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The proportion of academy trusts reporting deficits has tripled in just three years, a major report into trust finances has found.

In 2021, 19 per cent of trusts reported in-year financial deficits but as of 2023-24, a majority of 58 per cent of trusts are now in the red.

The found trusts increasingly had to eat into their reserves for 2023-24 as costs for schools remained above inflation.

The report, published today, also reveals that almost a third (31 per cent) of trusts are now holding reserves worth less than 5 per cent of their income - an increase on last year.

This is the threshold that “might indicate financial vulnerability”, according to the .��

Accountants at Kreston UK warn that the situation leaves trusts without the head room to do anything but stand still.

To cope with tight finances, trusts are increasingly making decisions to maximise funding, including increasing centralisation, growing less than expected and investing spare cash, the report has found.

Leora Cruddas, chief executive of the Confederation of School Trusts, said the gap between funding received and real costs for trusts is “unsustainable”.

“We’re calling on the government to use the upcoming Spending Review to reset how schools are funded, ensuring day-to-day spending properly reflects costs and that we invest in school buildings,” she added.

This is Kreston’s first Academies Benchmark Report under the new Labour government. It comes after the removal of several funding streams targeted at trusts as well as the introduction of the Children’s Wellbeing and Schools Bill, which aims to bring academies into line with maintained schools in a number of areas.

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Accountants at Kreston UK Academies Group, which includes seven accounting and advisory firms, collected data from more than 260 trusts that represent almost 2,300 schools.

Here are eight additional key findings from the report.

1. Growth did not meet expectations

Despite 73 per cent of trusts saying they would grow during 2023-24, accountants found only 26 per cent of trusts actually did.

More than half of trusts surveyed said their future growth plans had been affected by the removal of the Trust Capacity Fund (TCaF), which gave trusts cash to build capacity for growth. Most of these trusts said they now expect to grow more slowly.

“The removal of these grants will only save the DfE about £30 million per year, but it does signal to the sector that the growth of trusts is no longer seen as being so important,” the report authors said.

The average number of schools in a multi-academy trust is now 11.7 - an 11.4 per cent increase on the previous year.

The government has confirmed this week that the worst-performing schools will continue to be academised or moved into strong trusts, as many MATs “have done a great job” improving schools.

2. Increasing centralisation and pooling

The percentage of trusts reporting themselves as fully centralised jumped from 61 per cent last year to 81 per cent. Full centralisation means a trust runs all functions such as finance, estates and procurement centrally, rather than in individual schools.

This shows centralisation “is clearly recognised as the best way for MATs to structure their internal functions”, the authors said.

On top of this, 37 per cent of MATs were pooling reserves of their GAG (general annual grant) in 2023-24 - up again from 32 per cent the year before. A further 28 per cent of MATs said they were considering pooling.

The average top slice range increased slightly, particularly for small MATs - from 7.4 per cent last year to 8.8 per cent.

3. Investment return success

Some trusts have “actively sought out” better banking interest rates for their unspent cash, Kreston UK found, and this led to an increase in investment income.

Four trusts made over £1 million during the year.

Kevin Connor, head of academies at Bishop Fleming (a member of the Kreston UK Academies Group) said: “There’s this need within the sector to find any other way to generate income.

“It can be the difference to fund a capital project or just bring a trust back to a surplus position.”

4. Capital funding squeeze

Revenue income to trusts actually increased in 2023-24 - up 8.2 per cent across all trusts and up 12.5 per cent for large MATs.

Revenue income saw a larger percentage increase than total income, which Kreston UK showed “the squeeze on capital income”.

Per-pupil capital income has decreased across most types of trusts. Primary single-academy trusts were the most affected, seeing capital income drop to less than £50 per pupil on average.

The data shows very few primary SATs were successful with Condition Improvement Fund bids during the year, Kreston UK said.

Awards in March 2024 showed a further fall in the number of schools and colleges winning capital money through the CIF to just 733.

This comes after the 2024 Academy Trust Handbook added “failing to manage the school estate” to the list of circumstances for which a trust could be issued with a Notice to Improve.

5. CEO pay increases

The report found average CEO salary increases of 5-6 per cent for medium and large MATs. This is similar to the teacher pay award for this year (5.5 per cent) and last year (6.5 per cent).

This increase is larger than the previous year, when CEOs at these types of trusts saw average increases in pay of around 2 per cent.

Kreston UK said 2022-23‘s smaller increases may have been due to the “spotlight on executive pay”, and that the larger increases in 2023-24 look to be “an element of catching up”.

“This coincides with a softening of approach by the ESFA [Education and Skills Funding Agency], putting the onus back on trust boards to take a more holistic approach to CEO pay awards,” the report said.

6. Pressure on secondary SATs

The report found secondary SATs saw the larger year-on-year deterioration in financial performance. Two-thirds reported an in-year deficit for 2023-24.

The average end-of-year position for secondary SATs was a deficit of £162,000 - significantly down from a small surplus of £6,000 the previous year.

This puts them in a worse place than the primary SATs surveyed - however primary SATs have reported deficits for the past three years.

Accountants noted the slightly improved position for primary SATs likely reflected most of the financially weakest primary SATs having joined MATs.

On the other hand, more than 60 per cent of large MATs reported feeling confident in their financial stability compared with less than half of smaller trusts.

Ms Cruddas said it would seem “sensible” for trust boards to make an assessment of their educational financial viability going forward and “consider a range or options, which include ambitions to grow but also might include options to join together with another trust” given the difficult financial climate.

7. Increasing costs and uncertainty continue to bite

Costs per pupil did not rise as much for 2023-24 as they did in 2022-23 (8 per cent compared with 16 per cent), but still remained significantly above inflation.

More than four in five (81 per cent) of trusts said teaching and support staff costs were their biggest financial challenge. This was particularly evident at primary SATs, which saw staff costs exceed 75 per cent of revenue income for the first time.

This comes as the sector awaits the teacher pay award for 2025-26. The DfE has recommended a 2.8 per cent increase, with no funding to cover it. Unions have warned this would be difficult for many schools to afford.

“Trusts need to be able to operate at a surplus,” said Mr Connor. “Operating at a surplus for a trust is kind of standing still.

“A moderate surplus enables a trust to actually look forward and plan - to upgrade facilities, make changes to staff mixes and how they’re going to cope with SEND [special educational needs and disabilities] demand.

“Without that, they feel very much like they’re restricted to just getting by and surviving.”

However, trusts did see energy prices fall from 2022-23 - with only 12 per cent of trusts reporting these as one of their biggest financial challenges.

8. Problems with decarbonisation funding

The Public Sector Decarbonisation Scheme provides grants to bodies across the public sector to use on becoming more energy efficient.

Of the 49 school projects that were funded under the latest phase of the scheme, Kreston UK said 34 academy trusts were awarded 39 projects.

However, the report authors said some of these trusts then subsequently declined the funding when they found overall project costs would exceed their previous expectations.

“It is unclear how much of the funding awarded has actually been deployed,” the report said.

However, average CO2 emissions per pupil continued to decrease, falling by 0.027 tonnes compared with the previous year.

A DfE spokesperson said: “We recognise the challenges schools are facing, but despite the challenging economic context, we are putting a further £2.3 billion into schools’ budgets, with £1 billion for children and young people with high needs.

“We value the vital role academy trusts play in our school system and will work with them to drive high and rising standards for all children.”