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Eyes on the private purse

Next week's Budget may see underspending by cautious governors used to justify a squeeze. Education ministers are to push hard to get more private money into state schools.

Eric Forth, minister of state for education, told a recent conference of technology school heads in Loughborough (report, page 11) that the Government was looking at this "as a matter of some urgency". "The probability of the matter is how not whether and when not why," he added.

Early next month the Department for Education (DFE) will publish a booklet showing the potential for private-sector investment and management in education. Called Education Means Business - Private Finance in Education, it will give examples of such initiatives as joint ventures, where a school and private company could jointly develop facilities like a sports ground, which they could then share.

The booklet will be sent to all local education authorities and secondary schools.

If next week's Budget contains a squeeze on capital spending, the need for private finance for capital projects will become more pressing. Grant-maintained schools especially have ambitious building plans - indeed, many opted out because of the lure of more cash for buildings - and the Government is also keen to expand popular schools.

But schools face one major problem when it comes to attracting private sector finance: unlike universities and further education colleges, they cannot borrow.

GM schools, which otherwise have freedom to manage their own money, are specifically banned from borrowing money under the 1993 Education Act.

The only exceptions to this rule are the schools owned by old charitable foundations: voluntary aided schools, many of which have now opted out. They can borrow subject to the approval of the Charity Commissioners.

A further problem is that GM schools have no income to service debts. The Government would have to change the funding arrangements, allowing a certain amount per pupil to pay capital charges.

Local education authorities can of course borrow to pay for capital spending on their schools but the amounts are tightly controlled by the Government.

There is no doubt that many GM schools would welcome the freedom to borrow money. The recent TES survey of GM heads found that one in four would not hesitate to take out a bank loan on their school's behalf, and a further 27 per cent might do so.

"One has to speculate to accumulate," said the head of an Essex secondary that opted out in April 1993. Another head remarked: "Having secured a Sports Council grant for an Astro-turf pitch we are now in danger of losing it because the Sports-Arts Foundation cannot yet say whether we will get a grant from them. A bank loan would save this project."

Christopher Elliott, head of Mount Grace School in Hertfordshire, pointed out that his school's site had "considerable capital value which it would make sense to exploit" - but raising a mortgage is also banned under the 1993 Act.

Many GM heads, however - nearly half of those covered by our survey - ruled out the borrowing of private money.

A Kent head warned: "State funding of schools in the UK is too tight and too unpredictable to tie one's school into long-term financial deals. I see my school as the local community's silver and inheritance."

A DFE official conceded that inability to borrow was one of the chief constraints on the expansion of the Treasury's Private Finance Initiative in the schools sector. But she added that there were no legislative plans to change the position.

It would be politically difficult for the Government to legislate in this area.

Not only have education ministers promised stability for five years, but it would also seem unfair to give the freedom to borrow to GM schools and not to local-authority schools.

According to Adrian Pritchard of the Grant Maintained Schools Foundation, one central problem is not the law but the Treasury's interpretation of it.

Under the Treasury's definition of borrowing, schools can lease buildings or equipment from a private company but may only enter into an "operating lease", under which the property reverts to the company on completion of the payments.

A "finance lease", under which the property becomes the school's once payments are complete, is defined as borrowing and therefore not allowed.

"Treasury officials seem to be quite at home with large-scale capital projects like the Channel Tunnel but when it comes to relatively small projects in individual schools they seem to be a lot less flexible," complained Mr Pritchard.

A further constraint on the ability of local authorities and schools to use their assets sensibly is the restriction on their freedom to use the proceeds from sales of redundant land and buildings. Local authorities may only use half of the money for capital spending; the other half has to be set aside to help redeem their debt.

As for GM schools, the Education Secretary has to give permission to sell and she decides what to do with the proceeds.

If the asset came from the LEA, she may decide that all the proceeds should go back to the authority, or she may decree that only half the money go to the LEA and half to the school for capital investment.

Technology school heads at the recent conference in Loughborough were eager to know whether the DFE would be prepared to match pound for pound any money which they raised from the private sector.

But Mr Forth said that was an issue the Government would have to look at separately.

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