Climate change

Net zero won’t be met without new rules on capital investment

The vast school estate can’t be upgraded to meet student needs and net zero targets because its custodians are financially handcuffed, writes Tim Warneford

The vast school estate can’t be upgraded to meet student needs and net zero targets because its custodians are financially handcuffed, writes Tim Warneford

24 Mar 2023, 5:00

As the latest IPCC report issues a ‘final warning’ for drastic action to stop global temperature rises at a catastrophic 1.5ᵒC, academy schools find themselves on a burning platform. With rising energy costs and depreciating, poorly maintained and heat-inefficient buildings as well as challenging net zero carbon targets, they assume responsibility for an estate without the financial wherewithal to maintain it.

Despite accounting for over 50 per cent of the government’s estate portfolio, schools are allocated a mere 15 per cent of the total funding pot to maintain it. The DfE itself admits that the current annual capital investment budget of £2 billion falls woefully short of the £15 billion required to transform our aged school estate into a fit-for-purpose learning environment.

The need to produce Streamlined Energy Carbon Reports (SECR) and evidence carbon savings via annual account returns places further burden on multi-academy trusts. As with standard capital investment funding, the school estate has also seen less funding through the Public Sector Decarbonisation Scheme compared to other government estates.

If we value future generations’ education, something must change.

We can accept that government funding is finite and that we have a huge financial gap to fill while still looking for ways to maintain our estate and adapt it for increasingly pressing future needs. For example, by relaxing the rules contained within the academies handbook for the purposes of borrowing.

Other public sector asset managers are not subject to the same financial restrictions as academies. They can access and assess a variety of financial products to assist with the upkeep of their estates.

The academies handbook, the bible by which all trusts must adhere, currently prohibits borrowing.

The DfE must remove the handcuffs from academies

Typically, auditors and solicitors have also interpreted operating leases and power purchase agreements as loans, despite them differing to an asset or finance lease. The absence of any clear direction on the use of these vehicles naturally deters both auditors and trusts from pursuing any option that is not officially sanctioned by the DfE.

That’s not to say that some pioneering trusts haven’t tried to seek clarity and approval from the DfE for alternative funding routes. For example, Oasis Community Learning Trust  – which includes 52 schools – sought to gain approval for the phased delivery of a major solar PV scheme affecting 14 of its school buildings, to be funded under a power purchase agreement. In the absence of any clear approval from the DfE, the trust decided to proceed on the provision that the DfE wouldn’t formally object.

The permitted use of similar funding mechanisms could really help other academies address their own energy efficiency challenges.

Many schools who do not have the capital expenditure required to self-fund LED lighting schemes could make use of an operating lease to pay for such upgrades. Likewise, power purchase agreements could support solar pv installations. The estate would immediately benefit from both cost and carbon savings.

There are a number of quick ways that the DfE could act to remove the handcuffs from academies and support them to drive down costs and take strides towards net-zero targets. These include:

  • Removing the ambiguity in relation to permitted funding routes and terms and conditions by setting out clear guidance in the academies handbook.
  • Producing compliant application templates for funders to adhere to.
  • Applying the Public Works Loan Board (PLWB) principle and agreeing capped and fixed interest rates for trusts looking to borrow.
  • Devising a credit rating system for trusts (similar to the ones agencies such as Moody’s and  S&P apply to banks).
  • Extending the current assessment criteria for awarding Condition Improvement Fund (CIF) loans, based on percentage turnover, reserves and in-year surplus.

Without a change, the school estate will continue to fall into an ever-deeper state of disrepair and further remain off-course for meeting future carbon reduction targets. Academy trusts represent a large proportion of the greater part of the government’s total estate. Empowering them to lead the sector’s transformation through responsible investment could be a game-changer for all our pupils, and our place as global leaders in the fight against climate change.

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