The latest Kreston Academies Benchmark Report paints the familiar picture of a sector under financial pressure. The 2024 findings reveal that more than half of trusts now report in-year deficits, leading to further erosion of free reserves. Across the dataset, there was an overall net deficit on free reserves of approximately £8 million, with almost a third of trusts holding less than 5% of income in reserves – despite additional funding received by all.

Trust size remains a key determinant of financial performance, with larger Multi-Academy Trusts (MATs) faring better. Over 60% of large MATs report confidence in their financial sustainability, with many achieving close to breakeven annual results. This suggests that growth and economies of scale may be crucial to future financial resilience.

However, government funding constraints are hindering the sector’s expansion. The removal of the Trust Capacity Fund (TCaF) and start-up grants – previously used to support trust growth and academisation – raises questions about shifting government priorities.

In response to financial challenges, many MATs are restructuring operations to drive efficiency, with over 80% of MATs now fully centralising their operations. However, continued financial constraints are limiting trusts’ ability to invest in key areas such as technology renewal and estate maintenance.

Key financial pressures facing the sector

While academies have demonstrated continued resilience, financial pressures are increasing, stemming from a combination of factors, including:

• Inflationary Pressures:  Significant increases in energy costs, staffing costs (including pay awards and pension contributions), and general supplies have squeezed budgets.
• Funding Landscape: While there have been some increases in per-pupil funding, these have often not kept pace with rising costs, leading to real-term funding cuts for many trusts.
• COVID-19 Legacy:  The pandemic’s impact continues to be felt, both in terms of ongoing educational recovery needs and some lingering financial implications.
• Special Educational Needs and Disabilities (SEND) Funding:  the growing demand for SEND support and the associated funding pressures as a major concern.
• Estates Condition: Many academies are in old buildings, which require high levels of upkeep.

While some trusts are navigating these challenges more effectively than others, the overall trend is increasing financial pressure.

Some key findings from the report include:

In-Year Deficits   

A significant and concerning finding is the increase in the proportion of overall trusts now reporting in-year deficits, meaning more trusts than ever are spending more than their income in a given year, and so eating into their reserves. The average in-year deficit for trusts reporting a deficit has also increased, a clear indicator of the financial pressures outlined above, suggesting that cost increases are outpacing funding increases for a growing number of trusts.

Reserves

While the average level of revenue reserves (expressed as a percentage of total income) remains relatively healthy across the sector, these reserves are increasingly having to be used to offset in-year deficits. Relying on reserves is not a sustainable long-term strategy, as reserves are intended for unforeseen circumstances, capital projects, and strategic investment, not for plugging recurring operational shortfalls. There is also a growing disparity between trusts with strong reserves and those with dwindling reserves, creating a “two-tier” system.

Cash Flow

Cash balances have generally remained relatively stable, but while cash levels might appear healthy, they can mask underlying financial weaknesses if reserves are depleted. Trusts need to carefully monitor cash flow projections and ensure they have sufficient liquidity to meet their obligations.

Capital Expenditure

Capital expenditure (spending on buildings and infrastructure) has increased, partly driven by government funding initiatives. However, there are growing concerns about the long-term adequacy of capital funding to address the significant maintenance and improvement needs of an ageing school estate, as many academy buildings are old and will require substantial investment just to maintain, let alone improve or enhance them to bring them up to modern standards. This could require increased capital funding to be made available to the sector, coupled with better support for trusts in managing their estates effectively. Otherwise, there is a risk that trusts may have to divert revenue funding to cover essential capital works, further exacerbating financial pressures. In general, there is a need across the sector for trusts to have a more robust, long-term and strategic approach to estate management.

Staffing Costs

Unsurprisingly, staffing costs remain the largest expenditure for academies, typically accounting for over 75% of total costs. Pay awards and increases in employer pension contributions over the last year have significantly impacted budgets. There is clearly an ongoing challenge of balancing the need to attract and retain high-quality staff with the need to control costs. The sector continues to experience difficulties with recruitment too, particularly for support staff, where pay is less competitive.

Growth and Centralisation

More MATs are looking to centralise in an effort to offset increasing financial challenges with anticipated efficiency gains. However, whilst centralising certain functions (for example, Finance, HR, IT, and Estates) can offer potential benefits in terms of efficiency and economies of scale, this is not a ‘one-size-fits-all’ solution for every academy trust. The optimal level of centralisation will depend on the specific context and size of the MAT, although clearly larger MATs often have more capacity to centralise services and potentially achieve economies of scale.

Growth, in general, is also seen more and more by the sector as the best way to increase resilience. Indeed, the report notes that “given how tight government finances are, then not encouraging growth does seem like a missed opportunity.” The focus should be, however, on recognising the importance of sustainable and strategic growth, as rapid expansion without adequate financial planning and due diligence has caused more problems for trusts rather than being a solution. That said, the report does note that many SATs are feeling more emboldened about their ability to continue as they are.

SEND Funding

There continues to be an increasing need for SEND support across the sector, and consequently, the perceived inadequacy of current funding arrangements is a major challenge in this area. Many trusts are struggling to meet the needs of students with SEND within their existing budgets, leading to pressure on other areas of provision. A formal review of SEND funding would be beneficial to ensure going forward it is sufficient and aligned with the actual costs of providing high-quality support.

Financial Planning and Budgeting

Given the sector's challenges, robust financial planning and budgeting processes have never been more critical. Trusts need to develop realistic, multi-year financial forecasts that take into account the various cost pressures and potential risks. These forecasts should also include proper scenario planning and sensitivity analysis to ensure that trusts can adapt to changing circumstances.

Governance and Leadership

Equally, strong governance and leadership are essential for trusts to successfully navigate the sector's challenges. Indeed, the report notes that “boards need crystal balls and nerves of steel to navigate the educational landscape today!”

Trust boards also need to have the right skills and expertise to oversee financial performance and make informed decisions, and a current cause of concern is the ongoing willingness of volunteers with such experience to continue to put themselves forward. Many trusts have experienced increasing difficulties in attracting (and retaining) experienced individuals to serve on boards and committees.

Collaboration and Sharing Best Practice

There would appear still to be scope for greater collaboration between trusts to share best practices and learn from each other’s experiences, including in areas such as procurement and back-office functions.

Overall Conclusion - A sustainable future requires change

The academies sector has demonstrated resilience, but its financial pressures continue to grow. Rising costs, inadequate funding, and estate maintenance challenges are straining Trusts and making financial sustainability increasingly difficult.

Without a more strategic funding model – particularly for SEND provision and capital investment – many trusts will struggle to maintain financial stability while delivering high-quality education. While strong governance, careful financial planning, and collaboration within the sector can help mitigate some of these challenges, these measures alone cannot fully offset systemic funding issues.

To secure the sector's long-term future, the government and education policymakers must address these funding concerns and provide a clearer path toward financial sustainability.

Kevin Connor is head of academies at accountants, Bishop Fleming.