DIRECTIONS

HC Deb 05 February 1992 vol 203 cc394-400

Mr. Michael Forsyth

I beg to move amendment No. 9, in page 33, line 29, after 'directions' insert 'under this section, and such directions shall be'.

Madam Deputy Speaker

With this we may take the following amendments: No. 86, in page 33, line 29, at end add ', provided that these directions have previously been approved by the Committee of Scottish Vice-Chancellors.'.

Government amendment No. 10, in page 33, line 29, at end insert— '() The Secretary of State may give general directions to the Council about the exercise of their functions. () If it appears to the Secretary of State—

1. (a) that the financial affairs of any institution within the higher education sector have been or are being mismanaged; or
2. (b) that, in consequence of matters outwith the control of such an institution, it is likely that the financial position of the institution will be significantly adversely affected,

he may, after consulting the Council and the institution, give such directions to the Council about the provision of financial support in respect of the activities carried on by the institution as he considers are necessary or expedient by reason of the mismanagement or, as the case may be, adverse effect on the institution's financial position.'.

Amendment (a) to the proposed amendment, in line 6, leave out from 'mismanaged' to end of line 8.

Amendment (b) to the proposed amendment, leave out subsection (b).

Amendment (c) to the proposed amendment, in line 15, leave out from 'mismanagement' to end of line 13.

Mr. Forsyth

Amendments Nos. 9 and 10 arose out of undertakings that I gave in Committee to take clause 48 away and to bring forward amendments which would do two things. First, they would make it clear that the power extends to institution-specific directions. Secondly, they would restrict directions to financial matters. Amendment No. 10 goes rather further than this, since it allows the Secretary of State to make an institution-specific direction only where it appears to him that there has been mismanagement of the financial affairs of the institution, or where the institution's financial position has been significantly adversely affected for some other reason. In addition, the directions may relate only to the provision of financial support by the council to the institution, and they must arise out of the financial difficulties suffered by institutions, and not from any other source.

I believe that the amendments provide a firm basis on which to develop a constructive relationship between the Government, the funding council and the higher education institutions in Scotland. The amendments represent a significant restriction of the Secretary of State's powers in this area and follow extensive representations by the hon. Member for Clydebank and Milngavie (Mr. Worthington). As with conditions on grant, we have discussed the matter with Professor Forty, the chairman of the Scottish Committee of University Principals, and I am pleased to report that he was encouraged by the way in which we proposed to restrict the power. In particular, he saw the reference to financial difficulties arising otherwise than through mismanagement as an acceptable form of potential protection for institutions which may be confronted with funding difficulties through no fault of their own. On that basis, I commend the amendments to the House.

It may be helpful if I remind hon. Members that the Secretary of State's power of direction in relation to higher education funding always has been capable of extending to institution-specific direction. That was true under the Education Reform Act 1988, although that Act did not spell out that institution-specific directions were permitted because the legal advice available to the Government at that time indicated that it was not necessary to do so. It was made abundantly clear, however, during the passage of the Act that the power of direction was intended to be capable of being institution-specific.

Since then, there has, of course, been the court case in England relating to conditions of grant, and the legal advice now available to the Government is that the 1988 Act will no longer do. If we are to continue to have institution-specific powers of direction, we must say so explicitly, and that is what we have done. The policy therefore has not changed, but the legal environment has, and the words that we need to achieve the same effect in legislation have had to change too.

10.45 pm

The power is clause 48 is intended to be used only as a last resort in emergencies after the other available solutions have been found wanting. The power of direction is, in a sense, a form of disaster insurance. We cannot foresee precisely what disasters will hit the higher education system in years to come, I hope that none will, but we need to have some way of dealing with them if they do arise.

Amendment No. 10 allows us to cover both disasters that appear to have arisen because of financial mismanagement and those caused by other factors. The reason for extending the provision beyond financial mismanagement is that it would allow the Government to help where, for instance, a natural disaster had struck an institution and put it out of operation, or if a significant portion of its funds were lost due to the collapse of a deposit-taker. We could all think of examples of that. Mismanagement might not be involved, or it might be difficult to take a reasonable view on whether it was or was not, but action would still be needed. Accordingly, I believe that amendment No. 10 provides a useful degree of protection, which would be removed by amendments (a), (b) and (c).

Mr. Stephen

I understand that an amendment to the English and Welsh Bill was introduced to cover this very matter, but that proposed new paragraph (b) was not included. Why does the Minister feel that a wider power—beyond that to deal with cases of mismanagement—is necessary in the Scottish Bill but not in that governing England and Wales? Or does he expect further changes to be made to that Bill?

Mr. Forsyth

I know that the neighbour of the hon. Member for Kincardine and Deeside (Mr. Stephen), the hon. Member for Gordon (Mr. Bruce), makes a career of going round Scotland telling everyone that I look at what is happening in England and immediately impose it in Scotland as part of the Government's education policy. It may surprise the hon. Gentleman to know, therefore, that the amendments—as I said in Committee would be the case—have been drafted to suit Scottish circumstances, following discussions with the Scottish representative of the university principals, and they reflect the provisions that we believe are necessary.

I have not studied the English provision, but I think that the hon. Member for Kincardine and Deeside is referring to the fact that, in the Scottish provision, there is greater freedom for the Secretary of State to intervene in cases where disasters appear to have arisen not solely as a result of financial mismanagement. Let me give an example. All of us are well aware of what happened in the Western Isles following the collapse of BCCI. It is possible that a university will find itself in similar circumstances at some point in the future.

Mr. Stephen

That was mismanagement.

Mr. Forsyth

The hon. Gentleman may argue that it was mismanagement, although I dare say that the convenor of the Western Isles would seek to argue to the contrary. The important point is that the Secretary of State should have the power to intervene immediately, and should not have to send in a team of accountants and professionals to establish whether there were grounds for intervening because mismanagement had arisen. That is why the wider wording is proposed. That seems to me sensible, and we seem to have agreement on it.

I apologise for speaking at length on this matter, but it is one of the key issues in the Bill. I thought that the hon. Member for Kincardine and Deeside was going to ask why the Secretary of State should need a power of direction in these circumstances—why could he not rely on persuading the council to act? The answer is that, in some circumstances, the council might be unwilling to embark upon the action necessary without the explicit backing of the Secretary of State and Parliament. The council might be in complete agreement about what should be done but might simply feel that the necessary action exceeded the scope of its legitimate authority.

In those circumstances, it would be quite inappropriate to require the consent of the universities, as proposed in amendment No. 86, tabled by the hon. Member for Linlithgow (Mr. Dalyell). That amendment relates to all directions to the council, not just to the institution-specific ones. If we are not requiring the council's consent, why do we need that of the universities. What about the rest of the higher education sector? The point is that responsibility to Parliament for the stewardship of public funds rests with the Secretary of State, not the universities, and it is right that responsibility for framing directions and seeking parliamentary authority for them should rest with the Secretary of State, too.

An important point, which I feel is often overlooked here, is that all the Secretary of State's directions must be contained in an order which is subject to parliamentary procedure. The Secretary of State cannot simply write quietly to the council and tell it what to do. He must lay an order before both Houses of Parliament, publish it and expect a debate on it if only one Member of either House objects.

The Secretary of State's powers under clause 48 are hedged around both by the restrictions of parliamentary scrutiny and by the restrictions imposed by amendment No. 10, essentially tying the directions to financial matters. This, I believe, provides an acceptable means of providing the public interest and the funds involved and of safeguarding academic freedom and the autonomy of our higher education institutions.

I am extremely grateful to the hon. Members for Clydebank and Milngavie, for Linlithgow and for Kincardine and Deeside for their contributions in Committee. This has not been an easy matter, but I believe that we now have a form of words that will satisfy the needs of higher education in Scotland and provide the necessary protection to ensure accountability over public funds.

Mr. Worthington

I propose to approach these provisions in the same spirit as I approached clause 36 and to see whether we can advance any further. I welcome the Minister's move broadly to limit the powers of financial mismanagement. That is the main proposal. There is a strong feeling among the members of the Committee of Directors of Polytechnics that clause 48 is not necessary because the Secretary of State has so many other powers, both formal and informal. Clause 48 is predicated upon the premise not only that individual institutions will be financially mismanaged and go off the rails, but that the funding council will go off the rails simultaneously. The accounting officers in both the institution and the funding council have the power to exercise accountability, but there are all sorts of other informal powers, such as the powers of the press and of Parliament. We discussed the affairs of the University of Edinburgh earlier. Such informal power can have a considerable influence. Although I shall not push it, there is a question about whether clause 48 is necessary.

In the spirit of trying to find an answer, Opposition Members share the concern of Government Members about accountability of public money—the two parties may soon change sides in this House. I accept that the Secretary of State should have some powers of intervention if the financial affairs of a higher education institution have been or are being mismanaged. However, there is a difficulty, which we mentioned in Committee, that financial and academic affairs cannot be perfectly disentangled. How does one judge what is financial mismanagement? It can mean that one has a policy of accepting too many students without an adequate income. As I have said, it is not easy to disentangle financial and academic mismanagement. One uses money for a purpose, and that purpose is the policy of the institution. But let us set that aside because we are trying to deal with the issue of financial mismanagement.

The Minister then put a very benign interpretation on new paragraph (b), which states: that, in consequence of matters outwith the control of such an institution, it is likely that the financial position of the institution will be significantly adversely affected". The Minister included some sort of natural disaster. I know that recently my hon. Friend the Member for Linlithgow (Mr. Dalyell) went to see the Minister because of asbestos in a school in his constituency. In a sense that is a natural disaster and the Minister might take action to assist. That is benign intervention. It is good that a Minister intervenes to save an institution from asbestos, an earthquake or some other act of God. The phrase in consequence of matters outwith the control of such an institution does not cover only benign intervention; it covers any action by the Government that would have an impact on the financial position of an institution. It is like the "notwithstanding" provision that we debated on a previous clause. It gives the Government the power to intervene.

In trying to solve these extremely difficult problems it is natural to consider what is happening in the other place and how this matter is being resolved in the English and Welsh Bill. It is striking that there now seems to be agreement. Both Professor Forty and the Committee of Vice-Chancellors and Principals are satisfied with the progress being made and that clause 81(3) is about financial mismanagement and not about matters outwith the control of such an institution". Clause 81, the equivalent of clause 48 in this Bill, is no longer an area of contention.

I applaud the Minister for the progress that has been made. There remain difficulties about the ambiguity of the expression: in consequence of matters outwith the control of such an institution". It can have the benign interpretation that the Minister put upon it, but it can also have other connotations. Other hon. Members wish to speak, but that is my reservation.

Mr. Stephen

First, I compliment the Minister on his efforts in this area. He has taken a positive approach to overcoming this problem, which at one time was not the case on the English and Welsh Bill. Clearly, we have made significant progress.

I share the concerns of the hon. Member for Clydebank and Milngavie (Mr. Worthington) and remain worried by the wording of paragraph (b). The Minister mocks me when I refer to the English and Welsh Bill by saying that we should do our own thing in Scotland. Indeed, I welcomed his willingness to take a different tack from that in England and Wales.

The issue concerns academic freedom and this wording infringes it more than does that in the English and Welsh Bill. I believe that the wording for that Bill is exactly the same, except that paragraph (b) is omitted. The Minister may want to correct me on that. Paragraph (b) gives further powers to the Secretary of State. Inevitably, that means a lessening of academic freedom. It has been argued that that is a benevolent reduction, because reserve powers should be given to the Secretary of State so that he can step in in unfortunate, unexpected circumstances. I understand that approach, but the wording of paragraph (b) does not bring into law the aims set down for the Scottish Office.

Mr. Forsyth

The hon. Gentleman has an advantage over me, which may be put right shortly, as he has a copy of the English Bill, which I have not studied. If the hon. Gentleman accepts that the provisions are broader and that the difference arises from the provision in the Scottish Bill, which allows for action in the event of natural disaster, for example, is that not beneficial to Scottish institutions? Why does he want to remove that provision?

11 pm

Mr. Stephen

I accept that there is an advantage in terms of what the civil law in Scotland would regard as force majeure circumstances—the one-off, unexpected situation. I accept what the Minister said about BCCI. However, even though the Law Lords have significantly greater legal expertise than any of us, the wording in Bills can still be confusing to them. Paragraph (b) states: in consequence of matters outwith the control of such an institution"— that is an extremely broad term— it is likely that the financial position of the institution will be significantly adversely affected".

Does the Minister believe that those words narrow the terms of the provision to the specific force majeure circumstances to which he referred? I believe that they do not and that is why I am still concerned about the clause.

Mr. Dalyell

I have given an undertaking to my hon. Friend the Member of Jarrow (Mr. Dixon) that I will be quick.

I have had discussions with Michael Hamlyn of Dundee university, and I believe his lawyers. The universities of Dundee and Edinburgh want to know what exactly is meant by mismanagement. It is probably too late to go into legal definitions, but the key issue is in what circumstances the Government feel entitled to "bail out" a university? I am sure that those important questions will be explored by the lawyers in the Lords. Is the Minister prepared to discuss with the University of Dundee, which is extremely worried, exactly what is meant by mismanagement?

Mr. Michael Forsyth

The difficulty that we have had all along is to find a form of words that will provide for the flexibility to deal with the unexpected while reassuring those who are concerned about how that power will be used.

When people have come to see me or have expressed a view about this issue, I have asked them whether they would like to set down their ideas about what those words should be. I have had very few takers. Many people have described what the parameters of the provision might be, but they have then said, "Well, you are the Minister. You have the draftsmen, you produce it." This is our best effort, looking at all the foreseeable circumstances.

The hon. Member for Kincardine and Deeside (Mr. Stephen) is right in believing that there are differences from the English provisions. The objective has been the same, but we have tried to protect the interests of the institutions in Scotland to the best of our ability and to accommodate the views expressed. I would he happy to ask my officials to talk with the principal of Dundee—we are always happy to be involved in a dialogue with him. I am also happy to reflect on the points that have been raised during the debate.

However, the Government amendment is the best wording that we can achieve. I shall not rehearse the arguments for it at this late hour but they are clear. The universities' natural anxiety about academic freedom should have been dissipated by now, if only by the numerous assurances that have been given during our deliberations.

Mr. Worthington

The Minister assures us that the door is not closed but that we are edging forward. The point of contention now appears to be how institutions may be affected. Given the Minister's assurance that, if we can find a better form of wording, it can be inserted in the Bill in another place, I shall not press the sub-amendments.

Amendment agreed to.

Amendments made: No. 10, in page 33, line 29, at end insert—

'() The Secretary of State may give general directions to the Council about the exercise of their functions.

() If it appears to the Secretary of State—

1. (a) that the financial affairs of any institution within the higher education sector have been or are being mismanaged; or
2. (b) that, in consequence of matters outwith the control of such an institution, it is likely that the financial position of the institution will be significantly adversely affected,

he may, after consulting the Council and the institution, give such directions to the Council about the provision of financial support in respect of the activities carried on by the institution as he considers are necessary or expedient by reason of the mismanagement or, as the case may be. adverse effect on the institution's financial position.'.

No. 84—new schedule—