Market characteristics
The most recent comprehensive statistics are those published by the British Educational Suppliers Association and are drawn from various sources at the Departments for Education in England and Scotland. These reveal the following key data for the UK schools sector for the academic year 2022/23. Some partial data are available for 2023/24 but they do not differ materially from these figures:
Schools
- 32,149 schools in total
- 3,062 pre-school
- 20,739 primary
- 4,181 secondary
- 2,461 independent
- 1,706 special and other schools
Pupils
- 6m pupils in total; out of which:
- 136,313 were in pre-school
- 650,000 were in independent schools
Teachers (full time equivalents)
- 643,491 teachers in total
- 262,534 in primary
- 262,927 in secondary
- 76,575 in independent
- 32,340 in special and other schools
In addition there were 59,800 pre-school staff in England according to government statistics in the following academic year, 2023/24.
There is an apparent mismatch between pre-school pupils and staff, compared to official government staffing ratio guidelines, which cannot be explained from data available in the public domain.
The financial parameters of the combined schools-based sector are:
- Total assets of £88bn
- Borrowings of £2bn
- Net worth of £77bn
Current market conditions
The UK state education sector has been under-funded for decades, resulting in escalating issues with the conditions endured by staff and pupils within the school environment as a result of under-spending on maintenance and renewal of school buildings and other facilities.
This has been highlighted by the ongoing problem with RAAC, which was identified in 2023 and is still very far from being resolved for the many schools affected. The situation has also been adversely impacted by the increasingly parlous finances of local authorities, as well as the downsides of restrictive Private Finance Initiative (PFI) contracts which govern many aspects of the management of schools and make cost cutting difficult. There is a major crisis in teacher recruitment and retention, with alarming statistics on job vacancies and teachers planning to either retire or leave education altogether.
Inflation has eroded the adequacy of school budgets in both the state and private sub-sectors, while the cost-of-living crisis is particularly affecting revenue and the viability of some marginal independent schools. Pupil numbers in independent schools are said to be down more than 6% in the current academic year, allegedly driven by the impact of the introduction of VAT on school fees in January 2025.
In the pre-school sector, the expansion of the funded hours appears to be offering a more promising outlook for nursery providers. More parents are taking advantage of the entitlements, demand for places is rising and nurseries, for the first time in years, have started to open waiting lists. Nursery groups, meanwhile, are expanding existing provision, opening baby rooms and looking to acquire premises to meet demand.
Each of the three education sub-sectors we have reviewed are facing major challenges. Some affect all sub-sectors, others are unique to each one. We examine these challenges in more detail later in this report.
Financial risk profile
We have used the database maintained by the financial health monitoring experts, Company Watch to analyse the latest published accounts of each of the 10,286 companies registered at Companies House as providing pre-school, primary or secondary education services.
Our research is based on the most up-to-date financial data available, but because of the long lead times in the filing deadlines at Companies House, the latest data mainly covers financial statements for accounting periods ending between the summer of 2023 and the autumn of 2024.
A detailed analysis of the data can be found here.
The headline findings reveal generally strong finances, though with some deterioration and some improvements in certain key stress indicators since our last report in March 2024.
Pre-school
- The average Company Watch financial health rating (H-Score®) has improved marginally from 48 to 49 out of a maximum of 100.
- The number of companies in the Company Watch warning area is 1,500 (30%), the same percentage as in March 2024. This is an above average rate, compared with the economy as a whole where around 25% of companies are below par for financial risk.
- Total assets have risen by 5% from £6.5bn to £6.8bn, indicating continuing investment.
- Total borrowings have been reduced from £631m to £587m (or from £124k per company to £117k); at the same time, the percentage of companies carrying debt of more than £20k has dropped from 20% to only 17%.
- Total net worth has improved by 15% from £4.5bn to £4.9bn.
- The percentage of companies with negative working capital has gone up slightly from 14% to 15% and their combined working capital deficit has increased substantially from £307m to £348m, indicating a sharp increase in this risk area.
Primary education
- The average Company Watch financial health rating (H-Score®) has fallen slightly from 60 to 59 out of a maximum of 100. Nevertheless, this is significantly better than any other industry sector we have analysed in the past year.
- But the number of companies in the Company Watch warning area has risen from 19% to 21%, confirming increasing financial stress among primary schools.
- Total assets have risen by 7% from £25bn to £26.8bn, indicating continuing investment.
- Total borrowings have fallen from £600m to only £540m (or from £192k per company to £178k), while the percentage of companies carrying debt of more than £20k has dropped from 20% to only 19%.
- Total net worth has improved by 8% from £21.7bn to £23.3bn.
- The number of companies with negative working capital is steady at 10%, but with a noticeable reduction in their combined deficits from £194m to £151m.
Secondary education
- The average Company Watch financial health rating (H-Score®) has fallen very slightly from 66 to 65 out of a maximum of 100. Even so, this is even more significantly better than for primary schools compared to any other industry sector we have analysed in the past year.
- Conversely, the number of companies in the Company Watch warning area has risen from 15% to 17% since the previous accounts, confirming an increasing level of financial stress among secondary schools.
- Total assets have risen by 9% from £50.1bn to £54.5bn, indicating continuing investment.
- Total borrowings have been cut substantially from just under £1bn to £882m (or from £429k per company to £393k). The percentage of companies carrying debt of more than £20k has dropped from 32% to 29%.
- Total net worth has improved significantly by 9% from £44.6bn to £48.7bn.
- The number of companies with negative working capital is 11% (up from 10% in our March 2024 research), but with a lower combined deficit of £252m against £263m previously.
Overall company health
Across the three categories, 24% (2,502) of the companies were in the Company Watch warning area with an H-Score of 25 or less out of a maximum of 100. Statistics for the past twenty-five years confirm that at least one in four of these school businesses will fail or need a major financial restructuring during the next three years, which means that some 375 school businesses are at risk of failure.
This percentage is lower than in other sectors we have reviewed recently, such as construction, retail, hospitality or manufacturing. This, along with the unusually high average financial health rating of 56 out of 100 may well reflect two key factors. The first is that a significant number of the companies are subject to the tighter financial disciplines imposed by the Charities Commission regulatory and financial reporting regime. The second may be the role played by Boards of Governors in the supervision of schools and their understandable risk aversion.
Debt levels
Borrowings are not a significant factor at a total of only £2.1bn, down by 10% since March 2024. This represents gross gearing against total assets of a tiny 2% and the same negligible level of net gearing against net worth.
‘Zombie’ companies
7% (673) of the companies are zombies, with negative balance sheets where liabilities exceed assets by at least a de minimis figure of £20,000. Their combined balance sheet deficits add up to £147m. In March 2024, 6% (665) of the companies were zombies with higher combined shortfalls of £142m, so this risk indicator has deteriorated slightly.
Negative working capital
We also looked at the working capital position of those firms where ‘quick’ current assets such as receivables and cash were lower than their short-term liabilities. We found that 13% (1,328) of the companies had negative working capital of at least our de minimis figure of £20k, with a combined deficit of £751m. In March 2024, there were 12% (1,261) with negative working capital totalling £764m. These are not healthy statistics for the sector, indicating scope for short term financial and cash flow pressure at the companies concerned.
Business failures
Insolvency Service data on school company insolvencies show very low levels of formal failures of school businesses. There is no detailed analysis for Scotland or Northern Ireland, but there were only 80 school insolvencies in England and Wales in the year to May 2025, of which 34 were of pre-school businesses, 14 of primary school companies and 32 of secondary providers.
These low levels also reflect the tight governance of most school businesses and the importance of preventing school closures in communities through rescues by or mergers with stronger nearby schools.
Current and future issues for school businesses
The sheer range and difficulty of the financial and commercial challenges facing these sectors is daunting, but among the most important are:
Pre-school
- Cost inflation, particularly increased staff costs from the 2024 Autumn Budget tax and minimum wage rises.
- Government refusal to exempt nursery settings in England from business rates.
- Recruitment challenges, especially in areas of social deprivation.
State-funded school businesses
- Continuing pressure on Education Department funding amid the public finance difficulties.
- The continuing RAAC crisis. In January 2025, the government confirmed in Parliament that only 13% of affected schools had seen RAAC eliminated.
- Cost inflation, especially increased staff costs from the 2024 Autumn Budget tax and minimum wage rises
- PFI contract restrictions.
- Staff recruitment and retention.
- Rapid technological change, most particularly the breakneck development of AI and digital transformation.
- Demographic trends already impacting pupil numbers in primary schools.
- Mental health and wellbeing of staff and students, including the impact of social media.
- Requirements for SEND pupils, notably the rising numbers.
Dealing with these matters will have major implications for the running costs of schools at a time when budgets are severely restricted.
Independent schools
- Downward pressure on pupil numbers from both the imposition of VAT on fees and general cost-of-living increases.
- Risk of increased non-payment of fees.
- Inflation affecting general costs.
- Sharp rises in staffing costs from the 2024 Autumn Budget.
- Rapid technological change, most particularly the roller coaster development of AI.
- Potential HMRC challenges to advance fee payment schemes, which brought forward some £500m in fee receipts to beat the new VAT regime. HMRC is seeking to collect VAT on these fees.
The way forward
The UK’s pre-school, primary, and secondary education markets operate at the intersection of public policy, social need and commercial reality. Navigating the sector’s financial and operational headwinds requires agility, innovation and a clear-eyed focus on delivering sustainable outcomes for pupils and communities.
Consolidation
With no simple, silver-bullet answers to the sector’s many challenges, one likely feature in the short and medium term will be consolidation as unviable and marginal nurseries and independent schools are forced to seek the shelter of merging with stronger, better-resourced providers.
Innovative technology solutions
The implications of the explosion of technology into the education process should prompt schools to explore innovative partnerships with tech providers to ease the cost and implementation pressures as far as possible.
Risk management and financial discipline
Strengthening governance, regulatory compliance and risk management must be a priority to enable schools to deal with the uncertain world of education with confidence. At the same time, forecasting and controlling cash flow and expenditure must be a key discipline.
Seeking expert support
Where financial issues are identified, it is vital that they are addressed without delay and with the assistance of outside professional expertise where necessary. With the overwhelming demands and pressures on school management, there is unlikely to be the bandwidth for complex financial problem-solving, nor will most management teams or Boards of Governors have the requisite skillsets.
If you would like to discuss any of the points in the report or believe you have been affected by any of these issues, you can speak to one of our Partners who can discuss options with you.
We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.