Bleak future for schools as squeeze on academy trust finances tightens

The 13th annual Kreston UK Academies Benchmark Report published today has shown cost pressures have outstripped income in the academy trust sector for two consecutive years, leaving little room for financial manoeuvre.

The percentage of trusts making in-year free reserve deficits has tripled since 2021, increasing from less than 20% reporting deficits in 2020/21 to nearly 60% in 2023/24. This equates to around three in five trusts. Academy trusts run more than 10,000 schools in England.

Most trusts (81%) indicated that their biggest financial challenge is the cost of teaching and support staff. A key contributing factor is government funding for teachers’ pay, which has not kept pace with rising costs. Growing demand, coupled with significant budget deficits in SEND provision, are adding further financial pressure on the sector.

Single academy trusts have been hit hardest by cost rises, where staff costs as a percentage of revenue income exceeded 75% for the first time since 2022 in both primary and secondary schools.

Peter Manser, Partner and Head of Academies and Education said: “Trusts are heading towards a financial cliff edge as they grapple with costs such as National Insurance, the teachers’ pay rise and minimum wage increases which have not been fully covered by government funding.

“The percentage of pupils with funded Education, Health and Care plans (EHCP) has grown, but the reality is many trusts have had to find capacity in their own budgets to deliver the support children with SEND need. This creates massive problems for the future which, without action, could become a silent stranglehold on the sector.”

More trusts pushed into the red

Trusts’ financial safety nets are collapsing, with reserves as a percentage of income showing a clear downward spiral as more were forced to tap into them in 2023/24.

Almost a third (31%) of trusts are now holding less than 5% reserves as a percentage of income, a threshold the Education and Skills Funding Agency (ESFA) considers to be a sign of potential financial vulnerability. This figure has risen from 17% in 2022.

While on average MATs have made surpluses, they have dwindled significantly. Small trusts averaged surpluses of just £1,000 compared to £203,000 in 2022. Larger trusts reported just £99,000 surpluses, down from £1,564,000 over the same period. The data analysed across the Trusts in the report reveals a net deficit of £8 million in free reserves for 2023/24.

Peter adds: “Trust reserves are sliding in the wrong direction. With cost rises and financial pressures expected to continue, there’s a very real danger smaller trusts could run out of money completely.”

Stifled growth

The removal of the Trust Capacity Fund (TCaF), financial aid to support trusts when they take on more schools, has thwarted many trusts’ plans to grow, with more than half (50%) expecting growth plans to slow in 2024/25.

And yet, size matters when it comes to confidence in the financial resilience of a trust. More than 60% of large MATs reported feeling confident in their financial stability. This figure fell to less than 50% in smaller trusts.

Peter adds: “The combination of cost rises and the changing political landscape have put the breaks on planned growth in the sector. This is a major concern as larger trusts are better anchored to weather the volatile financial climate due to economies of scale. It’s survival of the fittest as trusts carefully assess whether the benefits of expansion outweigh the initial financial burden.”

Lack of investment hurting education quality

The expectation for trusts to contribute 30% to achieve the maximum funding score in their Condition Improvement Fund (CIF) bids for building and estate improvements has become a considerable barrier to investment.

Many trusts have been left with no choice but to draw down from already shrinking reserves to cover the cost of essential buildings maintenance and repairs. The challenge is particularly evident in primary SATs, where capital income has plummeted by 90% to less than £50 per pupil since 2022.

The positives

There are some positives to draw from the report which demonstrate the sheer resilience of the academies trust sector.

Increased investment income has been generated in some trusts that have actively sought out more favourable banking interest rates for their cash balances. Some trusts have made over £1m in the year 2023/24, with increased financial returns on surplus cash deposits and managing multiple savings accounts to spread risk. Only around 12% of trusts listed the cost of heat and light among their top three financial concerns as prices have fallen and schools continued to reduce their carbon footprint.

Other interesting findings:

• Per pupil cost increases: Per-pupil costs rose y around 8% in 2023/24, down from 16% in 2022/23, which means inflation experienced by the academy trust sector has been much higher than in the wider economy.

• School numbers: The average number of schools in a MAT is just under 12 (11.7), up by 11.4% from last year.

• Governance: All MATs (100%) with over 7,500 pupils now have a governance professional or an additional role such as a PA to the CEO, to support their volunteer boards. In 2022/23, the percentage of MATs with a governance professional was 94%.

• CEO pay: After stagnating in 2023, with increases of only around 2%, CEO salaries across medium and large MATs increased by 6% in 2024.

• Progress towards Net Zero: The sector reduced carbon emissions by an average of 0.027 tonnes per pupil in 2024 compared to the previous year – a 13% reduction. Further progress could be made with additional financial support to cover the costs of reducing carbon emissions in schools.

Published annually by Kreston UK academies group, a network of accounting firms, the report is a financial state of the nation survey of 260 trusts representing almost 2,300 schools. The survey covers the 2023/24 academic year.

Click here to download the full Kreston Academies Benchmark Report 2025.