Schools ‘pushed’ into taking out government loans

30th October 2015 at 00:00
Headteachers forced to borrow or keep using decrepit buildings

Hundreds of academies have been “pushed” into applying for loans to pay for urgent building improvement work because of a serious shortage of capital funding, TES can reveal.

Nearly 700 – or about one in seven of all open academies – have had to go cap in hand to the Department for Education in a bid to borrow money to repair crumbling buildings.

The news has forced headteachers’ leaders to urge academies to be “extremely cautious” before applying for a loan in light of the tougher financial conditions being forecast. They warn that interest charges will only add to the pressures on schools.

Academies and sixth-form colleges have been eligible since April to apply for loans of up to £4 million at a “favourable rate” from the Condition Improvement Fund, with repayment periods lasting up to 10 years.

But Malcolm Trobe, deputy general secretary of the Association of School and College Leaders, warned academies to “think very carefully” about applying for the cash, and highlighted the difficulties faced by the post-16 college sector.

“We are advising members to be extremely cautious about taking out a loan,” Mr Trobe said. “You just need to look at the FE college sector where a number of colleges are in financial difficulties and part of the reason for that is the high capital loan duties they have had to pay.

“[Academies] are being pushed into this position as a result of the limited amount of capital money available through the Condition Improvement Fund. Institutions are keen to avoid their building stock falling into a really problematic condition.”

Since 2010, the government has greatly reduced the DfE’s capital budget, the lion’s share of which was lost when the vast Building Schools for the Future scheme was abolished.

The initiative was replaced with the much less ambitious Priority School Building Programme (PSBP), which has focused far more on schools in the greatest need of repairs.

Ministers have also been forced to divert the majority of capital spending towards basic need funding, to create enough places for the extra 900,000 pupils who are expected to enter the system by 2020.

Payback time

All this means that hundreds of schools are in desperate need of rebuilding work but remain too far down the pecking order to have any hope of being awarded cash through the PSBP.

Mr Trobe added that extra care was needed as schools were facing “significant cash pressures” as a result of having to make increased pension and national insurance contributions for their teachers.

School spending is also uncertain, as heads will not find out what kind of settlement they will receive over the next five years until the government’s spending review next month.

Last week, influential thinktank the Institute for Fiscal Studies warned schools to prepare for 8 per cent cuts over the next five years, ushering in the first real-terms spending drop for schools since the mid-1990s.

Nick Weller, executive principal of the Dixons Academy Trust, said he had not applied for a loan but could understand why academies would take advantage of the ability to borrow.

“A lot of the school building stock has been neglected for a number of years and some school buildings are very, very run-down,” he said. “But you would have to be very confident that you would be able to pay it back, which might be difficult, particularly given that schools are facing significant rising costs.”

Mr Weller noted that academy trusts could apply for a loan for an individual school but use surpluses from other academies in the trust to pay back their borrowing.

The DfE has said that loans would be available only to academies with budget surpluses and clean financial bills of health.

A department spokesperson said it was “vital” that school buildings were safe and well maintained.

“To help schools get access to the funding for maintenance and improvement of buildings they can choose to borrow from the Condition Improvement Fund at a favourable rate – with zero interest for energy-efficiency projects.

“They must decide whether applying for a loan is the right option for them – loans are only approved for those which meet strict criteria as set out in our guidance. All loan repayments are cycled back into the fund, meaning other schools will continue to benefit.”

Condition Improvement Fund: the facts

Academies and sixth-form colleges will be able to apply for loans of up to £4 million.

The minimum borrowing amounts will be £20,000 for a primary school and £50,000 for a secondary.

There will be strict criteria for loan applications: 70 per cent of the decision will be based on the project’s need, 15 per cent on how well it has been planned and the remaining 15 per cent on the value for money it offers.

Loans will have the same rate of interest as the Public Works Loan Board, meaning a rate of 1.48 per cent on a £100,000 loan paid back over two years, rising to 2.21 per cent paid back over 10.

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