Today the National Audit Office announced that the Government’s Academies Program is £1 billion over budget. The Parliamentary Information Office has been monitoring progress in Government policy relating to education, particularly relating to the plurality of our system

The National Audit Office has reported that the Department for Education has delivered a fundamental change in the nature of the Academies Programmed through a rapid, ten-fold increase in the number of academies since May 2010. This increase is a significant achievement. However, the Department was unprepared for the scale of the financial implications arising from such a rapid expansion. In the two years between April 2010 and March 2012, the Department had to meet an estimated £1 billion of additional costs, while remaining within its overall spending limits.

The Department funds maintained schools via grants to local authorities, whereas academies receive their funding directly from central government. To avoid double-funding across the system, the Department aims to recover from local authorities most of the funding paid to academies. The program was started by the Labor government as a way to transform struggling schools.

By September 2012, 2,309 academies had opened, compared with 203 in May 2010 under the previous administration. This represents significant growth of 1,037 per cent, most of which has been from schools choosing to convert to academy status. Academies have greater financial freedoms than maintained schools and the Department’s approach to approving applications – coupled with the fact that most converters to date have been outstanding and good schools – appears so far to have managed the risk of schools converting with underlying performance issues.

However, more schools with lower Ofsted ratings are now applying to the Program. Future applicants may therefore require more in-depth assessment and support to manage potential risks.

Between April 2010 and March 2012, the Department spent a total of £8.3 billion on the Academies Program. The NAO estimate that £1 billion of this was additional cost, some £350 million of which was money the Department was not able to recover from local authorities to offset against academy funding. The additional cost of the Program has increased annually as it has expanded, although the Department reduced its average additional cost per open academy (excluding transition costs) by 53 per cent in the last two years. It forecasts that this additional cost per academy will continue to reduce in future. The rapid increase in the cost of the Program has led to ongoing pressures on the Department's wider financial position. It has had to transfer funding from other budgets to stay within its overall spending limits while maintaining the pace of the expansion.

The Department largely relies on the quality of academies’ financial management and governance to safeguard effective use of public money. To date, there have only been a small number of investigations into financial mismanagement and governance failure in academies. Financial mismanagement in any school is a real cause for concern, and such failures in academy schools create the risk of wider reputational damage to the Program. The Department needs to weigh this risk carefully in operating a light-touch oversight regime.

Amyas Morse, head of the National Audit Office, said:

"The Academies Program is a key element of the Government’s plans to reform the school system. Delivering a ten-fold increase in the number of academies since May 2010 is therefore a significant achievement. However, the Department for Education was not sufficiently prepared for the financial implications of such a rapid expansion, or for the challenge of overseeing and monitoring such a large number of new academies.

“It is too early to conclude on academies’ overall performance, and this is something I intend to return to in the future. As the Program continues to expand, the Department must build on its efforts to reduce costs and tackle accountability concerns if it is to reduce the risks to value for money."

In a statement, the Rt Hon Margaret Hodge MP, Chair of the Parliamentary Committee of Public Accounts said:

“The rapid expansion and ongoing costs of the Government’s Academy Program over the last two years has left the Department for Education with an additional £1 billion bill.

“The decision to change fundamentally the nature of the program away from one solely directed at struggling a school is up to the Government, but taxpayers have the right to expect a more considered and controlled approach to public spending than the department has so far displayed. The significant cost will have to be considered alongside the performance of academy schools when it comes to judging the overall success of the program.

“The department was caught off guard by the number of schools applying to become academies. But what is more extraordinary is that the department failed to anticipate or plan properly for the impact on its own finances. The department has had to take money from other budgets to protect academies’ funding and to help pay for costs such as insurance. It has even had to repay some £60 million to local authorities because central government got its own sums wrong.

“This Committee has previously raised serious concerns about the robustness of the accountability framework for academy schools. The department has chosen to rely on academies themselves to ensure effectiveness and probity in the use of public money. There have already been reports of outrageous misuse of public funds in a few individual academies, some of which went undetected and were only brought to the department’s attention through whistleblowers.

“Although there are some signs that the department is starting to get a better grip on the program, it still expects to overspend its budgets this year and its changes to the financial oversight of academies remain unproven. The department needs to control costs and make sure all academies meet the highest standards of governance. This is essential if Parliament and the public are to have confidence that money is being spent wisely and that there is proper accountability for the use of taxpayers’ money.”

Mary Bousted, of the Association and Teachers and Lecturers, said the report showed "only too clearly that the expansion of academies is being driven by political ideology and not by what's best for children's education".

Christine Blower, of the National Union of Teachers, said: "It is absurd for the government to justify spending £8.3bn on academy conversions in two years while at the same time warning of a dire economic situation. Meanwhile, many good state schools are told there's no money as they stand in a state of disrepair with ever-diminishing support services."

The Parliamentary Information Office will continue to report on the Academies Program as we go through the months ahead.

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