The government has dropped plans to instruct councils to claw back budget surpluses from schools across England.
Ministers had proposed to impose a five percent tax on any excess cash held by schools currently totalling£1.7bn backdated to last March, to include outstanding surpluses at the end of the 2006-07 tax year.
Speaking at a conference on Saturday, children, schools and families secretary Ed Balls admitted he was “frustrated” at the amount held in reserve. “The idea was to distribute it [the surplus] around local schools in the area,” he said.
But he conceded that the retrospective element of the levy angered headteachers.
Mr Balls warned that the government would re-examine the case for a system of fines for schools that hold surpluses.
“We will come back to it in two years’ time if schools haven’t moved on this issue. It is the right thing to do,” Mr Balls said.
In the past schools had raised concerns that the government’s proposal would have applied to all school revenue surpluses including the proceeds of fundraising by parents, as well as small amounts of planned surplus rolled over from one year to the next.
But in a statement to the House of Commons last week, education minister Jim Knight said the government would “discuss these detailed concerns with schools and work with local authorities to lower excessive surplus revenue balances”.