pound;200m held by Treasury amid compensation fight

12th February 2010 at 00:00
College's claim for cost of cancelled building project prompts government to reserve funds

More than pound;200 million of capital funding is being held back while the Government waits to hear if it will be forced to pay compensation to colleges which have seen their projects cancelled.

Colleges have called on the Government and the Learning and Skills Council (LSC) to commit the last tranche of capital, available over the next three years, to a range of small refurbishment schemes across as many institutions as possible.

But David Hughes, national projects director at the LSC, who is responsible for the capital programme, said the Treasury was wary of committing the cash while a judicial review of the LSC's handling of the crisis was hanging over it.

Grimsby Institute of Further and Higher Education filed the claim after it lost pound;3.7 million in preparing plans for new buildings that could not be funded.

It argues the LSC was unreasonable in approving a further 13 projects when it could have compensated dozens of colleges that had wasted their investment through no fault of their own.

Speaking at a conference organised by the Westminster Education Forum, Mr Hughes said: "We've got about 150 colleges in the sector, about 50 per cent of which have never had more than pound;5 million of support.

"There is about pound;210 million that is not allocated. We are in discussion with the Treasury about it.

"But there is a judicial review that says the LSC is liable to pay all of the project fees that were spent on abortive capital projects. We have been pushing very hard, talking to ministers. I think there will be a decision soon."

Although it was thought that the verdict would not set a precedent for other colleges, because the deadline for applying for judicial review has passed, the concerns suggest that the Government may feel pressure to compensate all institutions if it loses.

Mr Hughes said the biggest mistake the LSC had made was not to prioritise funding to the most needy colleges from the start, because they expected to have enough cash to renew the entire estate over 10 years.

But the LSC said it was honouring the commitment to ensure colleges do not face bankruptcy, having provided pound;34 million to keep 41 colleges out of financial difficulties.

It said 20 of the colleges are receiving cash to help them maintain their "satisfactory" inspection grade, while a further 21 need support to ensure their financial health classification does not fall.

But the funding body said this money, on top of the pound;210 million awaiting allocation, marked the end of its additional support.

Geoff Russell, chief executive of the LSC, said: "The additional money we are now providing draws a line under the capital funding issue. However, we will as always continue to work with colleges that find themselves in financial difficulty."

Julian Gravatt, assistant chief executive at the Association of Colleges, said the pound;34 million was welcome, but represented just 20 per cent of the costs colleges incurred on shelved projects.

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