BUILDINGS, MAINTENANCE & REFURBISHMENT
Building investments: to spend or not to spend?
One of the primary concerns that should be on every academy trust’s risk register is the upkeep of estates and planning for all expected costs. However, the risk register should also have a plan and contingency for those inevitable unexpected costs. So, when should you spend and when should you hold back on building investments? This is a challenge in today’s world, with many academy trusts concerned about future funding and falling reserve levels, but not addressing and planning for upkeep of estates is storing up trouble for the future. So, how should you plan for this in such a challenging financial time? At Duncan & Toplis, one thing that we have talked to our trusts about in more recent years is the level of academy trust reserves. What we are talking about here is the combined total of unrestricted funds and the restricted income funds from unspent GAG and other funds from sponsors or donors.
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or any school or academy, maintaining their estate in a safe working condition is of paramount importance. But with costs factored in, it can be easier said than done. Here, Rachel Barrett, Head of Academies at Duncan & Toplis, talks about when to spend and when to hold back on building investments.
All academy trusts should have a reserves policy in place and a lot of trusts set this at one month of normal expenditure. Although the DfE does not prescribe a level of reserves, trustees should consider what is appropriate for their own trust and the reason for holding that level of reserves. Trusts must also include this information in the trustees’ report of their annual financial statements.
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In the DfE guidance they talk about a low level and high level of reserves. Low level of reserves they consider to be 5% of income or less, with high level being 20% of income or more. Looking first at a high level of reserves, from our experience in the last couple of years, all except Primary trusts (who are struggling with a combination of falling school rolls and less opportunity to be as agile as secondary education providers with regards to staffing and general overheads), seem to be maintaining or increasing their reserves levels (Kreston Benchmark Report 2024).
This, however, is likely to have come about from a combination of unexpected additional funding and, in some cases, delaying of capital projects due to the uncertainty of future funding levels and salary increases. Added to this was the possible change in government, which did come to fruition. One thing we have seen more recently is that some trusts have started to move towards designating reserves - with the Kreston Benchmark Report showing 6% had designated funds as at 31 August 2023. This was a good move by trusts and shows that trustees are thinking about the future use of reserves. There was a considerable amount of time throughout the pandemic where capital projects were put on hold due to scarcity of building
December 2024
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