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)