Memorandum from the Department for Education
REGULATIONS 2002 (S.I. 2002/2978)
1. The Committee has requested a memorandum on two
points relating to the School Companies Regulations 2002.
(1) Explain the meaning of "private finance
initiative credits" in regulation 3(4), and where that expression
(2) Regulation 8(2)(d) requires the constitution
of a school company to provide that the terms of service and remuneration
of the executive directors shall be determined either by the directors
as a whole on the recommendation of the remuneration committee,
or by the remuneration committee alone. Given the underlined words,
why does subparagraph (c) require the constitution to provide
that the remuneration committee shall recommend to the directors
the terms of service and remuneration?
2. With regard to point (1), the expression "private
finance initiative credits" is not defined within the School
Companies Regulations 2002 nor is it defined elsewhere in legislation.
The Department takes the view that, whilst the expression is a
technical one, its meaning is certain and is well known to the
main users of these Regulations, i.e. maintained schools and local
authorities. The term is widely used in both central and local
government and the education sector. For example HM Treasury allocates
an annual quota of PFI credits to each central government department.
The term is also used on the ODPM website.
3. Further, a definition of the expression without
an explanation of how such a credit fits into the capital finance
system of local authorities would not be particularly helpful.
This is especially so because the majority of private finance
initiative credits have no actual function within the capital
finance system but are simply an administrative device giving
rise to an appropriate level of revenue support to authorities.
The expression "private finance initiative credits"
would need a very detailed and potentially confusing definition.
The terms which would need be used to define it are less familiar
than the expression itself and are set out in paragraph 4 below.
The Department's view is that to define the expression in the
regulations would cause more doubt than to leave it undefined.
4. The meaning of "private finance initiative
credits" is as follows. It is a notional credit approval
or nonscoring credit approval, issued by a government Minister
to a local authority which specifies that it is to be used for
particular capital purposes under the private finance initiative.
If it is a "notional credit approval" then it does not
actually allow a local authority to borrow money or provide any
credit cover, it is simply a device to ensure the local authority
receives an appropriate level of revenue support and is able to
treat the transaction as offbalance sheet. If it is a "nonscoring
credit approval" then it provides the necessary credit cover
for the local authority to be able to finance the project without
sacrificing existing capital resources. It is referred to as "nonscoring"
because such an approval can be issued without it scoring as public
expenditure. A "nonscoring credit approval" is
issued under section 54 of the Local Government and Housing Act
1989 as a supplementary credit approval.
5. With regard to point (2) the Department accepts
that there is a slight inconsistency between subparagraphs
(c) and (d) of Regulation 8(2) and will amend this Regulation
in due course.
6. The Department would also draw to the Committee's
attention another statutory instrument which was laid before Parliament
on 19th December 2002 The School Companies (Private Finance
Initiative Companies) Regulations 2002 (S.I. 2002/3177).
Regulation 3(4) of those Regulations makes use of the expression
"private finance initiative credits" and the expression
is not defined in those regulations either. We would ask the Committee
to take the explanation in this memorandum into account when considering
23 January 2003