Academy trusts with large levels of reserves will not be told by government they have to spend the cash, nor face having it clawed back, new government guidance sets out. However, officials warned those sitting on reserves worth a fifth or more of their income will be asked to show they have 鈥渟ufficient plans鈥 in place for the cash to 鈥渕eet pupils鈥 needs鈥. New government advice also suggested trusts with spare reserves could look to invest the cash to bring in extra income. The Department for Education has published It comes after the National Audit Office ordered officials to investigative trusts building up 鈥渟ubstantial reserves鈥. The government鈥檚 spending watchdog found 22 per cent of trusts had reserves amounting to one-fifth or more of their annual income in 2019-20. But trusts said reserves had built up because of Covid-delayed building projects or to help them stay afloat as costs soared. 鈥楴eed to strike right balance鈥 The new guidance stated the Education and Skills Funding Agency (EFSA) 鈥渄oes not set a required level of reserves鈥 – this is up to trustees to decide. Reserves can be held for future strategic growth and planned investment, alongside cashflow and contingency, the guidance stated. But trusts need to 鈥渟trike the right balance between holding sufficient reserves to ensure the financial health of their schools and the ability to fund significant future investment, without holding back too much that could otherwise be used to benefit pupils.鈥 For those 鈥渃hoosing to hold high levels of reserves [20 per cent or more of income], trustees should have a plan and be clear on the purpose for these funds, and how they will improve the education for pupils鈥. There is no 鈥渟et limit to the level of reserves a trust can build, provided the trust has clear plans鈥 for it. But it would be 鈥渦nusual and potentially hard for a trust to justify the decision to hold significant reserves at this level for general contingency, given this funding could be used sooner for the benefit of pupils鈥. Reasons for holding large reserves are usually when a trust is looking to fund upcoming capital projects, planning to grow or to cover academy transfers, the guidance added. 鈥楥onsider investing spare reserves to generate extra income鈥 Trusts are now asked as part of their July budget forecast return how they would use large reserves, alongside planned project costs and timings. The guidance added: 鈥淓SFA will not require trusts to spend reserves, nor will the agency look to take back reserves just because reserves are at a high level, but it will ask trusts to make sure that they are compliant with the ATH [academy trust handbook] and have sufficient plans in place for these funds to meet pupils鈥 needs.鈥 The handbook stated trust boards must set a policy for holding reserves and explain this in its annual report. Trusts found in breach of academy rules can face government intervention. When setting their reserves policy, trusts boards are also advised to consider how any spare reserves could be 鈥渋nvested to generate some extra income for the trust鈥. A Schools Week investigation in 2021 revealed how rich academy trusts were getting richer by investing spare cash. Some were making six-figure sums through stocks, wealth managers and other investment strategies. Reserve level to form part of commissioning decisions Where trusts have 鈥渓ow, or persistently declining levels of reserves heading towards a forecast of low reserves鈥, the ESFA will contact the trust to 鈥渦nderstand its position and discuss any potential support that may be appropriate鈥. The threshold has been for reserves of 5 per cent of total income or less. Around 90% of trusts hold reserves of at least this level. The ESFA pledged to 鈥渆ngage鈥 with such trusts to 鈥渦nderstand their circumstances鈥. The level of reserves will also be part of ESFA鈥檚 advice to regional directors making commissioning decisions relating to schools joining the trust. The DfE said previously it was 鈥渟trengthening鈥 trust data requirements to help 鈥渃hallenge the robustness of their financial reserves鈥 plans鈥. Labour鈥檚 Baroness Wilcox had claimed 鈥渢hese institutions cannot be cash cows鈥, but trusts strongly refuted her comment. Schools Week analysis found many trusts with large reserves were single-academy trusts. Thirteen of the 20 trusts with the highest-ratio reserves in 2021 run special schools or alternative provision. A report from accountancy firm Kreston earlier this year also found only 11 per cent of the trusts they worked now had reserves over 20 per cent of income. This was also amid a 鈥渉ugely uncertain鈥 funding future, including on teacher pay and falling pupil numbers. A survey by the Confederation of School Trusts in October also found just 46 per cent of CEOs were very or quite confident about the financial sustainability of their trust, down from 77 per cent in the year before.