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Councils fear they will foot the bill

Local authorities fear being left with debts of millions of pounds for buildings they do not own because a loophole in the education Bill means new trust schools could walk away from existing PFI deals.

Councils have signed contracts binding them to school building management deals with PFI contractors for up to 30 years. The contracts have also been signed by individual schools. But the authorities believe that schools opting for independent trust status would become new legal entities with no obligation to honour their predecessors' commitments.

If the school trusts then chose to look elsewhere for better deals, councils say they would have to make huge penalty payments to PFI contractors.

Paul Clein, Liverpool council executive member for children's services, said his authority had raised the issue with Department for Education and Skills officials when the education white paper was published last year.

They had agreed that an obligation for trust school governing bodies to honour the deals needed to be enshrined in primary legislation. But Mr Clein said there was nothing to that effect in the education Bill.

The Liberal Democrat councillor said the penalty would vary depending on factors such as the size of school and amount of time left on a deal, but for a large secondary it could be more than pound;1m.

Liverpool council has signed a pound;300m PFI deal that covers 19 schools including four secondaries and is waiting for approval on a second even bigger package.

Newcastle council, which is three years into a PFI deal for six primaries and about to sign a second covering primaries and secondaries, has similar concerns.

Nick Cott, the authority's executive member for children, and also Lib-Dem, said: "This is something the Government needs to think about more carefully."

Chris Waterman, executive director of the Confederation of Education Service Managers, said: "If the Government is going to allow PFI schools to acquire a trust then it has to be a central government responsibility to indemnify local authorities against any penalty arising from its policy."

Brighton council was faced with a bill of more than pound;4.5m after the troubled East Brighton college of media arts closed last year with 22 years left to run on a PFI contract.

A DfES spokesman confirmed that PFI contracts would not pass to a school if it gained trust status but would remain with the local authority.

Continuing obligations to take services from the PFI contractor would depend on an agreement the authority should have signed with the school.

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