Schools and universities are facing squeezed budgets next year as rising costs are likely to outstrip funding growth, a new report has warned.
The Institute for Fiscal Studies (IFS) said state school budgets will remain ‘very tight’ and universities will not reach a ‘secure financial footing’ in 2025/26.
This is despite Labour’s new VAT on private school fees, which will pay for 6,500 new teachers, and a university tuition fee rise of £285 to £9,535.
According to the IFS, the squeeze is due to inflation in costs, including the latest pay rises for teachers.
Yesterday, the report sparked calls for more Government cash for education – raising the prospect of more tax hikes and fee rises in future years.
UNISON head of education Mike Short said: ‘Ministers inherited a financial mess from the previous government and turning things round in education won’t be easy.
‘None of this can be achieved without proper funding.’
Daniel Kebede, general secretary of the National Education Union, added: ‘The government must address this problem head on and ensure that our schools and colleges get the funding they desperately need.’
Julie McCulloch of the Association of School and College Leaders, said: ‘It is death by a thousand cuts. The government must recognise the importance of improved investment in education.’
According to the IFS, the squeeze is due to inflation in costs, including the latest pay rises for teachers (file image)
Labour Chancellor Rachel Reeves poses outside 11 Downing Street. School budgets will remain tight despite Labour’s new VAT on private school fees, which will pay for 6,500 new teachers, and a university tuition fee rise of £285 to £9,535
The IFS report said school costs could rise by around 3.6 per cent in 2025/26, partly due to a planned 2.8 per cent pay rise for teachers.
However, mainstream school funding per pupil will grow by only 2.8 per cent in 2025/26 – which it called ‘small’ compared to the rise in costs.
‘If these projections are accurate, then core school budgets will feel very tight in 2025/26,’ the IFS said.
The annual report – funded by Nuffield Foundation – concluded that ‘schools might struggle to cover their costs without making savings’.
From last week, VAT will apply to private school fees, with Labour planning to use the cash raised to pay for 6,500 new teachers.
In November, the Government also announced that undergraduate tuition fees in England – which have been frozen since 2017 – would rise for the 2025/26 academic year.
The IFS report said falls in international student numbers at some universities – and additional costs from the rise in employer national insurance contributions – mean that ending the fee freeze ‘will not be enough to put the sector on a secure financial footing’.
It added: ‘University finances will remain a headache for the new Government at the spending review in summer 2025 and as it sets future tuition fee caps.’
Mainstream school funding per pupil will grow by only 2.8 per cent in 2025/26 – which it called ‘small’ compared to the rise in costs (file image)
Luke Sibieta, research fellow at the IFS and an author of the report, said: ‘This year’s spending review will bring a lot of difficult choices on education funding in England.
‘A very tight picture on the public finances means that most departments, including education, will probably need to make savings.
‘The inflation-linked rise in tuition fees only provided a brief reprieve for university finances, and further tuition fee rises seem likely.’
Elliot Keck, head of campaigns at the TaxPayers’ Alliance, said: ‘Taxpayers will rightly be concerned that despite a series of punishing tax rises, Rachel Reeves will keep coming back for more and more.
‘When the chancellor came to office, she embarked on a spending spree and a series of inflation-busting pay rises and squeezed households dry to pay for it.
‘It’s high time ministers learned to live within their means and not keep picking the pockets of hard-working Brits.’
A Department for Education spokeman said: ‘One of the missions of our plan for change is to give children the best start to life. This was built upon the steps set out at the Budget which increased school funding to almost £63.9 billion in financial year 2025-26, including £1 billion for children and young people with high needs.
‘We are determined to fix the foundations of the education system that we inherited and will work with schools and local authorities to ensure there is a fair education funding system that directs public money to where it is needed to help children achieve and thrive.’