Schools prevented from becoming academies by bank fears over PFI deals

The government’s flagship programme to convert hundreds of schools to academies has been delayed after banks refused to sign private finance contracts.

At least 16 schools that were due to leave local authority control at the start of this term have been put on hold after banks questioned whether councils would still be liable for PFI repayments.

Councils have been forced to step in to run the schools while the problems are resolved. Teachers have been transferred back to local authority payrolls and the disbanded governing bodies reformed.

The delay could hit dozens more schools that were rebuilt under PFI schemes, and the government is calling in lawyers to reassure the banks. Ministers could be forced to rewrite legislation, which was fast-tracked in the weeks after the coalition was formed, to clarify the situation.

Labour blamed the problems on the pace at which Michael Gove, the education secretary, has pursued the reforms.

Nearly 1,000 schools have converted to academy status since the election including 185 this month. Under Gove’s legislation, a local authority ceases to maintain a school when it converts to academy status. Banks fear this means councils no longer have the authority to make repayments.

At least nine authorities, including Nottinghamshire, Sheffield, Devon and Kent have been affected. In Northamptonshire, which had the biggest PFI school-building programme in Britain, two schools are affected – but a total of 41 were either built or remodelled under PFI.

An email sent by John True, Nottinghamshire county council’s schools service director, suggests that the legislation may have to be amended.

The email, written on Thursday and which the Guardian has seen, says: “The schools were due to formally change their status on 1 September, however due to a last minute technical issue in respect of the PFI contract this has not been possible.

“The DfE [Department for Education] are working on the issue on a national basis, as it has implications for all PFI academy conversions and may ultimately require a change in the education bill due to be enacted in January 2012.”

John Mann, the Labour MP for Bassetlaw in Nottinghamshire, who has two affected schools in his constituency, said: “It’s an extraordinary incompetence and error by Michael Gove.

“There are issues about academy schools, about whether they are a good idea. There are also issues about PFI. But for him on his flagship policy to get the law wrong brings into question whether he should be in the job.”

At the two schools, Portland and Valley, teachers are still employed by the council but are being managed by the Outwood Grange Academy Trust. Northamptonshire county council said Weston Favell secondary and Duston schools were “officially operating in the guise of academies because the relationships have all been set up – but technically they’re not”.

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