Jennifer Gill

Jennifer Gill, a director at property advisor Savills, discusses how to withstand today’s financial pressures

The UK’s independent schools are facing several challenges. In a new era of financial pressures, how can the sector maintain not only its financial health, potentially by utilising its real estate more effectively, and use this period as an opportunity to adapt to ensure its longevity?

Given the macroeconomic challenges of the past few years, including inflationary pressures on repairs and maintenance costs, staff salary and pension contribution increases, and potentially VAT being introduced on fees along with the loss of charitable status, independent school operators face numerous financial headwinds. As a consequence, many are considering options to increase revenue and cut costs to help prevent parents, who may be struggling with rising living costs, having to absorb increases.

Fees have already risen by 8% in 2023, compared to 3% in 2022, according to Independent Schools Council data: this is believed to be largely responsible for new independent school pupil enrolments falling by 2.7% this academic year, the biggest margin since 2011.

Without a proper strategy in place, independent schools are in danger of entering a vicious circle; increasing fees to offset the income lost from pupil numbers decreasing, leading to fewer families being able to afford attendance and withdrawing, leading to further fee increases and so on. A number of recent closures have been related to the pressures of recent years, but if VAT breaks on fees and schools’ charitable status are removed the pace of closures may accelerate. Consequently, more children may transfer to state schools: an estimate from the Institute for Fiscal Studies puts the number at approximately 40,000, costing £300 million annually.

So what possibilities are available to independent schools to weather the financial storms?

Many schools have changed their admissions policies: Sherborne, Stamford, and Abingdon Prep Schools have already made, or announced plans, to make year groups co-ed. Others have increased their age catchment including adding nurseries to act as feeder ‘pre-prep’ facilities. More dramatically, if there’s another independent school with similar values and culture locally also facing challenges, a merger may be an option. This could bring with it economies of scale and opportunities to reduce operating, marketing and fixed costs, and to share property assets and accommodation.

Other schools are looking to diversify income through maximising the use of their real estate assets outside school hours for ancillary trading purposes. This could bolster trading income on a more consistent basis.

Looking to the future, specialising in a specific educational area may be a consideration. It is well-documented that demand for special education needs and disabilities (SEND) places is increasing; the ISC has noted that pupils with SEND in the schools it represents increased by approximately 8% between 2022 and 2023 to one in five pupils. 2023 also shows a 29% increase in the number of pupils with an Educational Health and Care Plan. The current government pledged £1 billion towards the sector between 2023/24.

Alternatively, the British independent schools sector remains popular for international pupils, with the weaker pound potentially making fees more affordable than they were previously, so ensuring this market is catered for, and marketed towards, may be an option. By the end of 2022, we had seen an 85% increase on the five-year average of the amount of office space being taken in the Greater London area by education institutions, largely universities and other higher education providers – many of which are facing their own financial challenges. Having a ‘shop window’ and some teaching space in the capital can attract international students and act as a gateway to campuses further afield. Where the higher education sector has led, some independent schools may wish to follow.

In the short term, many independent schools will either have to cut costs or increase revenue by increasing the number of pupils. Parents are likely to see removing children from their current education environment as a last resort, but pupil numbers are likely to reduce at key school entry points. Exploring various avenues to strike a balance between increasing demand and reducing overhead operating costs is the key and, long term, may give independent schools stronger foundations to withstand future unknown challenges.