Black hole looming for academies

Academies could be forced to make cuts equivalent to up to three teachers due to state pension changes

Schools with academy status could be left facing a combined £200m a year-plus financial black hole following forthcoming changes to the state pension rules which will increase their employers’ national insurance contributions (NICs), according to our research.

From 2016, the two-tier state pension, which had allowed people to contract out of the state second pension and therefore pay lower NICs, is to be scrapped in favour of a flat-rate scheme. Affected employers will have to increase NICs by 3.4% to 13.8% of salaries.

Our research explains that academy trusts pay into different defined benefit pension schemes for their teaching staff and non-teaching support staff, but both of the schemes are contracted out of the second state pension, and so currently academies, in common with most public sector bodies, can take advantage of the lower rates.

It estimates that this major change could typically cost secondary academies £100,000 a year more - equivalent to the salaries of three teachers – and primary academies £15,000 to £50,000 extra a year depending on the size of the school, or the equivalent of up to two teachers.

There are currently almost 1700 secondary academies in the UK and over 1450 primary academies – meaning that this change would create an additional deficit of approximately £200. This figure excludes over 140 other special, 16-plus and all-through age-group academies.

Allan Hickie, Head of Academies, comments:

“These changes are going to have a massive impact on academies’ budgets, creating a big black hole in their finances. Some tough decisions are going to have to be made - and soon, so that the necessary plans can be made ahead of time.

Unless extra funds are provided from central government to cover the shortfall, which seems unlikely at this stage, substantial efficiency savings are going to have to be identified and built into academies’ three-year financial plans now.

Even if they wanted to, many academies will find it difficult to make the needed staff cuts. The smaller primaries in particular are already very tight on teacher numbers, and it would be a very unpopular route to take. Staff costs can account for up to 80% of an academy's annual expenditure, so there is little opportunity to make substantial savings elsewhere in their budget.”

Our analysis explains that academy governors are responsible for the financial oversight of the school, whereas governors of local authority maintained schools have to make sure the school acts within the local authority's financial framework and that the authority has proper oversight of the funds it distributes to the school.

Therefore, every academy trust has to have in place a process for the independent checking of financial controls, systems, transactions and risks, either by internal/external audit, peer review or a governor acting as a 'responsible officer'.

The personal accountability of academy governors is already putting candidates off responsible roles.

Allan Hickie:

“The weight of responsibility on Academy governors is so high that some academies are already struggling to appoint suitable people, particularly those who are prepared to take on key roles such as 'responsible officer' or chair of finance. Although governors are afforded limited financial liability by company law, the high profile of academies means a governor's personal accountability in other ways is such that they cannot afford to get it wrong.”

Academy governors must comply with the Academy’s Articles of Association as well as the provisions of the Department for Education’s funding agreement. In addition, they are subject to the duties and responsibilities of company directors as well as being charitable trustees under charity law. This means they can be held personally liable for losses, incur fines, be disqualified from company directorships and even face criminal charges for failures in their duties.