Government attempts to claw back tens of millions of pounds saved for schools + under a business rate loophole could end in court, local authorities warned + this week.Schools will effectively lose millions of pounds from their budgets + when the loophole is closed next year. Now Department of Environment, Transport+ and the Regions officials are also looking at ways of clawing back the tens of+ millions of pounds in rates which local authorities have withheld for several + years.Local education authorities are threatening to take the DETR to court if + it tries to force them to return the money which many schools have already + spent.Hundreds of schools benefited when some councils decided to give up to 80+ per cent rate relief. Some large city secondaries have saved tens of thousands+ of pounds. Other LEAs have collected the money and set it aside for major + projects to restore dilapidated buildings.The Local Government Association is + seeking an urgent meeting with ministers to discuss the situation. Education + chairman Graham Lane warned it would take legal action if the Government + attempted retrospective action.The loophole arose from the introduction of + local management of schools. Councils are forbidden from discounting their own + buildings from rates, but some lawyers argue that under LMS schools are + effectively autonomous, and therefore eligible for charitable relief.Business + rates are collected by local authorities and paid into a national pool. Across + large authorities like Salford, Liverpool and Sheffield, the saving has + amounted to millions of pounds per year.In a letter to council treasurers in + England, the DETR says it does not accept that local authorities can exempt + schools. It plans to clarify the rules for the next financial year, with an + amendment to go before Parliament before Christmas.But it also warns + treasurers: "The Department is now considering the steps to be taken in respect+ of the amounts which have been deducted from this year's and from previous + years' pool contributions."The loophole has largely been exploited by + metropolitan and unitary authorities which both run schools and collect rates -+ shire counties do not collect rates but levy a precept on district councils. + In Sheffield, 180 schools have saved #163;2 million a year for the past two + years - an average of #163;11,000 each. Education chair Jan Wilson said she + hoped the Government would replace any money it saved. It would be "extremely + worrying" if it tried to claw money back."That money has been distributed and + used for educational purposes, which we know the Government wants to support," + she said. But schools are likely to suffer if a legal challenge fails and + #163;4m has to be returned - the authority would have to balance its books, + she said.Liverpool City Council has saved #163;5m over the past two years. The+ cash, set aside pending clarification from the DETR, is earmarked for + building work. But city leader Frank Prendergast said that was now + jeopardised."We were intending to use it in an education authority that has + been deprived of resources by the past Government. A couple of hundred million + pounds of badly-needed repairs are needed to educational establishments," he + said. Manchester City Council this year saved #163;1.8m. On legal advice, it + put the money straight back into school budgets, which benefit from between + #163;1,600 and #163;76,000 a year. Chief education officer Roy Jobson said + that if the council was forced to repay the money it could in turn have to claw+ it back from schools."Everybody expected that they would close the loophole + and regarded it as a boost. But the question of clawing the money back is much + more open to debate and the answer depends on which legal advice you take. In + the end, only the courts can test things like that."