BSF scheme under threat by credit crunch

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Addressing the children, schools and families select committee, Mr Watts raised concerns about the impact of the credit crunch on the flagship government programme.

He said: “The sharp rate in decline we are experiencing is unprecedented. We expect output in construction to fall in 2009 by at least 9%. That’s the worst fall in almost 30 years.

He told the cross-party group of MPs that building firms are struggling to find the finances to participate in the scheme, noting that the construction industry is facing an unprecedented rate of decline.

He said: “There’s no shortage of people wanting to be involved, but a number of those are struggling to raise the private capital they require because of the problems with liquidity we have within our banking system.”

Although acknowledging that the economic downturn could hit the progress of BSF, schools minister Jim Knight argued that interest in taking part in the scheme is still being shown by banks.

“It’s not the case that BSF money had dried up,” he said. But he warned that the current problems with lending could damage BSF because the scheme uses private finance initiatives (PFI).

Under PFI, private companies fund the rebuilding of a school and the local authority undertakes to repay the costs, usually over the next 25 to 30 years.

Mr Knight said: “The feedback we are getting is that this aspect of investment, in public sector projects, is the lowest risk of them all, and probably the last to feel some of the difficulty and heightened risk attached to it.”

But Mr Watts called for the government or the European Union to intervene financially to support the school building projects.

A spokeswoman from Partnerships for Schools said: “Despite what continues to be challenging economic conditions, 2009 has begun on a more positive note for BSF than anticipated, with over half a dozen banks indicating they are in the market to finance senior debt in BSF schemes. We have also secured a commitment in principle from the European Investment Bank of £300m support to BSF schemes that have a PFI component, and are in ongoing discussions with EIB about extending this level of support, including to smaller schemes.

“Against this backdrop, BSF continues to deliver.”

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