Navigating budgeting in a challenging financial landscape

Academies are currently preparing their three year budgets to the ESFA by August 31, 2023. Even though the extension of the filing deadline is generally a welcome one, it's crucial for Trusts to have flexible governance to accommodate any last-minute changes and ensure an up-to-date budget before submission.
 

Pay review updates:

Recently, Gillian Keegan, the secretary of state for education, stated that the government's response to the School Teachers Review Body (STRB) will follow the same process as in previous years. The pay award is expected to be announced at the end of the school year. This means that Trusts need to be agile to incorporate any late notifications into their budget before submission.

As a reminder, the DfE's recommendation to the STRB in February 2023 was an average increase of 3.5%. However, the STRB has more recently recommended 6.5%. Consequently, the initial draft of Trusts' budgets may have a 3% gap in the assumption for the teachers' pay review.

In addition, the final local government offer for support staff salary, commonly known as the NJC award, amounts to £1,925 per FTE, which equates to about an 8% increase on average. The amount of the NJC increase will also depend on the age of your workforce. If you have recruited younger staff recently then the % increase will be higher.
 

Uncertainty and funding:

While these two assumptions on pay reviews are difficult to second guess, the bigger question remains: Will there be any additional funding for either of these increases? Unfortunately, we don’t yet know the answer to this, and unless it is announced before 31 August 2023, there will be inconsistency in assumptions across the sector.
 

Impact on staff costs:

As a result of potential increases in salary costs, we are currently seeing an increase in staff costs as a % of total income in budgets, in some cases up to 80%.
 

Budget Inconsistencies:

Most of our academy clients are forecasting an in-year deficit for the year ending 31 August 2023. and again, most clients forecast they will have 12-24 months of reserves from 23/24 onwards, but this is based on budgets using a variety of assumptions. We are definitely seeing far more inconsistency in budget assumptions this year.
 

Benchmark Report Highlights:

As a reminder, in our benchmark report for 2023, we found that medium and large MATs had free reserves per pupil of approximately £690. Small MATs, on the other hand, had 8% higher reserves at £747 per pupil. For SATs, the picture was even more promising. Secondaries had £835 per pupil, while primaries boasted an impressive £944 per pupil, 37% higher than larger MATs.
 

Implications for Financial Sustainability:

So, we are likely to see another year of budgets using various assumptions. This will undoubtedly pose a challenge for the ESFA when evaluating the financial sustainability of the sector.