Taxpayer-funded second tranche of Priority Schools funding is another blow to PF2 programme, says expert

Out-Law News | 02 May 2014 | 11:55 am | 2 min. read

An extra £2 billion worth of funding will be provided to finance the rebuilding or repair of some of the schools in the worst condition in England, the UK government has announced.

However, the funding for this second phase of the Priority School Building Programme (PSBP) will be provided by central government in its entirety, according to a written ministerial statement by the minister for schools, David Laws. It was originally intended that much of the funding for the first phase of the PSBP would be provided through PF2, the replacement for the discredited Private Finance Initiative (PFI) model. However, it later emerged that only 46 of the 216 schools to be funded through this phase would be financed in this way.

Infrastructure law expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, told the Financial Times that public sector bodies and firms did not "seem to want to use" the new funding model, which was initially announced alongside the 2012 Autumn Statement.

"The main trouble is the complexity of the finance structure," he said. "With banks willing to lend to the right projects, procurers are opting for more straightforward methods of financing, or non-project financing solutions."

According to Laws' ministerial statement, the additional PSBP funding will be provided as part of the capital expenditure allocated to the Department for Education (DfE) over the next spending review period, from 2015 to 2021. The way in which funding will be awarded will be revised slightly from the original PSBP programme to target individual school buildings, rather than on the basis of the condition of the school site as a whole. A detailed survey of the condition of schools and their buildings will be completed by summer and used to inform funding allocations, Laws said.

The PSBP replaced the previous government's Building Schools for the Future programme, which was cancelled in July 2010. It is intended to address the needs of the schools in the worst condition in the country, with funding resources allocated from a set budget according to need. Under the first phase of the programme, 261 schools are due to receive funding. According to the DfE, 28 of those schools are currently under construction while design work has begun at a further 234 schools, work on which will be completed by the end of 2017. The first of the new school buildings constructed under the programme, at Whitmore Park in Coventry, opened to pupils on 1 May.

The new PF2 funding model is intended as a "faster, more transparent" way of using private finance to fund public infrastructure. PF2 projects will be run by joint venture companies, into which the public sector will invest on the same commercial terms as the private sector partner. These companies will be majority owned by the private sector, with the government's stake limited to 49%.

Funding for the 46 schools which are being procured through PF2 is to be raised through an 'aggregator' model, which will be managed by a fund manager on behalf of the Education Funding Agency (EFA). It is planned that this fund manager will be able to access both bank debt and the capital markets in order to pull together the public sector's share of the funding, which will then be made available to the successful private sector bidder. According to the Financial Times, the Treasury will announce a successful bidder to provide initial capital for the aggregator later this month.

David Laws, the school minister, said that the new building at Whitmore Park had become a "model" for the PSBP, with procurement taking only 13 weeks and building works complete in 11 months.

"The opening of Whitmore Park marks a major milestone in the PSBP, which is making great strides in ensuring that vital building work takes place at some of the schools in the worst state across the country," he said. "It is providing much better value for money than previous school building schemes, and forms part of the government's drive to deliver the best schools for young people in order to help deliver both a stronger economy and a fairer society."