Bursar’s Review Sample

Autumn 2022 www.theisba.org.uk 10 Feature Russia, which further curbed supplies of energy. While these were the obvious signs of stress in world trade the less obvious damage was to the manufacturing industries in Ukraine. Of particular concern is the supply of fertiliser which will not affect harvests this year but will in 2023 and 2024 until manufacturing returns to normal. This will in turn affect food supplies. Economies in most countries are now suffering from inflationary pressures that they did not expect. Some, if not all, have used all their readily available cash reserves in dealing with the pandemic so this current increase in unanticipated inflationary pressure comes at the worst possible time for most economies. Controlling inflation This has led to several decisions by governments as they tried to control the inflationary effects on their economies. One strategy they cannot readily use is that of quantitative easing where extra money is put into the economy to invest in infrastructure (as an example) which has the effect of increasing confidence, increasing the money supply, and decreasing inflation. The other commonly used tactic to control inflation is to increase interest rates. This makes borrowing more expensive and tends to reduce the amount of economic activity within a country and therefore, over time, reduces inflation. The first aim of these measures, and others that can be brought to bear, is to stop inflation becoming part of the economic structure of a country as it leads to higher costs, high wages and an inflationary spiral is the result. The second objective is the control of inflation to the extent that it slowly reduces and returns to within normal limits, in the UK the target is two percent. The idea is to achieve this control without causing the economy to go into a recession which itself is damaging. For the UK, this is a very delicate balance to achieve with the constraints the Treasury is currently operating under and the time pressure that the forthcoming election will put on any policy for economic growth. The impact on schools What does this mean for schools? The first point to make is the effect that a sustained elevated level of inflation will have on the finances of the families who have children at the school. For those families who are paying the fees from income this is going to become harder as time passes and budgets are put under increased and sustained pressure. This will be a new and unwelcome experience for families who are not old enough to remember the last sustained period of inflation and the damage it can do to family budgets. The forthcoming tax cuts will help but will not compensate for the effects of inflation. It may be that schools will have to be ready with some extra hardship funding when families are forced to withdraw their children owing to pressure on budgets or the job market changes and parents lose one of the two family incomes. The last recession saw the worst effects manifest themselves in the country some 15 months before those same effects were felt in schools. This was because parents saw school fees as an essential part of their family budgets and worked to preserve them at the cost of other activities or other purchases. We may see this effect again. The timing of the effect of inflation in schools could mean that we would see the worst effects of this crisis in the beginning of 2024. This will be about the same time as the announcement of the new employer contributions for the Teachers’ Pension Scheme which is due in April. This could mean two structural financial shocks within four months in the early part of 2024. Unfortunately, there are two other unwelcome factors to place within this rough timescale. Business rates You may recall the previous Chancellor was determined to do “something about business rates” which would possibly mean a rebate for some businesses. If this was the aim, then a supply of money would be required, and it could be that those funds come from the loss of business rate relief for charitable schools (read more about this in our article on page 64). This policy has already been adopted in Scotland and England cannot be too far behind. As with all changes in legislation there is a lead time and, in this case, it is estimated at about 18 months, so we will have some warning of this measure. But, if 2024 is going to be a test as we have already identified, it will be worth monitoring any legislative moves to see if the loss of business rate relief is likely to be added to the financial pressure in that particular year. Energy costs One final short-term factor is that of energy costs. The wholesale price cap the Government announced is very welcome for the help it will offer in the next six months, or in the next two years if the independent schools sector remains as one of the industrial areas that stays within the cap. The concern is that any assistance will finish in October 2024 when prices will be uncapped at that point and will revert to normal market levels. The second pressure concerning energy prices is that the cap will have to be paid for at some stage, this may be a levy on prices from 2024 onwards to repay the borrowing the Government will have to do to achieve the price cap Over the next two years a well-constructed, regularly revised, realistic risk register will be an essential part of the governance of a school.