Many of you will be aware of the existing Government policy on leasing, which is currently putting unnecessary financial demands on schools. Over recent years BESA has worked with the support of the National Association of School Business Management (NASBM), the Finance and Leasing Association (FLA) and BESA members RM and Syscap, to lobby the Government to change its policy on leasing in schools.
But first, let’s remind ourselves of the issue.
Government policy states that schools are not allowed to take out a finance lease which from an accounting perspective would be treated as a loan or borrowing. The products are still not owned by the school but there should be no unexpected payments at the end of the term of the lease, providing far greater certainty and predictability and cheaper whole of life costs.
At the current time, schools are limited to using operating leases, which involve the school paying a rental fee for the hire of an asset for a period of time, similar to a rental agreement. At the end of the term of the agreement, for example three years, the products must be returned to the leasing company. The challenge lies in the fact that the leasing company is required to invest in a residual value into the agreement to ensure it is compliant based on accounting rules and government policy on borrowing. At the end of the period, more often than not the leasing company will dispose of the asset in an attempt to recover their residual value investment.
In the event that any asset is not returned in good working order, save for fair wear and tear, the school will potentially be liable for costs. It is because of the nature of usage within schools and the lack of proper asset management that they may be open to onerous restitution charges by some leasing companies. For example, a tiny scratch on the display may be as much as £50, a damaged key on the keyboard – £75, a disc drive not working – £100. It is very easy for schools to be left with an un-budgeted remaining payment of several hundred pounds for computers that they have already returned thus proving uneconomical and greater than anticipated whole of life costs.
Pros and cons
Increasing autonomy in UK schools means that the senior management team now have to be astute investors. Using leasing to manage procurement and cash flow and spreading the cost of resources over a number of years certainly helps schools by giving them the ability to acquire the technology they need now, rather than waiting until funding arrives. In terms of an expectation of having the latest technologies in each classroom, the majority of available leases for school equipment allow for technology upgrades, enabling schools to manage the life of their products. Depending on the term of the lease, as new equipment becomes available schools can upgrade to the latest models, often at the same monthly fee. Of course, the upgrade usually comes with a new fixed term contract, but with many ICT equipment leasing programmes schools have the flexibility to add-on extra computer equipment, or upgrade current equipment.
Another popular advantage of leasing in schools is the ability to forecast expenditure and of course leasing is also inflation friendly. The justification for leasing in schools appears to be irrefutable.
By amending current leasing guidance to reflect industry best practice, schools will be able to secure better value leasing contracts that are more relevant to their educational needs and will be able to achieve multi-million pounds savings across the sector, supporting the Government in the delivering of its publicised efficiency targets.
New guidance supported and promoted by this industry, would also ensure that schools benefit from clearer, simpler guidance and cut down on the mismanagement of leasing arrangements by schools that have recently been publicly highlighted.
In the meantime, if in doubt, always ensure the supplier and leasing company are BESA members. This will mean they are signed up to a code of best practice business operation, fully understand the sector’s needs and will offer added value support.
about the expert
Caroline Wright is director at the British Educational Suppliers Association (BESA)