State schools could face "very tight" budgets as rising costs are likely to outstrip the growth in school funding, a report has estimated.

School costs could rise by around 3.6% over the next year in England yet mainstream school funding per pupil will grow by 2.8% in cash terms, the Institute for Fiscal Studies (IFS) said. Rising school costs are taking into account the full effects of the 5.5% rise in teacher pay from September 2024, as well as the recommended pay offer of 2.8% for September 2025.

The annual report - funded by Nuffield Foundation - concluded that "schools might struggle to cover their costs without making savings". IFS researchers added that around half of the rise in school funding between 2019 and 2024 has been absorbed by the rising costs of special educational needs (SEN) provision. The report estimated that mainstream school funding per pupil grew by 5% in real terms between 2019 and 2024, rather than the 11% total increase, after accounting for planned spending on high needs.

Elsewhere in the report the IFS warned university finances will “remain a headache” for the new government. In November announced that undergraduate tuition fees in England - which have been frozen at £9,250 since 2017 - would rise to £9,535 for the 2025/26 academic year.

It came after university leaders warned of significant financial concerns as a result of frozen tuition fees paid by domestic students and a fall in the number of international students. Researchers said the fall in international students and a rise in employers' national insurance contributions will continue to have their impact.

Luke Sibieta, research fellow at the IFS and an author of the report, said: "Spiralling costs of special educational needs provision seem likely to wipe out any opportunities for savings in the schools budget from falling pupil numbers.” Daniel Kebede, general secretary of the National Education Union, said: “Schools have no capacity to make savings without cutting educational provision.”

Julie McCulloch, director of policy at the Association of School and College Leaders (ASCL), said: "Schools and colleges have been expected to absorb relentless financial pressures over the past 15 years, and they have done an incredible job in minimising the impact on students. But we cannot go on like this. It is death by a thousand cuts.”

A Department for Education spokeswoman 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 which increased school funding to almost £63.9billion in financial year 2025-26, including £1billion 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.”

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