National funding formula spells trouble for academy accounts

Falling funding for academies is posing significant questions for academies that could find themselves in a crisis, Mercia’s one-day Academies Update Conference was warned. Simon Oxenham, Chief Operating Officer at Woodard Academy Trust, discussed the financial impact of the funding shortfall as well as giving his thoughts on some of the possible approaches that trusts might take.

Grim reaper

Mr Oxenham said: ‘I’m now known as the Grim Reaper. Last year I told you that this year was going to be pretty grim, let me tell you next year is going to be worse. It is really important to understand the sector.

‘When did you realise the funding for 2025/26? The details were actually out in October and a few people realised it was 0.5%, a lot of the sector still assumed it was 2%, so the sector slept-walked into the funding crisis that we’re experiencing for 2025/26.’

In the Autumn Budget, an extra £2.3 billion was announced for schools. However, £1 billion of that goes to higher needs, leaving £1.3 billion, or a 2% increase in the dedicated schools’ grant.

However, Mr Oxenham warned: ‘Are we getting a 2% increase? No. What happened? If you look at the National Funding Formula (NFF) for 2024/25 and compare it to 2025/26 the individual values have gone up quite a bit in certain areas but that is because grants we were already getting this year have been rolled into the NFF. If we take those out we only get 0.5%.’ Mr Oxenham explained that the time from creating a school prospectus to Year 7s starting is 18 months so it takes that long for a school to change its offer.

Academies face a number of other NFF issues, including falling number of pupils in some schools, more going to higher needs as well as late and large numbers of demographic changes.

This means that the budget formula for 2025 contains a 3.1% funding gap, so savings or income generation will be required.

Not an option

Doing nothing is not really an option as healthy reserves would run out in two years while those who hope to wait for more detail are likely to find time running out, added Mr Oxenham.

He discussed some possible approaches, including organisational structure review and comparison, print and catering reviews or an overhaul of contract, invoice and system processes. Academies could also consider ways of reducing workload, such as an email charter.

Mr Oxenham said: ‘Guiding principles need to be agreed right at the get go. In dealing with a financial shortfall you must be looking to achieve the best value for public money.

‘You must maximise the resources going to the frontline, which is about helping pupils learn. You must allow headteachers and principals to focus on teaching and learning. You must avoid intervention.’

Experts and insights

Mercia’s Academies Update Conference brings together experts to provide essential updates and insights on the challenges facing academies.

RSM’s Andrea Deegan, RSM updated the conference on fraud and bribery legislation, whilst sharing some insights into emerging fraud risks, fraud indicators and good practice.

There was an Actuarial Accounting Update from Jamie Baxter of Hymans Robertson, whose session included FRS102 assumptions and the outlook for 31 August 2025 year end while Crowe UK’s Jon Daley and Vin Gogna gave a session on Corporation Tax issues for academies and multi-academy trusts.

Academy Advisory’s Chris Whiting gave the conference insight into sector risks as experienced from work as an academy sector internal auditor.

Mercia’s Gemma Archer closed the conference by rounding up the key changes in the draft Charities SORP and how these might affect academy trusts in future.

Earlier, Mercia’s Roger Allum, Mercia Group had guided delegates through the changes to the Academies Accounts Direction 2024/25.

Good practice

Although Mr Allum said the changes are not extensive this year he warned that accounting and audit teams must still pay attention.

The updates include good practice around fraud, a guide on novel, contentious and repercussive transactions, cyber security standards and the terms of engagement.

Mr Allum said: ‘Not a huge amount of change this year, but the reference material has all been updated and it would be a good idea to make sure the teams are up to date with what those changes might be.’