Schools face £3bn funding gap as cost pressures increase, says NAO

14 Dec 16

Schools will have to find savings of £3bn by 2019-20 to counteract cumulative cost pressures from pay rises, national insurance and pensions payments, the National Audit Office has said.

In a review published today, the spending watchdog said the Department for Education needed to do more to help schools manage risks to their financial sustainability, with 59% of maintained secondary schools reporting a spending deficit in 2014-15, up from 34% in 2010-11.

Although the schools’ budget is protected in real terms, the DfE does not provide for funding per pupil to increase in line with inflation. To protect the budget from inflationary pressures, the government increased the schools budget in the 2015 spending review by 7.7% from £39.6bn in 2015-16 to £42.6bn in 2019-20.

However, the department estimates the number of pupils will rise over the same period by 3.9% in primary schools and by 10.3% in secondary schools. Therefore, funding per pupil will only rise from £5,447 in 2015–16 to £5,519 in 2019-20 – a real-terms reduction.

In addition, costs from pay rises, the introduction of the national living wage, higher employer contributions to national insurance and the teachers’ pension scheme, non-pay inflation and the apprenticeship levy, will increase the financial pressures on schools, the auditors said.

To counteract this, the DfE predicts schools will need to make efficiency savings of £1.1bn (equivalent to 3.1% of the total schools budget) in 2016-17, rising to £3bn (8%) by 2019-20.

This translates into an 8% real-terms reduction in per pupil funding for mainstream schools between 2014-15 and 2019-20.

The NAO predicts that better procurement, which could yield savings of £1.3bn and more efficient use of staff could save £1.7bn. However, while the DfE was able to show that making such savings would not impact educational outcomes, it does not know whether schools will achieve this goal in practice.

Auditors acknowledged that the DfE is publishing advice for schools on how to generate efficiency savings, as well as providing tools, introducing benchmarking, and providing access to framework contracts. However, they found the department had not clearly communicated to schools the scale and pace of the savings required.

Although primary school funding appears to be stable, over half (59%) of maintained secondary schools reported a deficit from 2014-15. Also, the average size of the deficit increased in real terms from £246,000 to £326,000. A similar trend was seen in secondary academies, of which the proportion spending more than their income rose from 39% in 2012/13 to 61% in 2014/15.

NAO head Amyas Morse said: “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.”

But he said there was a danger that incomplete information from the DfE could lead schools to make poor decisions regarding where to make efficiency savings.

To strengthen oversight, the report recommended that the Education Funding Agency, which oversees the financial management of schools for the DfE, should intervene earlier and more often with local authorities when it has financial concerns about maintained schools.

Kevin Courtney, general secretary of the National Union of Teachers, said the NAO’s findings confirmed teachers’ fears.

 “The government’s policy of cutting per pupil funding in real terms, while loading additional costs onto schools such as higher employer national insurance and pension contributions, is putting education at risk,” he said.

“The government’s cuts cannot be addressed by efficiency savings – the cuts are causing real damage to education.”

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