Husham Khan, school business leader and author, analyses the financial difficulties schools are facing and gives advice on how you can best prepare to tackle them
As I write this the conflict in Ukraine continues, rightly, to dominate the news and it almost feels insignificant to write about anything else. Governing body discussions around financial risk have continued as we gradually transition out of a pandemic into an international crisis in Eastern Europe. With so much impact on international markets (including supply chains) since Brexit and numerous lockdowns, the strain on domestic and school finances is now evident.
We are in a period of significant uncertainty, which was always expected, but I think we are a couple of years away until things start to settle down. By far the biggest impact on school budgets is pay inflation plus on costs; whilst the independent sector has felt the full brunt of increases over the last three years, such as employer contributions to teachers’ pensions and the new health and social care levy, the public sector has had some insulation from these increases. These have been factors within the DfE’s control; it can decide how it limits the impact on school budgets through offsets in funding.
As we approach the new financial year for the maintained sector, and the new streamlined BFR return, long term forecasting has never been so important, not only from a business perspective but also in how it drives pedagogy and wellbeing. Currently the three big uncertainties are energy, other supplies and recruitment; unfortunately, the markets for all of these areas are extremely volatile at the moment, with energy contracts procured by some councils across the UK spiking by over 200% – and that’s before you factor in the potential further impact of economic sanctions.
If the domestic market is anything to go by, we could see schools paying up to five times more than their previous standard tariff rate, excluding fixed term. Those currently on fixed term energy contracts could easily see nasty shocks to budgets in a couple of years, or when those contracts expire. My advice would be to lock in early once those fixed rate deals become available. There could be a silver lining in all of this, however, as it may accelerate the sustainability agenda and increase the number of organisations aiming for carbon neutrality. Only time will tell.
Catering for cuts
Another area which may see a potential shock is catering contracts. With the new preferred measure of inflation, the Consumer Prices Index with Housing, we could see double digit figures of inflation by this time next year – although a more realistic certainty would be nearer to eight per cent. Bring in potential pay inflation of three per cent, the cost of food increasing by 18% minimum, and the rocketing price of energy, we have a perfect storm!
Whilst the impact can be mitigated (to a degree) by school meal income there will need to be a re-balancing in catering contracts to ensure affordability by the school, deliverability to the pupils and affordability from parents. Free school meal funding will, sadly, not keep up with the inflationary pressures in the short term.
I have never seen a time where recruitment has been such a challenge, with the candidate pool so depleted. This is leading to greater unit supply costs, and I am sure the re-introduction of golden hellos in order to attract staff will become more and more common. It’s a good thing for those seeking employment – but not so positive if your budget is being stretched more than you had planned. For this reason, any supply staff vacancies should include an uplift which has been agreed with your supply agency. As recently as this term I have seen costs for teaching supply staff increase by up to 50%.
Just as big a threat is the overall reduction in pupil numbers within the early years and primary sectors over the next five years. We could be seeing a drop of as much as eight per cent in this area due to the decline in birth rates – and that is without factoring in the impact COVID has had on birth rates, which could be as high as 20% if we follow similar trends to those in mainland Europe.
Last year, when the chancellor of the exchequer Rishi Sunak mentioned that the financial emergency was about to begin, I took it with a pinch of salt. I am now realising that this is turning out to be more than an emergency and will push the skills of schools business leaders to the limit.
It is a challenge the sector will rise to again as this is who we are, and what we do!
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