Schools and finance leasing

Revised statutory guidance sets out how finance leasing is still a no go area for schools, writes Frank Suttie.

The Department for Education together with the Education Funding Agency has issued a revised version of its statutory guidance to local authorities concerning how school revenue budgets are financed. The guidance now includes strong emphasis that school budgets should not be committed to finance leasing transactions. The guidance does draw attention to other approaches that will be relevant for some schools. 

Local authorities are under a legal duty to follow the statutory guidance concerning the financing of school budgets. Since school governing bodies make funding decisions on a delegated basis ie the governing body is authorised to spend but the contract entered into rests with the local authority the guidance also comes into play in the way governing bodies and school leadership teams make their spending decisions.

Academies are also regulated through their funding contract with DfE and through that are subject to the same restrictions.

In practice parts of the public sector are affected by rules usually prohibiting the use of finance leases. In education the only current exception arises from energy "spend to save" initiatives where the financial investment is committed to under a DfE approved scheme.

The problem with finance leases in the public sector is all too clear. A finance lease constitutes borrowing and every commitment of this kind made would find its way into the overall tally of public sector borrowing.

For many years the existence of this rule was far from clear to hard pressed school leadership teams and the extent of the freedom that has existed to allow schools to make their own spending decisions led to schools become a key target for the equipment leasing sector. The more unscrupulous companies and those who failed to control their sales teams effectively led to very poor leasing deals being committed to – sometimes with career limiting and even career terminating consequences for school decision makers.

So it is no surprise that this reminder of the position has appeared. 

Helpfully, and in response to many in the education supply sector who have lobbied for relaxation of the rules the guidance provides alternative approaches that will enable the benefits of leasing where the consequences can be kept off the government balance sheet.

The guidance makes clear that DfE has no interest in arrangements that are entered into by organisations that support the education services provided by schools. DfE has in mind Trustee and Foundation bodies. It is conceivable that schools without trustee or foundation body support can find other ways of legitimately distancing the transaction from the public sector balance sheet. 

The key point will always be whether the financial obligation owed to the leasing company becomes a financial commitment made by the school. So the commitment made by the school to the body providing the equipment can involve charges being levied but must fall short of having the commercial character of a leasing transaction.

Frank Suttie is a partner in the projects team at DAC Beachcroft. He can be contacted on 0113 251 4798 or This email address is being protected from spambots. You need JavaScript enabled to view it..