Funding new schools: indebted to the infrastructure

Historically, the building of new schools has had its ups and downs in Scotland, with the urgent need for new school estates sometimes leading to impractical solutions, including the loss of parkland and financial settlements which have locked in long-term private sector debt for increasingly cash-strapped councils.

The Scottish Government’s £1.8bn Scotland’s Schools for the Future programme has sought to rectify this, using private finance through the Scottish Futures Trust (SFT) to rebuild or refurbish 112 schools across the country since it was launched in 2009.

The latest and final phase saw funding for 19 new and refurbished schools by 2020.

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In his October 2014 budget, John Swinney revealed he planned to release £330m for this final fourth phase, with a £100m pot announced in June 2014 and the next £230m now released for the final push.

Announcing the latest phase, First Minister Nicola Sturgeon said part of improving educational standards required the “right physical environment” for learning.

“We had planned to build or refurbish 55 schools across Scotland, these new schools now take the total to 112 – more than double our original target.

“Since 2007, we have worked with local authorities to rebuild or refurbish 607 schools, resulting in the number of children educated in ‘poor’ or ‘bad’ condition schools falling by 60 per cent,” she said.

Investment will be welcomed by councils looking at diminishing budgets. Councillor John McDowall, Depute Leader of South Ayrshire Council, said the local authority was delighted to be getting its third school under the scheme.

“The new purpose-built school will transform the learning and teaching environment for hundreds of young people, our teachers and school staff, with state-of-the-art facilities – some of which will also be available to the wider local community, including sports facilities and a lifelong learning facility.

“This will help ensure that the excellent education our young people enjoy will be matched by access to the first-class facilities they deserve, and we’ll now get to work in putting the plans for the new school in motion,” he said.

Under the Schools for the Future programme, the amount allocated towards the cost of each school has been nominally 50 per cent of the eligible cost of a primary school and 67  per cent of that of a secondary school. 

The precise amount of the government’s contribution for each school is determined by Scottish Futures Trust Schools for the Future programme managers, following discussions with the local authority concerned.

However, the Accounts Commission has warned councils their debt repayments are set to soar in the coming years, with Scottish council borrowing having hit a record £15bn by April 2014.
A European ruling has meant projects funded by the Scottish Futures Trust must rely more on private investment upfront or risk being reclassified as public sector borrowing by the Office for National Statistics.

Any perception of public sector control “must be avoided”, concluded the SFT.

As a result, the restrictions on the profits the private sector can glean from such projects, embedded in the not-for-profit distribution model, appear to have been lifted, and the debts incurred more closely resemble the Private Finance Initiative (PFI) model the SFT was set up to replace. Although it was conceived as such, the SFT cannot be a national public investment company in its own right.  

Meanwhile, it is not clear how much the PFI contracts signed before 2007 are costing councils, but they have built-in ‘inflationary’ measures, which mean those costs are rising, and they are contained within education budgets under more pressure than ever.

Highland Council was recently refused permission to borrow conventionally to buy out a PFI contract on 15 schools. The council currently pays £29m every year to two private consortia for the upkeep of schools and felt refinancing represented a better deal.

UK Treasury rules mean the borrowing would have incurred a capital cost. 

Derek Yule, Highland Council Finance Director, told the West Highland Free Press he could see why the Scottish Government had refused. 

“Perhaps this would be less of an issue if it was just Highland, but there were also concerns about setting a precedent that other councils would follow,” he said.

“Additional council borrowing could impact on the Scottish Government’s own borrowing proposals, given their new powers to borrow. I also suspect that there may be a policy issue around this as well regarding the current model for schools financing.”

A Scottish Government spokeswoman responded: “The Scottish Government, alongside the Scottish Futures Trust, has been encouraging procuring authorities to instead look at whether they can realise savings from their existing PFI contracts. This could be through, for example, re-scoping services, sharing in insurance cost savings and optimising the risk transfer in contracts.
“We continue to support and work with authorities to identify where these savings can be made.”

Making savings, of course, is very much the order of the day, and ultimately improving the learning environment is paramount, according to EIS general secretary Larry Flanagan.

“Following many years of under-investment in Scotland’s school estate, we have seen a substantial and successful programme of school building and refurbishment in recent years.
“While there is much work still to be done to ensure that all pupils and teachers are working in up-to-date, modern buildings that provide a sound environment for learning and teaching, it is a positive development that the Scottish Government is continuing its investment in school building programmes.”

Keeping them off the balance sheet, however, may carry a long-term cost.