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Major windfall for banks from college mergers

Banks and private sector financial institutions stand to pick up millions of pounds in penalties when colleges across the country merge as a result of the Government’s Area Review process, Alex Cunningham has warned.

The Government is pushing ahead with a series of Area Reviews into the post-16 education and training sector, with the Tees Valley being amongst the first in the country to undergo such an appraisal. Every area will undergo a review before March 2017, with the process designed to be contained within Local Enterprise Partnership boundaries.

Having consulted directly with colleges across the Stockton borough on the Area Review process, Labour’s Stockton North MP has cautioned that break clauses in loan contracts could cost millions to settle with the banks making instant profits across England.

Speaking during Questions to the Department for Education in the House of Commons, Alex pointed out the potential costs associated with mergers and asked just how much the banks will benefit from them.

In responding, the Minister of State claimed that colleges would benefit from mergers but admitted that the Department has given no consideration to these financial penalties which could result in many millions of pounds being paid to the banks.

Speaking following the session, Alex said:

“I have spoken at length with college leaders about the impact of the Area Review and any possible action that could result with institutions merging and was stunned to hear that the penalties could be huge.

“With the cuts that have already been sustained by post-16 institutions, more and more colleges are struggling to remain financially viable and I understand that cutting costs through mergers may help them survive. But it is not straightforward.

“The cancellation of long-term contracts will inevitably mean that colleges across the country will be left facing substantial penalties and I’d like to know who is going to pay these fees, which could run into many millions, if the colleges are to reap the rewards of any reorganisation.

“Whether by design or Government futility, the banks stand to be the big winners in this exercise as they first claim fees for broken clauses and probably fees again to develop new contracts.”