The large reserves that some academy trusts are building up mean that a significant amount of funding is not being spent on educating pupils currently in school. In the year ending 31 August 2020, nearly a quarter of academy trusts (22%) had reserve balances equivalent to more than 20% of their annual income. Taken together, academy trusts had a cumulative surplus of £3.1 billion. The average balance per pupil held by academy trusts was £689, up from £608 in 2017/18 and more than double the average balance per pupil held by maintained schools. Academy trusts may build up reserves for a range of reasons, such as when they are planning capital works. Where reserves are not being held for specific purposes, the ESFA considers balances of more than 20% of a trust’s income as excessive given the low level of risk in the academy sector. It asserts that it challenges academy trusts with excessive reserves, particularly if it has concerns about educational outcomes. However, the Department is not in a position to do this effectively as it does not have information on whether academy trusts have earmarked reserves for particular projects. Recommendation: The Department should: • write to us, within one month of this report being published, with details of the specific actions it has taken where it has concerns about academy trusts holding significant reserves; and • investigate those academy trusts with reserves equivalent to more than 20% of their income to establish whether the reserves are justified (including the extent to which they are designated for specific purposes), and write to us within six months with an update on the results of this work and any action it plans to take. 6 Financial sustainability of schools in England