Nigel Brunning, Chief Operating Officer, South East Essex Academy Trust
The UK had been accustomed to low interest rates for 13 years until late 2022. During that period school trusts had become used to not receiving any significant return on their substantial cash balances. As a result, many school trusts understandably chose to prioritise minimising bank charges: this offered some small respite in lieu of receiving investment income on their cash balances.
We are creatures of habit, and when rapid rises in interest rates arrived many school trusts stuck with what they knew, not seeing the potential for maximising their low risk investment income from cash balances.
When my trust, South East Essex Academy Trust, completed our audit for the year ended August 2023, I was reasonably pleased with the £69,000 of income that we had generated from cash balances of just over £5 milion. My curiosity (and being super competitive) made me look at how the neighbouring trusts in our area had performed, all published in their audited accounts. I was surprised that some had generated no return whatsoever and for many the return was minimal. This made me look at how the largest trusts in the country had conducted their treasury management operations. Surely they had fared better with their large central teams? The results varied but were generally not good. I could not understand why so many school trusts were missing out on ‘easy’ money. I certainly thought it a lot easier to generate investment income than through other means such as lettings.
Given that schools have been looking at a tightening financial position for a number of years, and now more than ever, I was shocked at how much potential income had not been accrued by the slow adoption of best practice. I set out to quantify this in my research for the SEEAT Institute, looking at the returns of the largest 180 school trusts in the country for the year to August 2023. I have recently expanded this research to cover the 280 largest school trusts in the country for the year to August 2024.
The SEEAT Institute research into treasury efficiency shows that only 18% of school trusts were deemed to have performed well. Another 20% could have done better, and over 60% could have done significantly better. There is much that many school trusts can learn from their peers. The 280 school trusts in the survey hold over £3 billion of cash balances. The largest trust in the country earned over £5.2 million in interest income during the year, giving an effective interest rate of 6.68%. The potential gains are huge: for the year in question these 280 school trusts have missed out on a total of £109million that they could have earned by adopting best practice.
Good stewardship of cash resources should not just sit with the finance function. Responsibility also rests with accounting officers and trustees, all of whom have to ensure best value for money is obtained from the resources of school trusts. Accounting officers and trustees should be examining how their school trust performed in the rankings highlighted in the research.
Best practice shows that school trusts should:
- Review their banking arrangements and potentially change bank. The services and rates offered by the big four UK banks vary considerably and can make differences of millions of pounds for the largest trusts.
- Encourage trustees and accounting officers to set a target return for their trust and agree the achievement of this as one of the CFO’s objectives.
- Seek to generate a return on their entire cash balance, not just reserves or funds earmarked for investment.
A slight note of caution though before firing up your banking apps. As the Academy Trust Handbook rightly requires, trusts need to ensure their investments are well managed and carefully considered – including getting professional advice where appropriate.
Unlike personal banking deposits, there is no automatic protection for trust funds held by financial institutions so it is important trusts do due diligence on their banking partners and ensure they are properly balancing risk and reward.
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Photo: Micheile Henderson / Unsplash
