Academy finances plummet as removal of funding limits growth

Over the last few years, the number of Academy Trusts operating in-year deficits has increased rapidly. Nearly 60% made an in-year deficit in the last academic year, compared to just 19% in 2020/21 and 47% in 2022/23.

The position particularly concerns Single-Academy Trusts (SATs) and smaller MATs. The average primary SAT has not made a surplus in the last three years and, for secondary SATs, the average deficit is approaching £200k. This has resulted from Trust finances being squeezed by rising costs, particularly for energy and staffing, while funding has not kept pace.

The sector’s financial performance has been declining, though larger MATs still generate a surplus, albeit smaller than their peak in 2020/21. At a time of constrained public sector finances, a logical approach would be to encourage Trusts to grow, enabling them to benefit from centralisation and economies of scale. However, growth is now more complex due to two significant challenges:

• The removal of growth funding – the Trust Capacity Fund (TCaF) and start-up grants, which helped cover due diligence, integration, and risk mitigation, are being phased out. Over 50% of surveyed Trusts stated this would negatively impact their growth plans.
• Legislative changes – the Children’s Wellbeing and Schools Bill will alter the Academy landscape. Since the Academies Act of 2010, academisation has been the preferred route for high-performing schools to expand and for weaker schools to receive support. The bill will change this presumptive route, aligning the Academy sector more closely with maintained schools and reducing growth opportunities.

These changes threaten the sector’s sustainability at a time when many Trusts are using reserves to cover in-year deficits. This is not sustainable in the long run, and urgent change is needed.

Given the constraints on public finances, significant increases in funding are unlikely. Trusts must, therefore, explore ways to increase income or reduce costs.

However, many Trusts have already implemented most available efficiency measures without changing staffing structures. This leaves economies of scale as the primary solution but, with growth funding removed and expansion becoming more difficult, this route is increasingly challenging.

This position is compounded when you also consider the SEND budget deficits, and the need to continually invest in the school buildings and equipment. If Trusts are not generating a surplus then they are not building up reserves to reinvest into their assets, and so the quality of the assets deteriorates.

The NAO, in its report on the ‘Condition of School Buildings’, concluded that, following years of under investment, the condition of the schools’ estate is declining, and around 700,000 pupils are learning in a school that needs major rebuilding or refurbishment.

So, the current financial constraints are building up more problems for the future.

The positive news for the sector is that the predicted fall in pupil numbers is likely to be less than initially thought. This is due to a combination of demographics and the expected influx of children from the independent school sector as a result of the recent VAT and business rates relief changes.

Additionally, the sector is also generating more of its own income through trading and interest. It was noteworthy in the last academic year how many Trusts had improved their treasury management to generate significant amounts of interest.

The financial performance of the sector needs to improve quickly before Trusts start running out of money. The finances are precariously balanced, and so small changes can have a significant impact. However, the state of government finances, increasing numbers of children with SEND and a deteriorating schools estate means that there is little room for manoeuvre. If income is not going to rise, Trusts needs to be creative to become more sustainable.

This topic is further explored in detail in the 2025 Kreston UK Academies Benchmark Report, which has recently been published.