FE: Colleges in Barclays talks to establish 'Bank of FE'

25th September 2009 at 01:00
Cash reserves could be shared to revive stalled modernisations

Original paper headline: Colleges in Barclays talks to establish `Bank of FE'

Colleges are planning a "Bank of FE" that will allow institutions with stalled capital projects to borrow from others with cash reserves.

The Association of Colleges' capital task group has calculated that by scaling down the ambition of projects, ending unfair VAT rules and making cost savings, it could still rebuild the rest of the further education estate with public funding of pound;240 million a year.

But without government funding of that size, the group warned, Building Colleges for the Future's aim to renew the entire FE estate would be over.

One of its strategies is to develop an FE "banking product" with Barclays Commercial Bank, allowing colleges to lend out cash reserves - which are often earning a very low rate of return - to other institutions without funds for rebuilds.

The task group's report said: "Barclays has committed to rolling out this proposition and will be sending details to colleges in the near future. The group thinks this is an excellent model and enables the sector to help itself."

Mark Dawe, task-group chairman, said there was pound;1.5 billion in college reserves, about half of which is held as a requirement of good financial health, with the rest saved for long-term projects or emergencies. Much of this could be invested in deposits in the ring-fenced fund, he said.

Other colleges that need to borrow would be able to withdraw funds at a discounted rate, depending on the level of deposits against borrowing. If borrowing exceeds deposits, the bank could provide the cash, but the discount will disappear.

Colleges would need to borrow pound;1 billion, the group estimates, towards a pound;4 billion rebuild of the remaining 45 per cent of colleges in need of modernisation, which would more than double their total debt. That means drastically scaling down projects from an initial estimate of pound;8 billion, and the group envisages simple, standardised designs rather than the iconic buildings of recent years.

Even then, the remaining pound;3 billion would need to be made up of "supported borrowing" - additional college loans paid off by government at a rate of pound;240 million a year over 15 years. This compares with about pound;800 million a year spending at the height of the capital programme.

A spokesman for Barclays confirmed that the bank was working on products designed for colleges.

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