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Finance concerns stall academy conversions

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The transfer of up to a dozen schools to academy status has stalled because of legal concerns about future payments to private finance initiative lenders, LGC has learned.

At least 10 schools have seen their conversion to an academy placed on hold because of the issue.

Legal changes could be required to settle the matter, and some sector experts expect the Department for Education’s pending announcement of the details of its new schools’ capital programme - expected later this month - to end some of the confusion.

Tapton School in Sheffield is one establishment that has had its plans to opt out of city council control at the start of this school term put on hold because of concerns on the part of lenders to agree to the changes involved.

One senior education source said that up to a dozen other schools faced similar problems, and that the issue centred around local authorities’ ability to contribute to PFI funding and repayments.

“In the case of one of the special purpose vehicles that I am aware of that was set up to run a particular school, the lender considered it too much of a risk to agree to the change to academy status under current law,” he said.

“Under that agreement, the local authority and the school matched each other’s payments to the lender, but the Academies Act stops local authorities from contributing in that way.”

He added that the matter could require legislation, and that further clarity on the issue would be vital for Michael Gove’s £2bn schools capital programme - the next wave of PFI.

Kevin Robertson, a partner in public services at law firm Dickinson Dees, said he was aware of some of the problems being experienced in school transfers to academy status, but did not believe they related to all PFI schools.

“It’s not happening with any of the clients that we are dealing with, but my understanding is that one funder has questioned local authority powers to continue to fund schemes where the school has converted to academy status,” he said.

“It’s a live issue, but I think the DfE is pursuing a way through the situation. Some PFI conversions have happened already - this is about one particular funder.”

A DfE spokeswoman said some 24 PFI schools had so far converted to academy status, but confirmed there were ongoing issues about the legality of local authorities continuing to make payments for such schools.

“In the last couple of weeks, several banks that finance PFI contracts have said they have concerns as to whether local authorities have the power to make PFI payments and are withholding their consent to the conversion of PFI schools until their concerns are resolved,” she said.

“This has delayed several PFI conversions and sponsored academies from opening.”

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