State schools in the red can get support – but are academies more favourably treated?

Janet Downs's picture

It's likely more state schools will struggle to balance their books as the funding crisis bites.  This makes it equally likely they will need support to break even.

Local authority (LA) schools cannot receive loans to cover deficits but LAs can provide ‘an arrangement whereby schools are allowed to plan for a deficit budget' via a 'licensed deficit'.  The rules are complicated (see 4.9 here) - schools don't receive an actual payment but are supported from the LA’s 'collective surpluses'.  This is repaid, probably from the grant a school receives, until the school balances its books (within a maximum of three years).  

LAs can give loans to schools to pay for ‘large one-off items of a capital nature’.  However, the Department for Education (DfE) suspected LAs were using loans to cover deficits.  It consulted (see here for its response) and restated this rule. 

The DfE makes it clear: any LA loan considered to cover a deficit in an LA-maintained school would remain with the LA if the school converted.   

LAs argued that some schools in the process of converting to sponsored academy status could deliberately run up a deficit as this would remain with the LA.  The DfE responded by saying LAs should use their powers to prevent this happening. 

It’s debatable whether LA powers have enough bite to prevent a school in the process of becoming a sponsored academy from accumulating a deficit.  It could already be an academy and outside LA stewardship before these powers take effect.

In its consultation response, the DfE said ‘assumptions’ had been made that academies could have loans to manage deficits while LA schools could not.  The DfE responded: academies ‘at risk of falling into deficit’ would receive ‘guidance and support’

Academies could receive ‘a cash advance’ but this wasn’t a loan.  It was a ‘reprofiling of the academy’s general annual grant (GAG)…payments are front loaded with automatic deductions taken from later GAG payments’.  This appears similar to LA’s licensed deficit schemes.

However, the Education and Skills Funding Agency (ESFA) can give repayable additional funding ‘in the most serious cases’.  This sounds like a loan by another name.

ESFA can, ‘in exceptional cases’, provide a grant to schools if it was ‘absolutely necessary’ to stabilise finances.   It’s likely that ‘schools’ in this context mean academies.  The information appeared in guidance about academy additional funding.  And LAs cannot write off deficits from its schools. 

I have been unable to discover whether any academy trust has received such a grant.  I have submitted a Freedom of Information request.  

Some academies which have changed hands have had deficits reduced.  It could be argued that reducing an academy deficit, even writing it off, encourages a new trust to take over an academy on the transfer market.    It’s therefore essential the DfE keeps to its promise to publish academy transfer costs annually.  The next release is expected in July.  

But writing off a deficit is an option not allowed to LA schools.

UPDATE 20 May 2018, 14.03.   Re transfer costs for rebrokered academies: deficit payments will NOT be included in the next release of academy transfer costs.  It will not be possible, therefore, to find out whether any deficits from academies being transferred are reduced or written off without resorting to FoI.   (See 'Excluded funding' on pp 7/8 here)

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Julie Cordiner's picture
Sun, 03/06/2018 - 15:05

Janet, I'm intrigued about the ad-hoc note. Where did you find it please? There are some interesting facts here!
Many thanks

Janet Downs's picture
Mon, 04/06/2018 - 09:12

Julie -  The DfE's ad-hoc note re Academy Trust Transfer and Grant Funding and accompanying spreadsheet is downloadable here.

It took months of campaigning and a court case to force the DfE to release the costs of transfers of 23 academies which transferred  between September 2013 and October 2014.  It was forced to release these in January 2016.  After that date the DfE stonewalled further requests using the excuse that it planned to publish transfer costs in the future.

Eventually, the DfE published its 'ad-hoc' note and spreadsheet showing transfer costs in September 2017.  But there were mismatches between what academy trusts told me via FoI and what the DfE admitted to.   The DfE says such costs as defict payments, capital costs and redundancies will not be included.  But these can be considerable.

And it's not just the DfE paying out when academies transfer.   Greenwich council paid £1.5m when Corelli College was transferred to Leigh Academies Trust.  Worse, £1m of this was for land owned by the council!.  

Julie Cordiner's picture
Mon, 04/06/2018 - 10:42

Thanks so much Janet. This is very interesting; the scale of transfers and the costs is much greater than I expected. . I wonder how much the difference would amount to if the excluded items could be identified?
Well done for your tenacity.

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