Blog A new study raises red flags on 1 in 10 of the UK’s leading Academy Trusts - Plimsoll Publishing UK

The academies industry in the UK is a complex and evolving landscape, with a range of financial issues impacting the sector. In the wake of financial scandals, there has been increasing scrutiny of academy finances, with concerns raised about the sustainability of the model and the potential for financial mismanagement and greed.

One of the main financial challenges facing academic trusts is the funding model. Academies receive funding directly from the government, rather than local authorities. This model has created huge uncertainty and instability as the amount of funding that academies receive is subject to changes in government policy, adjustments to funding formulas or changes to the overall education budget.

However, there are also concerns about the financial management of some academies. This has been highlighted by a number of high-profile cases in recent years, including the collapse of the Wakefield City Academies Trust in 2017, which was forced to hand over its 21 schools to new sponsors due to financial mismanagement. Contracts handed to connected firms, misappropriations and general misuse of financial resources have seen many trusts fail their pupils and staff.

The government has introduced a range of measures aimed at improving financial oversight and management within the academies sector. These include the requirement for all academies to have a financial management system in place, as well as regular reporting and monitoring of financial performance. Leading market analysts Plimsoll have launched a special analysis of the Academies sector to highlight those trusts in financial danger and those that are star financial performers.

There remain serious concerns about the financial sustainability of the academy model. Plimsoll’s latest analysis of the sector has rated 1 in 10 academies as “Danger”. Our model of analysis, backed by almost four decades of proven results, gave 9 out of 10 companies currently in administration such a rating up to two years prior to their demise. This is a warning that ministers, inspectors and school financiers ignore problems, in the sector, at their peril.

One of the financial weaknesses in the education model is that academies are required to finance their own premises, which can be a significant drain on resources. Balancing the books with such a capital-intensive investment in land and buildings is inefficient for a business model with an inherently finite income. That is especially true for inner-city trusts where property and land prices can be ruinously high.

Plimsoll’s latest assessment of the sector is designed so those tasked with operating or regulating the academy sector have a simple means of assessing the long-term health of providers within it. With the Plimsoll Analysis, warning signs of trusts heading for financial failure flash much earlier, giving time for management to react. Inversely, the best practice of those getting their performance right can be aped easily.

Here are some of the key findings from the latest Plimsoll Analysis:

Half of all academy trusts are already multi-year loss makers

Of the UK’s 1000 largest academy trusts, 490 have lost money in each of the last two years. Some have been losing money for longer.

In further evidence of how unsustainable the current funding model is, the entire sector has made negative profit margins in 4 out of the last 5 years. The only year where profit margins were positive in the industry was 2021, at the height of the COVID-19 lockdown period.

The only way Britain’s current funding model of the academy industry will work is if we don’t send children to school - an unsustainable reality.

1 in 10 of the UK’s leading Academy Trusts are rated as "Danger"

Plimsoll has rated each of the top 1000 academy trusts based on their financial stability and robustness. Each trust has been rated as Strong, Good, Mediocre, Caution or Danger. These ratings give an indication of how prepared each trust is for an unexpected shock, such as a spike in inflation.

A “Danger” rating from Plimsoll is a proven indicator that a business is flirting with financial failure. 9 out of 10 companies currently in administration were rated as Danger by Plimsoll two years prior to their demise. This is an early warning that change is required.

The Plimsoll Analysis provides an instant comparison analysis of the UK’s 1000 leading academy trusts. Whether you’re charged with the prudent financial management of a trust, a senior figure with a vested interest in good school governance, or simply intrigued by the performance of those increasingly entrusted with the education of our children, this is a critical tool.

Each leading trust is assessed on its overall financial health, rated on its robustness, and provided with a number of improvements to be made. What’s more, Plimsoll also provides concise comparisons so you can instantly separate the weak from the strong.

For more information on the Plimsoll Analysis – School Academies please click here.