Hampshire County Council
Schools Forum
Item
24 October 2013
Schools Balances
Report of the Director of Corporate Resources – Corporate
Services and Director of Children’s Services
Contact: Gordon Shinn, 01962 847545; gordon.shinn@hants.gov.uk
1
Summary
1.1
This report gives an update on the level of schools’ balances, and gives
proposals on how they may be controlled.
1.2
Work is in hand to ensure that the approach to managing surplus
balances is consistent across the schools sector i.e. academies and
maintained schools.
2
2.1
Background
Schools’ balances have risen during each of the last four completed
financial years. Excluding schools that have converted to academies by
1 September 2013, the amounts were as follows:
31 Mar 10
£m
31 Mar 11
£m
31 Mar 12
£m
31 Mar 13
£m
Nursery
0.5
0.4
0.5
0.5
Primary
15.5
16.5
21.8
25.5
Secondary
7.2
8.9
10.9
14.4
Special
2.4
3.1
3.4
4.0
25.6
29.0
36.6
44.5
Total
2.2
The above figures differ slightly from those reported to Schools Forum in
July due to four schools becoming academies on 1 September 2013 and
being removed from the calculations, as well as the balances of
children’s centres being removed from the nursery figures.
2.3
There used to be a mechanism for clawing back uncommitted excessive
balances, but Schools Forum suspended it for a year on 2 March 2011,
and indefinitely on 29 February 2012.
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2.4
Financial assurance and schools balances and deficits were also subject
to a report by the National Audit Office, with a subsequent DfE
consultation. This was considered by Schools Forum at its meeting 16
May 2012. This suggested that where a number of schools held
“persistent surpluses” then this may initiate greater scrutiny.
2.5
In view of rising balances, and likely intervention from the Department
for Education (DfE) unless balances are controlled at a reasonable level,
officers believe that it is appropriate for the subject of balance controls to
be reconsidered. At its meeting on 23 May 2013, Schools Forum
expressed concern over the increase in balances, and this concern was
reported to all schools in the schools communication dated 3 June 2013.
At the Schools Forum meeting on 10 July, it was agreed that a formal
mechanism will be developed and that proposals will be brought back to
October 2013 Schools Forum.
3
General
3.1
There is a general acceptance that schools should use today’s money
for today’s pupils, rather than building up large reserves, especially if
those reserves are not part of a medium term plan.
3.2
DfE guidance recognises the need to control excessive balances and
also recognises the need for schools’ autonomy. The guidance states
that:
The scheme may contain a mechanism to clawback excessive surplus
balances. Any mechanism should have regard to the principle that
schools should be moving towards greater autonomy, should not be
constrained from making early efficiencies to support their medium-term
budgeting in a tighter financial climate, and should not be burdened by
bureaucracy. The mechanism should, therefore be focussed on only
those schools which have built up significant excessive uncommitted
balances and/or where some level of redistribution would support
improved provision across a local area.
3.3
Schools Forum agreed on 10 July 2013 that, in the first instance,
schools with persistently high balances over the last three years should
be targeted, rather than the previous practice of asking secondary
schools with balances in excess of 4% of budget share, and others with
balances in excess of 5% to justify their balances. There was also a
£25,000 threshold to enable small schools to keep a reasonable
contingency without fear of it being clawed back.
3.4
With regards to the targeting of schools, officers believe that no more
than about 10% of schools, i.e. in the region of 50, should be targeted.
This will enable more effort to be directed to the schools with the largest
balances, at the same time as avoiding burdening most schools.
3.5
The DfE is considering how any balances control policy can be
consistently applied across the schools sector, with particular reference
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to academies. While processes can be put in place, to ensure equity,
before operating a clawback mechanism, either the DfE would need to
allow:
3.6

any funds clawed back from maintained schools to be recycled within
the maintained schools sector (i.e. with academies not receiving a
share); or

academies to be included in the clawback mechanisms.
The Education Funding Agency (EFA) Academies Financial Handbook
2013 contains the following section in respect of Academy surpluses:
Managing surplus General Annual Grant (GAG)
It is important that grant is spent as needed to avoid excess calls on
Exchequer funding and public borrowing. The EFA previously set limits
on the amount of GAG that could be carried forward from one year to the
next. These limits have now been removed so that academy trusts have
the freedom to keep money aside for when it is needed most and to
build up reserves, for example for long-term capital projects.
The DfE expects academy trusts to use their allocated funding for the full
benefit of their current pupils. Therefore, it is important that, if the trust
has a substantial surplus, they have a clear plan for how it will be used
to benefit their pupils.
Budget forecasts sent to the EFA must declare any unspent funds
expected to be carried forward at the end of the financial year. The EFA
will also verify the sums of unspent funds when it checks the trust’s
accounts and highlight and report, to the relevant DFE boards, any
cases where it has serious concerns about a long-term substantial
surplus with no clear plans for use.
3.7
The above guidance appears to allow academies considerable freedom
to build up substantial reserves but retain some scope for EFA to
intervene where there are “serious concerns” about high balances.
3.8
Officers are following up with the DfE and EFA in relation to how the
EFA approach to academies should compare with the approach to
maintained schools.
4
4.1
Details
For the purpose of this exercise, each school’s year end balance is
calculated as a percentage of its income for the year in question. This is
slightly different from the previous practice of quoting the balance as a
percentage of budget share, the change being to recognise the fact that
schools now receive more income from outside the budget share than in
the past (e.g. increased pupil premium). Also, other income sources
(e.g. community income) are also recognised. This inevitably causes a
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lower percentage to be calculated than was previously the case but it is
more consistent and meaningful.
4.2
Taking different percentage thresholds, the following table shows the
numbers of schools have had balances in excess of the threshold for the
last 3 years (31 March 2013, 31 March 2012, and 31 March 2011). It
also shows the 31 March 2013 value of excess balances for those
schools.
Number of schools where balance has exceeded quoted threshold
for last three years
6%
7% 8% 9% 10% 11% 12% 13% 14% 15%
Nursery
3
3
3
2
2
2
2
2
1
1
Primary
79
46
31
22
17
10
6
6
3
2
Secondary
12
5
4
3
2
1
1
1
1
1
Special
11
9
8
4
4
3
1
1
1
1
Total *
105
63
46
31
25
16
10
10
6
5
Value of
excess
balances
(£m) *
9.7
6.4
5.2
2.8
2.4
1.8
1.5
1.4
1.2
1.2
* These totals include one school due to convert to academy status in
November 2013.
4.3
Using the 10% threshold would mean targeting just 25 schools, all of
whom would have been targeted under the previous arrangements.
4.4
As mentioned in paragraph 3.5 above, it would not be equitable to apply
the clawback to maintained schools until the situation with reference to
academies is resolved, but there could be merit in going through the
procedures with these 25 schools.
5
Proposal
5.1
It is proposed that officers contact those schools above the 10%
threshold (for the last three years) and ask them to explain the proposed
uses of their balances. However, it will be made clear that, at this stage,
no clawback action would be taken.
5.2
The calculations will be re-run after the end of the current financial year
and schools that have then had excessive balances for three years (31
March 2014, 31 March 2013, and 31 March 2012) will be contacted then,
with a view to a similar exercise being undertaken.
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5.3
6
Any changes to the balances control mechanism will be subject to
having had a satisfactory response from the DfE on the question of the
approach relating to academies. The Scheme for Financial Management
(SfFM) will subsequently be updated following consultation with all
schools and agreed by Schools Forum in advance of implementation of
the policy.
Recommendations
6.1
It is recommended that Schools Forum agrees that schools identified
with balances in excess of 10% of income (or £25,000, whichever is the
higher) for the last three years should be asked to explain why the
balances are so high and what plans are in place for their use.
6.2
It is recommended that Schools Forum agrees that, subject to the DfE
agreeing an approach in relation to academies, a balances control policy
be considered for implementation in 2014/15 along the lines of the
proposals outlined in this report. Such a policy would be submitted to
Schools Forum for approval prior to implementation.
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