HL Deb 25 April 1985 vol 462 cc1219-32

3.18 p.m.

The Earl of Swinton

My Lords, I beg to move that this Bill be now read a second time. We have seen a good many Education Bills pass before this House during the course of the century and many very great changes have been wrought in the quality and quantity of the nation's educational provision as the result of their passage. These Bills were generally concerned with schools and colleges, teachers and pupils and syllabuses and examinations. This Bill may appear at first glance to be about supplying goods and services, money-lending, local government revenue accounts, limited companies and sex. Your Lordships may well be wondering what all that has to do with education—except, perhaps, for the last item—but I shall seek to convince your Lordships today that these are all issues of real importance to education and ones which the Government hope will, as a result of this Bill's passage, grow in significance as educational establishments play their proper role in our industrial society.

This Bill is intended to release the creative and productive energies of polytechnics and further education establishments maintained by local education authorities. These institutions have always operated very much at the sharp end of the education market, providing skilled manpower trained specifically for the particular needs of industry. As a result, many of them have developed very good links with employers, and over the past few years they have been ready and willing to respond to the challenges of our fast-changing industrial scene. It is therefore somewhat ironic to find that when they wish to take advantage of these links in a way which might bring them and their partners in industry some financial reward, they are handicapped by legal barriers. These barriers do not affect the universities or other higher education institutions: they bear only on those institutions maintained by LEAs.

The reason is that, unlike universities, which are incorporated by Royal Charter or Act of Parliament, the great majority of polytechnics and colleges of further and higher education have no separate existence but, like schools, are wholly integrated with their parent maintaining local authority. Local authorities are in general prevented from carrying on commercial trading activities on any significant scale. Inevitably, therefore, their polytechnics and colleges are caught by the same rule. The central purpose of this Bill is to release polytechnics and other further education establishments maintained by local authorities from these restrictions, thereby removing a piece of unfair and largely accidental discrimination against them.

The Bill's other main provision is also about discrimination—but discrimination on grounds of sex in admitting students to teacher training courses in physical education. Section 28(b) of the Sex Discrimination Act 1975 at present permits colleges to offer single sex courses in physical education for prospective teachers. In 1975 there were a number of courses of this kind, but in the intervening years more and more colleges have replaced single sex courses by non-segregated courses, to the point where no college in England or Wales now offers them, and it is intended to move soon towards integrating the remaining two single sex courses in Scotland.

In the meantime, the Commission for the European Communities has issued a Reasoned Opinion to the effect that the exemption made in Section 28(b) of the 1975 Act contravenes the EC Equal Treatment Directive 1976. Although the United Kingdom contends that this is not so, it would not be sensible to have to defend before the European Court of Justice a provision which is in practice already a dead letter. The Government have therefore decided to take this opportunity to remove the offending provision by repealing Section 28(b) but without otherwise affecting any of the provisions of the Sex Discrimination Act.

The Government have been conscious for some years that an untapped reservoir of potential exists in higher education institutions. This was highlighted in a report produced in 1983 by the Advisory Council for Applied Research and Development jointly with the Advisory Board for the Research Council on the subject Improving Links between Higher Education and Industry. Their report, commonly known after its chairman as the Muir Wood Report, recommended among other things that action be taken to amend the law in order to allow polytechnics to negotiate contracts and undertake consultancies. This Bill will do so.

There is a great diversity of activities in which industry and education can be brought together in profitable partnership. Any attempt to list them in full is bound to be inadequate, but we have already seen in universities many instances of fruitful interchange: sponsored research to solve specific industrial problems; joint venture projects; the exploitation of the inventions of staff and students; consultancy; testing; and so on. The one factor which is common to them all is innovation, an abundant strength in our educational institutions, which is brought into contact with the other ingredients which are essential to commercial success but which are perhaps rather rarer in the educational world—finance, marketing and managing skills.

It is implicit in these proposals that the enterprise activities thereby permitted should be accessory to and supportive of the establishments concerned. Above all, they must not undermine or supplant the primary teaching and research activities for which the institutions were set up. Nor must these enterprise activities be allowed to become a financial burden on local ratepayers. On the other hand, it would be appropriate, where such enterprises are successful, for the major share of the rewards to accrue to the institution and staff who were responsible.

The Bill seeks to provide a general framework within which these principles are balanced. LEAs will be under a general duty to pursue their best endeavours to secure a surplus on the revenue account which records these financial transactions. But no specific rate of return of assets is proposed, largely because these assets are already in use for other educational purposes, and it would be extremely difficult to determine what proportion of the value of such assets should be attributed to the commercial usage.

In the event that, despite using their best endeavours, the revenue account produced a deficit, it is to be charged in the first instance to any special fund set up by the authority specifically to meet education expenditure relating to the further education establishment or establishments concerned, then to any general fund for meeting education expenditure, and only as a last resort to the general rate fund.

The Government are conscious that some of the services which it is envisaged that further education establishments will undertake as a result of this Bill are already available from business enterprises in the private sector. The Government believe strongly that competition is healthy as a stimulus to efficiency and economy. But competition from subsidised public sector institutions would be anything but healthy. For this reason above all, it is desirable that establishments are required to ensure that each and every contract is priced at full cost or open market value, if higher. This rule is incorporated in the Bill.

The Government envisage that many colleges and polytechnics may find that setting up a limited company would provide the best mechanism for furthering their commercial activities under this Bill. Limited companies offer a tried and tested framework which is in many ways more suited to entrepreneurial pursuits than is that of local authorities. The Bill does not specifically empower local authorities to establish or hold shares in limited companies. But they will be free to do so, using the powers already available under Section 111 of the Local Government Act 1972, once the legitimacy of the commercial activities of their polytechnics and colleges has been established under this Bill.

Before turning to the detailed provisions of this Bill, your Lordships may wish to know a little about the consultations which prefaced its preparation. Local authorities and their associations, polytechnics and colleges, industrial interests and trade unions were all invited to comment upon the Government's proposals last year. The responses were overwhelmingly favourable, though naturally there were some differences of view on detail. These have been given full consideration in the course of bringing the Bill to its present form.

I now turn to the main features of the Bill. In the limited time available, I can do no more than summarise its provisions. The first three clauses, concerning commercial activities in further education establishments, relate to England and Wales only. They are intended to enable commercial activities to take place. They in no way impose additional duties or financial burdens on local authorities.

Clause 1 serves to define the circumstances under which goods and services may be supplied under this Bill; namely, if and only if they result from the establishment's educational activities, from the use of its facilities or the expertise or ideas of its staff or students. This causal linkage with an establishment's primary activities is fundamental to the Bill's scope. Any proposed commercial activities which had no relationship whatever with an institution's educational activity as defined in Clause 1 of the Bill would, as now, be outside its powers.

Clause 2 contains the Bill's main enabling provisions, which fall under two heads. First, local authorities are empowered, through their further education establishments, to enter into agreements for the supply of goods and services of the kind which I have already described. Secondly, to facilitate these activities where they are to be carried on through limited companies the Bill goes on to empower LEAs to lend money to any such companies in which the authority holds a significant shareholding—20 per cent. or more of the voting shares.

The remainder of this clause is regulatory and definitional. I have already explained why establishments will be required to price all their contracts at full cost or open market value. But there is an important exception, and an associated reserve power. The exception is for contracts sponsored by research councils, which by longstanding tradition commission work in the laboratories of universities, polytechnics or elsewhere on the basis that the establishments' overhead costs are borne by the institutional budgets rather than by the research council. For this reason the full cost rule is inappropriate in such cases. There is also a reserve power for other public bodies to be designated by statutory instruments to receive treatment in the same way as research councils.

Clause 3 is concerned with the financial and accounting regime within which colleges' commercial activities are to be conducted. It provides that loans by local authorities to companies for the purposes of the Bill are to bear interest at rates of interest no lower than those laid down by the Secretary of State with the consent of the Treasury. It is neither desirable nor practicable for central Government to regulate in detail the terms of each and every loan. The basis on which the general power here sought will be applied will be for discussion with the local authority associations and others concerned.

These consultations will also cover the accounting arrangements for commercial activities under this Bill, which have been kept to the bare minimum consistent with proper accountability. But the specified revenue accounts, which will follow generally accepted accounting principles as they apply to local authorities, will also be important for monitoring the growth of activity in this field. The accounts for limited companies will of course have to conform with company law, and this Bill does not cut across that in any way. Clause 3 also deals with the important question of surpluses and deficits, about which I spoke earlier.

Clause 4, which extends to England, Wales and Scotland, repeals Section 28(b) of the Sex Discrimination Act 1975. Students already admitted to single-sex courses before the repeal comes into effect will not be affected by it: they will complete their courses in the normal way. And we are not proposing to amend Section 28(a) of the Act, which permits discrimination in further education courses in physical training; for example, to allow women's keep fit classes in adult education.

The remaining clauses are minor and supplementary provisions. Clause 5 anticipates arrangements for the repeal in Northern Ireland of the provision corresponding to Section 28(b) of the Sex Discrimination Act 1975; Clause 6 delineates the Bill's geographical extent; and Clause 7 provides for different sections of the Bill to be brought into force at different times.

We do not expect any increase in public expenditure as a result of this measure. On the contrary, it is hoped that the Bill will permit further education establishments to earn significant income, and that this income will be profitably reinvested within the institutions. This may in some cases necessitate some initial investment by the institution which might take the form of some addition to staff complements. But in every such case the cost of additional staff must be recoverable in full by the charges made for supplies in accordance with the Bill's full-cost charging regime.

The Government's hope and expectation is that the Bill will result in the creation of additional wealth and additional jobs in the private sector, both in companies set up specifically by local authorities for the purpose, and in existing businesses as the innovations at present locked into polytechnics and colleges are released for the benefit of the nation as a whole.

In conclusion, I must emphasise that this Bill is an enabling provision. It will, subject to the will of Parliament, forge the missing link in what should be a continuous chain, leading from basic research at the laboratory bench, through investigation and development of specific applications to full-blooded exploitation in the market place. The process will require both intellectual and practical skills at every step along the way. But if the seeds sown today are to bear fruit, staff in polytechnics and colleges of further education must grasp the opportunities offered here for outgoing collaboration with business enterprise. This may call for a corresponding change in practices and attitudes of industrial companies, with an acknowledgment by them that further education institutions have expertise and technical skills which would both benefit existing businesses and help generate new ones. Together, education and industry stand to make real gains—both financial and otherwise—which can only be of benefit to the nation's economy and culture. This Bill deserves your Lordships' support; I ask for that support and I beg to move.

Moved, That the Bill be now read a second time.—(The Earl of Swinton.)

3.33 p.m.

Baroness David

My Lords, I should like to thank the Minister for his rapid explanation of the Bill. We wish from these Benches to give a general welcome to this small Bill, which enlarges the powers of local authorities to enable maintained and further and higher education establishments to embark on commercial activities, as described in paragraph 9 of the consultative document. This is preferable to the other option described in paragraph 8 of that consultative document, which would have given appropriate local authority institutions corporate status as limited companies.

There is greater freedom for local authorities in the preferred option, and that is always something to be applauded. Incidentally, the Bill may bring a measure of order into various enterprises which currently exist on the fringes of legality; the noble Earl the Minister mentioned that point.

I am always pleased when public sector institutions are put on the same footing as universities and grant-aided colleges. This measure frees the maintained sector colleges from the constraints which prevent them from undertaking commercial activities in conjunction with industry and using the ensuing income for their own purposes. Anything that encourages communication and understanding between industry and our colleges of further education is a good thing. I believe that in many areas such understanding is very good, but I dare say that it could be improved in others.

As the Government are doing something in this respect to make matters fairer as between the public and the university sectors of higher education, perhaps they will consider going further—maybe by reducing the difference in capital expenditure between the two. For example, in 1985–86 there is a figure of £66 million capital expenditure in the public sector and £134 million in the university sector—twice as much. There is also a big difference in the unit of resource.

The Lindop Report published yesterday on Academic Validation in Public Sector Higher Education asks for legislation to give some polytechnics as much freedom as universities in looking after their own academic standards; so things are moving.

Maintained colleges are now educating as many students as are the universities, it must be remembered. If local authority colleges are to sell their expertise and their research investigations, perhaps Ministers will consider increasing the very small sums devoted to research in the polytechnics. I want to ask the Minister whether any measures will be taken to protect copyright in any inventions that may be made, owing to these new powers, and will there be the facility of taking out patents?

As there was general agreement by the local authority associations, and by the rest consulted, that the way forward proposed in the Bill was the right way to go, I am curious to know why the department took so long to draft the Bill. The consultative document was received by LEAs on 27th March 1984. Comments were invited by 30th April—only one month later. Since then a whole year has gone by. Has the Minister any explanation to offer?

The need for enhancing the relationship between higher education and industry was highlighted in the ACARD/ABRC Report, Improving Links Between Higher Education and Industry, published in June 1983, which was mentioned by the noble Earl. It is satisfactory that two of the recommendations in that report are being implemented in this Bill. One hopes that as much attention is being paid by the Government to the report's other recommendations, such as producing, an identified amount for research activity"— that is, in polytechnics— analogous to UGC support of universities". I should like to quote the two recommendations appropriate to this Bill. The first is that, The DES in collaboration with the Department of the Environment … should take action to provide … an amendment of the law in order to allow polytechnics to negotiate contracts and undertake consultancies". That was Recommendation viii(c). Secondly: Higher education institutions should normally have the direct responsibility for ensuring that inventions arising from publicly-funded research are exploited. Any proceeds accruing to the institution … should remain with it and not be offset by any clawback arrangement". That was Recommendation xi.

So far as clawback and financial accountability are concerned, I should like to make a few comments and ask a number of questions. Can the House be told that the total receipts from profitable trading may be used for equipment purposes without counting against the LEAs' prescribed capital expenditure? I was a little shaken at hearing the Minister say in his speech that a major share of such profits would be kept by the colleges. I hope that he will clarify that point when he comes to reply.

There is a major matter of principle in regard to commercial activities. By their very nature such activities may produce losses as well as gains. The first duty of local authorities is to provide money to their establishments for the education of students—not for research and not for consultancy. Losses on the college budget could be borne only at the expense of students, and that would be deplorable. Are there to be any safeguards to prevent that happening? Will there be any safeguards to ensure that revenue generated by commercial activities will not be used to support ordinary teaching posts or posts which are central to the on-going educational function of the institution? It would be wrong for established teaching posts central to courses and their development to be subject to the vagaries of the market.

Will there not be a need for more people to be employed by a college, having the necessary financial or administrative qualifications, to exert the necessary financial control? The Explanatory Memorandum states that, the costs of such staff should be covered in full by additional revenue accruing to the authority". Let us trust that that is not just a pious hope.

At the end of the day the local authority itself could have the residual liability, as the Bill says in Clause 3(5). I ask the Minister: will there be the possibility of each institution carrying over gains and/or losses from one financial year to another? Will there be provision for a roll forward? This is very important.

Doubts must still be expressed on whether the Bill will result in the declared aim of the consultative paper, especially as, first, an LEA is still required to return all its income through its general collection account, and, secondly, presumably its trading activities will be liable to VAT. Perhaps that can be answered.

On specific clauses, as regards Clause 2(2)(a), dealing with the power to lend money, assisted establishments are generally registered charities. If they themselves engage in trade at a profit, under Clause 2(4), their charitable status will be at risk. Clause 2(2)(b) would not in itself be able to avoid the charity problem. Most charities seem to have got round the Charity Commissioners by setting up trading companies which covenant their profits to the "parent" organisation. But Clause 2(3), which says that any agreement, must be supervised or controlled by a person employed at the establishment might make this possibility more difficult as the Charity Commissioners are not always ready to accept this. Perhaps these are matters for Committee.

The local authority associations will have to be consulted further and these matters cleared up. There will certainly have to be a circular or secondary regulations issued by the department to make clear how the Secretary of State intends to use his considerable powers under Clauses 2 and 3, which deal with loans and the keeping of accounts. Can we please have an assurance that there will be thorough consultations with the local authority associations before these are issued?

On the quite separate issue of Clause 4 which has found its way into this Bill and sits rather oddly, I understand that this is introduced—in fact, the Minister said so—in order to catch up with events as single-sex courses for intending teachers of PE are being phased out, and that the clause is so drafted that present students can complete their courses. Clause 7 says that Sections 1, 2 and 3 of the Act, shall come into force at the end of the period of two months beginning with the day on which it is passed". However, paragraph 10 of the consultative document recognises that amendments might well be needed to the articles of government of an establishment involving itself in commercial enterprise and also to the local authority's financial regulations and scheme of further education under Section 42 of the Education Act 1944 (if any exist). Will there be time for this to happen before the two months are up?

As I said at the beginning of my speech, we give this small Bill a welcome. The Minister said that there had been a number of education Bills, and indeed there have since this Government came to power. But I would prefer, and I am sure a great many people would prefer, a much bigger Bill dealing with further and adult education, and with all the issues raised in the document The Legal Basis of Further Education published in June 1981. The noble Earl will know how frequently I asked questions in this House, of both him and his predecessor dealing with education matters, about when there would be some action and positive response to that document drawn up by officials from both the DES and from the local authorities and chaired by the Under-Secretary of State at the department, Mr. Noel Thompson.

Finally, I was told there was to be no action. I was greatly disappointed and disheartened, as were very many others involved and interested in further and adult education. It is regrettable, to put it mildly, that the Secretary of State has not seen fit to be bold enough to produce very necessary and positive legislation in this field. Luckily, there is the phrase "and for connected purposes" in the Long Title of the Bill, so I give warning that we may well try to add something at Committee stage in an effort to remedy at least some of the anomalies and fill some of the gaps that there are now in this very important area.

3.44 p.m.

Lord Rochester

My Lords, from these Benches I should like to join in thanking the noble Earl, Lord Swinton, for the way in which he has described the basic purposes of the Bill. As was said in the consultative document issued earlier by the Department of Education and Science, and as the noble Earl has this afternoon repeated, the ability of business to compete and of further education establishments to perform their primary function of teaching might each be substantially enhanced by increased contact between them: educational staff by being better informed about industrial developments and those engaged in business by keeping abreast of academic knowledge in their field.

I have often advocated the need for closer links between education and industry, both as a means of attracting more people of good quality into industry, particularly, I should add, into those organisations most closely involved in the development of new technologies, and more generally in order to increase the esteem in which manufacturing industry is held in society and particularly among students. It seems altogether reasonable, therefore, that polytechnics and colleges of higher and further education should now be enabled, in conjunction with industry, to engage, as universities can and already do, in commercial activities which derive from their own educational function. Short of giving further education establishments corporate status as limited companies, this can only come about if the powers of local authorities, of which most of these institutions are, in effect, departments, are enlarged as under this Bill.

I think it must be recognised that the scope for engaging in activities such as contracted research and exploitation of inventions will in general, as I see it, be much greater in polytechnics than in colleges of higher and further education. In case I should be called upon to contribute briefly to this debate this afternoon I took care last weekend to talk the matter over with the principal of the college of further education in that part of Cheshire in which I live. As he put it, in jest, not much commercial activity is likely to be generated in woodwork and plastering. Nevertheless, I was interested to learn at first hand from him that both he and his fellow principals on the ground, so to speak, in Cheshire were of the opinion that it was right for this Bill to have application across the whole field of higher and further education.

In all this, as the noble Earl stressed, it is essential to have in mind that the primary purpose of further education establishments is teaching; increasingly, perhaps, of a vocational kind, but teaching nevertheless. The purpose of industry, on the other hand, is to produce goods and services for the benefit of the community. A yardstick of the success of industrial organisations in doing this is the making of profits. These two purposes are very different from each other, and in my view therefore we need to ensure that if further education institutions are to engage in activities of a commercial and profit-orientated kind, this should never be to the detriment of their fundamental teaching function. In that connection therefore I was glad of what the noble Earl had to say.

As to the financial and accounting provisions contained in Clause 3 of the Bill—and here I come nearer to one of the points made by the noble Baroness, Lady David—I hope that if in the early stages of some project a deficit should arise, local education authorities will find it possible to interpret these provisions in such a way that no unduly harsh penalties are incurred, either financially or by individual members of the staff of some educational establishment inexperienced in commercial matters which finds itself in deficit.

In facilitating the establishment at a university with which I am connected, of a company embarking on certain business activities, it has been found necessary to make special financial arrangements covering this crucial introductory period. As in the setting up of any small firm, risk-taking is of the essence of the enterprise. So I should like to ask the noble Earl, Lord Swinton, to say when he comes to reply whether the Government are entirely satisfied that the Bill as it stands deals adequately with this point.

In relation to Clause 4, which excepts courses designed for teachers of physical training from the provisions of the Sex Discrimination Act 1975 making sexual discrimination in education unlawful, I need only say that this is welcome.

My Lords, subject to the few qualifications to which I have referred my noble friends and I are happy to acquiesce in the provisions of this Bill.

3.52 p.m.

Lord Graham of Edmonton

My Lords, like my noble friend Lady David I rise to give a general welcome to this Bill. All my adult life I have had the pleasure and privilege of enjoying the provisions made available by a number of adult and further educational institutions—the National Council of Labour Colleges, the Workers' Educational Association, the Co-operative Union, the Co-operative College and, latterly, the Open University. In a debate of this kind I believe it is not inappropriate to point out the way in which an institution like the Open University has for a number of years been doing the very thing which the Bill sets out to enable others to do.

Although the chief concern of the Open University is in the areas of adult and higher education rather than of further education, its charter gives it an objective to promote the educational wellbeing of the community generally. The role of the Open University should not be overlooked in this debate. The Open University is a major national educational resource which has already made a significant contribution to education at all levels. Although it is best known for its degree programme, through which nearly 70,000 people have graduated—and I have the pleasure and privilege of being one of them—it also provides education in non-degree courses to about 50,000 people annually. It produces high-quality teaching and training materials, many of which are of enormous value to colleges of further education.

Indeed, as the vice-chancellor of the Open University recently pointed out, the university is now the largest training agency in Britain. It has an important role to play in collaborating with local education authorities and institutions of further education. I believe it would be helpful if I gave some illustrations of what the Open University does, along the same lines as the noble Earl the Minister when he indicated some of the things he thought could be done under this new Bill.

Firstly, the updating of college staff in technical subjects may be achieved through the study of Open University courses in scientific and technological updating and management education. Similarly, college staff may also use Open University courses to update themselves managerially, or to obtain specific marketing expertise. A new course from the Open Business School is entitled "Introduction to Marketing". Discussions are in progress with the Department of Education and Science on specific funding to produce case studies of the marketing of educational and consultancy services by colleges—very appropriate to what we are discussing in this Bill. These would be added to the basic "Introduction to Marketing" course to make a college-specific variant.

Another important area of expertise related to what is envisaged by the Bill is the development of teaching materials. The Open University has unrivalled expertise in this area which has been encapsulated in a course entitled "Market Self-Instructional Material for Adults", which is available both for industrial trainers and also for those in the educational sector.

It is also relevant to mention that the Open University is in negotiation with a number of colleges, local collaborative projects and open-tech delivery projects for collaboration in the delivery of its continuing education courses. The envisaged arrangements would involve registered students obtaining the tutorial support necessary for their Open University study from local institutions. From the point of view of the colleges, this arrangement will give them access to the high-quality Open University materials in areas such as robotics and software engineering, where there is a dearth of other materials. It will give them a wider range of courses to offer to local clients, and it will give them additional opportunities to obtain consultancy contracts. That is what the Bill is all about.

From the Open University point of view it will boost the numbers studying in these important high-technology areas, and will capitalise on the local college's client base of small firms, which are very difficult to reach on a national basis. This is a very important development in the national training provision, as are the arrangements being made by the Open University to provide tailored in-house courses for companies and other enterprises—arrangements in which there are considerable opportunities for collaboration with local courses.

Since this Bill covers the issue of retention of income, it is appropriate to welcome the fact that negotiations are continuing between the Open University and the Department of Education and Science to revise the rules under which the university's marketing subsidiary operates so that the university may retain income rather than losing it, as now, from the block grant. I was heartened by the words of my noble friend Lady David when she raised at Committee stage—very pertinently, I believe, and perfectly properly—the extent to which we need to challenge what the noble Earl the Minister said about these institutions being able to retain a part but not all of any profit they may raise.

A successful conclusion to these negotiations would place the university in the same position as the polytechnics and other local education authority institutions should this Bill pass into statute, and will help the university to continue to be, in the words of the Secretary of State's visiting committee, a national and international success.

3.59 p.m.

The Earl of Swinton

My Lords, I am grateful to the noble Baroness, Lady David, and to the two noble Lords who have spoken. They have all spoken in favour of this Bill, and have supported its principles. The noble Baroness made a number of detailed points to which she will doubtless return on Committee stage, and I look forward to that. I can also say that, simultaneously, consultations are being conducted with the local authority associations and others with regard to some of the subordinate arrangements as to accounts, and so on.

We shall have the benefit of this advice as the Bill proceeds through Parliament, although not, I fear, by Committee stage in this place. Perhaps I ought to fire one warning shot across the noble Baroness's bows, because when asked to introduce this Bill in this House I was told by my officials it was uncontroversial. "Oh, yes", said I, "but I am sure, knowing her interests in higher and further education, there will be a number of things the noble Baroness will try and attach to the Bill". She noted during her speech that the Bill referred to related purposes, and that she would therefore be in order. I was told that she probably would not, but we shall come across that in due course. I think that this is a fairly small Bill, as she said, in a fairly narrow field, and I cannot, I am afraid, offer her an awful lot of hope that she will be successful in those aims.

There were, however, a number of points on which the noble Baroness and the noble Lord spoke which I am sure they wish me to comment on immediately. I was rather surprised when the noble Baroness said that there was a delay in producing the Bill. I thought that we had done rather well. As I am sure all noble Lords realise, it is not very easy to bring legislation forward, particularly in a case like this, where, as I said, we consulted widely. We endeavoured to take everybody's point of view into account and to reach a consensus which was favourable to all, and I think that we have done that. I may say that there were also a number of departments involved in the drafting of the Bill, so it was not a particularly easy one to draft. Quite honestly, I think that we deserve a pat on the back for the speed with which we have produced it.

I think that the noble Baroness and the noble Lord, Lord Rochester, and, in a slightly marginal way, the noble Lord, Lord Graham, mentioned the question of profits. This is a very tricky one. It is part of the natural symmetry of business that the man who has carried the risk should also reap the rewards. But that is a concept which has proved particularly difficult to impart into the Bill. The crux of the problem is who actually carries the risks. We have done our utmost to build a ring-fence round the commercial activities authorised by the Bill. There are provisions in the Bill for charging deficits, first, to any fund set up for establishments' commercial activities or for their other activities; failing that, to any general fund set up for the purpose of activities under this Bill; and only in the very last resort to the general rate fund.

But I am sure your Lordships realise that in the final analysis it is the ratepayer who stands behind these ventures. It would be in the proper spirit of entrepreneurialism if authorities assume that profits, in the same way as any losses, accrue to the funds in the same order as losses—that is, first to the establishment itself, secondly, to any general fund for activities under the Bill, such as further investments in other similar projects; and only at the end to the general rate fund.

We certainly hope that authorities will follow that pattern, but there is no legal formulation which can guarantee it, and it would be futile to attempt one. Even if authorities were required to credit all profits to the institution, there would be no way to prevent them taking those profits into account when determining the size of the institution's budget next year for its educational purposes. But we are confident that authorities will behave reasonably and responsibly. They will recognise, just as the Government do in respect of universities' private income, that confiscation of the profits will also remove the incentive to earn any more.

Baroness David

My Lords, while the Minister is speaking about financial arrangements, can he give me an answer as to whether the institution will be able to carry on the gain or loss from one year to another—the roll-over principle?

The Earl of Swinton

My Lords, I am afraid that I shall have to write to the noble Baroness on that point.

The noble Baroness also asked about another rather tricky and technical point, and that is the question of patents, copyright and so on. The Bill rests on the assumption that an authority at least in part, owns, and hence can exploit, the results of work carried out by its staff and students. Such rights would include patents, software copyrights, registered designs and other types of valuable know-how. In the commercial world, ownership of such rights is usually established in the employee's contract of service. This may not be the case in relation to teachers' contracts of service; and both in relation to teachers and students the question of ownership may most readily be resolved by individual negotiation taking account of the particular circumstances obtaining in each case. The department will be consulting those concerned with a view to establishing whether it would be helpful to issue guidelines on this matter.

Finally, I should just like to stress that the Bill is enabling. It imposes no additional duties on authorities and does nothing to restrict their powers. The activities which it concerns are, and will always remain, secondary to the main functions of teaching, industrial and vocational training and the carrying out of research for the advancement of knowledge generally. I think that the noble Lord, Lord Rochester, made a very strong point on that. But we believe that polytechnics and colleges have enormous potential which, if developed as a result of this Bill's passage, will bring real gains to the institutions themselves—just as the noble Lord, Lord Graham of Edmonton, said has been happening in the case of the Open University—to their staff and to their industrial collaborators.

Some of those gains may not be reducible to financial terms. A better appreciation by teaching staff of the entrepreneurial spirit which informs the productive parts of British industry and an understanding by industrialists of the environment most conducive to innovation in education and research establishments would be valuable extra bonuses.

This Bill will enable the considerable and productive overlap of interest between business and local authority further education to be expanded to their mutual advantage. I commend it to your Lordships.

On Question, Bill read a second time, and committed to a Committee of the Whole House.