Accounting for rising teaching costs

01 November 2018

By Alyson Howard, Education Partner

Finance professionals and school business managers work with facts, forecasts and reasonable assumptions.  However, in the world of Education Finance, policy changes have become so common that it is becoming increasingly difficult to balance budgets and make reliable plans. Proposed support available to schools to cope with policy changes is usually vague and timeframes are often uncertain. It is a tough place to be right now.

This year’s budget forecasts were a good case in point. Everyone who had been diligent, organised and on time, who had based budgets on fact, forecast and reasonable assumption, frankly had the rug pulled from under them, with the shock announcement that employers’ Teachers’ Pensions contributions are set to rise from 16.48% to 23.6% in 2019, up more than 7%.

Put into perspective, for an academy with an annual teaching cost of £2.8m, the 7.12% increase equates to nearly £200k more to find in an already overstretched budget. Guidance suggests that this increase will take effect from 1 September 2019.

The impact on existing budgets is damaging. Forecasts submitted in July would most likely have assumed a 3% increase coming into effect in April next year, since that was the assumption at the time. That is now wrong, as are the budgets both for 2018/19, and for three-year plans.

Softening the blow is a promise of extra support, suggesting the DfE will fund the increases until March 2020, but their approach beyond that will depend on the outcome of the next Spending Review, in March 2019.  That support also appears to be for the fiscal year 2019/2020; not the full academic year, during which academies will incur a full twelve months of the increased cost.  So, what do we forecast?  That level of detail is yet to be uncovered but is critical to making the numbers work. And, will this grant be based on the actual cost of teachers’ pay or a more blunt method?

We have now seen what the term ‘fully funded’ means as it pertains to the teachers’ pay grant, so some sort of categorisation and generic approach, based on pupil numbers is likely, rather than a fair distribution of support.

The approach is pretty blunt, as it is paid on pupil numbers not staffing costs. The first split is based on Secondary, Primary or AP/Special school. Thereafter, if you are in London, your pay grant is further broken out geographically into Inner London, Outer London and “London Fringe”.

The grant of £26.54 per pupil for Secondary schools is thus going to apply to schools from Land’s End to the Scottish borders. Primary schools in most of the country will get £16.40 per pupil, and special schools £65.65. Whilst not ideal at least it is consistent and something upon which we can make a reasonable assumption and update our 2018/19 budgets accordingly. However, we have no understanding of whether this support, like that proposed to cover pension increases, will continue beyond March 2020, which, for academies reporting and forecasting on academic not fiscal years, is not helpful.

So, a call to arms. Yes, we have to work with an absence of adequate facts and we never know what might be around the corner, but to keep these schools operational, here’s my advice on the key areas to focus on:

  • Run sensitivities on all of your forecasts and share with your SLT so they can see the impact of differing levels of grant support for these increased costs
  • Look at integrated financial curriculum planning. Contact times and class sizes will have to be revisited if average teacher cost is rising faster than grant income per pupil
  • Don’t give up. You are not alone, we are all in this together and we just have to hope that an element of clarity and reason return in light of the promised end to austerity.

Find out more

If you would like further information or advice on this matter, please contact Alyson Howard, Education Partner. Alternatively, send us an online enquiry

For more articles and insights relevant to Academy Schools, download our latest newsletter, Academy Advisor – Autumn 2018 

Written for MyAcademy Magazine October 2018