Opt-outs 'living on loans'

Clare Dean & Estelle Maxwell

More than 50 opted-out schools are living on overdrafts with ministers set to introduce legislation this autumn allowing the grant-maintained sector to borrow on the open market.

The Funding Agency for Schools - the quango set up to monitor and administer GM funding - has agreed financial deficit plans with between 50 and 60 individual governing bodies.

It has already revised regulations which banned GM schools from taking out loans or incurring overdrafts to allow them to do so, but only through the FAS.

Gillian Shephard, the Education and Employment Secretary, is due to put a bill through Parliament this autumn enabling opted-out schools to borrow on the open market.

The major clearing banks have already expressed interest in the proposal and John Fowler, assistant education secretary at the Association of Metropolitan Authorities, said: "It is easy to see why the FAS is so keen for it to be approved."

Latest FAS figures reveal that 85 opted-out schools have between them cash problems involving amounts of more than Pounds 2.85 million.

Of those 85 schools, 12 were big gainers in terms of double funding - the system where they get compensated for the loss of local authority central services when they opted out and then get paid again for them when the cost of those services has later been delgated to schools.

In addition to the overdrafts, loans of between Pounds 50,000 and Pounds 100,000 have also been granted to five opted-out schools by the Department for Education and Employment. The interest rate of around 6 per cent is set by the Treasury. Several other GM schools have creditors.

The extent of debt in opted-out schools is revealed in a letter from Michael Collier, its chief executive, to Andrew Smith, shadow chief secretary to the Treasury. Mr Collier said: "Schools are not allowed to have a cash deficit at any time." He said the FAS did "not authorise any overspends at schools" but added it would ensure that schools in financial difficulties had a "viable recovery plan".

Several opted-out schools with cash problems have blamed their difficulties on debts inherited from their former local authority or diocese. The Crypt in Gloucestershire, which was Pounds 77,000 in debt last year, said it had "phenomenal legacy of disinvestment" in buildings from the LEA.

Since it opted out three years ago, the school had spent Pounds 200,000 on building work and needed to spend a further Pounds 500,000 - a large proportion on health and safety work.

St Edmund RC comprehensive in Kent said it had inherited a Pounds 180, 000 debt from being a voluntary aided school. It has cut back on part-time staff and reduced the debt to Pounds 50,000 this year.

John Fitzpatrick, deputy head, said: "We have to budget very tightly each month. We are paying as little as possible and keeping the money in the bank to get a little interest but we don't have many creditors."

Kirkby Stephen grammar in Cumbria is currently negotiating an overdraft with the FAS after being unable to set a budget this year. The 323-pupil school has a shortfall of Pounds 65,000 of its annual maintenance grant of between Pounds 700,000 and Pounds 800,000, which is topped up to almost Pounds 1 million with grants.

It has already cut back on both full and part-time staff and raided its own private savings.

Peter Hawksworth, headteacher, blamed a combination of factors including falling pupil rolls and a catchment area which spans 400 square miles. He said problems were exacerbated when was Cumbria moved onto the Common Funding Formula earlier this year.

Mr Hawksworth said: "Our situation has been very difficult and completely unpredictable. It is a terrible way to have to run a school."

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