West Midlands council to review policy on deficit interest payments

A council in the West Midlands is set to review controversial rules forcing debt-addled schools to cover interest payments on their deficits.

Church leaders are urging Worcestershire council chiefs to revisit the policy, amid concerns the charges are hampering heads’ efforts to balance their books.

This comes after Schools Week revealed in December that some struggling schools are paying interest to councils on their deficits or on loans designed to support them with their finances.

We previously reported how the boss of one London secondary saddled with a deficit of more than £2 million called the payments “unfair” as they made it “almost impossible” for him to balance his budget.  

Checks of documents published by 51 of the largest town halls suggest 28 (55 per cent) have given themselves the right to charge interest – but only seven have followed it through.

Worcestershire is one, charging just under £896,000 between 2022-23 and 2024-25, more than any other council.

Tim Reid, director of education for the Diocese of Worcester, raised the matter with the area’s schools forum, a local decision-making body made up of education leaders, a month after our investigation.

‘Fair and equitable’

Phil Rook, the authority’s chief financial officer, told the meeting he was “happy to look at the policy”, but “they would need to look at both sides of the equation” and “be fair and equitable”.  

When asked this week what he meant, Rook pointed to latest council figures showing 29 deficit schools were charged £314,000 in 2025-26, while 62 of those in surplus were paid £476,000 in interest.

“My comment regarding fairness and equity was that the rate used must be applied consistently to both surplus and deficit balances. Otherwise there would be an additional cost to the council,” he added.

“If the council were to forgo charging interest on deficit balances, this would create an additional cost of £314,000, increasing the total annual cost to almost £0.5 million. This matter will be reviewed again by schools forum.”

Rook also stressed that the policy was amended after he became CFO “as schools had previously been charged an additional 1 per cent above the average rate for the year”.

Now, they’re asked to cough up interest based on an average alone.

The forum must make a recommendation to the council on its “preferred approach”, Worcestershire said.

A consultation with the area’s council-maintained schools also needs to take place before any changes are made.

Reid said “a number” of the schools in his diocese were impacted by the policy.

For those with the largest deficits, it “has a real impact on them being able to get back into a positive, or even balanced, financial position”.

“The Schools Week story… was incredibly helpful in providing the national context in relation to charging and how few local authorities continue to have this as a policy… supporting my case for Worcestershire to review their policy.”