To say that the past 12 months has been a turbulent time for education finance is something of an understatement, writes Leyla Tovey, Managing Director of School Business Services.

The new reality for schools is energy cost hikes of around 400% in many cases and a cluster of other budget-hitting inflationary pressures which continue to cause serious concerns for financial sustainability.

Understanding exactly what school leaders feel about those pressures led us in late 2022 to carry out a survey with Supporting Education Group to gauge the views of schools and academies on the budgetary pressures they face. We received 428 responses from headteachers, chief operating and finance officers, and school business leaders, in schools and academies across England. We found that the majority are concerned about financial sustainability, with the vast majority digging into their reserves to cover costs.

Just 2% of academies and 1% of local authority schools told us that they will get to breakeven, and even those using reserves to help balance the books will be heading into serious problems during the 2022/23 budget year. This will be despite the £2.3bn cash injection announced in the Chancellor’s Autumn Statement, forcing schools to make agonising decisions that impact on their staff and pupils.

Some schools will also be limited in their ability to balance their budgets back to health – the survey revealed that around a fifth of all schools worry about their ability to set and manage their budgets. Factors underpinning these worries include the availability of effective budgeting tools, and staff expertise and experience.

Unsurprisingly, energy costs were a priority for cost savings for 62% of our survey respondents, but leaders are finding ways of mitigating these costs. We’re seeing that larger academy trusts are often in a better position on energy costs because they are more likely to have made greater investments in energy solutions such as solar panels or LED lighting and can often negotiate better contracts due to their combined purchasing power and centralised operations. Even so, these trusts are only looking OK and will likely need to dig into any surpluses for the following round of budget setting.

Typically, LA-maintained schools and single or small academy trusts are less likely to have reserves to buffer their position. These schools will be feeling more exposed to the challenges, and many are exploring more radical ways to stay financially viable. For example, maintained schools that have stayed loyal to local authority support are beginning to really scrutinise value for money on their contracts. This is leading to a new willingness for them to engage external providers to deliver similar services.

It is clear that the impact of the funding crisis is set to continue long into next year, and beyond. Three to five year budget planning has become essential, to allow for a clearer view of the financial forecast towards the end of the year, and a little further down-the-road.

While schools and academies are closely scrutinising future funding, looking for example at ways to boost pupil numbers – and revenue – through marketing initiatives and community engagement, is there anything else they can do to get through this turbulent time?

Regular budget reforecasting will be crucial. A budget is only as good as the day it is built so schools will need to regularly revisit it. This will give governors or trustees confidence in the latest budget position, and some reassurance for the road ahead. Using procurement frameworks to get access to the best deals is another must-do, while multi-academy trusts and federations should approach their supplier regarding coterminous contracts for easy management, and leverage on pricing.

Using external support providers is another important consideration. Established education sector organisations work in partnership with schools and academies to find solutions that are fit for purpose, ensure value for money and ultimately benefit children and young people. External support doesn’t have to be expensive, it might include attending a free webinar or conference event, which also acts as valuable staff CPD.

It’s clear that school budgets will be in choppy waters for some time to come. Keeping a clear head and a firm hand on budget management will surely help as we navigate our way towards calmer seas.

This is an edited version of a piece which originally appeared in Schools Week.