NAVIGATING THE ECONOMIC TURBULENCE AHEAD

Amidst a severe global economic crisis, Sam Coutinho considers how schools should prepare for the cost pressures confronting all businesses in order to secure their long-term financial survival.

It was around five or six years ago that the issue of affordability and parents’ ability to pay school fees truly started to concern the sector. The cost of delivering education was increasing, Teachers’ Pension Scheme (TPS) contributions were soaring, there was political uncertainty with threats of the abolition of the sector, VAT on fees and the loss of both charitable status and mandatory business rates relief. It seems many of those challenges are the same today. But now we are also having to confront the stormy waters of economic turbulence and a cost of living crisis stemming from the impact of the pandemic, of BREXIT and, of course, the Ukraine-Russia conflict. It is important for school leaders to understand how these challenges might impact their school and their decision-making.

The simplest way to do this is to consider the impact on the school financial model. Each of the challenges may increase or decrease your income and expenditure, which in turn will impact your surpluses, cash balances and ability to borrow and repay debt.

Parental choice and falling pupil numbers

As household disposable income falls, parents will be feeling the pressure on paying school fees. A fall in pupil numbers can have a significant effect on income and, depending on the level of fee remissions, on cash. If schools build their cost model on fee levels before discounts, the school will end up haemorrhaging cash over time. High remissions can work with very tight management of costs, a no-frills approach to delivering education and with alternative sources of income available. It is important that pupil number trends in each year group are closely monitored, data on remissions is understood and awards are made strategically. And a school’s pupil recruitment strategy must align with the year groups where there is the most need.

Fee remissions

Fee remissions can include scholarships, bursaries, staff discounts, sibling discounts and Head’s awards. Whilst bursaries are generally means-tested, most other discounts are not. Therefore, a school needs to think carefully about how much cash it can afford to give away and continue to manage the cost base without damaging the quality of education being provided.

Energy costs

The increase in energy costs is a major threat which cannot be avoided. Schools that have fixed-price contracts in place need to plan for when the contract ends. Schools need to be estimating now what that increase could be so that plans can be made to manage the increase. Some schools that have done this are already anticipating increases of over 200% as soon as 2024. F

Mandatory business rates relief

The loss of mandatory business rates relief has been on the agenda for a number of years. In 2017, Scotland announced that charitable private schools would lose business rates. It is anticipated that withdrawal of relief could come into effect in England and Wales in 2024/25 and could increase an independent school’s annual business rates bill by hundreds of thousands of pounds. This additional annual cost needs to be built into financial forecasting models with a clear plan for how it is going to be funded.

Salary and pension costs

The next change in the employer contribution to the TPS is expected in April 2023, with implementation in April 2024. This will necessarily inform the forecast of schools’ future salary and benefits budgets. It is expected that the contribution rate will rise, possibly by as much as 30%.

Teaching costs are the most significant operating cost in any school. Salary awards made in response to increased starting salaries in the maintained sector, alongside general wage inflation driven by the cost of living crisis could significantly challenge a school’s financial viability.

Schools need

Five things all school leaders must do

1. Understand your pupil numbers, capacity by year group and build a tactical marketing plan to target the gaps.

2. Review how much cash you are giving away in remissions and confirm you can afford to do it.

3. Know the cost of delivering your curriculum and whether you can afford to deliver it while objectively assessing whether you truly know what parents want and you are not delivering what you believe they want.

4. Look at the staffing structure across the school and challenge whether you are working ‘smart’ – i.e. the right people, doing the right job at the right costs.

5. Review all contracts and negotiate better deals – there are savings to be had everywhere.