The Government will 'actively 'encourage academies to take out loans, TES reports
. They're forbidden to do so now but there's a sweetener - academies which take out loans will be viewed more favourably for the Condition Improvement Fund
CIF is only available for academies and sixth-form colleges. Although there's 'no obligation' to take out a loan to fund development, academies which do so would gain a higher eligibility ‘score’ than if they applied for a CIF grant alone.
Repayments plus interest* would be made by reducing the annual amount paid to the academy or college. These mustn’t be more than 4% of the revenue grant awarded by the Education Funding Agency (EFA). There are restrictions: an academy trust can’t be under a Financial Notice to Improve, for example, and must have a ‘cumulative revenue surplus’.
This raises the question why the Government is so keen to fund academy improvement by loans instead of grants.
The Priority Schools Building Programme
is already mainly funded via Private Finance Initiative (PFI) – a system which was derided by Chancellor George Osborne as ‘a bit of dodgy accounting
’ when he was in opposition. Nevertheless, the ‘discredited’ system has been resurrected supposedly with more checks. It works like this: the EFA releases the PFI ‘batches’ after reviewing bids from contractors. The ‘operational period’ is 25 years. That means schools wanting essential building will be locked into a contract for a quarter of a century.
So, PFI and loans – all representing future expenditure – is being encouraged by the Government.
However, CIF raises more questions than whether the DfE should be pushing schools into seeking credit:
1Can the EFA cope with its ever-increasing responsibilities especially when it’s been told to reduce its operating costs?
2Why are CIF grants only available to academies? Non-academies cannot ask for this money. Is this fair?
3The DfE says it wants to support ‘popular and successful academies’ to expand ‘irrespective of the demographic demand in the local area’. This allows academies to increase their numbers even when there’s no demand for extra places. This could cause havoc with local authorities’ ability to plan school place provision. It could create surplus places and even threaten the viability of neighbouring schools. Is this a prudent use of public money?
The Government’s blinkered support for academisation has already resulted in financial scandals and waste of taxpayers’ money (remember the £1b overspend on the academies programme?). Encouraging academies to take out loans is foolhardy. Even if an academy is seemingly in good financial health today it might not be tomorrow – a downturn in the number of pupils following, say, a poor Ofsted would trigger a reduction in funding. But loan repayments would still have to be made and would be taken at source. And what about those academies where finances appear to be managed well but are subsequently found to have used public money recklessly?
No wonder the DfE sneaked out this announcement during half term.
The paper edition of Academies Week
reports that a DfE spokesperson said ‘many council-run schools already have the option to borrow funding’. However, I’ve been unable to find much information about this. All schools can apply for 0% loans for green projects
. LA schools can’t borrow money unless they have permission from the Secretary of State (SoS). Voluntary Aided schools
can apply to the SoS for a loan but permission is unlikely to be given. DfE guidance
about academy conversion refers to loans to schools from local authorities but these appear to be confined to ‘supplementary cash loans
’ for schools with deficit budgets or non-standard spending. This isn’t quite the same as borrowing to fund capital projects.
Any further information with links to official sources about lending to ‘council-run’ schools for development would be welcome.
*Interest is charged at Public Works Loan Board rates of interest currently 1.55% for a loan of £100k over two years and 2.55% for the same amount over ten years.