HC Deb 27 January 1999 vol 324 cc301-8 12.30 pm
Mr. Christopher Chope (Christchurch)

Originally, I had intended to use this debate to raise the case of my constituent Miss Sujata Halder and her application for exceptional leave to remain in the United Kingdom. However, as soon as my success in the ballot became known, the Under-Secretary of State for the Home Department, the hon. Member for North Warwickshire (Mr. O'Brien), invited me to a meeting at the Home Office.

At that meeting, which was held last Thursday, we discussed the case, and the Under-Secretary promised to reconsider it. On Monday afternoon, the Home Secretary and the Under-Secretary finally decided to exercise their discretion in favour of my constituent and to allow her to remain in this country. I am most grateful to the Home Secretary and the Under-Secretary for having addressed the arguments that I raised on behalf of Miss Haider and for ensuring that justice is done in her case.

I am also grateful to the Under-Secretary of State for Education and Employment, the hon. Member for Norwich, South (Mr. Clarke), who is present this afternoon. His agreement to allow me to change the subject of the debate has given me the opportunity to raise the matter of the funding of Highcliffe comprehensive grant-maintained school. I hope that the Minister will be as good a listener as his Home Office colleagues.

Highcliffe comprehensive is the only grant-maintained secondary school in the ancient borough of Christchurch. Following a decision by the previous Government, it now has a sixth form, which it operates on a collaborative basis with two other Christchurch secondary schools—the Grange and Twynham. I am fortunate in having some excellent schools in my constituency, but none has a better academic record than Highcliffe, which came top in Dorset in the 1998 secondary school performance tables published on 1 December. It is a recognised centre of educational excellence and attracts more pupils than it can accommodate, many of them from Hampshire.

To mention Hampshire is to remind the Minister that no debate about schools in my constituency would be complete without another reference to the gross injustice and unfairness of the Government's decision not to alter the area cost adjustment element of the methodology for grant distribution. That means, for example, that another fine secondary school in my constituency—Ferndown upper school—receives £300,000 a year less than it would if it were situated a few miles down the road in Hampshire. The same is true for the schools in Christchurch.

The Government have decided to freeze the methodology for three years, but I can assure the Minister that the argument will not go away, as the feeling of great injustice about the matter persists in my constituency. That sense of injustice is evident in a letter that was sent to the Prime Minister on 20 January by Dr. Howard, the headmaster at Ferndown upper school. I shall not read the letter in full, but Dr. Howard states: the anomalies of the present system, as here on the Dorset-Hampshire border, are so gross that they cry out for change… Many of us had hoped in 1997, with a new administration in power, that we would also see the practical application of a commitment to fairness and justice. We are now sadly disappointed. I hope that the Minister will listen again to the matters raised in that letter.

Highcliffe school has benefited from its grant-maintained status, which it attained in 1992–93. Since then, the school's governors have acted in what they consider to be a prudent and efficient manner and have used all the funds at their disposal for the benefit of pupils. With the Government's decision to abolish grant-maintained status, Highcliffe has opted for foundation status from later this year. One of the matters that I hope that the Minister will deal with in this short debate is the funding consequence for the school of that change of status. It is far from clear what will happen in the next financial year, but the school fears that it may lose as much as £40,000.

The matter is causing much concern. The consultation paper preceding the Government's legislation to abolish grant-maintained schools stated:

The aim should be to level up rather than down, moving all schools towards the level of school budget management currently applying in the GM sector, while ensuring that key services which can only be provided by the LEA … are properly resourced. In February last year, the then Minister for School Standards, the right hon. Member for Tyneside, North (Mr. Byers), who is now the Secretary of State for Trade and Industry, told the Committee considering the School Standards and Framework Bill: The Government have repeatedly said that, in accordance with the finding of the Public Accounts Committee, many GM schools received funding over and above that received by local authority schools. It is a question not only of delegated budgets, but of additional support. As a result, the pupil unit costs in local authorities are often far higher for GM schools than for the local authority maintained school. We have said that our objective is not to cut the amount being spent on pupils in GM schools but to increase the funding for pupils in other schools. We are therefore levelling up."—[Official Report, Standing Committee A, 12 February 1998; c. 461.] So the then Minister, in those remarks, addressed the concerns of a number of schools in the maintained sector and said that, despite the disparities, funding would be levelled up rather than down. Since then, however, the Government have stated that the basic approach to funding in 1999–2000 should be protection, in cash terms, at 1998–99 budget levels per pupil. That suggests that no allowance is being made for inflation and that the funding for former grant-maintained schools will be kept static in cash terms while other schools catch up. Although that appears to be at odds with previous ministerial statements, I hope that the Minister will assure me that that is the wrong interpretation to put on those words.

Another recent development is that Ministers have decided to exclude from the base budget used to calculate the guaranteed amount per pupil the special purpose grant element known as SPG(N). Moreover, it is made clear in a letter from the Department for Education and Employment dated 20 October 1998 that Ministers have also decided that they, and not the local education authorities, will be responsible for calculating the level of GMS protected funding, in consultation with the Funding Agency for Schools.

Those statements have caused much confusion and uncertainty at Highcliffe and, no doubt, at other grant-maintained schools. They are worried about the level of funding that they will receive in the coming financial year.

The crisis that the Highcliffe governors face is made worse by the next problem that I wish to raise on behalf of the school. To the uninitiated, that problem is both complex and esoteric. It concerns the consequences for Highcliffe of a reduction in the school's rateable value, announced in 1994–95 in response to an appeal by Dorset county council as long ago as 1990. As a school with charitable status, Highcliffe has to pay only 20 per cent. of its rates assessment. It has made provision to repay that portion of the 20 per cent. of which it has been relieved as a result of the change in rateable value.

However, the complication arises in the treatment of the remaining 80 per cent. Highcliffe receives some funding that emanates from Dorset county council under what is called LMS replication. Before Highcliffe received charitable status, it was liable for 100 per cent. of its rates. Therefore, under the LMS replication rules, Dorset county council has been paying the Funding Agency for Schools the 100 per cent. contribution for rates, despite the fact that only 20 per cent. of that would be payable by the school to the local authority.

As part of the annual maintenance grant provided to the school, a payment is made to the school to offset the value added tax that it, because it is not registered for VAT, has to pay for the purchase of any items on which is VAT is payable. That grant is referred to as SPG(V)—special purpose grant (VAT). The calculation of that grant is not laid down in any regulations and the Funding Agency for Schools was not bound by any inherited basis of calculation. However, the agency decided that the formula for calculating the grant should be by reference to the rateable value of the school. The system operated on the basis that Highcliffe was given a sum of money sufficient to meet the full rates bill without any allowance for charitable relief.

Once received in the hands of Highcliffe, the actual rates payable were paid to the Christchurch borough council and the remainder of the money was kept to offset VAT. My understanding is that, if the difference between rates payable and the sum received does not exceed 2.5 per cent. of the annual maintenance grant, an additional sum will be paid as SPGV.

The nub of that part of the story is that the calculation for VAT relief bears no relation to the amount of VAT paid by the school on goods and services bought. We are talking about a notional formula that has had some bizarre results, particularly where there has been a reduction in rateable values. Where that has happened, Dorset county council, the education authority, expects to be refunded the difference on the whole sum by the funding agency—an argument with which it is hard to disagree.

The Funding Agency for Schools remained uncertain for several years whether, in such circumstances, it should make a corresponding clawback from the annual maintenance grant. In logic, there was no reason why it should do so because it was a deemed payment for a special purpose but, without the clawback the funding agency would be out of pocket.

The question is simply one of equity: where should the loss fall? Should it fall on an individual school, even if the impact on its ability to meet its requirements might be severe, or should it be borne by the funding agency? I look forward to hearing the Minister's opinion because the funding agency clearly did not find that an easy question to answer. Sadly, it ultimately reached the wrong conclusion and passed the burden on to the individual school.

As a way out of a dilemma, the funding agency adopted successive strategies. First, it denied a claim by Dorset county council for repayment. When that did not work, it investigated whether it should apply special purpose grant to Highcliffe and the other schools affected, but decided not to do so, and then it considered the circumstances in each school.

I have gone into the technical detail to give the Minister a flavour of the subject. The essence is that, on 3 August 1998, the funding agency sent Highcliffe school a letter to the effect that it intended to recover £83,000 from the school, which had been overpaid. The school cannot afford to repay that sum and it would cause a great crisis in its finances.

The school wanted to find out why the agency had reached its conclusion. The agency had received a report by Robson Rhodes, the chartered accountants, and the school, not unreasonably, asked to see a copy. Despite the efforts of the school, correspondence with the Treasury solicitor and parliamentary questions that I tabled here, the Funding Agency for Schools has refused to divulge the contents of the report. That has created a climate of suspicion.

I hope that the Minister will allow the report to be issued. It cannot be consistent with the principles of open government that a report used to deprive Highcliffe of £83,000 is not available to the school and its governors. They have been told that they will have to show on their accounts that they have an unmet liability for £83,000 and that it will be repayable over three years. They are far from certain as to how that will be done.

I should be grateful if the Minister would say how that liability will interact with the new funding regime, which comes into effect when the school loses grant-maintained status. I should also be grateful if he could explain what he expects the school to do. It is unable to prove that the funding agency made an error in its calculations because it cannot see its workings. Clearly, the agency has been very coy about giving information. A number of straightforward questions, which I tabled to the Minister and which were referred to the funding agency, have been ducked. The agency purports not even to know the total amount of money involved in its dealings with all grant-maintained schools, something that I find disingenuous in the extreme.

Those are important issues and I hope that the Minister will produce a solution for Highcliffe school today. This is a serious problem—£83,000 coupled, perhaps, with the loss of £40,000 next year as a result of the change of status, for a school with about 1,200 pupils. It does not need me to spell out that that will have serious implications for the quality of the education that will be provided by Highcliffe.

12.45 pm
The Parliamentary Under-Secretary of State for Education and Employment (Mr. Charles Clarke)

First, I congratulate the hon. Gentleman on securing this debate—it is always moving to hear appeals about poverty from deprived areas of the country, such as Christchurch, which he represents. I also congratulate him on his success with his constituent, which led to the change of subject matter for the debate. That is yet another example of the way in which the Government respond to the concerns raised by hon. Members. Finally, I welcome the hon. Gentleman's remarks about the academic success of Highcliffe school and join him in congratulating the school on that success and on its record, which is well known.

I will deal with the two fundamental points raised by the hon. Gentleman in reverse order—first, with the annual maintenance grant and its redetermination and, secondly, with the general issue of funding.

The Funding Agency for Schools for England has considered Highcliffe school and the other cases carefully. It may be worth giving some background. Where the rates bill has been reduced for past years and schools have received more annual maintenance grant from the funding agency than they should have—money that has not been spent because of the reduction in rate assessment—the regulations permit the agency to redetermine the calculation for previous years if any fact comes to light that would have affected it. The rates revaluation is one such fact, although others are involved, such as pupil numbers and so forth.

That practice goes back to the beginnings of the grant-maintained sector. The regulations that permit the funding agency to do that were introduced by the Conservative Government, of which the hon. Gentleman was a member, according to principles to which he subscribed at the time. The Funding Agency for Schools has simply carried through that process according to its responsibility for securing the proper use of public moneys, as is right and proper. In principle, I conclude that the funding agency was right to redetermine Highcliffe's annual maintenance grant and to recover any overpayment.

In exercising those rights, which has to be done carefully, the Funding Agency for Schools considered the situation for a long time—several years, as you implied. It took detailed legal advice because some of the grant-maintained schools affected were worried and the funding agency was correctly concerned to ensure that any decision that it took accorded with the law and could be properly sustained in the courts. It also took detailed financial advice—you mentioned the accountants, Robson Rhodes and their analyses not only of Highcliffe, but of all the schools involved.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. I must remind Ministers as well as Back Benchers of the correct form of address. I think that the Minister is referring to the hon. Member for Christchurch (Mr. Chope). If he uses the second person, he is referring to the Chair.

Mr. Clarke

Thank you, Mr. Deputy Speaker and I apologise for the slip. I was so concerned to refresh my memory as to whether the Member for Christchurch was right honourable or honourable that I missed that point. I apologise to you and to him for the mistake.

The Funding Agency for Schools considered the situation carefully, took detailed legal advice and took financial advice from Robson Rhodes for all the schools involved. It considered Highcliffe and the other schools with which it was dealing in that round at meetings held in June and July 1998. At that time, 36 grant-maintained schools were in the position that I described and had received more money than they should have following the rates redetermination. Of those 36, it was decided immediately to recover the funds overpaid from 33. That course of action was not taken for the remaining three schools, which included Highcliffe, because the agency wanted to study in more detail their financial situation to understand correctly the implications of any decision. They considered those matters most carefully.

The hon. Gentleman rightly quoted the cost to Highcliffe as £83,000, which represents about 4 per cent. of the school's £2.14 million annual maintenance grant budget for 1998–99. Although it is a significant sum, it must be considered in the context of the overall grant that the school received for the coming year.

The hon. Gentleman may be interested to know why the rates revaluation is so significant for ex-grant-maintained schools. He described the formula that was used as "complex, if not esoteric". Under the rules that were established by the Government of whom he was a member, schools were funded for 100 per cent. of their rates bills, despite the fact that they had to pay only 20 per cent. The 80 per cent. relief was used to pay VAT charges in a back-of-the-envelope calculation of the type that the hon. Gentleman described. Before the hon. Gentleman described the formula as "complex, if not esoteric", I had noted the phrase "toy-town economics". I am glad that we are getting rid of that aspect of the grant-maintained school regime.

The figures that produced the uncertainties, difficulties and problems that the hon. Gentleman described were ludicrous as they were based not on fact, but on a back-of-the-envelope formula that had been decided by the Government of the day. The hon. Gentleman was right to describe it as esoteric and to criticise the system that created the problem. I hope that he will agree that we were right to get rid of that ludicrous formula.

As part of the transitional process, legal responsibility in respect of the three schools that are still facing a problem—it was resolved immediately in 33 cases and three cases are outstanding—passes to the Secretary of State on the advice of the Funding Agency for Schools. I understand that the FAS will be advising in all three cases that the money is recovered in full and paid immediately. According to the FAS, the current balances at Highcliffe school will leave the school with a healthy surplus this year even after payment of the £83,000.

I am grateful to the hon. Gentleman for raising the matter in the House and I shall be happy to receive any further financial submissions from the school if it considers that the advice is inappropriate, for example. On the basis of the advice received from the FAS, the Secretary of State will recover the overpayment in full. Frankly, despite the articulate advocacy of the hon. Gentleman, there is no reason whatever for Highcliffe school to be treated differently from all other ex-grant-maintained schools.

The hon. Gentleman asked whether there had been any exceptions to the position that I described. I am advised that there were two: Wibsey school in Bradford, which is the only local education authority with grant-maintained schools that does not redetermine school budgets after rates have been revalued, and Desborough school in Windsor and Maidenhead, which was agreed very early on by the FAS, which then rapidly realised that it would be setting a precedent that would result in a large loss of resource to education in the sector. The FAS decided not to accept that as a precedent although the decision had occurred at the very beginning of the process.

There is no particular reason to reconsider the position of Highcliffe. There have been scores of decisions on schools since the process began. There is no reason why Highcliffe should be treated differently, so in my view the FAS made the right decision.

The hon. Gentleman also raised the issue of disclosure of documentation. As he probably knows, the FAS has given Highcliffe detailed reasons for its decision. It has responded positively to further requests for information from the school governors and set that out fully. The FAS decision not to release the Robson Rhodes report on Highcliffe or any other school was based on counsel's opinion about the nature of the advice that the FAS received.

I now turn to the general issues of current funding that the hon. Gentleman raised at the beginning of his speech. The Government have set out absolutely clearly by law that recurrent funding per pupil is guaranteed for all ex-grant-maintained schools and Dorset is under the same requirement as anywhere else. Beyond that baseline which is guaranteed by law, Dorset will take its own decisions about specific grants and the standards fund. It is instructive to look at the decisions that Dorset has to take. I understand that the provisional budget that Dorset is currently considering has allocated a 4.7 per cent. increase to education in contrast to the 7.3 per cent. increase that my right hon. Friend the Secretary of State for Education and Employment allocated for that purpose.

As the hon. Gentleman will know, Dorset county council comprises 21 Liberal Democrats, 15 Conservatives, five Labour councillors and one independent councillor and is under no overall control. It is governed by an interesting alliance of Liberal Democrats and Conservatives.

Mr. Chope

I assure the Minister that the Conservatives are not involved in running Dorset county council. If they were, the position would be very different.

Mr. Clarke

Given the current state of the Liberal Democrats, I am always suspicious about with whom they form alliances. I apologise to the hon. Gentleman for maligning his colleagues in that way.

Dorset county council is considering whether to opt for a 6 or 11.2 per cent. increase in council tax. The area cost adjustment factors that the hon. Gentleman mentioned will no doubt come into that consideration although, as the hon. Gentleman will recall, the area cost adjustment was invented by the Government of whom he was a member.

As in all local authorities, there are arguments about the merits of the budget-setting period. I regard the hon. Gentleman's story about the possible £40,000 cut affecting Highcliffe in the same spirit as the letter from Dr. Howard about his school—as part of the general blitz of material that occurs in the budget-raising process. All hon. Members will be familiar with the issues that surround that process. We shall just have to see what happens.

I very much hope that Dorset county council will allocate significant resources to education and that, given its success, Highcliffe will get the resources that it deserves. However, a speculative £40,000 cut in the middle of the budget-setting process is not a basis for making firm statements in the House; it should be regarded simply as one of the options that is floating around.

As the hon. Gentleman knows, the Government have said that transitional funding will continue for costs that the FAS would have met in such circumstances. I appreciate the chance that the hon. Gentleman has given me to set out the way in which the issues have been addressed in respect of Highcliffe and elsewhere.

Finally, I wish to emphasise one fundamental political point. We attach immense importance to a smooth transition between ex-grant-maintained schools and local education authorities. Many issues of history, ideology, circumstance, jealousy and so on have been floating around. Everywhere I go I ask the heads of ex-grant-maintained schools about arrangements with the LEA. I ask LEAs the same question and in general, with one or two exceptions—one of the hon. Gentleman's neighbouring authorities may be one—the response has been extremely positive and the Government very much hope that it will continue to be.