Executive Summary
This analysis looks at what happened to academy and LA maintained school finances over the Covid-19 period. A full timeline of Covid-19 restrictions is available from the Institute for Government, for reference. The most significant restrictions for schools occurred between March 2020 and March 2021, when there were widespread school closures. These align well with the 2020-2021 reporting period for LA maintained schools, which begins in April 2020 and ends in March 2021, following the financial year. However, for academies, the reporting year begins in September, hence both 2019/20 and 2020/21 data include periods affected by Covid-19.
Over the Covid-19 period school finances became relatively healthier in aggregate. Incomes were boosted by coronavirus funding grants provided by the department of ~£1.2bn (£575m for academies and £591m for LA maintained). For academies in particular, revenue funding increases (not related to Covid-19) of £5bn improved finances. In practice, these led to schools building up greater revenue reserves in aggregate. Academy revenue reserves grew by 44.6% (£1.2bn), and LA maintained by 49.8% (£725m) between 2018/19 and 2020/21. This was not driven by just a few schools; 69% of academies increased their reserves from 2018/19 to 2020/21 (71% for LA schools).
Periods of increasing revenue reserves are not unusual. But, although the time series of data are limited, the increase in reserves over Covid-19 (2020-21) does look to be significantly larger than in previous years. As a percentage of average income, average LA maintained reserves were between 6.3-6.6% between 2017-18 – 2019-20. However, in 2020-21, they increased to 8.6% of average income. There’s a similar picture for academies, average reserves generally increased but at a greater rate during Covid-19 than before Covid-19.
For LA maintained schools, revenue reserves increased due to increases in income which were greater than increases in expenditure. Total income per pupil increased by £645 between 2019-20 and 2021-22, primarily driven by increased funds delegated by the LA. Total expenditure per pupil also increased, but by less than income, at £595pp. All phases of education saw increased revenue reserves per pupil, except nurseries, which saw a 13.5% fall in reserves. The 16-plus phase has been omitted from commentary as there were no 16-plus LA maintained schools reporting data in 2020-21 and 2021-22.
Over the Covid-19 period there were changes in the patterns of spending for LA maintained schools, with some expenditure categories increasing, and some decreasing. The largest increases in expenditure in per pupil terms were staffing-related categories e.g. teaching staff, education support staff. The largest reducations were to indirect employee expenses, other insurance premiums and exam fees, although these were small in comparison to the increases.
Academies’ finances improved in the same way as LA maintained schools. Revenue reserves increased per pupil due to income rising by more than expenditure. This occurred across all phases of education. Increases in income were primarily due to increases in revenue funding grants of £5bn between 2018/19-2020/21 (not related to Covid-19). Although coronavirus funding will have assisted academies, that was on a much smaller scale (£0.6bn). Similar to LA maintained schools, staffing was a significant contributor to increases in spending.
What would have happened without coronavirus grant funding?
Although it is not possible to say exactly how schools would have responded without financial assistance over Covid-19, we can provide some general perspective. Both academies and LA maintained schools income was greater than their expenditure in 2020/21 (2020-21 for LA maintained) even if the coronavirus grants they received are removed (£377m surplus for LA maintained, £649m for academies). Note that we only know this with hindsight and these are aggregate figures - individual schools may have faced considerable financial difficulties without the Covid-19 funding assistance. Further, if only schools at risk of financial difficulty were given additional funding, this could have created a perverse incentive for schools not to hold sufficient revenue reserves.