POWERS OF GOVERNING BODIES TO FORM OR INVEST IN COMPANIES TO PROVIDE SERVICES ETC.

HC Deb 15 July 2002 vol 389 cc47-72

Lords amendment: No. 12.

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The Minister for School Standards (Mr. David Miliband)

I beg to move, That this House disagrees with the Lords in the said amendment.

Mr. Deputy Speaker (Sir Alan Haselhurst)

With this we will consider Government amendments (a) and (aa) to the words so restored to the Bill, Lords amendment No. 13 and the Government motion to disagree thereto, and Government amendments (a) to (c) to the words so restored to the Bill.

Mr. Miliband

We believe that the new freedom for schools proposed in these clauses will be valuable in helping them to work together to raise standards. Labour Members stand for enterprise in, and by, schools. We want new partnerships between schools, and we want best practice to lead the rest—whether in relation to pedagogy, to the curriculum, or to information and communications technology. I am glad to say that in our endeavours, we have welcome support across the House for the measures that we are debating. As a member of the Education Bill Standing Committee, I sat in rapt attention, and was particularly struck by one impassioned speech. The Member in question said, in respect of these specific clauses, that

we may be on the verge of providing for an extremely exciting new environment that provides scope for new ideas for the benefit of education." —[Official Report, Standing Committee G. 18 December 2001; c. 191] I could not have put it better myself. The Committee member in question was the hon. Member for Altrincham and Sale, West (Mr. Brady), whom I am glad to quote in this regard. He was clearly taking his cue from a distinguished predecessor of his, Lord Baker of Dorking, who said in a House of Lords debate:

I welcome these clauses in the Bill." —[Official Report, House of Lords, 7 May 2002; Vol. 1874, c. 1055.] Given my strong memory of the hon. Gentleman's impassioned speech, I was more than a little surprised to discover that the Opposition joined in the process of deleting the clauses in the other place.

Mr. Graham Brady (Altrincham and Sale, West)

Perhaps I can help to jog the Minister's memory. I am sure that he cannot recall his predecessor's giving any satisfactory reassurance in respect of the concerns that we raised in Committee about where liability would fall if such companies were set up. As he will learn, it is perfectly normal practice in this House that, if we are not given adequate reassurance, we seek to amend the Bill later on.

Mr. Miliband

I am grateful for the benefit of the hon. Gentleman's years of experience in this House, which are greater than mine. All I remember from our proceedings in Committee is the eloquence of my hon. Friend the Member for East Ham (Mr. Timms), who was leading for the Government. He rebutted all manner of allegations and put a consistent and coherent view. I wonder whether there is a split on this issue, and whether this is a case of old Conservatives versus new Conservatives—or mods versus trads. I understand that the hon. Member for Stone (Mr. Cash) will lead for the Conservatives on this issue. I can give him my categorical assurance that the European Union has no involvement in this measure, so I hope that he will join me in seeking to reverse the House of Lords' view.

There is a serious point. The Bill is about supporting schools in finding new ways to innovate and work together, so that they can raise standards. The power we are debating is a new freedom for schools. It will not be used by every school, but it will enable those schools that choose to use it to develop new partnerships, to share good practice and to support other schools.

We are widening the choices that schools already have, It is already possible under the law for a single school to form a company, if that is necessary for the conduct of the school. This power will enable schools to work together to form joint companies, or companies that will support other schools. I find it hard to see why that form of collaborative and innovative activity to benefit the wider community of schools should be opposed.

Mr. Phil Willis (Harrogate and Knaresborough)

I am grateful to the Minister for giving way while he is reading his notes. We want to be helpful this evening, but could he give us examples of how the new powers will be used? What sort of companies will be formed? What will their activities be? Why is it not possible under existing legislation for schools or local authorities to do that work, because they have been doing so ever since 1944?

Mr. Miliband

I know that the hon. Gentleman is always keen to be helpful. I assure him that this is the best that I can do in terms of a speech and I am not reading someone else's notes. I shall come to some examples of how this will be a beneficial measure in terms of pedagogy and curricula. If he feels that I have not addressed his concerns sufficiently, I hope that he will interrupt me again.

We have always been clear that the formation of a company is not an end in itself. It is valuable only as a means to an end. Forming a company is the simplest mechanism available for groups of schools to have joint legal identity. If a group of schools want to purchase their supplies together and so benefit from economies of scale, it will help them greatly if they can do so as a single legal entity. Because a company provides limited liability status, these clauses will also mean that schools can reduce the financial risk of collaborating. That will leave them free to take advantage of the opportunities offered to them. [Interruption.] I hope that the hon. Member for Harrogate and Knaresborough (Mr. Willis) is not missing the key point that I am making. In relation to both purchase and provision of services, the opportunity to establish a company will stretch the possibilities for schools to share best practice beyond the current boundaries.

Through increased delegation of budgets by local education authorities, schools have the freedom and confidence to buy the services they need from those best

placed to deliver them. If private sector providers can sell services to schools, I see no reason to prevent schools themselves, which may have some of the most expert people available, from providing services as well. The services offered by a school company may represent an opportunity for other schools to buy in real practical experience and expertise. A service delivery company may share a particular school improvement expertise, perhaps helping a weak school to become stronger, thereby giving pupils the quality of education that is their right.

We must make the best use of the talent and experience that is to be found in schools. The opportunities could be very wide; I shall give a couple of specific examples for the hon. Gentleman and other hon. Members. A group of schools that has developed a software package or an anti-bullying training pack may join another partner to ease production and distribution of the service. The expertise of the different partners will help to give schools access to high-quality services from which they would otherwise be unable to benefit.

I am clear that the provisions will provide a worthwhile opportunity for schools. I emphasise that it will be an opportunity: there will be no compulsion on schools to enter into companies. Nor will there be any compulsion on other schools to purchase from companies. However, this will be an opportunity to lead the way.

In seeking to restore to the Bill the clauses removed by the other place, we are proposing some small changes that I should explain for the benefit of hon. Members. Two of the amendments will place in the Bill detail that was to he contained in regulations. The first is the requirement that school companies will be required to register under the Companies Acts as companies limited by shares or by guarantee. We may wish to consider that in more detail, given the amendment tabled by the hon. Member for Harrogate and Knaresborough. The second is that only those specified in regulations may join companies. Placing those details in the Bill will offer greater clarity and more visible protection to companies. The other two Government amendments tighten up the requirement for companies to operate only in accordance with the requirements set out in regulations.

We also wish to restore clause 11, which sets out the regulatory regime that we propose to introduce for service delivery and purchasing companies. It will create a necessary framework of safeguards for school companies to operate in. We are preparing regulations that we intend to be flexible and to avoid unnecessary constraint on the operational freedom of school companies. The regulations will include requirements about company operation and membership, and will create supervising authorities to oversee the school companies. The clause will also require governing bodies of maintained schools wishing to form or join companies established under clause 11 to obtain the consent of the LEA. As the House knows, we will consult relevant organisations in the education service on the draft regulations, taking careful note of the responses.

I hope that I have addressed some of the concerns felt by Opposition Members and that the House will join me in rejecting the Lords amendments and agreeing to the Government's substitutes.

Mr. William Cash (Stone)

We have heard an extremely truncated version of what the Government propose. The Minister will be well aware that these matters received extensive consideration in the other place, in Committee, on Report and on Third Reading. I am sure that he did not mean any disrespect, but the manner in which he shot through the Government's explanation left me surprised, as I think it did other hon. Members. It appeared that he was not prepared to go into the serious issues that are involved.

The Minister may wonder why it is that the shadow Attorney-General would rise to deal with these matters. The reason is simple. There are a number of issues that relate to the interaction between company law and education legislation. Precisely for that reason, I have made criticisms of the Minister. He did not even attempt to deal with any of the issues, although he knows perfectly well what they are. When the Lords finished their consideration of the Bill, the relevant issues were left for further consideration. That is precisely why the Lords, by a substantial majority, proposed that clauses 10 and 11 should be deleted. That proposal allows amendments Nos. 12 and 13 to be considered in this place.

We have heard a great deal from the Chancellor of the Exchequer this afternoon about prospective increases in education spending. There was much about freedom and control this morning from the Chief Secretary to the Treasury on "Today". We have been told that there will be no blank cheque. These are important matters because education has been given a certain priority by the Government, at any rate in the initial stages since the Labour party won the general election before last. The debate on school companies raises these issues. Specifically, they are at the heart of the system that the Government have adopted to implement their policy, especially in terms of education. This raises the question of companies limited by guarantee, although at the last minute in the other place the Government added arrangements for companies limited by shares, which the Liberal Democrats in their wisdom—we wait to hear what they have to say—seek to eliminate.

Questions arise that are not confined to education. They arise also in terms of health, not to mention Network Rail. These are matters that relate to the philosophy behind which the Government are hiding on public expenditure.

Similar serious questions and problems arise in many instances, and the debate gives us the opportunity to examine them in the context of education. Let us leave aside the spinning and weaving and examine the mechanics, the legislation and administration, the delivery and practice, the impact on schools, teachers, governing bodies, and local education authorities—and above all what it is all meant to be about, which is the education of our children.

We heard from the Prime Minister only a few years ago that the Government's watchwords were "education, education, education." What do we have? We have administration, administration, administration along with uncertainty, uncertainty, uncertainty. And under the proposed arrangements, we have litigation, litigation, litigation.

There was a protracted debate in the other place on the issue of school companies. I pay tribute to Baroness Blatch and also to Baroness Sharp, of the Liberal Democrats. Similarly, I pay tribute to other noble Lords across the board and to my hon. Friends who considered the Bill in its early stages both in Committee and on Report. I congratulate them on their tenacity and perspicacity in this difficult and opaque area of company law and education. The noble Lord McIntosh cannot be accused entirely of not seeking to alleviate their concerns, but we continue to have them. We do not believe that those concerns have been allayed, whether in the other place or by the absurdly short representations that the Minister has just given in respect of these matters.

The issues with which we are now concerned arise out of Lords amendments Nos. 12 and 13, which seek to reintroduce what were clauses 11 and 12 of the Lords Bill, which were defeated on Third Reading in the other place, with some amendments, by the combined vote of Conservatives, Liberal Democrats and others. I will set out the main features involved in those clauses and deal with our objections.

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First I shall raise a question, which, as far as I am aware, has not yet been dealt with in the Bill. It arises from the potential interaction of the implementation of these provisions within part 1, which is entitled, "Provision for new legal frameworks", and which also includes clause 2, which confers power to suspend statutory requirements. The interaction between those provisions is very important.

Clause 2 is very general. especially in its potential implications for the provisions with which we are dealing today. It provides that, on the application of one or more qualifying bodies—which are defined as including, among others, a local education authority, as well as a governing body of a qualifying school, which, in turn, is defined as including a community, foundation or voluntary school, a community or foundation special school, or a maintained nursery school—the Secretary of State can make an order exempting those bodies from any requirement imposed by the Education Acts, the Learning and Skills Act 2000 or any of the subordinate legislation. That will surprise hon. Members, as it is a very big shift.

Indeed, the clause provides that the Secretary of State can relax such requirements, enabling the applicant to exercise educational powers and duties or make modifications to education legislation. That is a very important and draconian measure. I raise that in connection with the clauses that the Government intend to reintroduce to the Bill simply because it relates to the question of ultimate liability were a school's company to fail, whether it is a company limited by guarantee or, in line with the Minister's amendments—which are disputed by the Liberal Democrats—a company limited by shares. In either case, there is only a minuscule, nominal amount of liability.

In a parliamentary answer given by Lord McIntosh on 25 March 2002, which was also given by Baroness Ashton, to which a letter to my noble Friend Baroness Blatch referred, it was stated that the ultimate liability would fall on the local education authority. In such a case, the local education authority will pick up the tab—that is the expression that is being put around. Will the Minister today reaffirm unequivocally whether that is so? If, by order, the Secretary of State has exempted a local education authority or a school of the kind mentioned above from its statutory functions, surely, the opportunity for the enforcement of those duties by judicial review could be taken away by such an order? That would have grave implications were a school's company to go bust, for the creditors and a whole chain of others affected, who would have no recourse in the last resort—on the face of it—to the Government and the Exchequer.

One of the few comments that the Minister made with regard to the Bill and these amendments when he opened the debate was that financial risk to the companies would be reduced. Surely he understands, however, that, although financial risk to the companies concerned is a matter for consideration, there is also financial risk to all the other people in the chain. I shall come to those others shortly.

The matter is also important given the Chancellor of the Exchequer's announcement about the sums of money that will be made available to education. Does the potential removal, under such orders, of the duties—we do not know what they are, because they are so vague—and hence the liabilities of local authorities and governing bodies create the possibility of a legal void? Would the liabilities be off balance sheet? It would be interesting to learn whether the Minister has anything to say about that. Will he address the question of school companies—whether they are limited by guarantee or by shares—as the provision for them was made only on Third Reading, in the dying moments of the Bill's consideration in the House of Lords?

Insurance is another issue that was not dealt with greatly, if at all, in the House of Lords. We all know that the compensation culture, as it so described, is growing. Some claims are entirely justified, but the sums of money involved are growing exponentially. For example, the case of Pamela Phelps is important for local education authorities. In 2000, this former pupil successfully sued the London borough of Hillingdon for more than £44,000 after it was proved that her teachers had failed to diagnose her dyslexia, leaving her with the reading age of a seven-year-old.

I could give many examples and I have no doubt that the Minister's advisers would be able to provide even more. A teacher, Carol Ellen Harper, is suing my county council of Staffordshire in the High Court for more than £50,000 after she slipped on food debris and broke her ankle. In Waltham Forest, the head teacher of the Norlington school for boys said:

Every day of the week, I am dealing with solicitors. This is taking a substantial amount of time which I and my teachers should be spending doing our jobs. His school has faced six legal challenges in the past 18 months after legal firms operating on a no-win, no-fee basis targeted parents on surrounding estates, tempting them—so it is said—with the prospect of large compensation payments. Judith Waugh, the head of the John F. Kennedy lower school in Stratford, east London, won £119,000 in High Court damages after she was attacked by a 14-year-old boy in 1998.

There has been a flood of legal actions from pupils, who claim that schools have failed to protect them from bullies. Indeed, a High Court judge ruled that a school had to pay substantial compensation for not protecting a 17-year-old pupil from his own irresponsible behaviour on a school trip. We all know that serious problems can arise from the manner in which schools and education establishments are affected by serious accidents, such as those that have taken place on school outings recently.

The problem of teachers' liability has been discussed by Veronica Cowan, among others. A glance at The Times Educational Supplement, which is bulging with thousands of hard-to-fill teaching vacancies, gives a clue as to how difficult it will be for the Prime Minister to deliver on his promise of "education, education, education". Indeed, teachers could be forgiven for thinking that the more likely scenario will be litigation, litigation, litigation. It would be invidious of me to go through all the examples that I could give, but I will be more than happy to supply them to the Minister in case he has not come across them already.

Newcastle-under-Lyme abuts my constituency and many of my constituents go to school there. In a rugby game in 1997, a boy was lifted into the air and landed on his head. He decided to sue the boy who tackled him, and he was covered by the school's insurance. We are not, therefore, being difficult for the sake of it. I am not using graphic examples to raise questions that are irrelevant to the way in which schools are run. The point is this: we are interested in knowing whether regulations on schools companies will require adequate insurance provision to cover the enormous costs that could arise if a company fails.

There is also the related problem of the responsibility of directors. The Minister probably knows that a Government consultation paper outlines proposals to change the criminal law as it relates to the responsibilities of directors. Although I will not go into that in detail, I want to highlight the fact that the Government seem willing to introduce a proposed new offence of corporate killing, which is broadly equivalent to gross carelessness. Pupils are sometimes involved in desperately tragic accidents on school outings. Will the directors of schools companies be advised in advance, in the practice guidelines, that they could be caught up in serious criminal accusations and convictions if things go wrong?

The emphasis—the rationale of the offence—will be based largely on management failures. Although the offence of corporate killing would apply only to corporate bodies, it is important to take account of the fact that it may affect school companies. The consultation paper and the Law Commission's paper refer to the Health and Safety at Work, etc. Act 1974 and to new offences that are committed if people give undertakings. They say that that offence could apply to all employing organisations, including schools, hospital trusts, partnerships and unincorporated charities. Again, the Government need to give that careful consideration, because we need answers.

What will happen if a company goes bust? That is an important practical matter for those concerned—children, parents, teachers, governing bodies, local education authorities, creditors and local communities. The idea of greater local freedom to manage has its attractions, but has the legislation been properly thought through? We all remember the total failure in some schools and the arrangements for LEAs and/or the Government to step in. We demand to know what will happen under the new arrangements.

In law, if a company goes bust, perhaps because of overtrading or a massive insurance claim, the assets have to be sold. Staff have to be laid off, redundancy has to be paid and the debts must be paid off. If there is no money, insolvency will apply, under which the liquidators' remuneration and expenses take first call even before redundancy payments. Creditors, such as builders, those who provided furniture and other contractors, come way down the line. It will not just be the bankers who are involved; many small businesses will also be affected.

We are told that if a company is limited by guarantee or shares with only, say, a £10 liability, then that is all that will be available. We are also told, however, that the LEA will pick up the tab. How will the liability be enforced? How will the LEA be expected to pay up? If the regulations are implemented, an act which could remove the duties imposed by the Government, what effect would that have? In other words, is there a legal void? If not, will the Minister give us chapter and verse to reassure us that there is none, as I am sure he will want to?

The Government tell us that, under regulations, the company will be prohibited from admitting to its membership any person who is not of a prescribed description, and that regulations may impose requirements for the company's constitution and any other matter connected with its affairs. What exactly will that involve? That is not a theoretical but a practical question. The Minister knows perfectly well that all these matters were considered in the House of Lords and no satisfactory answer was given.

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I have a letter dated 28 May from Lord McIntosh to Baroness Blatch, which baldly states:

LEAs would ultimately be liable for the debts of purchasing companies, just as they are for those accrued by purchasing by individual schools. What will happen if an order is made under clause 2 with the effect that I have just described?

The key question is whether the proposals will work. Lord McIntosh said that one reason

for using such companies is that schools may want to join together to deliver services to other schools in which they have real strength. That could result in benefits to company members and to other schools, which could receive good quality support. He then made a brief point about distance learning and publishing skills, before going on to say:

They may therefore need to bring in outside organisations … perhaps a not-for-profit organisation … as members of the company on the basis that they will take a share of the profits. And why not? Lord McIntosh also said:

I cannot reconcile the opposition to that idea with what I understand to be the ethos of the Conservative party. He could not understand why we would not want commercial freedom for the companies in question. The point to which I return is that if there is merit in the principle of giving further freedom, the key question—this is where the Labour party and the Government always fall down—is not whether the Government have bagged one of our ideas and are stealing our clothes to make it look as though they are giving schools freedom to manage, but whether the policy will work. We do not yet know the detail of the regulations. There are no magic wands to be waved in such matters. My questions concern matters that will have to be dealt with on the ground.

There is a further point. We are indeed in favour of innovation, but the amendments tabled in the other House would have allowed even more freedom, and there is a problem with that. It looks to us as though the issues have not been properly thought through, and there have been no proper answers about culpability, liability and the protection of governors. In the other place, Baroness Blatch asked:

How on earth will the extra time, money and effort be spent without any impact on the primary duty of a governing body, which is to manage its school?"—[Official Report, House of Lords, 3 July 2002; Vol. 637, c. 252-3.] Conservatives and Liberal Democrats in the House of Lords made specific points about that.

The key question here is whether the burden imposed on the companies by the proposals would interfere with the management of the schools. There is no doubt, as the Minister in the House of Lords admitted, that a considerable amount of time and effort would be spent in setting up arrangements of this kind. This would be a recipe for imposing administrative burdens on schools.

In a letter to Baroness Blatch, Lord McIntosh wrote, in respect of profits that may be made by such companies:

We do not propose that profit must be spent solely in the interests of education. That raises an interesting question. Schools are, by definition, charities. They are almost entirely governed by the law relating to charities interacting with the state education system. Ultimately, they are run in the context of charitable purposes. It would be difficult to imagine that profits made from those schools should not be returned to the schools themselves.

There was some discussion of that question in the other place, but no explanation sufficient to warrant the arrangements now proposed was given. It seems clear to me that the clauses should be left out of the Bill, because there has been no clear indication of what will happen either under the regulations or in the circumstances that I have described.

Mr. Stephen O'Brien (Eddisbury)

In the context of distribution of profits, my hon. Friend touches on the relationship with the charitable purposes of education. Does he know whether the Government have considered the point raised in Committee relating to the model of co-operatives, which are run for the benefit of members, especially where schools come together for common purposes? No answer—satisfactory or otherwise—to that question has been given. It strikes me that, of all Members of Parliament, it is Labour Members—especially those who stand to represent the Co-operative movement—who should have considered and answered that question.

Mr. Cash

Indeed, and as one of my forebears invented the Co-operative movement, I have a special interest in the answer. I hope that the Minister will now answer that question, which did not receive an answer either in the other place or in Committee of the House of Commons.

Another important question remains outstanding. It was taken seriously by the Minister in the other place, but has not yet been addressed by the Minister handling the Bill here today. It relates to the question of whether or not undesirable characters could become involved in schools, which they might regard as easy targets for involvement in commercial activities. Baroness Blatch gave an example of someone who was indeed undesirable, saying that,

Had the school been unwise enough to engage in any kind of commercial activity with that person, it would have ended in tears". Extraordinarily, Lord McIntosh's reply to the noble Lady's question,

How can a set of regulations specify such undesirable or unsuitable people for the purposes of becoming a member of a company?", was:

There are two lines of protection…First, there is the good sense of the schools concerned. I hope that hon. Members take some satisfaction from that. The noble Lord continued:

We are talking about people from more than one school"— as if that had any relevance

so such a person could not be the friend of one of the governors or a friend of the head teacher of one of the schools unless the other schools involved in the company were convinced of the integrity of that friend. Do hon. Members really regard that as a convincing answer to the question of how to keep out undesirable characters—that people will have to go chasing around, asking all the different schools whether they like this chap or that one? The very notion that that is the solution to the problem is utterly unconvincing.

Lord McIntosh went on:

However, we have the protection that more than one school will be involved and there will be an independent eye cast over any invitation to join. On the question of leaving to regulations the matter of people who would be regarded as acceptable members of a company, he added:

Clearly, that will improve with experience. We have to discover that undesirable people have, in fact, been running those schools or helping to run them before we learn that from experience.

Even more astonishingly, Lord McIntosh went on to say:

We can state in regulations that the person who becomes a member of a company shall have educational objectives"— that is basically the point that I was making about charitable purposes—

… or that such a person has something to contribute to the company educationally which cannot otherwise be found. Lord McIntosh was simply ducking the question. The Government cannot, in those regulations, prescribe which people will not be desirable, so they turn the problem the other way round. Lord McIntosh continued:

We can say all sorts of things of that kind, but there will always be crooks. I hope that the Minister heard that. When asked how he would ensure that people in those companies would be fit to run schools, his noble Friend admitted that there will always be crooks.

So many questions have been asked by my noble Friends in the other place, and by my hon. Friends in Committee, that the Government have a duty at least to attempt—so far, the Minister has not done so—to answer them. Baroness Blatch said:

We know that there will always be crooks. However, we should be in the business of protecting our governors of schools. They are there not to be company chairman, company members or board members, but to ensure that good education takes place in schools and that schools are managed well in the interests of the education of the children within them."—[Official Report, House of Lords, 3 July 2002; Vol. 637, c. 241-431 I made a similar point earlier.

We must also consider the burdens on company directors and on the people running the schools, as well as the question of costs. I am sure that the Minister accepts that, inevitably, there is a need for lawyers and accountants—no doubt a battery of them—to resolve the many questions in company law that may arise. Will that not increase substantially the cost of running those schools?

Finally, if a company goes into liquidation, there is the question of whether or not the local education authority will have to pick up the tab. We have been assured that the objective of the regulations and the Bill is to provide a light touch. However, there is no evidence whatever from their construction that that will be so—far from it. More likely than not, they will increase the administrative and legal burdens and—I hope that the Minister will deal with this later—the duties imposed by statute on local education authorities would be removed.

Many issues are involved, and as the debate progresses, no doubt we shall hear more about them. The bottom line, however, is that the proposal is not a recipe for good education. Regulations are constantly spilling out of the Government. and huge administrative costs are being imposed. The Minister, I hope, will be able to deal with some of those questions, but will have enormous difficulty discharging his responsibility, as he certainly did not succeed in doing so in his opening speech. He is fairly new to his post—I was astonished by his irresponsible handling of questions that were thoroughly canvassed in the House of Lords and considered carefully in Committee. He gave us about ten minutes of truncated explanation, but did not deal with any of our questions.

Mr. Willis

It is a pleasure to follow the hon. Member for Stone (Mr. Cash). When I saw the right hon. Member for Hartlepool (Mr. Mandelson) appear on the Government Benches, I wondered whether he intended to enter the debate, and whether we would go back to old times.

I am grateful to the hon. Member for Stone for using his expertise in these matters to ask the Government some searching questions—I say that quite genuinely. As an opportunity for us to examine the Bill, the Committee stage was a travesty. The one thing that we failed to get was a clear explanation of the Government's proposal.

5.45 pm

For the Minister to come along and give a very brief exposé of what the Government are trying to achieve by restoring the two clauses does him and the House a disservice. I say that rather sadly. Either there is a great deal that the Government are trying to hide, or they do not know the answers to the questions. In either case, given the appalling record of private companies formed out of public sector organisations, it is important that we get it right in the case of schools, if we go down that road.

I shall not repeat all the arguments advanced by the hon. Member for Stone. We hope that the Minister will respond to each of the points that he made. The question who will guarantee a company's debts is crucial. I shall speak to amendment (aa) in a moment, but first I shall deal with some of the other amendments, particularly the Government's insistence on restoring clause 10. I shall return to the question whether or not the companies are limited by shares; I have a particular reason for raising it.

Let us say, for argument's sake, that the company is a shareholding company and that the shares are, as the hon. Member for Stone said, as much as £10. The liabilities on the shareholders are therefore relatively small, compared with what could be the company's debts. What would happen to that liability in terms of the assets? As it is a school company, let us say that it is operating from a computer suite within the school, as it may well do—a computer suite that had been funded partly by capital provided as part of a joint company by shareholder capital from outside.

The Minister shakes his head. With respect, that has been the attitude of Ministers throughout the discussion. Every time we ask a question, they shake their head as if to say, "That is irrelevant." Let us say that the company goes bust. What happens to all the equipment in the suite that was used by the company? The shareholders may pay up to their limit. Does the local education authority then come in and pay out the debtors, or the creditors, whichever is the case? If an LEA must be responsible as a backstop for every company set up under the Bill, it will have to find funds from other schools to pay those debts. We need answers to all the important questions of liability that arise from the clause.

We never got a clear answer as to whether the school's assets would be involved in a company. Let me give the Minister another example. There is nothing to stop a group of governors setting up a company to manage the school and its assets—or even a group of schools—and transferring the assets into that company. For example, 3 E's in Guildford set up the new King's College campus. Why should not that company take over all the schools in Guildford as a single company, form a separate company limited by shares, and then be bought out by a major plc and traded on the stock market as part of that company's portfolio? What would happen at that time? What would happen to the assets if the company got into difficulties? If it wanted to realise some of its assets to fund new developments, would it be able to close the school and sell the land, buildings or whatever else? Lord McIntosh rather alarmingly said in another place that people could take profit out of the companies. The Government have made it clear that that is possible. If a company takes profit, it also needs to share the risk.

Mr. Stephen O'Brien

I thank the hon. Gentleman for giving way. He will remember that many of those questions were asked in Committee, so it is hardly that the Government have not been given notice of them. Let us return to his example of the ICT suite, where there are assets, even though their value will be rapidly depreciating. What will happen if there is recourse to those assets, but no contract between those who are damaged and the LEA? Has the Minister discussed that matter with the Chancellor, with a view to computing contingent liabilities on the Government, as the ultimate guarantor for the LEA? Those are the reasons for the hon. Gentleman's questions and why we are looking for answers. The matter is too uncertain for anybody to have certainty about entering into a contract.

Mr. Willis

I am grateful to the hon. Gentleman for raising that issue. He and I know that most local authorities, especially shire local authorities, have fewer assets on their balance sheets than some individual schools. The El. 1 billion on school balance sheets exceeds significantly the assets of a number of LEAs. Recourse to the Chancellor might well be needed in such cases. In Committee, although the Minister was not present at the time—[Interruption.] I apologise; the hon. Gentleman was not a Minister at that time, so I do not hold him responsible for the answers that the then Minister gave. None the less, the Government can also invest in the companies. What will happen to that investment? Does the LEA have responsibility in that regard or is it ultimately part of the Government's liability? We need to know the answer to that question.

The hon. Member for Stone made a crucial point about the relationship between part 1 and the rest of the Bill. The Bill is to become the Education Act 2002, but part 1 is about innovation and the ability to disregard all other education legislation. There is a huge contradiction between part I and the intention to introduce school companies. We must be given an answer in that context.

My noble Friend Baroness Sharp of Guildford asked an important question in another place: what is the fundamental role of our schools? I do not think that she received an adequate answer. We have heard from the Chancellor today and I think that we shall hear from the Secretary of State tomorrow

The Secretary of State for Education and Skills (Estelle Morris)

indicated assent.

Mr. Willis

The Secretary of State will make a major statement about investing significant resources in schools.

Mr. Miliband

Not enough?

Mr. Willis

The Minister must wait for my speech to find out the answer.

We have heard today about a raft of new controls that will be placed on schools in relation to accessing the new resources. That is the reality of what we heard today: it is not freedom for schools; it is greater centralisation. We shall debate that issue on another occasion, but it is ironic that one of the Conservative amendments from another place deals with cutting bureaucracy. I am sure that the Secretary of State agrees with the premise of innovation and autonomy, but greater controls and obligations are being imposed on schools at the same time. My party and I believe that the core business of a school and its management and governors is to run the school effectively for its youngsters. I do not want companies to take away from that core function and I think that we need some assurance about that.

It is interesting that neither of the head teacher associations supports that part of the Bill. Neither of them wants the greater levels of autonomy—[Interruption.] The Secretary of State chunters away from a sedentary position, but the private sector does not want those things either. In the private sector, which has the freedom to do all those things, there is no desire to set up companies as well.

Mr. O'Brien

I thank the hon. Gentleman for giving way a second time. In relation to his argument about regulation, is he aware that significant expertise will be required around the board tables of the new school companies to ensure that there is sufficient knowledge about running a company and the associated liabilities and responsibilities? It is difficult to imagine that such expertise currently exists in schools and governing bodies. In support of his argument that, far from enhancing freedom, the regulations that underpin the provisions will be more burdensome, I suggest that that expertise will be needed somewhere to ensure compliance with all company law regulations.

Mr. Willis

That is what is so confusing. What is behind the provisions, and what is their objective? The hon. Gentleman is absolutely right that the bureaucracy, controls and financial investment that will be needed in order to achieve that objective are staggering, but the Government have yet to persuade us about the overall benefit.

Mr. Cash

The hon. Gentleman makes a powerful point in conjunction with my hon. Friend the Member for Eddisbury (Mr. O'Brien). Does he also accept that one of the most difficult aspects of dealing with what is meant to be a standard arrangement with regard to company law, even allowing for the fact that a great deal of competence is needed, is fitting in the required knowledge with all the requirements laid down by model constitutions and regulations? Does he agree that it will be a field day for lawyers and accountants?

Mr. Willis

Yes—that is why I was asking why we were taking this particular route. If the Government were proposing wholesale privatisation of the education system, that would be another story. I would not agree with what they were doing, but one could understand why they would wish to take the proposed approach. I cannot understand from the Minister's examples, or indeed those given by colleagues in another place, what great advantages the provisions have that could not already be achieved. We already have examples of schools working together to provide, for example, grant maintenance contracts or schools meals contracts. There are marvellous examples of bodies such as the Yorkshire Purchasing Organisation, which for 30 years has been providing joint purchasing arrangements for schools and local authorities. There are examples of airports, such as Manchester or Leeds-Bradford, in which local authorities are working together to provide a joint service. All the legislation is in place to enable those things to happen, yet we have had no explanation as to why we should proceed with the Bill.

Chris Grayling

I thank the hon. Gentleman for allowing me to intervene. Does he recall from the Committee stage that one of the areas in which the Government were unable to give clear answers was the possibility of the governing body deciding to close down its educational operations and contract in its entire education service from another school—possibly an independent school? At the extreme, the provisions allow steps to be taken that, I suspect, do not accord with the Government's aspirations.

Mr. Willis

That might be a little too close to the bone, because I think that in many ways that is the Government's aspiration. It is difficult to know exactly what they are hiding behind as regards these provisions.

6 pm

We are concerned that the Government have not properly thought through the implications for schools and LEAs in relation to company law. We are particularly concerned that school companies should not be a means for individuals to make a profit. I ask the Minister this direct question: what is there in the Bill to prevent any individual, including a member of the governing body. from siphoning off profits? On Third Reading, Lord McIntosh of Haringey stated:

Let me make it clear that when talking about profits there is no question of governing bodies taking their share of the profits to use for anything other than the educational needs of their schools. There is no possibility of siphoning off profits".—[Official Report, House of Lords, 3 July 2002; Vol. 637, c. 252.] In Committee, however, he was less emphatic about public funds being used for private profit when he said:

Preventing any profit being used for purposes other than education in participating schools may in practice mean that it cannot be paid to company members other than schools. That is an unnecessary interference. There is no reason why schools should not innovate in potentially profitable ways and there is no reason why they should not bring in outside partners to help them to achieve that. They will still benefit financially from it, but that may be achieved only if they have outside partners who can participate for a profit."—[Official Report, House of Lords, 7 May 2002; Vol. 634, c. 1108] There is a direct contradiction between the statements that were made in Committee and on Third Reading, and it is important that the Minister makes it clear which is right.

That brings me to my amendment concerning whether school companies should be limited by shares or by guarantee. I want to remove the possibility of the former option because that would remove the element of potential profiteering by individuals. If the Government are determined to get the Bill through—the Minister will have to give a very convincing argument when he winds up—they must give us a guarantee that any profit made out of a public investment of funds into a company returns to the school or schools for investment and does not go to private individuals or private organisations. The amendment would limit school companies by guarantee rather than shares to ensure that no individual profits. If the Minister does not agree with that—if he believes that outside agents can invest and take a profit—he must accept that governors and teachers should also be able to invest and make a profit. I am not debating whether that is an honourable position for the Minister to take, but he must make it absolutely clear whether it is the case. If so, he will not have the support of Liberal Democrats here or in another place.

Chris Grayling

We had a robust debate about the provisions in Committee, and it is clear that the concerns that were raised in the series of amendments tabled by my hon. Friends and Liberal Democrat Members, and the whole tone of the debate, have been reflected in the other place and back here again through the amendments containing noble Lords' recommendations.

Those concerns arise because the provisions are confused and unclear, and contain several significant weaknesses. I am at a loss, as are other hon. Members, to understand what they will really add to the Bill or what benefits they will bring to schools. There is no great demand for those steps to be taken. The Government seem to be opening up the education system to complexity and risk that it does not need. My hon. Friend the Member for Stone (Mr. Cash) clearly set out many of the issues surrounding liability, especially financial liability, and the complexities of corporate law that schools will end up having to deal with.

The Government have failed to explain several matters. Indeed, some of the contributions made by Ministers in Committee were confused, to say the least. One such matter is LEA liability. The key question is how the LEA's ultimate liability is to be enforced in law. How is somebody who has suffered a loss as a result of mismanagement in a company established by a governing body to go through the process of getting their money back from the LEA? That is far from clear, as it is not stipulated in the Bill. We are on a wing and a prayer. The Government may be able to explain it—no doubt the Minister will say that "regulations may provide"—but there is no clear legal chain that would enable it to happen.

Nor has there been a clear explanation of the nature of the liability that will be built up. There is great confusion about that. The then Minister, the hon. Member for East Ham (Mr. Timms), said in Committee that he envisaged two types of companies being set up:

One is formed to undertake procurement activities on behalf of several schools, and the other is a service provider company in which several schools come together to provide services to either themselves or other schools. When he went on to talk about liability, he confused the matter considerably. He said:

There is a distinction between the two. Local education authorities will be liable for some of the debts of procurement companies, but not for those of the service provider companies."— [Official Report. Standing Committee G, 18 December 2001; c. 170.] If those lending money to, and doing business with, service provider companies do not have the security of LEA guarantees, where do those companies stand in terms of liability? Who is responsible for debts? What happens if debts are secured against assets? As the hon. Member for Harrogate and Knaresborough (Mr. Willis) said, the nature of those assets is a grey area between operational activities in the school and the activities of the company. How will liability be established in the event of the corporate failure of one of the service provider companies? When Ministers use the phrase, "It is envisaged that", as they frequently have in this context, how can anyone be clear about what the Government are trying to do?

My hon. Friend the Member for Stone referred to the complexities of dealing with company law. School governors already deal with huge amounts of complex rules and regulations. The days are long gone since governors could sit passively on the governing body, listening to what the head had to say and chipping in a few words here and there. That may have been so a generation ago, but there is a world of difference today. Governing bodies need to be sharp, to be on the ball and to have substantial professional expertise. Yet we are now saying to the all-too-few volunteers willing to join school governing bodies, "Not only do you have to take on board the very considerable regulatory responsibilities that are being placed on your shoulders"—particularly, but not exclusively, by this Government—"but if your school is to move down the road towards implementing these provisions, you will have to learn company law as well."

Mr. Cash

Does my hon. Friend agree that one of the most extraordinary contributions made by Ministers in the other House when these arguments were being advanced was to suggest that it is just a voluntary arrangement that does not have to be complied with? That is to dismiss the whole complexity of the framework in the Bill as something that might just happen on the margins. Does my hon. Friend agree that that is an extraordinary position for the Government to find themselves in?

Chris Grayling

My hon. Friend makes an important point. From the point of view of any governor or anybody who is involved in the management of a school, there is no way in which any of these activities could be at the margins. If the school sets up a company, that person must have a duty of care and a detailed knowledge and understanding of what is going on. The provision could represent a huge diversion for governing bodies.

The implications for the work load in schools are substantial. The Government failed to respond adequately to a point that was made about that in Committee. My hon. Friend the Member for Eddisbury (Mr. O'Brien) tabled an amendment that would have provided for the head teacher of a school that set up a company to be on the company's board. The Government said that that was unnecessary, but how can governing bodies make decisions that can fundamentally affect the school's operation, assets, grounds, space, staff and resources without the head teacher having a say in them'?

Let us consider the work load of other staff. That, too, was tackled in Committee, but again the Minister gave only vague responses. When we considered work load, he said:

Any member of … a school who became involved with a company's activities would have to agree to do that. There is a variety of ways in which the member of staff could work for the company. For example, they could be on a temporary secondment, or part of the working week could be spent on company rather than school business. Different remuneration arrangements would be needed in different circumstances … In reality, arrangements would be best left to local discussion and agreement."—[Official Report, Standing Committee G, 13 December 2001; c. 157.] How would that work practically in schools? When the governing body says that it has set up a company and needs the school to take specific action to contribute to it, how many members of staff will dare to say, "No"?

At a time when teachers' work load is already great, we risk placing on head teachers and staff considerable additional responsibilities for a measure that will provide no obvious benefits. As hon. Members have said, many schools are already undertaking the activities for which the Bill provides. The Minister mentioned common procurement; many schools do that. Many LEAs procure collectively on behalf of their schools. Schools already have the ability to work together. In Committee, the Minister suggested that schools might work together to provide common transport services. They do not need to set up a company and take on all the attendant responsibilities to do that.

As I said in my intervention on the hon. Member for Harrogate and Knaresborough, the provisions' boundaries are unclear. A school could contract out its whole education system under the Bill. When I made that point in Committee, the Minister replied:

That does not sound like a likely scenario."—[Official Report, Standing Committee G, 13 December 2001; c. 157.] In other words, it is possible in law; it is simply unlikely.

Let us consider the borrowing restrictions and the liabilities that the companies could accumulate. The Government are quick to say that the companies need the LEAs' permission to borrow and that everything is nicely covered. What about contingent liabilities? They are topical because the Government are keen on them and their non-appearance on national balance sheets. What happens if a company that a school set up accumulates substantial contingent liabilities that are not related to borrowing? Where is the watchdog control over that? Are we saying that LEAs are liable, regardless of what happens and of the financial steps taken by the directors? Can directors trade in the full knowledge that the LEA will ultimately pick up the bill if they do not succeed?

Mr. Cash

Does my hon. Friend agree that the National Audit Office is taking a diligent interest in off balance sheet activities and that we are considering another example that it will have to examine?

Chris Grayling

I hope that the National Audit Office never gets the opportunity because the House will accept the Lords amendment and reject the provisions. I do not believe that the measures will provide educational benefit or generate significant cost savings for schools. They risk being a distraction to those who run schools—a job that is already greatly burdened. I hope that hon. Members will come to their senses, support the Lords and accept that such provisions should not be included in the Bill.

Mr. Miliband

Our debate of the past hour and a half has been interesting. The hon. Member for Stone (Mr. Cash) said that he did not want to be considered difficult. I do not want to make any such accusation against him; his contributions are all part of the parliamentary scrutiny that the Government welcome because we hope that it will improve the Bill. However, I wish that he had shown a little more of the spirit of the hon. Member for Altrincham and Sale, West (Mr. Brady), who so passionately supported the concept. The debate has covered a wide range of issues, and I shall try to deal with as many of them as possible.

6.15 pm

Many contributions focused on liability and I shall deal with that. I shall also try to cover the more basic issues that the hon. Member for Harrogate and Knaresborough (Mr. Willis) raised. He asked what the point of the provisions were. First, I want to make an important preliminary point. No school will be able to form a company unless it gets the LEA's agreement. The hon. Member for Stone gave an example of a failing school that, not content with failing its pupils, could create a company that would fail the pupils of other schools. Frankly, that will not happen. No LEA will agree to allow a failing school to set up a company.

Mr. Cash

The Minister knows about the exchanges that took place in another place. First, there is the question whether the LEA has the competence to handle questions on the matters that we have been discussing. Secondly, I am sure that he remembers that Lord McIntosh said that the LEA would intervene only when the companies had got into serious trouble. That is too late. We want to avoid companies getting into trouble in the first place. The Bill will not help with that problem.

Mr. Miliband

I look forward to lengthy discussions about the operation of local education authorities as part of the hon. Gentleman's new, roving brief. We will see whether his new alliance with the Liberal Democrats survives such scrutiny. We are now in the second round of Ofsted inspections of LEAs. That is a rigorous process, and it is inconceivable that any LEA, however poor its performance, will agree that a failing school should set up a company. The Bill contains a safeguard that LEAs can agree or disagree with any proposal.

Mr. Andrew Turner (Isle of Wight)

Perhaps LEAs would not agree to allow a failing school to set up a company. However, some LEAs are surprised by the failure of schools. They may already have given such schools approval.

Mr. Miliband

We have rich data sets that explain the performance of different schools. They are based not only on raw scores but increasingly on value-added information. The identity of schools that are not performing as well as they might are clear to any LEA. Ofsted inspection increasingly focuses on making sure that LEAs are clear about that. The hon. Member for Isle of Wight (Mr. Turner) missed the early part of the debate and I do not believe that his point was valid. Out of the corner of my eye, I can see the hon. Member for Harrogate and Knaresborough twitching, and I am delighted to give way to him.

Mr. Willis

I am delighted that the Minister is delighted. However, there is a genuine contradiction in the provisions. It relates to part 1, which deals with innovation. In some of the so-called failing schools or schools in challenging circumstances, there may be a need to do exactly what the Minister supports. Is the Minister saying that we want the Bill only for so-called successful schools?

Mr. Miliband

The hon. Gentleman may be trying to have his cake and eat it. I am trying to make it clear that the provisions contain a safeguard to ensure that LEAs consider seriously any proposals for school companies.

Mr. Brady

Will the Minister confirm whether it would be possible for the LEA to contract out that function?

Mr. Miliband

It would not be possible for LEAs to do that. The Bill is clear that LEAs must give the school permission to set up a company. We focused on the financial management of companies.

It is important that companies, like schools, are well managed. That is why we proposed a supervising authority to provide a protective framework. If a school company fails financially, each company member's liability will be limited to a nominal figure of approximately £10 in the case of a company limited by guarantee, or the amount outstanding on the shares in the case of a company limited by shares. Company members would determine the value of the shares, which may be a nominal sum and the amount, if any, outstanding on the shares would always be comfortable with the liability.

Hon. Members asked what would happen if the company got into debt. It will be difficult for a company to get into debt through borrowing and be unable to repay the debts out of future income. We are including in the regulations the requirement for the company to seek the supervising authority's permission before it can borrow money. A company that gets into debt will have to arrange a schedule of repayments with its creditors.

Chris Grayling rose

Mr. Miliband

I want to make some progress, because I have taken five interventions and I am still on my first point. [Interruption.] I shall answer hon. Members' questions in my own way. I think that I am answering them pretty accurately, but it is hard to answer them if I am not allowed to make my case.

I shall carry on with my argument. Several hon. Members asked what would happen if a company were to fail. The delegated budget of individual member schools would not be at risk, and I shall explain why. Purchasing companies would be spending member schools' delegated budgets, and would therefore be deemed to be acting as agents of the LEA. The LEA would be liable for the company's debts, in the event of company failure, in the same way that the LEA would be liable for an individual school's debts when the school was acting as the LEA's agent. This would not be the case for service delivery companies, because such a company would not be acting as the LEA's agent. If a service delivery company became insolvent, its liabilities would not pass to its members, because it would be a limited liability company.

If a school company were unable to pay its debts, the normal route, which applies to all companies, of placing the company in administration or winding the company up, would be open to it and its creditors. I can see the hon. Member for Harrogate and Knaresborough twitching again. If he will let me proceed, I shall see whether I can answer his question.

Clause 2 has been mentioned by several hon. Members. Nothing in the power to innovate can affect company law. This provision will apply only to educational law, so it cannot affect liability in the way that has been suggested. School companies are not qualifying bodies under clause 2, so companies cannot be exempted from any law. All the examples, including that of sports injuries, raised by the hon. Member for Stone in his wide-ranging speech, are existing potential liabilities. The existence of companies will have no effect on them. Companies will not be running schools, so none of the issues raised in relation to the running of schools arises. The companies will not own schools' premises or employ their staff.

The hon. Member for Stone also asked whether a school company would be required, by regulations, to take out insurance to cover potential liabilities. These companies would not be able to take over the running of a school, so they would not be liable in the example that he gave, which related to negligence and causing injury during sports activities.

Mr. Cash

The Minister is obviously relying heavily on the notes with which he has been supplied. [Interruption.] That is a simple fact; he is just reading out what he has been given. I have the gravest doubt that what he is saying will turn out, in due course, to be the case. There is an interaction between the potential use of clause 2 and the removal of these education functions—if that is to happen. The Minister has not given the House an answer on whether it is intended to use those provisions in this context, and we take issue with the Government on that point.

Mr. Miliband

I am not sure whether the hon. Gentleman is as well known for his generosity to other hon. Members as he is for his warnings about the dire consequences of various Government actions, but we shall see.

The hon. Gentleman also raised the question of assets, as did the hon. Member for Harrogate and Knaresborough. It will be up to a school to decide whether to transfer assets to a company, but there would be no reason for it to do so. A school would be no more likely to transfer assets to a school company in future than it is now. Schools do not do so now, and there will be no reason for them to do so in future.

Mr. Willis

The Minister said that I was twitching earlier. Is he saying that a school can use its budget share, or part of it, to set up a company and that, if it fails, it will be the LEA that will be subject to the liabilities under the new arrangements?

Mr. Miliband

Yes. That is why a safeguard has been set up for LEAs, in that they will need to approve the setting up of the companies.

Chris Grayling

The Minister did not answer a question I asked him a moment ago. Will a company have the right to enter into leasing agreements and other off balance sheet arrangements, and would the LEA ultimately be liable if the company failed, despite having had no sanction over whether it should be set up?

Mr. Miliband

I do not think that the off balance sheet question arises. Opposition Members are asking us to prescribe every conceivable detail of innovation that a school might exercise in relation to setting up a school company. We are saying that we have an exciting avenue for development here, and we want to give schools wide discretion to avail themselves of it, with safeguards built in.

The question of enforcement was raised by various hon. Members. This would involve an ordinary civil action in the courts, and recovery would be by debtors in the normal way, as is the position now for all purchasing by schools. The power to innovate, for which we are legislating, has no impact on that. The hon. Member for Stone also mentioned undesirable people being brought into schools to run the companies. The Government have made it clear that they will regulate to prevent undesirable people from being members of a company; we have said so in correspondence. All categories of persons who are prevented from being school governors will also be prevented from joining school companies.

The hon. Member for Harrogate and Knaresborough asked whether we would be distracting schools from their core function. The answer to that is no. These proposals are about encouraging co-operation between schools to help them to perform their roles more effectively, serving their own pupils and other pupils in the locality. Allowing teachers the professional development benefits of sharing their expertise with other schools can benefit both the providing and receiving schools. The hon. Gentleman asked whether that was not being done already. A certain amount of co-operation does already take place, but the power will provide clarity that the school's governing body can form a company to do more than it is able to do at the moment. Without such a power, there would be considerable doubt that a governing body could participate in a company that did more than oversee or carry out functions in relation to an individual school.

Mr. Andrew Turner rose

Mr. Miliband

I have been extremely generous in giving way, and I think it is about time that we finished this debate. There are some big issues still to be debated, and I am sure that we should be attacked later for not giving enough time to them, if we did not get on and get through this part of the debate.

The amendment tabled by the hon. Member for Harrogate and Knaresborough seeks to remove the option for companies to be limited by shares. I do not think he has made a strong case for that. When school companies choose to deliver services to other schools, they may well find being limited by shares rather than limited by guarantee a better. easier structure in which to work. 1 do not see why they should be denied that choice. For example, if a private sector body generated some innovative curriculum materials, it would make a profit from them. If one of our best schools did so, I see no reason why the school itself should not benefit. It is not true that a company limited by guarantee could not distribute any operating profit to its members. It is not the normal type of company structure adopted for paying profit to members, but there is scope for that to happen.

I hope that I have answered in full all the points that have been raised. This is an important provision and I urge the House to support the Government.

Question put, That this House disagrees with the Lords in the said amendment:

The House divided: Ayes 320, Noes 168.

Division No. 307]	[6.27 pm
AYES
Adams, Mrs Irene (Paisley N)	Austin, John
Ainger, Nick	Bailey, Adrian
Ainsworth, Bob (Cov'try NE)	Baird, Vera
AYES
Alexander, Douglas	Banks, Tony
Anderson, Rt Hon Donald (Swansea E)	Barnes, Harry
	Barron, Rt Hon Kevin
Anderson, Janet (Rossendale)	Bayley, Hugh
Armstrong, Rt Hon Ms Hilary	Begg, Miss Anne
Atherton, Ms Candy	Bell, Stuart
Atkins, Charlotte	Benn, Hilary

Bennett, Andrew	Eagle, Maria (L'pool Garston)
Benton, Joe	Edwards, Huw
Berry, Roger	Ellman, Mrs Louise
Best, Harold	Ennis, Jeff
Betts, Clive	Etherington, Bill
Blackman, Liz	Farrelly. Paul
Blears, Ms Hazel	Field, Rt Hon Frank (Birkenhead)
Blizzard, Bob	Fitzpatrick, Jim
Borrow, David	Fitzsimons, Mrs Loma
Bradley, Rt Hon Keith (Withington)	Flynn, Paul
Bradley, Peter (The Wrekin)	Follett, Barbara
Brennan, Kevin	Foster, Rt Hon Derek
Brown, Rt Hon Nicholas (Newcastle E & Wallsend)	Foster, Michael (Worcester)
	Foster, Michael Jabez (Hastings)
Browne, Desmond	Foulkes, George
Bryant, Chris	Francis, Dr Hywel
Buck, Ms Karen	Gapes, Mike
Burden, Richard	Gardiner, Barry
Burnham, Andy	George, Rt Hon Bruce (Walsall S)
Caborn, Rt Hon Richard	Gerrard, Neil
Cairns, David	Gibson, Dr Ian
Campbell, Alan (Tynemouth)	Goggins, Paul
Campbell, Mrs Anne (C'bridge)	Griffiths, Jane (Reading E)
Campbell, Ronnie (Blyth V)	Griffiths, Win (Bndgend)
Casale, Roger	Grogan, John
Caton, Martin	Hall, Mike (Weaver Vale)
Cawsey, Ian	Hall, Patrick (Bedford)
Challen, Colin	Hamilton, David (Midlothian)
Chapman, Ben (Wirral S)	Hamilton, Fabian (Leeds NE)
Chaytor, David	Hanson, David
Clapham, Michael	Harris, Tom (Glasgow Cathcart)
Clark, Mrs Helen (Peterborough)	Havard, Dai
Clark, Dr Lynda (Edinburgh Pentlands)	Healey, John
	Henderson, Doug (Newcastle N)
Clark, Paul (Gillingham)	Henderson, Ivan (Harwich)
Clarke, Rt Hon Charles (Norwich S)	Hendrick, Mark
	Hepburn, Stephen
Clarke, Rt Hon Tom (Coatbridge)	Heppell, John
Clarke, Tony (Northampton S)	Hill. Keith
Clelland, David	Hinchliffe, David
Clwyd, Ann	Hodge, Margaret
Coaker, Vernon	Hoey, Kate
Coffey, Ms Ann	Hope, Phil
Cohen, Harry	Hopkins, Kelvin
Coleman, lain	Howarth, Rt Hon Alan (Newport E)
Colman, Tony	Howarth, George (Knowsley N)
Cooper, Yvette	Hughes, Beverley (Stretford)
Corbyn, Jeremy	Hughes, Kevin (Doncaster N)
Corston, Jean	Humble, Mrs Joan
Cousins, Jim	Hurst, Alan
Cox, Tom	Iddon, Dr Brian
Crausby, David	Illsley, Eric
Cruddas, Jon	Ingram, Rt Hon Adam
Cryer, Mrs Ann (Keighley)	Irranca—Davies, Huw
Cryer, John (Hornchurch)	Jackson, Glenda (Hampstead)
Cunningham, Rt Hon Dr Jack (Copeland)	Jackson, Helen (Hillsborough)
	Jenkins, Brian
Cunningham, Jim (Cov'try S)	Johnson, Alan (Hull W &Hessle)
Dalyell, Tam	Jones, Jon Owen (Cardiff C)
Davey, Valerie (Bristol W)	Jones, Kevan (N Durham)
David, Wayne	Jones, Lynne (Selly Oak)
Davidson, Ian	Jones, Martyn (Clwyd S)
Davies, Rt Hon Denzil (Llanelli)	Jowell, Rt Hon Tessa
Davis, Rt Hon Terry (B'ham Hodge H)	Joyce, Eric
	Keeble, Ms Sally
Dawson, Hilton	Keen, Alan (Feltham & Heston)
Dean, Mrs Janet	Keen, Ann (Brentford & Isleworth)
Dhanda, Parmjit	Kelly, Ruth
Dismore, Andrew	Kemp, Fraser
Dobbin, Jim	Kennedy, Jane (Wavertree)
Donohoe, Brian H	Khabra, Piara S
Doran, Frank	Kidney, David
Dowd, Jim	Kilfoyle, Peter
Drew, David	King, Andy (Rugby & Kenilworth)
Drown, Ms Julia	Knight, Jim (S Dorset)
Eagle, Angela (Wallasey)	Ladyman, Dr Stephen

Lammy, David	Pond, Chris
Lawrence, Mrs Jackie	Pope, Greg
Laxton, Bob	Pound, Stephen
Lazarowicz, Mark	Prentice, Ms Bridget (Lewisham E)
Lepper, David	Prentice, Gordon (Pendle)
Leslie, Christopher	Prescott, Rt Hon John
Levitt, Tom	Primarolo, Rt Hon Dawn
Lewis, Ivan (Bury S)	Purchase, Ken
Lewis, Terry (Worsley)	Purnell. James
Liddell, Rt Hon Mrs Helen	Quin, Rt Hon Joyce
Linton, Martin	Quinn, Lawrie
Lloyd, Tony	Rammell, Bill
Love, Andrew	Rapson, Syd
Lucas, Ian	Reed, Andy (Loughborough)
Luke, lain	Robertson, John (Glasgow Anniesland)
Lyons, John
McAvoy, Thomas	Roche, Mrs Barbara
McCabe, Stephen	Rooney, Terry
McCafferty, Chris	Ross, Emie
McCartney. Rt Hon Ian	Roy, Frank
MacDonald, Calum	Ruane, Chris
McDonnell, John	Russell, Ms Christine (Chester)
MacDougall, John	Ryan, Joan
McFall, John	Salter, Martin
McGuire, Mrs Anne	Sarwar, Mohammad
McIsaac, Shona	Savidge, Malcolm
McKechin, Ann	Sawford, Phil
McKenna, Rosemary	Sedgemore, Brian
Mackinlay, Andrew	Sheerman, Barry
McNamara, Kevin	Sheridan, Jim
McNulty, Tony	Shipley, Ms Debra
MacShane, Denis	Simon, SiÔn
Mactaggart, Fiona	Singh, Marsha
McWalter, Tony	Skinner, Dennis
McWilliam, John	Smith, Rt Hon Andrew (Oxford E)
Mahmood, Khalid	Smith, Angela (Basildon)
Mahon, Mrs Alice	Smith, Rt Hon Chris (Islington S)
Mallaber, Judy	Smith, Geraldine (Morecambe)
Mendelson Rt Hon Peter	Smith, Llew (Blaenau Gwent)
Mann, John	Southworth, Helen
Maris, Rob	Squire, Rachel
Marsden, Gordon (Blackpool S)	Starkey, Dr Phyllis
Marshall & Andrews, Robert	Steinberg, Gerry
Martlew, Eric	Stewart, David (Inverness E)
Meacher, Rt Hon Michael	Stewart, Ian (Eccles)
Meale, Alan	Stinchcombe, Paul
Merron, Gillian	Stuart, Ms Gisela
Michael, Rt Hon Alun	Sutcliffe, Gerry
Miliband, David	Taylor, Ms Dari (Stockton S)
Miller, Andrew	Taylor, David (NW Leics)
Mitchell, Austin (Gt Grimsby)	Taylor, Dr Richard (Wyre F)
Moffatt, Laura	Thomas, Gareth (Clwyd W)
Mole, Chris	Thomas, Gareth (Harrow W)
Moonie, Dr Lewis	Timms, Stephen
Morley, Elliot	Tipping, Paddy
Morris, Rt Hon Estelle	Todd, Mark
Mountford, Kali	Touhig, Don
Mudie, George	Trickett, Jon
Mullin, Chris	Truswell, Paul
Munn, Ms Meg	Tumer, Dennis (Wolverh'ton SE)
Murphy, Denis (Wansbeck)	Tumer, Dr Desmond (Kemptown)
Murphy, Jim (Eashvood)	Tumer, Neil (Wigan)
Norris, Dan	Twigg, Derek (Halton)
O'Brien, Bill (Normanton)	Twigg, Stephen (Enfield)
Olner, Bill	Tynan, Bill
Organ, Diana	Vaz, Keith
Osborne, Sandra (Ayr)	Vis, Dr Rudi
Owen, Albert	Walley, Ms Joan
Palmer, Dr Nick	Ward, Claire
Pearson, Ian	Wareing, Robert N
Perham, Linda	White, Brian
Picking, Anne	Williams, Rt Hon Alan (Swansea W)
Pickthall, Colin
Pike, Peter	Winnick, David
Plaskitt, James	Winterton, Ms Rosie (Doncaster C)
Pollard, Kerry	Wood, Mike

Woodward, Shaun	Tellers for the Ayes:
Worthington, Tony
Wright, David (Telford)	Mr. Ivor Caplin and
Wright, Tony (Cannock)	Mr. Phil Woolas.
NOES
Ainsworth, Peter (E Surrey)	Heald, Oliver
Allan, Richard	Heath, David
Amess, David	Heathcoat-Amory, Rt Hon David
Arbuthnot, Rt Hon James	Hendry, Charles
Atkinson, David (Bour'mth E)	Hoban, Mark
Atkinson, Peter (Hexham)	Holmes, Paul
Bacon, Richard	Horam, John
Baker, Norman	Jack, Rt Hon Michael
Baldry, Tony	Jackson, Robert (Wantage)
Barker, Gregory	Johnson, Boris (Henley)
Baron, John	Keetch, Paul
Barrett, John	Kennedy, Rt Hon Charles (Ross Skye & Inverness W)
Bellingham, Henry
Bercow, John	Key, Robert
Blunt, Crispin	Kirkbride, Miss Julie
Boswell, Tim	Kirkwood, Archy
Bottomley, Peter (Worthing W)	Laing, Mrs Eleanor
Brady, Graham	Lait, Mrs Jacqui
Brake, Tom	Lamb, Norman
Breed, Colin	Laws, David
Browning, Mrs Angela	Leigh, Edward
Burns, Simon	Letwin, Oliver
Burnside, David	Lewis, Dr Julian (New Forest E)
Burstow, Paul	Liddell-Grainger, Ian
Burt, Alistair	Lidington, David
Butterfill, John	Lilley, Rt Hon Peter
Cameron, David	Llwyd, Elfyn
Campbell, Rt Hon Menzies (NE Fife)	Loughton, Tim
	Luff, Peter
Cash, William	MacKay, Rt Hon Andrew
Chapman, Sir Sydney (Chipping Bamet)	Maclean, Rt Hon David
	McLoughlin, Patrick
Chidgey, David	Malins, Humfrey
Chope, Christopher	Maples, John
Clappison, James	Marsden, Paul (Shrewsbury)
Clarke, Rt Hon Kenneth (Rushcliffe)	Maude, Rt Hon Francis
	Mawhinney, Rt Hon Sir Brian
Clifton-Brown, Geoffrey	May, Mrs Theresa
Collins, Tim	Moore, Michael
Cormack, Sir Patrick	Moss, Malcolm
Cotter, Brian	Murrison, Dr Andrew
cran, James	Oaten, Mark
Curry, Rt Hon David	O'Brien, Stephen (Eddisbury)
Davey, Edward (Kingston)	Opik, Lembit
Djanogly, Jonathan	Osbome, George (Tatton)
Duncan, Alan (Rutland & Melton)	Page, Richard
Duncan Smith, Rt Hon lain	Paice, James
Evans, Nigel	Paterson, Owen
Fabricant, Michael	Pickles, Eric
Field, Mark (Cities of London)	Portillo, Rt Hon Michael
Flight, Howard	Price, Adam
Forth. Rt Hon Eric	Prisk, Mark
Foster, Don (Bath)	Pugh, Dr John
Francois, Mark	Randall, John
Gale, Roger	Redwood, Rt Hon John
Garnier, Edward	Reid, Alan (Argyll & Bute)
George, Andrew (St Ives)	Rendel, David
Gibb, Nick	Robathan, Andrew
Gillan, Mrs Cheryl	Robertson, Hugh (Faversham)
Goodman, Paul	Robertson, Laurence (Tewk'b'ry)
Gray, James	Roe, Mrs Marion
Grayling, Chris	Rosindell, Andrew
Green, Damian (Ashford)	Ruffley, David
Grieve, Dominic	Russell, Bob (Colchester)
Gummer, Rt Hon John	Sanders, Adrian
Hague, Rt Hon William	Sayeed, Jonathan
Hammond, Philip	Selous, Andrew
Hancock, Mike	Shephard, Rt Hon Mrs Gillian
Harris, Dr Evan (Oxford 14.)	Simmonds, Mark
Hawkins, Nick	Simpson, Keith (Mid-Norfolk)

Smyth, Rev Martin (Belfast S)	Waterson, Nigel
Spelman, Mrs Caroline	Watkinson, Angela
Spink, Bob	Webb, Steve
Stanley, Rt Hon Sir John	Whittingdale, John
Streeter, Gary	Wiggin, Bill
Stunell, Andrew	Wilkinson, John
Syms, Robert	Willetts, David
Tapsell Sir Peter	Williams, Hywel (Caernarfon)
Taylor John (Solihull)	Williams, Roger (Brecon)
Taylor, Sir Teddy	Willis, Phil
Thurso John	Wilshire, David
Tonge, Dr Jenny	Winterton, Sir Nicholas (Macclesfield)
Tredinnick, David	Yeo, Tim
Trend, Michael	Young, Rt Hon Sir George
Turner, Andrew (Isle of Wight)
Tyler, Paul	Tellers for the Noes:
Viggers. Peter	Mr. Desmond Swayne and
Walter, Robert	Mr. Julian Brazier.

Question accordingly agreed to.

Lords amendment disagreed to.

Mr. Willis

I beg to ask leave to withdraw amendment (aa).

Amendment, by leave, withdrawn.

Government amendment (a) to the words so restored to the Bill, agreed to.

Lords amendment: No. 13 disagreed to.

Government amendments (a) to (c) to the words so restored to the Bill, agreed to.