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PFI schools under pressure


One council has £500 million to spend on its schools but has said no to PFI. A PFI school closed this summer and stands empty, after a huge pay-off to the private firm running it. Proposals in last month's schools White Paper will create much more risk for councils signing up to PFI Are these one-off problems or a sign of things to come? Andrew Hankinson reports

THERE are around 450 Private Finance Initiative schools in England with many more on the way under the Government's largest schools improvement programme for 50 years, Building Schools for the Future.

The first of three waves of BSF is providing £2.2 billion of capital investment for schools in 2005 and 2006. The councils for the next two waves have already been lined up and further waves are on their way. It all adds up to a jackpot for those firms which pick up deals from big local authorities such as Greenwich in south London, Liverpool or Bradford.

Around half of the Building Schools for the Future programme is being paid for by PFI and the other half by conventional capital or supported borrowing. The capital portion is being used for the refurbishment side of the programme, which is less attractive to contractors owing to the risk involved.

But some of the big-spending councils are rejecting PFI for their new build programme too. Liverpool City Council, which has been included in wave two, is the first council to put its head above the parapet and question the viability of this funding route in education.

The council had a disaster with its previous PFI schools programme when Jarvis won the £300 million deal and then ran into financial problems.

Liverpool's council officers spent a considerable time switching the contract over to another firm. The experience has made Liverpool wary of signing such longterm contracts with private firms. But there is another factor which the council is taking into consideration.

At the end of last month the Government published its schools White Paper, subtitled More Choice for Parents and Pupils.

The paper has raised eyebrows at councils since the Government wants to take schools the same way it is taking hospitals by giving them greater freedom and opening them up to market forces.

In its foreword, Prime Minister Tony Blair said:

'There is increasing international evidence that school choice systems can maintain high levels of equity and improve standards. Swedish parents can choose an alternative school to their local one, including a diverse range of state-funded independent schools.

'Studies have found that schools in areas where there is more choice have improved most rapidly. In Florida, parents can choose an alternative school if their school has 'failed' in two of the last four years. Again, studies showed test scores improved fastest where schools knew children were free to go elsewhere.' But just as NHS Trusts are finding with their hospitals, if you cannot predict patient or pupil numbers and therefore revenue, it is dangerous to enter into long-term contracts like PFI. In the NHS several well-placed insiders have even said that a move to patient choice and competition between hospitals means the end for PFI.

What happens if Jamie Oliver decides to film a new series at the non-PFI school down the road? Suddenly, the kids at the PFI school head for Jamie's dinners, fed-up with eating budget-beating turkey twizzlers, which are all the school can afford after its hefty PFI payments.

So 200 pupils leave the PFI school over summer and head for the pukka tukka offered by its rival. The school receives less revenue but still has to make the PFI payment. As a result the head teacher cuts back on books and teachers. Eventually standards plummet, the school is closed, the contract cancelled, a penalty is paid, and everyone loses out.

Margie Jaffe, lead officer for PFI at public sector union Unison, believes this scenario is not as preposterous as it seems. She said: 'If the proposals take away the control that the council had over school places and capacity it will mean trouble. Some schools may be favoured by parents and others may have to close. And as has happened already the council then has to pay a large penalty.' The case study for what happens when a PFI school goes wrong is Comart school in Brighton. It was part of a four-school PFI deal signed between Jarvis and Brighton and Hove City Council but it closed in the summer.

A council spokesman said: 'It was basically an issue of parent choice. Local parents didn't want to send their kids there so it was half full. It had facilities for 900 pupils but only 450 turned up, making it a financial black hole. With no sign of change it had to be closed.' When it shut the council had to pay a severance estimated to be around £4 million to Jarvis and the school is now standing empty.

As well as greater choice for parents to choose where their children are educated the White Paper wants to give choice for schools to expand.

It says: 'Where a new school is established as a result of parental demand, or an existing school chooses to expand, the result may be that there are more surplus places. Local authorities will need to move quickly to close schools that are failing to attract sufficient pupils and to consider whether the capital assets released could be used to inject new dynam ism into the system.' A Liverpool council spokesman said: 'In a nutshell the education White Paper proposes giving schools the option to expand if they want to. So if a school is at capacity, it can appeal to the council to expand. We can turn them down but they can appeal to the schools adjudicator, who can overrule us.

'But if a school next to a PFI school decides to expand, then the pupils may drift from the PFI school and it will have to close. Under PFI we would then have to pay a penalty as the school is supposed to be viable for the next 25 years.' But strangely it does not appear to be something that the Government has even considered.

Councillor Paul Clein, executive member for education at Liverpool council, said: 'As far as we know we are the only council that has raised the problem. It hadn't even occurred to the quango which is supposed to be dealing with this on behalf of the Government.

'We have got no political or ideological objections to PFI. But when you enter a long-term contract you need stability but the Government is doing the very opposite.

It's only at the consultation stage so they could fix it but this problem doesn't seem to have even come up on the Government's radar.

'What I hear from governors and head teachers is that they want the Government to get lost and just leave them to get on with it for a bit. I wish that they'd just throw the whole White Paper in the bin. If the Government does push forward with this folly it needs to put something in there to deal with the PFI problem.' The Department for Education and Skills would only say: 'We do not see the White Paper having any impact on the choice of funding for schools improvement.' The massive schools improvement programme would be impossibly expensive without private sector cash so it would seem PFI is here to stay. But if schools are opened up to market forces those juicy contracts are in jeopardy.

That is why they are called market forces.

Who spends what?

The route that some of the biggest-spending local authorities are taking to finance their schools development programmes:

Capital £m Liverpool 500 Stoke-on-Trent 180 PFI Bradford 400 Bristol 150 Knowsley 150 Lancashire 185 Lewisham 150 Middlesbrough 90 Newcastle 180 Mixed Gateshead 140 Greenwich 200 Leeds 240 Newham 180 Solihull 80 Wal tham Fo re s t 100 Undecided Sunderland 95