A FUTURE for Herefordshire’s only PFI funded school could be defined by inflation rates over the remaining 17-year term of its contract.

Later this week, the county schools forum will hear that proposed variations and an injection of additional cash should ensure the contract that saw Whitecross High School and Specialist Sports College built can be fully funded to 2032 – provided average inflation does not increase above two per cent over that period.

As previously reported by the Hereford Times, with the additional funding and proposed contract changes, the PFI scheme faced a £3.5 million deficit by 2032.

Now, a small surplus of £500,000 is forecast.

 This surplus sum will increase if, for any length of time, inflation stays below the two per cent target set by the Bank of England.

As such, future surplus sums can be the scheme’s buffer against “eminently possible” future increases in inflation above the target rate.

As a scheme, Whitecross High School and Specialist Sports College has been struggling to cover its contractual costs.

As reported by the Hereford Times in July last year, Herefordshire Council was paying more for the scheme than expected as contractual charges rose higher than inflation.

In October, the  the county’s schools forum approved further financial contributions to the contract totalling £125,000 between 2015/16-2017/18,with the money coming directly from the council or through the county’s direct schools grant – the sum the council gets to run schools.

In July 2001, the council backed a business case that put its annual contribution to the scheme at between £603,000 and £731,000 but found itself paying well over £760,000.

Financial pressure on the scheme emerged out of increases in the unitary charge - or revenue payments – being higher than planned inflation of 2.5 per cent.

Since 2006 inflation has been an average 3.6 per cent a year, increasing the PFI payments by an extra £95,000 in 2013/14.

The contract - acknowledged as providing a “first class” secondary school rated “Good” by Ofsted - has since been reviewed to identify savings in IT, maintenance, insurance costs and after hours use of the school.

Whitecross governors met in early December to agree on foregoing the school’s contractual right to savings outlined in the PFI contract.

Schools forum is expected to agree on establishing regular progress reviews of the contract from 2018.

BACKGROUND – THE WHITECROSS CONTRACT

PRIVATE Finance Initiative (PFI) contracts fund public infrastructure projects with private capital.

The 25-year contract for Whitecross has an overall value of £75 million.

At the end of the contract the school will transfer to council ownership.

In July 2001, the council’s cabinet backed the school’s outline PFI business case assuming PFI credits from the Department for Education (DfE) of £19.5 million and annual contributions from the council of between £603,000 and £731,000.

Stepnell Ltd was selected as the contractor in March 2004, but, following the tender clarification process, the bid was found to be outside the parameters of the approved outline business case and the DfE imposed new rules on the education revenue budget, making it difficult to fund the annual payment from the centrally held education budget.

The cabinet then backed a plan allowing for the DfE to be asked for an uplift to the PFI credit by making the contract operational after April 2006, reducing average annual payment by around £50,000 per year.