Monday, 13 March 2017

Can a school set a deficit budget?

The campaign to oppose school cuts and to demand fair funding for all schools continues to gain momentum. Heads, staff, parents, students and local politicians are all getting involved as the scale of the threat is becoming better understood.

Many schools are already making cuts now. After all, the National Audit Office reported that 59% of maintained secondary schools were spending more than their income in 2014-15. 15% were already actually in deficit with the average deficit as high as £326,000. That was two years ago. The situation in 2016-17 will undoubtedly be even worse.

As I wrote in a previous post, cuts of this magnitude cannot be 'managed', they have to be fought. The NAO report also warns the DfE that they "cannot be assured that these savings will be achieved in practice" and raises concerns about "the risk that schools will make poorly informed decisions that could have detrimental effects on educational outcomes".

However, what can an individual school do when faced with an impossible choice as to what they should cut to balance their budget? Resources? Pay Progression? Non-contact time? Curriculum? Staffing numbers? None of these cuts are acceptable. They will all undermine education. That's why the campaign to win the £3billion that schools need to meet rising costs has to be stepped up. 

But how can a school that is facing immediate difficulties defend its students' education while it waits for the wider funding campaign to succeed? There is a view amongst some local politicians that schools can't be allowed to run a deficit. But that's evidently not true! Firstly, the NAO make clear that many schools are already in deficit and, secondly, because the legislation governing school finances has always allowed for schools to run with a licensed deficit. As explained below, schools in financial difficulties can be given additional support - and many already have been.

Maintained Schools
Section 48 of the Schools Standards and Framework Act 1998 places a duty on Local Authorities to "prepare a scheme dealing with such matters connected with the financing of the schools maintained by the authority". The statutory guidance setting out what those schemes should contain has only recently been revised and can be found on

Listed below are some of the points in that document which could be important for schools to know when they are faced with cuts that they simply cannot make. 

In particular, these provisions make clear that Local Authorities can support maintained schools in difficulties. While also facing their own funding pressures, Local Authorities do have reserves that could be used to support schools. The licensed deficit provisions could certainly be used to support schools refusing to make cuts as part of a mass campaign to demand the Government funds schools to meet real costs and real children's needs.

Here are some specific clauses:

2.1.6 Writing off of debts
The scheme may authorise governing bodies to write off debts up to a stipulated level, with brief details of the procedure to be followed for larger debts. (For example, the Lewisham scheme gives the Executive Director for Resources the power to write off debts exceeding £5,000). 

2.12 Central funds and earmarking
The scheme must contain a general provision authorising the authority to make sums available to schools from central funds, in the form of allocations which are additional to and separate from the schools’ budget shares. The scheme should stipulate that such allocations should be subject to conditions setting out the purpose or purposes for which the funds may be used ... Such allocations might, for example, be sums for SEN or other initiatives funded from the central expenditure of an authority’s Schools Budget or other authority budget.  (So an authority could find ways to assist schools in particular difficulties through such earmarked funds).

4.7 Writing off deficits
The scheme should contain a provision which makes it clear that the authority cannot write off the deficit balance of any school. If an authority wishes to give assistance towards elimination of a deficit balance this should be through the allocation of a cash sum, from the authority’s schools budget. (So, while a deficit cannot be entirely written off, they can be partially financed through a cash 'donation' from the authority).

4.9 Licensed deficits
An authority may include in its scheme provision for an arrangement whereby schools are allowed to plan for a deficit budget. Such an arrangement is normally funded by the collective surplus of school balances held by the authority on behalf of schools. ... Under a licensed deficit scheme the only effect on budget and out-turn statements is that in the latter, the balance goes into deficit because expenditure is at a higher level than the budget share, but this deficit reduces to zero by the end of the repayment period because the school has to constrain its expenditure to effect the repayment. No 'payment' to the school is recorded. (While the 'loan' from the licensed deficit has to be repaid over an agreed period of time, this provision could buy time for some schools while the campaign to win extra funds continues). 

Section 9: PFI/PPP
An authority may wish to insert into its scheme other provisions relating to PFI/PPP projects. Amongst other issues these might deal with the reaching of agreements with the governing bodies of schools as to the basis of such charges; and the treatment of monies withheld from contractors due to poor performance. (Some schools are paying a significant proportion of their budget on PFI charges - yet this is one area of expenditure that could be cut without damaging education!)

Annex B: Responsibility for redundancy and early retirement costs
The default position is that premature retirement costs must be charged to the school’s delegated budget, while redundancy costs must be charged to the local authority’s budget. (Some LAs are telling schools that they will have to find funding for redundancy - adding to the cuts to be made).

The points above apply to maintained schools but there is also provision for Academy Trusts to apply to the Education Funding Agency for 'advances of funding'. 

The guidance implies that, as with a licensed deficit scheme, the cash advance will need to be repaid. However, a FOI request revealed by Schools Week in 2015 shows that most of the £12.6 million in emergency funding then agreed since 2011/12 would not need to be paid back.

If the Government found funds to bailout these academies (not to mention banks!), what about all our schools?

No comments: