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Action zones to pay back millions

THE Treasury is clawing back millions of pounds from education action zones through VAT.

Action-zone leaders warn that some of their initiatives could be jeopardised by the 17.5 per cent tax on much of their spending. They have urged the Department for Education and Employment to meet the cost of VAT as it did for grant-maintained schools.

The tax takes a major chunk out of the zones' annual pound;750,000 DFEE grant and has proved an unforeseen problem for Labour's flagship pound;20 million-a-year strategy.

The first dozen zones, launched last September, have already been hit by bills of between pound;50,000 and pound;100,000. Many won approval by pledging to invest heavily in information technology. But as new computers now pour into schools, the VAT bills grow.

A DFEE spokeswoman said: "We're aware of the issue and are looking to see how it develops."

Mark Pattison, chair of the local authorities' EAZ network - which includes 23 of the first 25 zones - said: "This is a serious problem; it makes a significant difference to the amount of money we have. We're concerned the news has arrived so late in the day."

Official confirmation that VAT would be applied arrived only after the end of the financial year. Zone leaders say they were verbally encouraged by DFEE officials to spend up to budget or risk losing funding.

Mr Pattison, director of education at Blackburn and Darwen, which contains one of the first 12 zones, said: "We reckon we'll lose pound;80,000 to pound;90,000 in the first year.

He said early-years provision, extra teacher support and some multi-agency work might be cut.

The tax issue has been shrouded in confusion since the first zones were set up - and illustrates the problems some have had getting off the ground in such a short time. Many say they have spent two terms sorting out technical issues and are only now working on raising school standards.

Zones were initially told to seek local agreements with their Customs and Excise offices - some of which, including Blackburn's, agreed to waive VAT. But they were later over-ruled nationally.

Grant-maintained schools had a similar problem when they left local authority control. But the then-Tory government, eager to protect its flagship policy, bailed them out with a special grant.

Graham Lane of the Local Government Association, said: "It is bizarre. Millions of pounds are going from the Treasury to the DFEE, on to the action zones and then back to the Treasury. What a way to run an economy."

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