Worst Case: How To Handle A School Budget Deficit

The announcement of additional funding for the education sector in the Autumn Budget 2024 was welcome, as it offers a small respite for the rising costs of operations in schools. Whether it went far enough to alleviate all of the problems that schools and academies face, that’s for another article, I think.

What is true is that, for many years, we have faced funding pressures which aren’t truly experienced elsewhere, even in the public sector. The ever-changing landscape that is our education system brings with it many challenges, and the budget is affected by every one of them.

Spotting the issue

For anyone like myself who has worked in schools where there are true budget deficiencies and deficit budgets, you will know that the slide into negative figures can appear within different timescales depending on your circumstances. Economies of scale can play a large part in this; a small operation is going to be impacted far quicker by sudden budget pressures than a larger school with greater resources – although it could be argued to a larger amount.

Having said that and having worked under both of these scenarios, the impact is equal and the road to recovery often long and painful.

In both of these situations, the deficit journey had clear implementation stages. Among the first is the realisation that this is the direction in which the finances are heading. I was a young(er), less experienced school leader when I first encountered the journey. I was working in an environment of ‘it will be okay’ shared by other school leaders; a point of view which is fuelled by the erratic nature of budgets in education, where additional funding has meant that it has indeed been okay in the past.

This was quite swiftly followed by the understanding that it clearly was not going to be okay and the first outcome was to apportion blame. When you find yourself in this situation, it is important to:

• Accept the situation and attempt a solution-focused approach
• Include all necessary stakeholders in both the problem and the recovery plan
• Be prepared to make some difficult decisions
• Describe these decisions and make the outcomes mandatory
• Learn from your mistakes

One key learning point for me was the realisation that not everyone understands that absolutely everything in a school costs money. This is a hard thing to embed.

Common problems

My first experience was in a small primary school, housed in an old building within a very deprived community. There were significant issues with the building which required a large element of spend every year, there was a need for pastoral staff to be in place due to the nature of our students, and it was overstaffed – this even extended to the staffing budget going over 100% of funding in one year.

The school was a one-form entry (which presents its own financial challenges) and had a limited catchment area, which affected the budget significantly year on year. It found itself in a budget deficit position with a budget deficit management plan. Whilst this is not the best position to be in, it provides a steep learning curve and it brings into context the nature and effectiveness of all of your spends in every area.

One of the secondary schools was a larger secondary which suffered from a loss of popularity (you will be noting a trend here) and possibly a rather optimistic view of its ability to reverse the trend. This event led to an initial application for financial support and some rather harsh budget planning on the basis that this would need to be repaid. Being of the mind that the monies that came in with the cohort should be spent on those students, this did not sit well and we were fortunate to be able to make savings and not take the loan.

In the other secondary school, there was a large build which created a cash flow problem – which in itself increased costs.

In each of these situations, the common themes were:

• In-year deficits that quickly ‘ate up’ any carried-forward surplus
• Overstaffing
• Misled or poor financial planning

All of the above quickly lead to cash flow problems. When these occur, you have to be very careful not to allow knee-jerk reactions which instantly have a very negative impact on the core purpose of teaching and learning.

The right way to respond

The first step to manage this situation always has to be establishing transparency with key stakeholders, namely staff, governors and any MAT colleagues or the local authority. By sharing the situation as early as you can, you instantly open up the solution process to a greater pool of knowledge and help.

Better emphasis on monitoring and sharing of financial information on a regular basis may well do this for you – certainly, this was not the case when I first encountered a cash flow crisis and I very much felt like it was my problem. Having honest conversations means the problem is shared and the burden eased.

I found in the primary school that the approach to the overspends was very operational. It really was a case of saving money with a case of ‘stop spending and don’t replace’. This of course is a strategy that has a shelf life, but it does reap instant rewards and help cash flow.

With a larger budget and setting this will work to a smaller degree; the costs here are greater and the ability to make immediate savings has a lesser impact. However (particularly in secondary), you have a greater need for a diverse staffing body driven largely by your curriculum and set-up. In both situations, it is more about looking at the value of your spends alongside the sustainability of any changes.

As we know, the greatest resource cost is your staffing. When your staff costs go above 70-75% of your income (depending on your context), you are likely to be heading for a problem. That is not to say that this should be a solid barrier – just an issue if it is something that is sustained over a period of time, as it was for my primary school.

This was the biggest barrier for the journey out of deficit for us and of course not a quick fix. With the teachers’ terms and conditions and the protections that all staff rightly enjoy, overstaffing is an expensive and sustained pressure on your budget. Again, not something that can be fixed quickly.

The value of proper financial planning

Some of the most difficult conversations within the deficit condition will be around staffing, largely because reductions are extremely impactful on education outcomes. I would always recommend a staffing plan that is assessed using the principles of integrated curriculum financial planning (ICFP).

This is possibly more impactful in secondary schools, but the basic concept looks at the value achieved by the spend on each of your staffing positions, looking first at core staffing need before the added value expenditure. When you are in a deficit position, this is key; you cannot afford the additional staffing above operational need.

ICFP also allows a look at other spends and – when used in conjunction with benchmarking your spend values against similar schools – offers an opportunity to investigate whether you have historical spends (we always do) or can make efficiencies where the existing structure doesn’t support the school’s current journey. I found that making small savings was a first step towards making some of the bigger decisions. It helped to change mindset and ensure that everyone joined in the journey.

I am pleased to report that, in both of my experiences, we were able to turn things around – albeit with some hard decisions being made. It is not a quick process, but it does help to foster better spending decisions in your setting. For me, ICFP was a learning experience that I now use regardless of the setting I am working in. My key takeaways were that all operational decisions need a strategic approach and every spend has two values: the cost and the impact.

Sue Birchall is School Business Leader at The Malling School and an experienced consultant, speaker and writer.