Court battle looms over cash claw-back threat

5th December 1997 at 00:00
Schools may lose tens of millions of pounds when the Government closes the business rate loophole. Nicolas Barnard reports

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 Pounds 2 million a year for the past two years - an average of Pounds 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 Pounds 4m has to be returned - the authority would have to balance its books, she said.

Liverpool City Council has saved Pounds 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 Pounds 1.8m. On legal advice, it put the money straight back into school budgets, which benefit from between Pounds 1,600 and Pounds 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."

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