Schools Today: Performers or Cost Centres?     

High-performing organisations or fixed-budget cost centres?

High-performing organisations or fixed-budget cost centres?

At the recent FED Summit, Inscyte Directors Ian Denison and Stuart McAlpine took part in important workshop sessions. Drawing on decades of PFI and asset management experience, Ian (Belonging by design: Education funding) and Stuart (Careers and Skills) challenged leaders to rethink how they manage physical infrastructure. Their shared message was clear: you cannot build a strong educational legacy without first fixing the foundations.

There is a dilemma in current funding for education. 

Working with 105 schools, 35 trusts and 7 local authorities, we see our clients negotiate the financial battleground of budgetary controls every day. 

School leaders are expected to think like CEOs, while being funded as if they were administrators.

And despite being educational establishments, schools are treated like business units, but with an ever-decreasing budget.

Let’s explore some of the paradoxes in funding and the associated financial controls.   

Health Service Parallels.

In the UK, the National Health Service is funded centrally through general taxation and provides services free at the point of use. Education is also tax-funded, but budgets are allocated across national and local authorities, with schools and universities supplementing income through fees, grants, and private sources.

This structural difference matters. NHS organisations have some flexibility to behave like service businesses - they can scale activity, develop new services, and cross-subsidise.

Schools, by contrast, are largely constrained by fixed budgets. While both sectors are publicly funded, school finances are more exposed to local authority priorities (especially for maintained schools). The result is uneven provision - a persistent “postcode lottery.”

Private Finance Initiative Challenges.

Private Finance Initiative (PFI) projects can also create wider cost pressures across a local authority’s school system, not just for the schools directly in those contracts. And as PFI commitments are inflexible and long-term, they can “lock in” spending and squeeze the wider schools budget, affecting both PFI and non-PFI schools within the same area.

In education, most schools are expected to deliver outcomes like high-performing organisations but operate financially more like fixed-budget cost centres. Income is largely predetermined, opportunities to generate additional revenue are limited, and the ability to respond to rising costs is minimal.

And yet, there is a working parallel within the system. Independent schools demonstrate that greater financial and operational autonomy can enable leaders to deliver high-quality outcomes. The question is not whether it is possible, but whether the system is designed to allow it. 

White Paper Implications.

The 2026 schools white paper, “Every Child Achieving and Thriving”, includes significant new investment (e.g. billions for SEND and inclusion) but also major system changes, especially around special educational needs and disadvantaged funding.

The reforms aim to reduce long-term pressures (e.g. by making mainstream schools more inclusive and changing how support is delivered). However, in the short to medium term financial pressures are likely to increase. Schools will be expected to deliver more, particularly around SEND, within restructured or redistributed budgets. Demand is already rising, and changes to funding formulas will inevitably create both winners and losers.

Without full alignment between funding and need, there is a real risk that extra responsibility will translate directly into additional costs - absorbed at school level through staffing, in-house provision, and operational stretch.

The Estates Strategy - investment with conditions.

The Department for Education’s Education (DfE) Estates Strategy is similarly double-edged. It is backed by large capital investment and is intended to improve buildings. But it also raises expectations and requirements for schools and trusts.

The strategy increases pressure in three key ways: 

1. Demands a shift to proactive, long-term estate management, with stronger compliance and reporting requirements 

2. Introduces upfront and ongoing costs - time, expertise, and in some cases funding—to meet new standards and deliver projects

3. Expands the administrative burden, requiring trusts and local authorities to evidence need, manage data, and plan strategically

Over time, these changes should reduce costs. Better buildings will mean fewer emergency repairs, lower energy use, and less disruption. But the transition is not cost-neutral. The immediate reality is increased operational and financial strain in a system that is already tightly constrained. 

A restricted outlook.

This challenge is compounded by the wider economic context. With a weak and uncertain global outlook, UK public spending over the next five years is likely to remain tightly controlled. Large, sustained increases in funding are unlikely without cuts or higher taxes elsewhere.

Against this backdrop, there is a real risk that reform adds pressure rather than releases it. The White Paper and the estates strategy are designed to improve outcomes - but without sufficient flexibility and capacity at school level, they may instead intensify the burden on leaders.

What can be done?

Schools typically spend around 5-10% of their budgets on estates (with around 3-4% on core maintenance alone). For a 500-pupil school that equates to approximately £125,000 - £350,000 annually, with energy alone costing £50,000 - £140,000 - one of the highest single non-staff expenditures.

This is a relatively small proportion of total spend, but it is one of the most constrained - and one of the most controllable.

Better control of the physical environment.

With around 80% of school budgets committed to staffing, the remaining 20% must absorb: 

● Partial inflation increases

● Local authority top-up and management costs

● Capital investment 

● Energy cost pressures

● PFI Affordability Gaps, benchmarking, and market testing

● PFI expiry costs

For a small primary school, 20% of very little is still very little. So, even a modest reduction in energy costs can have a disproportionately large impact on the remaining budget. 

Proactive estates management.

Research shows that better statutory compliance and planned preventative maintenance reduce total long-term estate costs. It helps schools avoid expensive, reactive repairs and extends the life of their assets. So even though the savings are realised over time, rather than in that year’s budget, they can have a significant impact. 

Looking to the future.

The opportunity, then, is not just to invest more - but to enable schools to operate differently. Without that shift, we risk continuing to raise expectations without giving educational leaders the tools to fulfil them. 

They need to believe the estate is working for them rather than that they’re working for the estate. And instead of being simply budget holders, they need to be given real autonomy. 

For more information on how to get your estate working for you, contact us.