01 April 2005
The new borrowing regime for foundation trusts is inflexible, it was claimed this week.
Last week, the foundation regulator, Monitor, unveiled its prudential borrowing code for trusts with foundation status. The ability to borrow money was trumpeted as one of the key freedoms of foundation status when the initiative was launched a year ago but was the subject of much political debate.
The Treasury feared foundation trusts' borrowing would restrict the funds available for non-foundations, and worried that they would have to be bailed out by the state if they defaulted on loans.
It allowed the measure on condition that borrowing was limited. Monitor's borrowing code allows foundations to borrow up to 40% of the value of their assets if they also satisfy four other criteria, including a condition that revenue must be three times greater than debt interest repayments.
The Foundation Trust Network, which represents all 25 foundation trusts, said this risk-based approach made sense.
However, its director, Sue Slipman, said: 'It appears that foundation trusts would need to build up a large financial surplus to qualify for the top borrowing rate of 40%… It also appears to have inflexibilities that won't encourage foundation trusts to borrow and may inhibit innovation.'
PFapr2005
