgets to prevent going into debt. We have always been clear that local authorities need to work with schools to prevent any deficits and surpluses becoming significant.”

Turn to page 14 for a round-up of headteachers’ views on the spending review

View from the local authority

“School deficits are one of the things that are really causing me concern,” the head of finance at one of the country’s worst-affected councils told TES.

The official, who did not want to be identified, said the value of deficits in his area had shot up since 2013 – in fact, this year’s figure is approaching three times that of 2013-14.

Poor Ofsted ratings are one of the causes, he said. “When a school gets a bad rating the pupil numbers decline rapidly,” he said. “That means funding falls and they go into deficit.”

Rising costs – such as pay, pensions, inflationary rises in utility bills and higher employer National Insurance contributions – were a “massive factor”, he said. Schools in his area had also already adopted a “living wage”, putting extra pressure on budgets.

He said some schools were in difficulties because they were too slow to make redundancies to cope with tighter budgets. But he said they hadn’t been profligate either. “We know that the ones with deficits are as efficient and lean as they can be – they can’t reduce their cost base and still meet the national curriculum.”

Case study: Greenmount Primary School

Greenmount Primary School on the Isle of Wight has been running a deficit since it converted from an infant school to a full primary school in September 2011.

“We moved to a larger building which wasn’t in a great state and needed a lot of work,” said the school’s headteacher Richard May.

“On top of that we had the costs of taking on an extra form of entry each year, and of opening specialist provision for autism and speech and language services.”

Since then, the school has reduced its deficit, but rising costs and the impact of reforms to funding for pupils with special educational needs mean it is struggling to pay it off – it stands at £40,000 this year out of a £1m budget.

“The local authority is supportive, but there’s a fair amount of pressure that goes with that support,” Mr May said. “There’s also pressure on our budget from rising National Insurance and pension contributions.”

‘Some schools are in denial’

Stephen Morales, executive director of the National Association of School Business Managers, is not surprised that deficits have risen so rapidly.

“Some schools are in denial [about budget cuts],” he said. “Some…are chasing good Ofsted ratings and others feel, with some legitimacy in some cases, that they need to continue to spend at the same level otherwise the life chances of the young people in their care will be affected.

“Then there’s the defiant group. They say there’s an entitlement to education funding and it should be set at a level at which the headteacher and the governing body can ensure they do the best by pupils.

“At some point there will be a tipping point where there isn’t enough contingency money.”

Asked where schools should look for savings, Mr Morales said they could share support services with others, reduce the size of their leadership teams and support staff, or increase class sizes.

Chunks of cash: Charting the rise in schools’ borrowing

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