Academies creep towards insolvency

Following The Academies Act in 2010, there has been an increase in schools converting into academies. With the promise of freedom from local authority control, freedom from relying on local authority funding in favour of direct funding from central Government, and relative autonomy, the issue of schools becoming academies has been a divisive one.

The recently released Academies Benchmark Report has revealed some concerning and stark statistics for these converted schools. Many of which are running with financial deficits and a real risk of insolvency.

Academy Trusts and the wider economy

With austerity continuing to bite, Academies are not immune from the financial conditions of wider society.  As we’re all having to do more with less, Academies are finding that the number of pupils they’re responsible for is increasing along with more general costs, but the funding they receive per pupil from central government is falling.

This doesn’t seem to be sustainable in the long term and cost cutting exercises can only achieve so much before the service being supplied starts to deteriorate.

There’s only so much the academies can do

While savings can be found and academies have usually been quite adept at making economies, there’s a limit to what can be done. The vast majority of money spent within the sector goes on staffing, with well over 70% of spending allocated to employment.

Paying staff less is a hard route to go down. Instead, increasing class size, so that a single teacher looks after more students, is something that’s becoming noticeable across the board. Additionally, the number of subjects available to study is being streamlined.

With the non-staff related costs comprising such a small part of the overall budget, it becomes plain to see that the only way to make useful savings is to make significant cuts.

As academies tighten their collective belts, spending on infrastructure investment and facilities maintenance is increasingly being put on hold and single academies have been seen joining Multi-Academy Trusts in order to take advantage of the economies of scale this brings, but at a cost of their own independence.

In the meantime, academies are campaigning for the funding they’re allocated to be increased to what they view as fairer levels.

Is insolvency on the horizon?

It’s been reported that 55% of academies find their finances in deficit, a figure rising to around 80% once depreciation is taken into account. With this being the case, reserves are rapidly being used up and it seems, unless other solution can be sought, that academies may well start to succumb to insolvency n increasing numbers.

The liability of academy trustees is something that’s likely to be of concern for those in that role. An academy trustee has a certain responsibility toward the academy which resembles both that of a charity trustee and that of a company director. If things do go wrong, there’s a chance that their conduct may come under scrutiny. In practice, this isn’t likely to result in any personal liability unless wilful misconduct can be proved.

There has been some parliamentary consideration of academies and further education establishments becoming insolvent and over the next couple of years, we’re likely to see specific insolvency rules coming into play governing the issue of educational establishments. The ‘Technical and Further Education Bill 2016-2017’ specifically deals with such matters and it seems traditional school governors and academy trustees could find themselves held more directly responsible for insolvent schools and colleges.

If you’re worried about the implications of an academy becoming insolvent or the potential financial effects of forthcoming legislation on your trusteeship or school governor status, we offer a free consultation to discuss your concerns and make informed decisions about what to do next.

Speak to us, we can help.