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Schools in England are facing bankruptcy – here’s what the government could do to help

We have barely reached the autumn half term and school leaders are already beginning to worry about what the academic year beginning in September 2023 will hold. The combined effect of the cost of living crisis with unexpected salary costs have already made it almost impossible for schools to balance budgets in 2022. Headteachers are now warning that worse is to come if urgent action isn’t taken.

An open letter, sent jointly by unions and leaders of educational organisations to Conservative MPs, warned of a £2 billion shortfall in school funding by 2024. On average they estimate that secondary schools will face a shortfall equivalent to losing four or five teachers. But of course many schools are far from average: one headteacher simply states that his school will be bankrupt within a year.

While things are undoubtedly more difficult for smaller schools, even large academy chains are experiencing the same crisis. Steve Chalke, founder of the Oasis Trust of over 50 academies, said: “No one is in a position to keep going for very long eating their reserves.”

So, are the nation’s schools really at risk of bankruptcy?

Schools in deficit

The short answer, based on recent government figures, appears to be yes. Tables published by the Department for Education show that by the end of the 2020/21 financial year, 8% of local authority maintained schools were in deficit.

Of those with a surplus, the reserve which can be carried forward – and which could potentially be used to support the budget in a difficult year – was an average of £322,000 for secondary schools. This represents about 6% of a typical school’s budget of around £5.5 million. It’s not even enough to fill the gap left by inflation, which is currently running at 8.8%.

The government has been encouraging schools to convert to academy status as part of multi-academy trusts, but things are little better for these schools. Official figures for academy trusts show they have average reserves of around £1.5 million. Though it’s a lot of money, this represents 13% of total income, so Steve Chalke’s analysis is right. Two more years of inflation at similar levels to now and it will all be gone.

Government options

The government does have ways to respond to this. Aside from the obvious answer of injecting more money into the system, there are some policy decisions which could ease things for schools even if they don’t solve the root cause of the problem. One example might be to relax the rules around pupil premium funding. This huge pot of money – £2.44 billion in 2020-21, according to a House of Commons report — is distributed to schools annually to support children identified as disadvantaged.

The targeted nature of the funding means that it is difficult for schools to spend it where it is most needed, on qualified teachers, but there is little evidence that it represents good value for money in its current form.

Analysis from 2019 by the Education Policy Institute suggests that, at the present rate, it would take more than 500 years for the attainment gap between disadvantaged children and their peers to close – and COVID-19 lockdowns have made the situation worse.

It could well be time to respond to calls to wrap the pupil premium funding into the national funding formula for schools. Schools would still receive the pupil premium in proportion to the number of disadvantaged children, but could spend it in a more flexible way.

Similarly, the National Tutoring Programme provided schools with £349 million in 2022-23 towards the cost of qualified tutors to help children catch up on learning lost during the pandemic. School leaders might well appreciate the same money simply flowing into their budgets, without the need for rules around how they spend it.

What schools can do

The measures that schools can take to save money are more limited. School leaders will be making tough decisions about every aspect of their spending.

Some solutions only work on paper. Reducing the number of teachers and making classes bigger sounds fine, but rooms are generally designed for a maximum of 30 children. Others need months or years of planning: reducing the choice of subjects in secondary schools can save costs but would need to be initiated now in order to take effect next September.

Read more: The cost of living crisis will hit schools hard

Even losing staff is difficult. So-called “natural wastage”, where those retiring or moving on are not replaced, is a slow process. Making people redundant is not just unpleasant, but also expensive. It is hardly surprising that Leora Cruddas, chief executive of the Confederation of School Trusts, has said that it is not realistic to expect budgets to be balanced within existing limits.

Things may look particularly bleak, but the government has the opportunity to enact changes. In December the Department for Education would normally publish its 2023-24 indicative budgets for schools. This provides a chance to commit to a per-pupil funding increase that is at least in line with inflation, as well as adjusting the formula to reduce the strings attached to some aspects of funding.

At the same time Gillian Keegan, the new secretary of state for education, could thrash out a deal with the chancellor to provide a one-off injection of funds to help schools get through the next 12 months. If they don’t work together, the doomsday scenario is that our nation becomes educationally bankrupt.

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