King Edward VI School, Southampton, has a novel approach to school finances based mainly on a ‘no debt’ policy. Bursar Ray Maher outlines the rationale, its impact on the school’s budget and discusses lessons learned along the way
King Edward VI School – and registered charity in its own right – has a rich history of modernising. From adding girls to its Sixth Form cohort some thirty years ago to becoming a fully established 11-18 co-education institution in 1994, it continues to exceed expectations both academically and financially. We asked bursar Ray Maher to elaborate on the financial side of things…
What was the main reason for introducing a ‘no debt’ policy at King Edward’s?
I am not dogmatic about debt finance – I have used eight figure loans to good effect in other scenarios – but entering into debt to take advantage of an opportunity is best done based on business plans which look to pay back over the longer term, reducing funding back to previous levels and leaving an enduring legacy. How many schools enter into debt on this basis?
King Edward’s is full. We are on an urban site with no room for increased pupil numbers. In a full school increased income, or payback, can only come from fee increases. To what extent is such a fee increase simply based on what can be extracted from the marketplace irrespective of the latest building project? Once essential building works are completed, the importance of ensuring financial resilience is a higher priority than ‘nice to haves’. Many schools may come up against the buffers of unaffordability sooner than anticipated ; we have never taken the strong demand for a King Edward’s education for granted.
How has the policy helped to transform budgeting decisions?
Short term borrowing is cheap but that’s only great news if the borrowing itself makes sense and is only short term. Buying something in the January sales you weren’t intending to buy is not always the bargain it first appears! Interest costs measured in pounds rather than percentages are not insignificant in many schools and who knows what interest costs will be accumulated over a typical 20-year repayment period? Risk is as important as cost; being a hostage to fortune is rarely wise and likely to be even less so in a post-Brexit world. Having a lower expense base and greater confidence about long term costs aids financial resilience which, in turn, protects independence. The governors of King Edward’s prize holding the reins and don’t want to invite future pressure from funders to compromise their educational focus.
Large scale projects that would traditionally see schools run over budget or incur a debt (new school building or upgrade for example) – how do you manage these?
Being a full school in a high fixed cost environment generates healthy investment returns. We have large scale projects such as the £4m theatre, art and sixth form refurbishment currently under construction. We want to make our money work to implement our long term strategic plans for outstanding educational provision – we don’t want to use other people’s money to accelerate plans without that acceleration generating additional income or reducing costs. The impact of building cost inflation and low savings rates needs to be managed sensibly but this does not mean operating without contingent cash or accelerating building works. For example, like many schools, we have an historic pension liability; deficit clearance payments from 2013 to 2016 saw an effective average annual return of 6.3% per the recent valuation. The liability will not go away and the earlier such schools act the less will need to be paid. It is always tempting to prioritise the seen over the unseen.
Has the school had to miss out on items/contracts that they might otherwise have bought or signed but for this ‘no debt’ policy?
No – it is only about the timing of ‘nice to haves’. We have invested heavily from the surpluses generated; as a result, the facilities throughout King Edward’s are of a consistently very high standard.
Would you recommend this approach to other schools and, if so, what advantages does it offer?
As a parent I paid for independent education in the hope that it would deliver improved educational and character outcomes for my children; the buildings in which this process took place were not in the forefront of my mind as I signed the cheques. Staff will always be the key ingredient to any successful school. It helps if the classrooms are dry and warm with lots of natural light but how many schools spend money they don’t have merely replacing facilities that make no real difference to the fee payers?
Large building projects are an easy way for a head or bursar to make a visible impact – far harder, and far more beneficial to the pupils, is the effort required to inspire staff and pupils alike to be the best that they can be and realise the opportunities available to them in a supportive dynamic environment. Generating or maintaining an ethos and culture of excellence requires a far more sustained effort but is without the immediate, and often dramatic, visible results. The long-term benefit of effort expended on staff, to a myriad of individual lives, despite the absence of plaudits is, in fact, what educational charities like ours are all about. It is this, coupled with financial resilience, which will help to ensure that King Edward’s remains the school of choice within its catchment through the uncertain times ahead.
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