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Opt-outs led into finance `grey area'

Dorothy Lepkowska on the widening capital gulf between GM and LEA schools. The disparity in capital funding between grant-maintained and LEA-run schools looks likely to remain, despite a relaxation of controls on local authority partnerships with business.

The Private Finance Initiative, which comes into effect on April 1, aims to ease restrictions on local government links with the private sector, freeing money from the sale or lease of land to be spent on schools and housing.

Meanwhile, the proposed Grant-Maintained Schools Bill, which would allow opt-out schools to expand by borrowing money against their assets - effectively taking out mortgages - is generating claims that the Department for Education is trying to revive flagging interest in opting out.

Educationists believe the policies will increase the disparity in capital funding between the two sectors, while appearing to reduce them when considered individually.

Under the PFI local authorities will be able to dispose of assets which might be better managed by the private sector, such as industrial estates and shopping centres, and to inject the money into other projects.

They may also join with business to develop facilities to be used by schools by day and the public in the evenings such as sports centres, .

But schools will be unable to enter into partnerships independently of local councils, and will have to join their authority's queue for capital works.

The GM Schools Bill, meanwhile, will include proposals for a development fund to distribute grants for new buildings under the Government's plans to improve the management structures in opt-out schools. But the policy could lead to buildings or playing fields - the most likely asset to be put up as collateral - being taken over by banks if schools do not make repayments.

In a recent TES survey, 46 per cent of grant-maintained schools said they would not borrow money against their assets, while 27 per cent said they might.

Tony Travers, a local government specialist at the London School of Economics, said the Government was leading GM schools into a "grey area" and safeguards to prevent public assets being taken into private hands had to be implemented. But the scheme could attract some LEA schools towards opting out, he added.

"The question of whether grant-maintained schools fall into the public or private sectors is a matter of semantic debate within the Treasury.

"Either way they will become involved in some very serious decision-making, and if they are allowed to raise money in this way that undoubtedly places them at an advantage over locally controlled schools. This is a way of bending public spending rules, so that the private finance initiative appears to be working."

Some councils, however, claim the PFI will have little impact. Anna Lawson, Birmingham director of education policy and finance, said: "We do not feel the restrictions have been relaxed sufficiently to exploit the initiative. We would like to be able to place all of our capital receipts back into new investments rather than having to use 50 per cent of them to reduce our debts."

She added that proposals to allow GM schools to borrow against their assets might be seen by council-run schools as "a bitter pill to swallow.

"It will enable some schools to draw up five or 10-year development plans, at a time when council budgets are very tight. It raises questions about the integrity of risking public sector property." Birmingham has asked the DFE for a meeting about the PFI scheme.

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