Note: everyone connected with this website and campaign believes that schools need more money. We recognise that every school management team will have a plan for reserves and is aiming to manage their school finances well.
Three years ago, Kirsty Williams declared herself shocked by the high levels of school reserves in Wales - that is money left in the bank at the end of the financial year. She said “my message is that if people are hanging on to that money for a rainy day, well it's raining and we need that money being used to its best effect.”
We’ve shown with maps and graphs how the levels of school reserves have changed over the years in each local authority. Now we’re going to look at the rules around school reserves and how they affect local authority funding. In particular we’re looking at primary schools because that’s where most of the money is (unfortunately deficits are the main problem for secondary schools). We’re using the most recent budget outturn figures together with related figures for that year.
Once a school hits the threshold figure for reserves, the LA can challenge the school to produce plans to spend the money, or clawback the money for redistribution. (Discussion of whether they do or not is for another day.)
The first thing to know is that this is the only example we could find of a one-size-fits-all approach in school funding. Every primary school has the same statutory limit set on the size of its school reserves no matter what size the school. The threshold is £50,000 and the reason according to the Welsh government website is that is how much a teacher on the top tier of pay is paid. Is that a good reason? Does it reflect real world needs?
Let’s see what effects it has.
A school with 662 students and a budget of £2.1million can have reserves up to £50,000 (Rhiwbeina in Cardiff). And so can a school with 27 students and a delegated budget of £152K (Syr John Rhys in Ceredigion).
We’ve seen various discussions of school reserves looking at levels in Wales—there’s this annual review from Welsh government and here’s a discussion on the NFER website
But we’ve haven’t seen any analysis of the impact that the statutory threshold has on the issue.
Comments are regularly made about the number of schools that have reserves in excess of 10% of their budget. Is that a surprise? Not to us, given that 75% of Welsh primary schools can hold over 5% of their budget in reserve and remain within statutory limits. Over 32% of schools in Wales would still be within their limit with over 10% of their budget in reserves. 11% can hold more than 20% of their delegated budget as reserves before the LA can take action. 35 schools (just under 3%) can hold more than 30%. At the other end of the scale, for 307 schools (24.78%) £50K is less than 5% of their delegated budget.
Let’s imagine a scenario where every primary school in Wales has reached its statutory limit in reserves but not more. That would be equivalent to 6.64% of the total delegated budget for primary schools in 2018-19 (£62million).
For local authorities with a high proportion of small schools with small budgets, an even higher proportion of their schools budget could form part of entirely legitimate school reserves. Unsurprisingly the three LAs with the highest % maximum amount allowable are Gwynedd (12.27%), Ceredigion (12.22%) and Powys (11.93%).
Okay, but that’s theoretical. What’s actually going on? Here's a map to get us started. Every school on this map has at least 5% of its budget held in reserves and every school is still within the statutory limits.
Welsh primary schools ended 2018-19 with over 5% of the delegated school budget for that year in reserves (over £47million). But only 1.57% was over statutory limits (£14.6million). 423 schools had over £50K in reserves but 672 had over 5% of their budget, meaning 41% (279) of the schools that had over 5% of their budget in reserves did so within statutory limits. 81 of the 264 with over 10% were still within limits, as were 11 of the 28 with over 20%. There were also 34 schools over the statutory limit but still holding less than 5% of their budget in reserves.
Now there are definitely examples of authorities that could claw back a reasonable % of their budget currently held in school reserves. Newport primary schools ended 2018-19 with 7.5% of the budget in reserves (£3.6m) but could claw back £1.9m (4%). Swansea had almost 8% of its budget in reserves but could claw back 3% or £2million.
But there's much less room for manoeuvre for authorities with a high proportion of small schools.
Ceredigion ended 2018-19 with 8.46% of its delegated schools budget in school reserves. How much could it claw back if it wanted? 1.2%. Or £191K out of £1.3million. Ceredigion has 20 schools with over 10% of their budget in reserves but 12 of those are within their limits.
Gwynedd ended 2018-19 with a slightly smaller proportion in reserves: 7.16% but could only claw back 0.72% (249K out of 2.48million). Gwynedd has 27 schools with over 10% of their budget in reserves but 19 are within limits.
Powys had 7.6% in reserves—£2.5million—but only 1.88% or £622K was over statutory limits. Powys has 6 schools with over 20% of their budget in reserves, and only 3 have breached their limits.
Here’s the structural problem. An LA gets its money based on how many students it has in school. But its budget outturns are controlled on a per school basis. With declining school populations in most Welsh LAs and certainly in rural areas, this means an increasing proportion of the LA’s declining budget can end up inaccessible and unspent.
So what can an LA do if it can’t claw back the funds for redistribution? Not much. They could reduce funding or redesign their funding formula but that would affect all their schools not just the ones with out-of-proportion reserves. Local authorities can agree different levels with their schools but do they? And does that involve lowering limits for small schools or raising them for larger ones?
And what can schools do? They can spend the money. And many do just that. But it’s hard to blame hard-pressed governing bodies for holding onto reserves, especially when they are within statutory limits.
The message is muddled. Does Welsh government think £50K is an appropriate limit for each school or does it think the limit should be 10% or even 5% of the school’s budget?
The question is if you want to reduce school reserve levels, does the one-size-fits-all statutory limit still make sense?