Use of capital flexibility on 2003-04 allocations of Devolved Formula capital – Voluntary Aided (VA) schools

1. The Secretary of State announced on 15 May 2003 measures to address unacceptable pressures on school budgets. These include that devolved formula capital allocations for 2003-04 can in certain circumstances be used by schools for recurrent costs. The flexibility to use devolved formula capital for recurrent spend is for 2003-04 allocations only (but see the final point in paragraph 6). This is a unique flexibility to address exceptional pressures.

2. Schools which seek to use this flexibility should be aware that they are irrevocably foregoing their capital allocation. They are, therefore, losing the benefits over the longer term of the capital investment in their school buildings to pupil standards. This flexibility has an opportunity cost, and should only be used where failure to do so would lead to excessive instability within the school.

3. You can find details of the flexibility in the guidance sent to all LEAs at http://www.teachernet.gov.uk/schoolscapital. The same principles will apply for VA schools, but the VA funding arrangements mean that we need to have different processes in place.

4. The steps for the VA sector are:

· agree the need to use the flexibility with your LEA (as is the case for any other category of school), but bear in mind any commitments already given on the use of devolved formula capital towards capital projects;

· the LEA should notify the Department’s VA Capital Team that this has been agreed, and how much is required (see paragraph 7);

· we will arrange for the money to be paid, through the LEA, as a revenue grant to be passed on to the relevant VA school.

5. Devolved formula capital for VA schools is increased to allow for the effects of VAT. The Department’s VASIS computer system shows the resulting amount in 100% terms (before deduction of the governing body’s 10% contribution). The following adjustments to normal entitlement will therefore be necessary:

· the VAT increase will be removed (VAT can be recovered on funds paid through LEAs);

· the amount paid to LEAs will not have a 10% reduction applied;

· the amount paid to schools through LEAs through this way will be deducted from the school’s entitlement shown on VASIS.

6. Please bear in mind the key points from the guidance issued to LEAs, as follows:

· the following criteria must be satisfied by schools:

o they have a recurrent budget deficit which threatens unacceptable disruption to the delivery of education;

o they do not have recurrent balances brought forward which can be used;

o the funding is not already being used for a building investment project;

o the implications for future years’ budgets have been carefully considered, including sustainability;

o they have the express agreement of their LEA.

· agreement should be of a fixed sum, which at the very most will be the school’s allocation of devolved formula capital for 2003-04;

· flexibility should only be used to support the core functions of the school;

· where a school has rolled over devolved formula capital from previous years’ allocations for a building project which is not yet started, it may use that funding for recurrent spend under the new flexibility outlined in this guidance, but only up to the level of its one-year allocation for 2003-04. This should ensure that, by delaying capital projects, schools do not lose earlier allocations beyond the roll-over period.

7. LEAs should notify the Department, as required in paragraph 3, by emailing Rob Williamson in the VA Capital Team. The address is rob.williamson@dfes.gsi.gov.uk.