The Department for Education has provided extra guidance to academy trusts on how to invest surplus funds - while acknowledging that financial reserves have fallen.

The changes come in an update to non-statutory guidance, published today, on how trusts should manage reserves.

The guidance estimates that around 80 per cent of trusts hold reserves worth at least 5 per cent of their total income.

Reserves below this threshold are seen as potentially indicative of financial vulnerability, although some larger trusts or those without significant investment or growth plans “may decide to maintain reserves below this level”, the guidance says.

A previous version of the guidance, from last October, said 90 per cent of trusts had reserves of at least 5 per cent, with the fall likely reflecting the fact that more trusts are having to eat into reserves as funding pressures bite.

The guidance goes on to set out how trusts holding funds “that are not needed now” might be able to invest them to generate extra income.

They can do this “by reviewing current trust bank and saving accounts, cash reserve locations and interest rates available to establish where or how investment returns may increase”, the document states.

This, the guidance continues, can include reviewing the type and amount of accounts held, and avoiding “capital at risk investments” - where funds could be partly or wholly lost.

Trusts can also ensure funds are deposited with banks or financial institutions that are registered and regulated by the Financial Conduct Authority in the UK, the guidance continues.

‘Very difficult financial context’

The move comes after a Tes investigation showed how MATs had tripled their returns from investments, prompting calls for guidance on the best and safest ways to do this.

Confederation of School Trusts chief executive Leora Cruddas said: “This updated guidance is welcome, giving trusts parameters for how to safely invest any reserves to maximise potential income while taking into account their particular circumstances.

“Trust reserves are increasingly under pressure, however, so while this approach can help some trusts it is not a replacement for sustainable core funding.”

A similar note of caution was struck by Julia Harnden, funding specialist at the Association of School and College Leaders, who welcomed the updated guidance “as it is vital that trusts are supported with their financial planning”.

But, she added: “It is concerning that fewer trusts now have reserves of 5 per cent, as this suggests this money has been used to fund in-year deficits in some cases. This is indicative of the very difficult financial context that schools and trusts are working within.”

MATs need ‘specific parameters’

Sam Henson, deputy chief executive of the National Governance Association, also welcomed the additional detail on investments, calling it a “positive step forward in the right direction”.

“It’s encouraging to see more much-needed specific suggestions on investment considerations, particularly around regulatory compliance and risk management principles,” he added.

However, this could be developed further through setting specific parameters and examples of how trusts could invest funds, he added.

This, rather than a “uniform mandate”, would “help MATs make informed decisions about what constitutes appropriate return expectations or acceptable risk thresholds”, he said.

Biggest trusts ‘missed out’ last year

Research cited in a CST blog post from April, written by South East Essex Academy Trust’s chief operating officer Nigel Brunning, found that England’s 280 largest trusts had “missed out” on £109 million in 2023-2024 by failing to adopt best practice on investments.

And chief executive of E-ACT multi-academy trust Tom Campbell has posited that the trust sector could yield around £600 million in income per year by pooling its reserves for investment.