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Schools could save £400 million a year if they bought desks, equipment and services more sensibly, according to a new report from the Audit Commission, the public spending watchdog.

'Valuable lessons', published today, also says schools are sitting on cash reserves of nearly £2 billion. While the Commission believes it is reasonable for a school to carry over some money from year to year; almost two out of five schools hold more than the recommended amount. These excessive balances total over £500 million (see * below).

English primary and secondary schools spend huge sums and efficiency savings are possible, the Commission says. The schools bill topped £31 billion in 2007/08, an increase of 56 per cent in real terms over the last decade. The Commission concludes that we can't know for sure whether the taxpayer is getting value for money.

The report says school inspections focussed on educational standards and what teachers do, which is necessary. They pay less attention to economy and efficiency.  Councils also pay insufficient attention to value for money in their support of schools. Many school governors should be tougher in seeking value for the public purse.

Michael O'Higgins, the Chairman of the Commission, said:
'The Commission supports the principle of devolved school budgets and decision making, but taxpayers must be confident that public money is well spent.

'Accountability for spending in schools has been weak possibly because, in the last ten years, the focus has been on results. Ofsted the schools' inspectorate is planning to give a higher priority to value for money and we will be pleased to work with it.

'Now, however, is a good time for schools to look for better value from the money they get. Budgets are growing more slowly and schools need to start planning for a more austere future.  We believe savings could be made without adversely affecting pupils or their education.

'Moreover, nearly 40 per cent of schools are sitting on unnecessarily large surpluses - cash that could be spent on pupils. Hoarding money intended for education is poor value.'

The Commission analysed what similar schools were spending and found schools could save:

• £80m on cleaning and caretaking. One school saved more than £130,000 over three years by changing its caretaking contract.
• £65m from administrative supplies. One council identified total savings of 10 per cent on administrative supplies just by comparing what price other schools in the area were paying for the same standard items.

The Commission says schools also need to ask themselves hard questions about their workforce. Since 1997, teacher numbers in England grew by 32,000, with 100,000 more teaching assistants and 70,000 more support staff. Over the same period pupil numbers fell by 80,000.  Now they must consider:

• will these staffing levels be affordable?
• does the mix of teachers, teaching assistants and non teaching staff offer good value for money
• could staff be deployed more efficiently?

Mr O'Higgins said the Commission intended to look at the school workforce in a future report, possibly produced with Ofsted:
'Numbers of teachers, teaching assistants and support staff have increased whilst pupil numbers have fallen.

'It is not clear whether the money spent on this increase in resource has been spent  as well as possible and we need to look at this in greater detail.'

The report also says that other things schools could do to improve value for money include:

• using the Department for Children, Schools and Families national benchmarking tool to identify high costs.
• including staff costs in school development plans.
• joining other schools to share staff, improve spending power and achieve savings.

The Commission will help by:

• working with Ofsted to review and improve the criteria for assessing value for money and the information inspectors need to make judgements on economy and efficiency;
• providing guidance for councils, governors and school staff with financial responsibilities;
• updating the Audit Commission Managing School Resources tool that helps schools assess whether they are getting the best from their budgets; and
• providing a tool to help them calculate how much they spend on workforce and compare costs with performance.

*   Excessive balances: A primary school should hold no more than 8 per cent and a secondary school no more than 5 per cent of income in its balance. If all primary schools with excessive balances reduced their balances to 8 per cent of total revenue income, £270 million could be released. Similarly, if all secondary schools with excessive balances reduced them to 5 per cent of total revenue income, it would free up £260 million.

Notes for editors

The full report can be found at www.audit-commission.gov.uk/valuablelessons

Key facts and figures

• Education expenditure per pupil has increased by two-thirds in a decade
• English primary and secondary schools spent over £31 billion in 2007/08, an increase of 56 per cent in real terms since 1997/98.
• The Department for Children, Schools and Families (DCSF) claimed over £3 billion of school efficiencies between 2005/06and 2007/08, with a target of £3.7 billion in the next three years.
• Schools' spending on goods and services increased by 40 per cent over eight years to £6.8 billion in 2007/08.
• Schools spent £24.2 billion on their workforce in 2007/08, up from £14.3 billion in 1999/2000.
• There are 32,000 more teachers, 100,000 more teaching assistants and 70,000 more support staff than there were in 1997, while pupil numbers have fallen by 80,000.
• Primary and secondary school balances increased from £680 million in 1999/2000 to more than £1.76 billion in 2007/08.
• In 2007/08, balances in secondary schools increased by 22 per cent and in primary schools by 7 per cent in real terms.

The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone.

Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, auditing the £200 billion spent by 11,000 local public bodies.

As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people.