In an uncertain economic climate, the UK education sector needs the tools to weather the storm

by John Brosnan, Commercial Director for Education at Barclays Commercial Bank, comments on the health of the sector and gives his advice on how schools can maximise their business strength

Published: 10 November, 2008

With media headlines dominated by the financial turmoil around the globe, one might easily assume that the financial difficulties facing the global economy would have significant implications for the UK's education sector. The failings of Icelandic banks, many of which attracted local councils to invest their financial resources in, has lead many to question the future funding of the UK schools. The impact on schools and institutions with money invested in the global markets exposed to this downturn is yet to be fully understood, however most schools appear to be holding their funds with the main high street banks and not with the Icelandic banks which other public sector bodies have been attracted to in the past.

The Financial Services Compensation Scheme (FSCS) has been inundated with requests from schools to fully understand their position should a claim arise. To date, I am not aware that any clear guidelines have been issued, however if schools do have concerns this should be their first contact point. With this is mind, there are several opportunities for schools to re-think their financial strategies and lessons to be learned to minimise risks to the financial health of schools.

During this time of changing conditions, it is essential to review and revise business plans to meet day to day challenges with extra flexibility, while keeping focus on future objectives. It will require strong leadership not to lose sight of longer-term goals when plans may have been temporarily thrown off-balance, but investing in development activities is essential in sustaining a school's position in the market. To this end, schools with a prudent business strategy are as likely to receive funding for large capital projects as before, with lending opportunities for the typical refurbishment, extension and facilities activity available to those institutions that continue to demonstrate an experienced management team, strong financial controls, and a professional project plan.

Schools can also undertake certain cost cutting measures, most significantly reviewing their working capital cycle to be able to forecast more accurately, remove any non-essential spending and reduce capital tied up in the school to use for more immediate projects. As well as collecting debts as quickly and efficiently as possible, restructuring debt can also be beneficial in terms of ensuring that borrowing is in line with the duration of projects. It is essential to be aware of the widest range of threats and opportunities created by the more volatile market conditions, and maintain a close relationship with your bank for their advice. For instance, we are advising our clients to take maximum advantage of the recent subdued public sector education wage growth as the government aims to keep it in line with inflation targets. This is helping to contain competitive wage pressures in independent schools, which account for a huge proportion of costs, and so may partly help to alleviate other operational cost pressures, such as rising utility bills.

Another benefit for the education sector from the recent turmoil has been the influx of bankers taking a career change into teaching. With a national shortage of maths and physics teachers; bankers that have lost jobs in the city are being welcomed and encouraged to join the teaching ranks.

Following this unparalleled period, lenders may be being more cautious in terms of asking more questions, and performing more stringent checks, but this should not deter schools from following through on their plans and targets over the remaining academic year. With the right processes in place, the education sector can shore up against critical losses during the economic downturn and ensure the school is well placed when the market picks up.

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