The challenge of preparing your budget

Pressures and uncertainty in the sector undoubtedly make preparing a budget at the moment even more challenging. Yes, the figures that were submitted to the ESFA may already be known to be out of date, but trusts can only prepare the BFR using the information to hand at the time.

Budgets should be a working document anyway, with re-forecasts prepared during the year when known changes occur which will alter the predicted outturn. Management reports ideally will show year to date information alongside the original and re-forecast budgets to give trustees an up-to-date picture each month.

Unfunded rising staff costs and energy prices are the two big topics at the moment. Individually each poses a threat to trusts that are not blessed with reserves to fall back on, but together these threats may be enough to cause significant financial difficulties for many trusts.

  • Staff cost rises: There is uncertainty over the staff cost budgets with union pressure for more than the suggested 5% pay rise for experienced teachers. Of course academies are free to set their own pay scale anyway, but in reality almost all trusts follow the Government recommendations. The 5% headline is, of course, not entirely accurate with some (the starting salary for teachers outside of London) benefitting by up to 8.9%. Those in the early stages of their careers will also benefit from significant increases, ranging from 5% to 8% depending on experience. These pay rises are needed across the sector to help schools attract and retain new staff. A National Education Union's (NEU) survey earlier this year revealed that 44% of teachers plan to leave the profession by 2027, with the unmanageable workload the most cited reason. It remains to be seen whether pay rises alone will therefore halt the drain out of the profession. There is a clear challenge when almost a quarter of new teachers leave within three years of starting their career.
  • Energy costs: The current high price of energy and gas is the hot topic for everyone at the moment. For some rural schools that rely on oil there is an added challenge. Schools that have very recently or are about to come out of a fixed rate contract face a shock. The announced Government assistance will help, but with rises of between 200%-300% being spoken about the extra energy costs are going to blow a huge hole in many school budgets. Will we see some schools have to resort to 4 days weeks or shorter days over the cold winter months. That’s before we even think about the threat of a national gas supply crisis!

As I’ve said, it’s important that the budget is revised when significant changes occur. Whilst there is uncertainty, a good approach is to prepare budgets under different scenarios, in order to present trustees with a worst case, best case, and middle ground prediction.

Do remember that trusts have an obligation under 2.17 of the Academy Trust Handbook to notify the ESFA within 14 calendar days of its meeting, if proposing to set a deficit revenue budget for the current financial year, which it cannot address after taking into account unspent funds from previous years. 2.20 of the Handbook goes on to say “The board must ensure appropriate action is being taken to maintain financial viability including addressing variances between the budget and actual income and expenditure”, and so if revised budgets do indicate a cumulative deficit position will arise you should notify the ESFA and seek their assistance.

I would expect most trusts to take revised budgets to their autumn finance committee and full board meetings so that these can be considered before trust boards sign off the 2022, and at the same time confirm their belief that their trusts remain a going concern.

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