HL Deb 20 June 1985 vol 465 cc431-7

7.35 p.m.

Read a third time.

Clause 2 [Powers of local education authorities]:

The Earl of Swinton moved Amendment No. 1: Page 2, leave out line 31.

The noble Earl said: My Lords, in moving Amendment No. 1, with your Lordships' permission I should also like to speak to Amendments Nos. 2, 4, 5, 6 and 7. Amendment No. 2: Page 2, leave out line 33. Amendment No. 4: Clause 3, page 4, line 7, after ("a") insert ("general"). Amendment No. 5: Page 4, line 10, at end insert— ("(3A) Any revenue account kept by an authority under this section and any statement of account prepared by an authority under this section shall show the full cost to the authority of goods or services which are supplied under this Act and which are relevant to that account or statement."). Amendment No. 6: Page 4, line 14, at end insert— ("(4A) Income and expenditure attributable to the supply of goods or services in circumstances such as are mentioned in section 2(4) above are to be disregarded for the purposes of subsection (4) above, whether or not the goods or services are supplied for less than their open market value."). Amendment No. 7: Page 4, line 15, leave out ("such an account") and insert ("any revenue account kept by a local education authority under this section").

I hope that these amendments will meet the concern expressed at previous stages by the noble Baroness, Lady David, and others about the requirement that goods and services must be supplied at not less than their full cost. It would be no exaggeration to say that this has proved to be the Bill's most difficult and controversial aspect. The Government have examined the issue most carefully in the light of representations that they received. In this respect our objectives in the Bill are, first, that there should be no diversion of resources from academic provision to the institutions' commercial enterprises; secondly, that there should be no possibility of unfair competition between publicly-funded institutions damaging private-sector business; and, thirdly, that there should be no encouragement in the Bill to engage in ventures which will be loss-makers from the word go.

We accept, however, that the Bill as currently drafted would present an authority with severe problems if a product's development costs were to exceed estimates, or the market were to collapse—for example, due to technical improvements elsewhere—with the result that the market price stood below the full cost of production. In such circumstances, the LEA could not, as the Bill currently stands, sell the product at all. Plainly this would be an unsatisfactory state of affairs. But simply to remove the full-cost principle altogether would be no solution either, however, since this would fail to meet the first two objectives.

The amendments proposed today effectively switch the full cost principle from the Bill's pricing provision, in Clause 2(3) to its accounting provisions in Clause 3. Local authorities will still be prevented from giving hidden subsidies to commercial activities at the expense of their educational provision and will be strongly discouraged by the "best endeavours" duty to secure a surplus on the revenue account from engaging in ventures which will be loss-makers from the word go. They will still be obliged to sell at market value so that competitors are protected from unfair trading practices; but if the market value stands below cost, then they can still sell at whatever price they can get. Their "best endeavours" will be manifest by their ensuring that taken as a whole the profits exceed the losses, thus putting them as nearly as may be into the same position as a private business.

To achieve all this, six amendments are required to be passed together. The first two amendments, Nos 1 and 2 in the Marshalled List remove the requirement to sell at full cost. Instead, under Amendment No. 5 authorities will have to record in their revenue account the full cost to them of all goods and services supplied under the Bill's powers, whether or not the supplies result in a profit or loss. Finally, Amendment No. 6 exempts the authority from their duty to use their best endeavours to keep the revenue account in surplus in so far as it applies to supplies to research councils or arising in the normal course of educational activities. Amendments Nos. 3 and 4 are purely drafting amendments, consequent upon the others in this group. I beg to move.

Baroness David

My Lords, as I have tried on each occasion to leave out line 31, or to amend it, naturally I can do nothing but welcome this amendment. I am grateful for what the Minister has achieved. Possibly we should have liked a little more leeway. I think that the accounting provision will still cause a certain amount of administrative trouble; but the main problem has been eased and I am extremely pleased about that. I shall be glad to support the amendments.

On Question, amendment agreed to.

The Earl of Swinton moved Amendment No. 2:

[Printed above.]

On Question, amendment agreed to.

Clause 3 [Financial and accounting provisions]:

The Earl of Swinton moved Amendment No. 3: Page 3, line 43, at end insert— (" ( ) Before determining a rate the Secretary of State shall consult such bodies representing local education authorities as appear to him to be concerned and any local education authority with whom consultation appears to him to be desirable.").

The noble Earl said: My Lords, I promised at the Report stage that I would bring forward an amendment today, following the withdrawal by the noble Baroness, Lady David, of her own amendment on the same subject. I hope that the noble Baroness will be even happier with this amendment because, if anything it is a little stronger than the version that she put forward last week. It places a duty on the Secretary of State not merely to permit representations to be made, but actively to consult appropriate local authority associations and local education authorities before fixing any minimum rates of interest on loans to companies. I should perhaps also add that we shall of course fully consult with the local authorities on every aspect of the Bill's provisions and effects, including accounts, limited companies, ownership of patent rights, pricing practice, and so on. I beg to move.

Baroness David

My Lords, once again I have to say that I welcome this and am grateful for the Government amendment. The worry throughout this Bill has been that the local authorities have not been trusted enough by the Secretary of State and the Government, and this goes some way at any rate to meeting those considerations. I think that possibly the Secretary of State still appears just a little too much in the Bill, but this is certainly a great improvement, and for that I am grateful.

On Question, amendment agreed to.

The Earl of Swinton moved Amendments Nos. 4 to 7 en bloc.

[Printed above.]

The noble Earl said: My Lords, it might be convenient if I move Amendments Nos. 4 to 7 together. I have spoken to them.

On Question, amendments agreed to.

The Earl of Swinton moved Amendment No. 8:

Page 4, line 29, at end insert— ("( ) Without prejudice to the generality of this section, the powers conferred upon the Secretary of State by this section may be exercised separately and differently as respects England and Wales.").

The noble Earl said: My Lords, the purpose of this amendment is simply to remove any doubt that the Secretary of State may exercise the powers of determination contained in Clause 3 concerning loans and accounts independently in so far as they affect the Welsh Principality. In all other respects the arrangements for England and Wales were identical, including the necessity to consult the appropriate local authority associations before determining loan rates. I beg to move.

Baroness David

My Lords, I am not sure that I understand why we have to have this. Can the noble Earl give a little more explanation why it has to be different for Wales?

The Earl of Swinton

My Lords, because it comes under the Welsh Office, and there are separate finance arrangements for Wales.

On Question, amendment agreed to.

Clause 8 [Short title]:

Baroness David moved Amendment No. 9:

Page 5, line 32, at end insert— ("(2) The Education Acts 1944 to 1985 and this Act (except sections 4 and 5) may be cited together as the Education Acts 1944 to 1985. (3) This Act shall in its application to England and Wales be construed as one with the Education Acts 1944 to 1985.").

The noble Baroness said: My Lords, perhaps I may say that there is a slight mistake in the last line of the amendment. Instead of being "Education Acts 1984 to 1985" it should be "1944 to 1985". This amendment attempts to bring a Bill concerned with further education into line with all the other Acts which govern education. That would seem to be both sensible and logical.

If this amendment is accepted it will reinforce the view that further education is part and parcel of the whole education service. I am sure that the noble Earl, and I hope the noble Baroness also, are well aware that I have constantly tried to get the legal basis of further education onto the statute book. This is the reason I should be pleased if this amendment is accepted. I beg to move.

The Earl of Swinton

My Lords, this amendment was tabled rather late in the day, and I am afraid that we have had very little time to consider its full significance. However, we would welcome its general effect and at first glance would think it acceptable. Among other things it would, I understand, bring to bear on activities under this Bill the various powers exercisable by the Secretary of State for Education and Science in relation to the discharge by local education authorities of their educational functions.

I was a bit surprised by what the noble Baroness said earlier about the Secretary of State coming in rather too much, because this amendment in particular would secure access to the Secretary of State's powers contained in Sections 67, 68 and 99 of the 1944 Act, whereby the Secretary of State can in certain circumstances determine disputes between local authorities and institutional governing bodies and issue directions to any local authority or governing body which is in his view acting unreasonably in relation to, or in breach of, its educational functions.

It may indeed be desirable that there should be some right of approach to the Secretary of State in relation to the activities under the Bill. But it would, we feel, be an abuse of that privilege if the Secretary of State were to become an arbitrator in ordinary commercial disputes, or be called upon to rule on questions where the district auditor or the courts are better equipped to do so. However, the form of this amendment may also raise wider issues. My department's officials are examining this question now, and with your Lordships' consent we would like a little time to consider its implications more fully. Having heard what I have said about what it allows the Secretary of State to do, perhaps the noble Baroness may feel that she would like to withdraw this amendment.

7.45 p.m.

Baroness David

My Lords, I am not going to withdraw it because of certain things that the noble Earl has said. There are some minor acts of interference in this Bill which we do not like. What I want is that this Bill, which deals with further education, should be cited as one with the principal Acts, and that is the reason for moving this amendment. I understand that in principle it is accepted, and when this has had a little more consideration presumably it could be put into the Bill in another place.

The Earl of Swinton

Yes, my Lords.

Baroness David

My Lords, with that assurance from the Minister, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

An amendment (privilege) made.

The Earl of Swinton

My Lords, I beg to move that this Bill do now pass.

Moved, That the Bill do now pass.—(The Earl of Swinton.]

Baroness David

My Lords, this short Bill has been changed quite considerably since it was introduced in the House two months ago, and I believe changed for the better. I am grateful to the Minister for listening to the criticisms we have made and the anxieties we have expressed about the Bill as it was originally drafted. Although it is a small Bill it will be of considerable importance to polytechnics and colleges of higher education and those who work within them. I think that on the whole they and the local authority associations will be pleased and happier with the Bill as it leaves the House than they were when it came in. It has been amended at every stage.

I daresay that the local authority associations and the people who work in the polytechnics and colleges might have preferred a few more changes, maybe with the Secretary of State having a little less say. However, I think that there has been particularly good co-operation, if I may say so, between the two Front Benches on the Bill and I thank the Minister for that.

Lord Rochester

My Lords, I should like from the third Bench, so to speak, to associate myself with what the noble Baroness, Lady David, has said. I played a minor role in the proceedings under this Bill, but I think I am right in saying that I have been present all the time. After playing a more leading role earlier today, I think there is something to be said for having only a relatively minor part in proceedings.

I should like to join in complimenting the noble Earl on the way in which he has handled this Bill and on the degree of co-operation shown by the Government and the extent to which, as was implicit in the remarks of the noble Baroness, Lady David, there has been so high a degree of consensus among us as the Bill leaves this House.

The Earl of Swinton

My Lords, I am grateful for what the noble Baroness and the noble Lord, Lord Rochester, have said. I too should like to acknowledge the contributions from all sides of the House, which have, I am sure, all been offered in a spirit of constructive endeavour. The Government appreciate this, and for their part have tried to bring forward amendments wherever they perceive, in the light of those contributions, that improvements to the Bill's provisions are desirable. With the amendments passed today, I believe we can feel satisfied that it is now in a form to commend itself to the other House, where I hope it will receive a swift and unimpeded passage.

It may be appropriate at this point to remind ourselves of the Bill's underlying objective, lest it be forgotten in the welter of detail. I very much agree with what the noble Baroness, Lady David, said about this. It is to release the innovative talent which we believe already exists abundantly in polytechnics and colleges throughout the land, so it may bring rewards—financial and otherwise—to the LEAs and their institutions, to the innovators themselves, to their partners in industry and to the nation as a whole. This Bill merely provides the framework. It is up to the LEAs, their institutions and lecturers to make it actually happen.

We have done our job pretty well, judging by all the compliments that are flying round the House, but I should like to pick up one or two loose ends which were raised at earlier stages in the passage of the Bill but which, because they did not relate directly to any amendment, it has not until now been possible to follow up.

I was very grateful for what the noble Lord, Lord Rochester, said earlier and I am glad that he is having a happier passage now than he was at an earlier stage this afternoon. He raised a very valid point about the difficult start-up period of a new enterprise, given that LEAs are under an obligation to use their best endeavours to secure a surplus every year, including the first. I have written to the noble Lord about this, but your Lordships deserve an explanation in the Chamber. The Government see such longer-term ventures as being best conducted through the medium of limited companies rather than in the authority's own name. The authority will examine such a proposition as a whole, estimate the timing and extent of future cash flows, and the consequent capital requirement. If it considers the venture worthwhile, it will make its investment in a limited company—perhaps sharing the financial burden with an industrial or commercial partner. Thereafter, the company's activities will be regulated by company law rather than by the provisions of this Bill, and the company will be enabled to carry forward deficits from year to year as long as its shareholders perceive the expectation of profits arising in the fullness of time. None of this conflicts with the requirement that authorities must seek to ensure that their own revenue account must be in surplus every year. Eventually the company's profits will begin to flow, and dividends to the LEA will then feature in the revenue account.

At Second Reading, the noble Baroness, Lady David, asked whether the House could be told that the total receipt from profitable trading could be used for equipment purposes without counting against LEAs' prescribed capital expenditure allocation. I am happy, even at this late stage, to reply to this point. Income may arise under the Bill in one of two ways: first, in the accounts of a local authority itself, and, secondly, in the accounts of limited companies which the LEA owns, or in which it holds an interest for the purpose of activities permitted by this Bill. In the first case I can confirm that by virtue of Section 72(3)(c) and (e) of the Local Government Planning and Land Act 1980, LEAs may supplement their prescribed capital expenditure allocations by an amount equal to any profits arising from trading undertakings. The supplement takes the form of a retrospective allocation for the year in which the profit was generated. Profits from trading undertakings are not included in the statutory definition of capital receipts for the purposes of the 1980 Act, and accordingly are not subject to the limitation which otherwise applies to the proportion of such receipts which may be spent in any one year. If the income arises in a limited company it will be for the company's board of directors to determine the ways in which the income is applied. The prescribed expenditure rules refer only to spending by local authorities, and do not impinge upon companies.

I think I have spoken enough on the detail of the Bill, and I believe that the Government's hopes for the fruitful consequences of its passage are apparent to all. I will not detain your Lordships any longer, and it remains only for me to reiterate my thanks for all your Lordships' contributions and to wish this Bill good speed in the other place. I beg to move that the Bill do now pass.

On Question, Bill passed, and sent to the Commons.

Baroness Cox

My Lords, I beg to move that the House do now adjourn during pleasure until 8.25 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 7.54 to 8.25 p.m.]