Helping you prosper
We predict that the DFE will be looking closely at those trusts whose revenue reserves breach this limit, with likely changes afoot in order to address the situation where reasonable explanation for the reserve amount is lacking.
This change has arisen following a report on the financial sustainability of schools, published in March 2022, which notes that ‘the large reserves that some academy trusts are building up mean that a significant amount of funding is not being spent on educating pupils currently in school’.
The report states that, in the year to 31 August 2020, 22% of academy trusts had reserves balances of more than 20% of their annual income. The cumulative surplus across the sector was stated to be £3.1 billion.
In April the DFE published a report on academy trust revenue reserves covering 2020/21, noting that the cumulative surplus across the sector had increased to £3.96 billion which, when spread across the pupil population, is more than double the average balance held by maintained schools.
Where the 20% reserves limit is breached, trusts will have to set out details of planned capital works, or state the reason for which reserves are held – for example staff retention & development, strategic development/growth or future uncertainty.
The DFE is required to investigate trusts with reserves ‘equivalent to 20% of their income to establish whether the reserves are justified’ and set out ‘any action it plans to take’. Trusts should be aware that the DFE will take action, although the timescale for this and what form this action will take remains to be determined.
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