The Department for Education is removing a “millstone” of debt that has made multi-academy trusts (MATs) wary of sponsoring some schools in financial difficulties.

It comes despite the opposition of local councils, which have warned that the change could saddle them with millions of pounds of debt.

Currently, when a maintained school that has a deficit is forced to become an academy, the deficit remains with the local council - and the incoming MAT does not have to pay it off.

However, if the council gives a school a loan instead of licensing a deficit, the responsibility for repaying the money goes to the academy trust.

Matthew Wolton, a partner specialising in academies at law firm Knights, last year said many MATs were put off sponsoring schools by the “millstone” of deficits or loans they would have pay off.

Academy plans

Last March, the government launched a consultation on plans to restrict councils from giving schools loans in this way and making sure that councils - rather than MATs - would have to pay the money back.

A government response to the consultation, published today, reveals that the majority of respondents were against the proposed changes.

However, the DfE has today announced it will go ahead with its plans.

Under the changes, councils can now only make loans to help schools spread the cost of large one-off items of capital expenditure over more than a year.

The amended rules now say the DfE “will not recognise as a loan any sum that has been provided in order to fund a deficit that has arisen because a school’s recurrent costs exceed its current income and where this has been agreed or an existing loan arrangement was revised on or after 22 March 2018”.

The change comes after school standards minister Nick Gibb denied the DfE was struggling to find sponsors for academy trusts, despite schools having to close because no willing sponsors could be found.

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