The Department for Education has announced that it intends to change the rules relating to the way school debt is handled by local authorities, to encourage multi-academy trusts (MATs) to sponsor challenging schools.
At present, where a local authority (LA) maintained school is in debt and is forced to become an academy, the deficit remains with the LA. However, if the council has provided a loan rather than licensing a deficit, the responsibility for repaying the loan is then shouldered by the academy trust.
This has led to MATS becoming wary of sponsoring schools with financial difficulties because of the deficits or loans they would inherit.
In 2017, the DfE consulted on plans to restrict councils from bailing out schools in this way and it has now announced that it intends to go ahead with its proposals.
The new rules will mean that local authorities will, from now on, only be able to offer loans to help schools budget and spread the cost of one-off items of capital expenditure over more than a year.
The DfE has sought to clarify the new rules stating that they “will not recognise as a loan any sum that has been provided in order to fund a deficit that has arisen because a school’s recurrent costs exceed its current income and where this has been agreed or an existing loan arrangement was revised on or after 22 March 2018”.
Andrew Skinner, a Partner with Palmers, who specialises in debt advice said: “Dealing with financial deficits is never an easy task for a school and where an establishment has been ordered to seek academisation, it has proved a particular barrier to finding a Trust willing to take them on.
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