The topic of school finances has increasingly made the headlines with schools needing to make efficiency savings of c£3 billion by 2020. The DfE held a consultation between the 24th of March and the 21st of April last year and has now announced that local authorities can now only make loans to help schools spread the cost of large one-off items of capital expenditure over more than a year.
The DfE had intended for local authority internal loan schemes to encourage internal arrangements within the authority that would enable schools to spread the cost of large one-off items of expenditure, particularly capital items, over more than one year to make these more affordable. They were not intended to support schools that are in general financial difficulties. A maintained school can apply for permission from the local authority to set a deficit budget which is usually funded from the authority’s collective surplus from the other maintained schools.
The DfE has found that some authorities may be using loans in place of licensed deficits, as its guidance states that loan liabilities will normally transfer to academies on conversion. This may be being used by authorities as a way of circumventing the requirement that the deficits of schools becoming sponsored academies revert to the local authority. In February of last year Norfolk County Council banned its schools from setting deficit budgets in light of suggestions from the DfE that these were putting off potential academy sponsors. The head of policy at the National Association of Head Teachers (NAHT) Valentina Mulholland, at the time, questioned that the decision was partially motivated to create financial reasons for academisation.
The DfE’s announcement may be met with consternation by maintained schools who can now no longer receive loans that will serve to staunch potential deficits. Given the budget pressures on all schools these maintained schools may feel that they need to access all possible resources that are available to them.
 Changes to the criteria for agreeing loan schemes: Government consultation response (March 2018)