Todmorden High School has been spending 10 per cent more than it can afford, and now teachers are facing redundancy.
Falling rolls mean Todmorden High School has 120 fewer students than it had six years ago, cutting the school's income by £400,000 per year, out of a budget of £4 million.
Yet staff numbers have increased.
Head Patrick Ottley-O'Connor said: "We are facing a major financial problem. The governors and I are working closely with the local authority to address the issues."
He said that having adjusted class sizes, to go from six forms in each year to five, there was now spare capacity of up to 14 teachers and three support staff.
"Our timetable for September is now operating at the correct levels and I can assure parents and students that class sizes will not exceed 30. If we had not taken action to reduce the deficit, this problem would have escalated to an unsustainable position," he said.
Vacancies that arise from staff retiring or moving to other schools will not be filled, but Mr Ottley-O'Connor did not rule out voluntary or possibly compulsory redundancies. Staff and governors are being consulted on the proposed reductions.
But he stressed the positive achievements of pupils and staff in the last 18 months.
The latest GCSE results show that 43 per cent of students got five A*-C grades, including English and maths – up from 28 per cent last year.
This moves the school out of the Government's National Chal-lenge category – a hitlist of over 630 schools that face closure for poor results.
Mr Ottley-O'Connor said: "There are really good things going on in the school. Students in the sixth form also achieved the highest grades in more subjects than ever before. There have been significant improvements."
Ironically, in the last year pupil numbers have increased, in the lower school and sixth form, although not to the levels of six years ago.