HL Deb 23 July 2002 vol 638 cc220-39

12 Leave out Clause 10

The Commons disagreed to this amendment but proposed the following amendment, to the words so restored to the Bill— 12A Page 7, line 16, leave out from, second "company" to end of line 17 and insert "registered under the Companies Act 1985 (c.6) as a company limited hr shares or a company limited by guarantee"

Baroness Ashton of Upholland

My Lords, I beg to move that the House do not insist on their Amendment No. 12 to which the Commons have disagreed but do agree with the Commons in their Amendment No. 12A, to the words so restored to the Bill. In moving the Motion, I shall also speak to Amendment No. 13 and Commons Amendments Nos. 13A to 13C.

In opening this new stage of consideration of amendments to the Bill, I begin by saying that the Government have carefully considered the views expressed in your Lordships' House throughout the Bill's progress. I hope that that is evident from the careful and substantial changes that have been made in another place.

First, I shall make the positive case for allowing schools the freedom to join companies. The argument is simple and one in which another place sees considerable merit. It is that this is another way of giving schools more freedom, more opportunities for partnership and more room to share good practice.

In the course of our debates, we have established that individual schools, under their general powers in Schedule 10 to the School Standards and Framework Act 1998, can already form companies to facilitate their running. The change that the Bill introduces, therefore, is simply to allow groups of schools to join together to form companies for their mutual benefit and for the benefit of other schools. So, in permitting groups of schools to band together to form companies, we are not introducing something entirely new. We are simply extending and clarifying the purposes for which schools can form companies and their ability to join with other bodies in membership of a company.

It is difficult to understand how there could be any objection to that in principle. I would understand noble Lords' concern if we were forcing schools to form companies, but we have been absolutely clear that we will do nothing of the sort. Indeed, the clause does not provide a power for us to do so. It provides an enabling power, not a requirement. Only those schools that foresee a benefit will make use of that power.

Schools will have that freedom to form companies in two broad areas of activity: first, to purchase services and facilities jointly; and, secondly, to provide services and facilities to other schools. Schools participating in purchasing companies will benefit from economies of scale. Schools participating in service delivery companies will benefit from the opportunity to share best practice and from being able to give wider experience to their staff—of the kind that may help with staff retention. Of course, those schools in receipt of services will also benefit.

Noble Lords have said that there are other ways in which both sets of activities could be carried on. I do not dispute that. That is also true in the private and voluntary sectors. Activities can be carried out in many structures other than companies. The point—the core of the argument—is that often, the company structure is the most convenient. That applies in the private, voluntary and charitable sectors, and in this case. If schools would find it the best way of building certain forms of partnership, we should not stand in their way.

I shall set out clearly the reasons why schools may find it to be the most convenient structure. First, it allows a group to have a single legal identity. That can be important for many purposes, not least for entering into contracts and for sharing risk. Secondly, it allows for liability to be limited. That is an important consideration for people who are conducting many activities. In return for limited liability status, companies must, as noble Lords are aware, comply with a clear regulatory structure and provide greater transparency than unincorporated associations, particularly with regard to their accounts. Thirdly, of course, the company is a well understood and trusted model, precisely because it is so widespread in our society. That can provide great advantages for those transacting with the company and, hence, for those forming the company.

I want it to be clear that there is nothing mysterious about the formation or conduct of a company. There is nothing mysterious about the model of limited liability. Nor is there any mystery about why people often choose to use that model.

Having set that case out, I turn to the objections that were raised during the debate. In doing so, I shall reiterate a few general points. First, there will be nothing that a school company can do that a private sector company cannot already do. A private sector company cannot take over responsibility for the conduct of a school or somehow assume ownership of its land and buildings or take over responsibility for deciding who works at the school. Similarly, a school company will not be able to do those things. Likewise, a school company will be able to sell curriculum materials to other schools, as private sector companies already do.

Secondly, there is nothing in the creation of a limited liability company that would increase the liability for the public sector—quite the opposite. The limitation of liability is one of the main advantages for schools of forming a company to carry out an activity, rather than carrying it out as an unincorporated association. Thirdly, there is nothing about the process of a school forming a company that in any way undermines the rules governing the protection of public funds. Schools may not transfer assets to any other body or person without receiving proper consideration. That includes a school company.

I turn to some of the detailed points made during the passage of the Bill. I believe that they were answered by my noble friend Lord McIntosh of Haringey, but I will attempt to summarise those answers again. The issue on which, perhaps, we spent most time was liabilities. A particular area of concern was the liability that might fall on a local education authority. I hope that I can clarify that point in a way that noble Lords will find reassuring. The simple fact is that there is no change of substance from the current position. The LEA is ultimately liable for any purchasing decision made by a school. That will remain the case, whether schools make purchasing decisions singly or jointly through a purchasing company. The LEA will not become liable for the actions of service delivery companies.

The local education authority is already ultimately responsible for liabilities incurred by schools when purchasing goods and services. That will remain the case, whether or not a company acts as an intermediary. The LEA will not be liable for the debts of service delivery companies. Those companies will not, in the course of their normal operations, spend the schools' budget shares. Indeed, they will charge for their services and will be spending money earned from fees. If a service delivery company cannot pay its debts, it will follow the same course as any private limited company in a similar position. In those circumstances, the point about limitation of liability becomes central. If a school company fails, the liability of the company member is, in the case of a company limited by shares, limited to the unpaid amount on the shares—if any—or to the nominal amount of the guarantee, in the case of a company limited by guarantee.

During our debate, there seemed to be a sense that there was something surprising about that. There is nothing in any way unusual about it, as many noble Lords will be aware. That is the position for every limited company trading at present. That is the point of limited liability status.

Noble Lords will know that, to minimise the likelihood of a company's getting into difficulty, we said that the LEA would have a role as supervising authority for the companies. Noble Lords asked how the LEA would know for sure whether intervention was needed. I now offer your Lordships' House a further safeguard. We have decided that, under the regulations, companies will provide an interim financial report to the supervising authority, as well as annual audited accounts. That will be required in the first year of operation and, should there be a need, in subsequent years. I hope that your Lordships' House will agree that that additional safeguard provides further assurance.

We are allowing companies to make profits and distribute them to their members because we want to encourage the most useful and most enterprising membership of companies. If we say "No" to profits, good potential members might be driven away. The profits will be shared, and school members of companies will receive their due amount.

I return to the point that a company that has a school as a member will not be able to do any more than a company that does not have a school as a member. It is normal practice for a private sector company to sell materials to schools. The clause will allow a school company to do the same. A good school will have lots of expertise in it. As noble Lords are aware, many of our best schools contain wonderful teachers who have, for example, worked together to develop and refine course materials. A school could form a company with a local printer to market such materials to other schools. If the materials were better than those already available on the market, the company would, no doubt, be rightly successful. In that scenario, the school would gain because it would share in the profit. Other schools would gain because they would be able to purchase excellent materials. There would be no loss to the public sector.

The school would take its share of the profit. It would be required to use the money for the purposes of the school. That is not in question. The printer, if it were a joint venture, would also he entitled to a share, having carried the risk of publishing the materials. That is appropriate. The crucial point is that the only difference between that scenario and the present position is not that the printer can profit but that the school can get its share. At present, any private sector business can profit in that way. The only body that cannot is the school. The clauses will put that right.

School companies with a membership of educational institutions, but with no private sector members, will distribute their profits for the use of the educational institutions concerned. No individual or institution could run off with the profits, any more than any individual could abscond with the school's budget share. If companies have private sector members, all members will take a share of the profits commensurate with their involvement. We expect that the educational institutions will take a leading role in such companies, with the private sector members contributing their expertise as necessary.

I believe that I have addressed the central objections, so I shall turn to the Government's amendments, Amendments Nos. 12A and 13A to 13C. We presented amendments relating to school companies to the House on 3rd July; I put them forward again today, with some words of explanation.

Amendment 12A stipulates that school companies will be limited by shares or by guarantee under the Companies Act 1985. Currently, the Bill states that regulations may provide for school companies to be limited by guarantee. When we decided to offer a choice of type of limited company, we thought to deal with it in regulations. Following the debate in the House, we have agreed that it makes matters clearer to say in primary legislation that schools will have the choice.

Amendments Nos. 13A and 13B tighten up the wording of the Bill and are therefore purely technical. Amendment No. 13C places in the Bill a provision that only those specified in regulations may join companies. We thought that it would give greater protection against making mistakes if that provision were in the Bill. We intend to state in regulations that the following persons may join school companies: governing bodies, local authorities, independent schools, private companies, further and higher education institutions and individuals not excluded by the regulations. Individuals who will not be able to join companies will be those not currently permitted to be school governors or to teach.

Moved, That the House do not insist on their Amendment No. 12 to which the Commons have disagreed but do agree with the Commons in their Amendment No. 12A to the words so restored to the Bill.—(Baroness Ashton of Upholland.)

5 p.m.

12B Lord Kingsland rose to move, as an amendment to the Motion that this House do not insist on their Amendment No. 12 to which the Commons have disagreed and do agree to Amendment No. 12A to the words so restored to the Bill, leave out from "House" to end and insert "do insist on their Amendment No. 12".

The noble Lord said: My Lords, we oppose the reinsertion of Clauses 10 and 11. The noble Baroness referred to the opportunities that the clauses would give for enhanced freedom and partnership for schools; but the text of those clauses is so far-reaching, ill-thought-out and imprecise that it is impossible to discern the intended scope of the legislation.

Clause 10(1) states that the governing body of a maintained school may form, or participate in forming, companies".

Those companies are to be formed under ordinary private company law, either as companies limited by guarantee or as companies limited by shares. There are three purposes for those companies. First, they will, under subsection (1)(a), provide services or facilities for any schools".

The definition in subsection (8) states that, 'facilities' includes the provision of…premises, goods, materials, plant or apparatus".

A company that is established either uniquely by the governing body of a maintained school or together with another party within the framework of the company can be set up to provide those facilities to any school, whether that other school is a maintained or private school.

Secondly, such a company can provide education services to any other school, whether it is a maintained or private school. Those services will doubtless be provided by schoolteachers. Clause 10(1)(b) refers to companies being formed, to exercise relevant local education functions".

I assume that a maintained school which sets up a company on its own, or together with others—either other maintained schools or other private parties—can supply to other schools classroom teaching and all other educational activities in addition to providing administrative or ancillary services. One can foresee one school setting up a company to take over the entire activities of another school, including educational functions and facilities.

Thirdly, subsection (1)(c) provides that such companies may, make, or facilitate the making of, arrangements under which facilities or services are provided for any schools by other persons".

Therefore, such a company can acquire land or buildings to provide facilities for the functions set out in subsection (1)(a) and (b).

Clause 10(2) states: The governing body of a maintained school may…invest in the company".

In other words, it can take its own budgetary resources raised by taxpayers and transfer them to one of those schools performing the functions laid down in subsection (1).

There was an interesting exchange on 15th July in another place between the honourable Members Mr Willis and Mr Miliband. Mr Willis asked Mr Miliband whether he was saying that a school could use its budget share, or part of it, to set up a company, and that if it failed the LEA would be subject to liabilities under the new arrangements. Mr Miliband replied, "Yes", and said that that was why there was a safeguard that LEAs would have to approve the setting up of the companies.

It is clear that the venture capital for those companies will be provided by the taxpayer. What is more, how good is Mr Miliband's safeguard? As the noble Baroness said, Clause 11(1) provides that the governing body of a maintained school may not exercise any power conferred by any of subsections (1) to (4) of section 10 except…with the consent of the local education authority".

That suggests that the capital transfer will be made to the company only if the LEA gives permission. However, subsection (7) states that Regulations may restrict the circumstances in which a local education authority may refuse to give any consent applied for under subsection (1)".

When the Bill is enacted, the Government can pass regulations that will effectively strip away the controlling power of the local authority under Clause 11(1).

Clause 10(5) states: The governing body of a maintained school may provide staff to any company in relation to which they have exercised a power conferred by any of subsections (1) to (4)".

That does not limit it to the staff currently employed by the maintained school. There is nothing to suggest that the maintained school, participating with other members of the company, cannot go to the market-place to hire staff to provide educational services to another school.

It may be that the intention that I have extracted is the Government's real intention. Schools that are either financially powerful or educationally successful may attract capital into companies that will then provide a complete education package to other maintained schools. If that is the Government's intention, they ought to say so. That is certainly derivable from the text of the Bill.

One of the most worrying consequences concerns the deployment of education resources. It is well known that there is a serious scarcity of able teachers. To the extent that the local authority, which is responsible for providing top-class education to schools, is delegating its powers to companies, and to the extent that those companies may move education resources into areas that are profitable rather than rational, current problems will be exacerbated, not alleviated.

The wide scope of Clause 10 is likely to lead directly to a serious misallocation of education resources. If companies make profits that are enjoyed by private participants in the company, what is to stop them allocating such profits in ways that are not acceptable to the governing body?

I could make further criticisms of those two clauses. There are complex matters about what happens if a company goes into liquidation. My honourable friend Mr Cash dealt ably with such matters in another place, so I shall not repeat them here. I hope that I have said enough to sketch out why we on these Benches continue to be seriously concerned by these clauses.

Moved, as an amendment to the Motion that the House do not insist on their Amendment No. 12 to which the Commons have disagreed and do agree to Amendment No. 12A to the words so restored to the Bill, leave out from "House" to end and insert "do insist on their Amendment No. 12"—(Lord Kingsland.)

Baroness Sharp of Guildford

My Lords, we support the noble Lord, Lord Kingsland, in his amendment. We have consistently opposed the inclusion of those clauses on schools companies. After our lengthy debates, we recognise that the companies have limited purposes. They enable schools jointly with other schools and/or persons and organisations to set up companies for the purchasing of school supplies and the provision of services. Secondly, a company can be set up in order to sell goods or services to other schools. Without the legislation, schools will be unable to do that. Schools will be able to set up a company but only in order to provide services or to sell goods to their own schools, not to others. That is the main reason for the proposal to set up such companies.

There are four main reasons why we on these Benches have consistently opposed the proposals. First, we see the act of a school setting up and running a company as a diversion from its main purpose. When heads, teachers and school governors are so pushed for time, the last thing they will want to do is to run companies. They do not need to have the worry and angst of doing so.

The Minister assured us that as regards accountability the Government will keep a close watch on the companies. They will be asked to submit not only annual reports to the LEA—that is in addition to the reports they must submit to Companies House, auditors and so forth—but interim reports. That will increase the burden of running the companies. We strongly feel that the job of heads, teachers and governors is to run schools and not companies. We believe that they should "stick to the knitting".

Our second reason for opposing the proposal is that we do not see the necessity for these companies. In the debate in the other place on 15th July, the Minister, Mr Miliband, stated: These proposals are about encouraging co-operation between schools to help them to perform their roles effectively, serving their own pupils and other pupils in the locality… The hon. Gentleman [Mr Willis] asked whether that has not been done already". The Minister then said: 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".—[Official Report, Commons, 15/7/02; col. 68.] However, I emphasise the fact that in purchasing goods and services and reaping economies of scale, schools have been co-operating with each other for many years. Local education authorities were set up to perform that function and in some cases, they still do. However, with the development of grant-maintained, foundation and voluntary-aided schools, often groups of schools band together to undertake those tasks.

The question is whether they need the additional powers. If the main purpose of the proposal is to encourage co-operation between schools in order to help them perform their roles effectively, do they need powers to form companies? For the past 150 years, they have got on perfectly well without them and I cannot see that they need the new powers. We therefore believe that the powers are unnecessary and complicate life for schools.

Thirdly, we oppose the proposal because we are concerned about what will happen if the company fails and losses are made. It is clear from statements made today by the Minister and by Ministers in the other place that 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 then be liable for the company's debts in the event of company failure, in the same way as the LEA would be liable for an individual school's debt when the school was acting as the LEA's agent.

I suggest that there is a difference. If the purpose of a company is to make a large profit for the school, it might be thought a good idea to print lots of T-shirts showing the town logo in the expectation of selling them to other schools and making a profit to put back into the school. But if, say, too many T-shirts were printed and the school was landed in debt, the LEA would be liable for that company debt.

Forming a company may encourage schools to take more risks than they would if they were spending their own budgets. It is not necessary to form companies in order to make joint purchases. The formation might encourage schools or particular members of governing bodies to enter into ventures more risky than schools would otherwise entertain. That is worrying because ultimately the LEAs will pick up the tab.

I recognise that the LEA does so if the debt is related to purchasing. If the debt is related to the provision of services, the company will, under the Companies Act, go into liquidation. Those who have invested money will lose their shares and the creditors will lose out. But there is another difficulty. If a school company has bad debts, that will leave a nasty taste—and do we want schools to be landed with such nasty tastes?

Finally, we on these Benches have always suspected that there may be a subtext. We have debated the matter many times, having said that we distrust the companies and did not want to see their formation. We have asked why they are necessary and we have been told that they are not important but merely a minor detail in the Bill. If they are a minor detail, why are the Government so insistent that they remain?

The noble Lord, Lord Kingsland, explained what may happen. It may be that companies will be set up to run other schools. During the past few weeks Ministers have done a great deal to try to reassure us that there is no such subtext. One likes to believe one's own Ministers, but constantly events take place. Many noble Lords will have seen in last week's Observer a splendid article announcing: Blairite blueprint to turn schools into companies". The first paragraph reads: Top schools could be turned into companies and allowed to generate extra cash for pupils under radical plans for not-for-profit firms to run public services". I am sure that the Minister will say that that has nothing to do with Patricia Hewitt and the ideas she is floating around or with what is before us today.

We had exactly the same debate on federations, but after the Secretary of State's recent Statement newspapers carried the headline, "Failing schools will be forced into federations". We had received assurances from the Minister that that would not be the case and were told that it was an unfortunate use of the word "federation". That may be right, but when I put that together with the other doubts we have about the proposed companies, I ask: why have them? We want nothing to do with them and we therefore persist in opposing the two clauses in the Bill.

Baroness Blatch

My Lords, I too wish to refer to the article in the Observer and I hope that the noble Baroness who is to respond will be able to comment on it. We have reached an extraordinarily late stage in our deliberations on the Bill without hearing any mention whatever of the fact that at least four Cabinet Ministers have discussed the possibility that certain top schools could be turned into companies, allowing them to generate extra cash for pupils under the plans to introduce non profit-making firms to run public services. It is important to point out that the clauses under discussion do not concern not-for-profit companies. Is this another policy on its way or is it likely that regulations will bring forward such companies? It would be most helpful if the Minister could comment on this.

In case anything is said to the contrary, noble Lords on these Benches have always supported commercial freedom for schools. Indeed, the noble Baroness, Lady Sharp, outlined the considerable freedoms already enjoyed by schools as regards working together, corporate purchasing and developing software materials so that other schools can benefit from them. I am not against those efforts and nor do I believe that the noble Baroness and her colleagues on the Liberal Democrat Benches oppose them.

However, where is the legal advice required for contracts to be drawn up to establish school companies to come from? Where will the company secretaries come from? Where would they get accountancy advice—or even accountants? Schools do not have such expertise; it will have to be bought in. If school funds have to be used to pay for such services, then schools have a right to know now how the funding is to work.

When the Minister commented on the amendments, she said that the clauses advocate a very well known and trusted model of a company. I know of no company that has to seek the equivalent of local education authority approval to be set up in the first place. I know of no company that has the equivalent of a local education authority as a supervisory body with powers of intervention. Similarly, I know of no company that has the equivalent of a Secretary of State also with powers of intervention. In addition to those layers involved in so-called "free-standing" companies, they would be subject to the full panoply of supervision and regulation under company law.

At no stage of our deliberations have we been given explanations of what would happen to head teachers, teachers and governors who move around between different schools. These are peripatetic groups of people. If an incoming head teacher, teacher or governor does not wish to pick up the mantle of being a member of a company, how would that situation be dealt with? It is important to put the details on the record.

On 13th December 2001 in Standing Committee G, my honourable friend in another place, Chris Grayling, asked: While the Minister is clarifying these points, will he tell us the degree to which the provision of the companies involves the delivery of educational services? He went on to say, could a governing body sub-contract out the entire management and educational management of its school to a more successful school?"—[Official Report— - Commons Standing Committee G, 13/12/01; col. 157.] The Minister at the time, Stephen Timms, replied at cols. 157 and 158: The scenario is possible—subsection (1)(a) makes this clear—because we are considering services provided to schools by other schools". And yet on 15th July 2002, when the House of Commons considered the Lords amendments to the Bill, the Schools Minister, David Miliband, said that, these companies would not be able to take over the running of a school".—[Official Report, Commons, 15/702; col. 67.] I am going to ask the Minister to tell me today which of those statements is correct. Can schools be run by other schools, or can they not?

I have the utmost respect for the Minister. She has been diligent, courteous and responsive at every stage of the Bill. But how are we to take the word of this Minister as opposed to the word of Stephen Timms, as opposed to the word of David Miliband? All are highly respected Ministers of the Crown, but they are all saying something different. It is important to be dear about the Government's intentions.

I turn to what was said at the beginning of our discussion: this is a dog's breakfast set of proposals. They are ill thought through. Key questions have not been answered and the interests of schools, teachers and our governing bodies—whether or not this is a voluntary activity—have not been considered. Schools should be free to use their resources to run their institutions. They should not be seduced into running companies—the Government use tempting language to describe their policy—that could go wrong. If that were to happen, at this stage we are in no position to appreciate what kind of impact that could have on the education of our children.

Lord Northbourne

My Lords, can the noble Baroness put me right on a question of fact? The nature of a company limited by guarantee is that in effect it has little or no equity. That substantially increases the risks for any creditors. Normally the problem is addressed by the company limited by guarantee being a charity. It is then supervised by the Charity Commissioners and an annual report has to be produced. Similarly, any substantial borrowings must be approved by the commissioners. Can the noble Baroness say whether the companies, if they are to be limited by guarantee, will be supervised by the Charity Commissioners?

Lord Dearing

My Lords, I had no intention of speaking to the amendments because I could not see what was at issue. But having listened to the debate, I am beginning to understand that there is an issue here; namely, that of doubt about the Government's intentions. It is important for the Minister to clarify the Government's intentions.

As someone who has been a school governor more than once, given that this is to be a voluntary power, I would guess that only relatively few governing bodies would wish to take advantage of it. Perhaps there will be a few occasions when there is a point to them, which I shall illustrate. A former schoolteacher called me the other day to say that she had been engaged in developing an educational CD-ROM for general sale to schools. Unfortunately, she did not have the capital resources to develop the idea and a considerable sum would be needed to produce a series of suitable CD-ROMs.

I can imagine that a cluster of schools grouped together in a federation, combining their very considerable IT resources, might think that they too could develop certain high quality learning materials. However, once again they would have neither the capital resources nor the marketing skills to develop them into products that could be made available successfully to a group of schools. I can see the advantage to such a group of schools of forming a company in order to exploit their intellectual capital in partnership with a private sector organisation. Recent experience has demonstrated a possible need for that kind of activity.

I turn to the point made with regard to the LEA being the "fall guy". My limited understanding of the position would suggest that, so far as concerns purchasing consortia, there is no change from the present position where the LEA would pick up the pieces. However, for the provision of services, the LEA would not be exposed provided that it was a limited liability company. I should be most grateful if the Minister could clarify that point for me.

I attach considerable importance to the safeguard of the LEA having, "the power to deny". Perhaps I may say that I thought that the noble Lord, Lord Kingsland, made a good point when he asked for clarification of Clause 11(7). However, the central issue to consider here is the purpose of the clauses. If they are those as described by the Minister, then I cannot see that they have the implications that we have supposed.

Baroness Blatch

My Lords, I am most grateful to the noble Lord for giving way. With regard to his comments to the effect that the LEA might be the fall guy, would he accept from me that if the LEA forms part of the consortium, then of course the LEA must take its share of the responsibility. If, however, the school forms part of the consortium, then the school would be on its own.

Lord Dearing


Baroness Ashton of Upholland

My Lords, we have had a debate with new voices, which is good. It has given me an opportunity to listen to the noble Lord, Lord Kingsland, and to raise my own voice in the debate, having left much of the preceding work to my noble friend Lord McIntosh. Perhaps I may address some of the serious points made by the noble Lord. In so doing, perhaps I may turn back a little in order to describe where the proposition comes from.

It is important to understand that the Government do not seek to do anything that would force anyone to set up a company. It concerns enabling schools to achieve things for themselves. One of the most important roles of any government is to think ahead and to exercise their duties responsibly. Furthermore, our schools must understand that they too need to think ahead about their role in the 21st century as they seek to educate our children to the best of their abilities.

They need to do something more. Noble Lords have agreed on many occasions that the expertise and experience which exists within our schools should be released for the benefit of the wider community and especially for other schools. This proposal—small though the noble Baroness, Lady Sharp, says it is in the context of this large Bill—is an important step on the way to doing that. We allow private sector companies to sell to schools; this is about allowing schools to come together among themselves, or to come together with other partners, in a way that limits their liability and enables them to do that. That is the backdrop to our discussions and it is important to see the issue in that context. There is no secret hidden agenda. It is about enabling schools to do that.

The picture painted by the noble Lord, Lord Kingsland, was not one I recognise. In Clause 20(1) we are quite clear that the conduct of a maintained school should be under the direction of the school's governing body. Nothing in Clauses 10 or 11 changes that. It would not be possible for any company to assume responsibility for running a school. A school company cannot do more than any other company.

I recognise that the noble Baroness, Lady Blatch, is keen to have clarity on the record. I shall quote from a written reply to the honourable gentleman. Graham Brady, who asked whether the relevant part of the Bill allows governing bodies to form a company to manage or operate a school. The reply was given by my honourable friend, Mr Miliband, the Minister of State for School Standards. He stated: As a matter of law, the conduct of a maintained school must be under the direction of a school's governing body. That duty is re-enacted in clause 20 of the current Education Bill… It would not therefore be possible for a company or any other body to 'take over the running of the school', because the governing body cannot contract out the duty to conduct the school".

5.30 p.m.

Lord Kingsland

My Lords, I am grateful to the Minister for giving way. How does the noble Baroness square that remark with the provisions of Clause 10(1), which states: The governing body of a maintained school may form, or participate in forming, companies…to provide services…for any schools"? How is the noble Baroness's remark consistent with what is of the face of the Bill?

Baroness Ashton of Upholland

My Lords, we have discussed this all the way through the Bill. This is not about the running of the school. As the noble Lord is aware, a school is run by a governing body, which may decide to buy in services. We have discussed on many occasions in your Lordships' House the kinds of services that might be brought in—for example, ICT services. A school might bring in a company working on ICT for developing software programmes or maintaining hardware programmes. But those are services. The running of the school is different.

Baroness Blatch

My Lords, it is a discourtesy that my honourable friend in another place, Graham Brady—who is standing at the Bar of the House—has not received the answer that the Minister has read out to the House.

When asked, could a governing body subcontract out the entire management and educational management of its school to a more successful school?", the Government Minister, Mr Timms, said: The scenario is possible—subsection (1)(a) makes this clear—because we are considering services provided to schools by other schools".—[Official Report, Commons Standing Committee G, 13/12/01; cols. 157–158.]

Baroness Ashton of Upholland

My Lords, I repeat that we are describing services, not other schools. I am afraid that I did not know Mr Graham Brady; I do now. I smiled at him, not knowing who he was. The reply has been given today to the honourable gentleman. I apologise if it is the first time he has heard it. I agree with the noble Baroness that it would have been better if he had received it earlier. I shall finish the answer in any event. I am sure that noble Lords wish to hear it and I hope that it will allay the noble Baroness's concerns.

I am describing the difference between the running of a school and the provision of services. Nothing in the Bill gives governing bodies greater powers to enter into contracts. By virtue of Schedule 10 of the School Standards and Framework Act 1998, governing bodies already have the power to enter into contracts, which may include elements of the operational management of the school. Clause 10(1)(a) gives groups of schools the power to form companies to deliver services to other schools. Thus Clause 10(1)(a) empowers a governing body to contract with a school company on the same basis as other bodies. However, the conduct of the school must remain under the direction of the governing body. I hope that that explanation addresses the issue.

Baroness Sharp of Guildford

My Lords, I am grateful to the Minister for giving way. The noble Baroness said that nothing allows the governing body to sub-contract the conduct of the school, but could it sub-contract the running of the school to a services company?

Baroness Ashton of Upholland

My Lords, it could not contract the running of the school, which is the responsibility of the governing body. I am searching for an analogy which will make it clear to noble Lords. The governing body runs the school. In many cases, the governing body already contracts with other bodies that it wishes to bring in to provide services such as school meals, lunch-time supervision, cleaning services, ICT services and so on. It may decide to contract with other bodies but, ultimately, in law, it is responsible for the running of the school.

I have dealt with that point as adequately as I can.

Baroness Walmsley

My Lords, I thank the Minister for giving way. Does that explanation mean that the governing body could contract with another organisation to deliver the teaching in the school?

Baroness Ashton of Upholland

My Lords, the governing body could not bring in wholesale teaching. But, as the noble Baroness is aware, there are occasions when governing bodies have relationships with companies which provide supply teachers when teachers are off sick. That is a quite normal process, as noble Lords are aware. That may also be true in the context of some specialisms—I again use ICT as an example—where a governing body may contract to bring in that expertise.

I have dealt with the point as well as I can and I hope that I will be forgiven if I move on to address some of the other points made by noble Lords.

We have made it clear that the education authority is responsible for purchasing company debt only. I hope that that answers the point raised by the noble Lord. Lord Dearing. There is no scope for public sector money to be siphoned off and the education authority would not be required to provide venture capital under any circumstances.

The noble Baroness, Lady Sharp, referred to diversions from the main purposes. Her comments will stick to the knitting. It is very important that we recognise that there is nothing in the Bill to require schools to do this if they feel that it is not in their best interests. I could not agree more with the noble Baroness that we should recognise that the primary purpose of our schools is, of course, to educate our children. But our schools belong to a community—a community of schools and a wider community. As I have said, we want to release the kind of expertise that would be of use in other circumstances.

The noble Baroness referred, as did the noble Baroness, Lady Blatch, to the Observer story on companies. I shall not make the obvious gags about not believing newspaper headlines—some noble Lords will understand only too well what it is like to be on the receiving end of those—but I want to make it absolutely clear that the story has no implications whatever for allowing schools to set up companies.

Our proposals will not allow schools to contract-out the responsibility for the conduct of a school to a company of any kind. We have said that before and I am happy to repeat it again.

The article referred to today's announcement of the Government launch of a social enterprise strategy. A Bank of England review of finance for social enterprises and a new social enterprise accreditation scheme are only two of the initiatives outlined today. Reference to super schools does not capture accurately what we are discussing and what the article is about. Schools will be able to form companies voluntarily. This is not about the responsibility for the running of schools.

The noble Lord, Lord Kingsland, asked about profits. The governing body will be able to protect its own interests in how the company distributes its profits because, as a member of the company, it will have a veto on the constitution of the company. It will, of course, agree with its fellow members of the company on how profits will be distributed according to the contribution of the members, whether it be in expertise or in capital.

The noble Lord, Lord Northbourne, raised a point about companies led by guarantee. It is correct that these are not equity rich companies. The risk to creditors and purchasing companies is not high, as schools are spending delegated budgets, and the local education authority is liable for the companies' debts in those circumstances. The risk to creditors and service delivery companies is the same as when dealing with private limited liability companies. Companies led by guarantee are not usually charitable, but in some circumstances that could be the case were it felt to be appropriate.

I reiterate that we are talking about another part of the road to freedom that schools wish to have in terms of developing their expertise. I believe that our schools make sensible decisions. They work hard to make sure that they educate their students well, and they have the kind of expertise that I would wish to see available across the broader spectrum.

Perhaps I may give an example which I hope will be relevant as your Lordships debate in the future the modern foreign languages strategy that the Government are seeking to develop. Noble Lords have frequently pointed out the need to consider making a range of modern foreign languages available, particularly for primary school children, and that it is not simply a matter of teaching one language: in debate, 11 or 12 languages were spoken of as being important for primary school children to learn.

Let us suppose that a group of schools decide to come together to develop some teaching aids to support our primary school children in learning languages. One might, for example, have a particular expertise in Mandarin, another in Urdu. They may decide that the best way to support the language teaching is by producing a CD-ROM—a common method. They may decide that they need to talk to a software producer in order to obtain the right kind of material. In considering how best to come together, they may want to consider the option of forming a company. They can be allowed to come together and to develop the material; the CD-ROM software designer can be part of that. They can be allowed to develop something of benefit to their own school but to many other schools as well.

In conclusion, I recognise that noble Lords have strong views on this subject. I understand the desire to make sure that the Government produce proposals that meet with your Lordships' approval. In the course of the many hours of debate on this subject in both Houses, we have done our best to answer all the individual questions that noble Lords have put. We are asking the House simply to agree to allow schools an option. I do not anticipate that many would want to take it up, but a few might wish to come together and would find this provision a useful vehicle. On that basis, I commend the Commons amendment to the House.

Lord Kingsland

My Lords, I thank the noble Baroness for her concluding remarks. I can be brief. What the noble Baroness thinks Clause 10(1) does and what it does are two entirely different things. Perhaps I may repeat the words of the clause: The governing body of a maintained school may form…companies…(a) to provide services or facilities for any schools…(b) to exercise relevant local education authority functions". It is plain on the face of the Bill that the services that can be provided—"relevant local education authority functions"—are teaching services; and there is to limit on the scale on which this can be done. In those circumstances, the legislation will clearly not fulfil the Government's objectives. I think it only right that the opinion of the House should be tested.

5.45 p.m.

On Question, Whether the said amendment (No. 12B) shall be agreed to?

Their Lordships divided: Contents, 172; Not-Contents, 168.

Division No. 2
Aberdare, L. Brigstocke, B.
Addington, L. Brooke of Sutton Mandeville, L.
Alderdice, L. Brougham and Vaux, L.
Allenby of Megiddo, V. Burnham, L.
Anelay of St Johns, B. Butterworth, L.
Arran, E. Byford, B.
Astor, V. Caithness, E.
Astor of Hever, L. Campbell of Alloway, L.
Attlee, E. Carlisle of Bucklow, L.
Avebury, L. Carnegy of Lour, B.
Barker, B. Carrington, L.
Biffen, L. Clement-Jones, L.
Blaker, L. Colwyn, L.
Blatch, B. Cope of Berkeley, L. [Teller]
Boardman, L. Cox, B.
Bowness, L. Crathorne, L.
Bridgeman, V. Crickhowell, L.
Cumberlege, B. Miller of Hendon, B.
Dean of Harptree, L. Montagu of Beaulieu, L.
Denham, L. Montrose, D.
Dholakia, L. Mowbray and Stourton, L.
Dundee, E. Murton of Lindisfarne, L.
Elles, B. Naseby, L.
Elliott of Morpeth, L. Newby, L.
Elton, L. Noakes, B.
Falkland, V. Northover, B.
Fearn, L. Norton of Louth, L.
Feldman, L. O'Cathain, B.
Ferrers, E. Oakeshott of Seagrove Bay, L.
Flather, B. Onslow, E.
Fookes, B. Oppenheim-Barnes, B.
Forsyth of Drumlean, L. Park of Monmouth, B.
Fowler, L. Parkinson, L.
Freeman, L. Pearson of Rannoch, L.
Gardner of Parkes, B. Perry of Southwark, B.
Geddes, L. Phillips of Sudbury, L.
Gilmour of Craigmillar, L. Pilkington of Oxenford, L.
Glentoran, L. Platt of Writtle, B.
Goodhart, L. Plumb, L.
Goschen, V. Pym, L.
Gray of Contin, L. Rawlings, B.
Greaves, L. Razzall, L.
Hamwee, B. Redesdale, L.
Hanham, B. Rees, L.
Harris of Richmond, B. Renfrew of Kaimsthorn, L.
Haslam, L. Renton, L.
Hayhoe, L. Roberts of Conwy, L.
Henley, L. Rodgers of Quarry Bank, L.
Higgins, L. Roper, L.
Hodgson of Astley Abbotts, L. Rotherwick, L.
Holderness, L. Russell, E.
Holme of Cheltenham, L. Russell-Johnston, L.
Hooper, B. St John of Fawsley, L.
Hooson, L. Saltoun of Abernethy, Ly.
Howe of Aberavon, L. Sandberg, L.
Howell of Guildford, L. Scott of Needham Market, B.
Hunt of Wirral, L. Seccombe, B.
Hurd of Westwell, L. Selkirk of Douglas, L.
James of Holland Park, B. Sharman, L.
Jellicoe, E. Sharp of Guildford, B. [Teller]
Jopling, L. Sharples, B.
Kilclooney, L. Shaw of Northstead, L.
King of Bridgwater, L. Shutt of Greetland, L.
Kingsland, L. Skelmersdale, L.
Knight of Collingtree, B. Smith of Clifton, L.
Laing of Dunphail, L. Soulsby of Swaffham Prior, L.
Laird, L. Stewartby, L.
Lamont of Lerwick, L. Stodart of Leaston, L.
Lane of Horsell, L. Stoddart of Swindon, L.
Lang of Monkton, L. Strathclyde, L.
Lindsay, E. Thomas of Gresford, L.
Linklater of Butterstone, B. Thomas of Gwydir, L.
Liverpool, E. Thomas of Walliswood, B.
Lucas, L. Thomson of Monifieth, L.
Ludford, B. Tope, L.
Lyell, L. Trumpington, B.
McColl of Dulwich, L. Vivian, L.
MacGregor of Pulham Market, L. Waddington, L.
Wade of Chorlton, L.
Mackay of Clashfern, L. Walmsley, B.
Mackie of Benshie, L. Watson of Richmond, L.
McNally, L. Wigoder, L.
Maddock, B. Wilcox, B.
Mancroft, L. Williams of Crosby, B.
Marlesford, L. Willoughby de Broke, L.
Mayhew of Twysden, L. Windlesham, L.
Wolfson, L.
Acton, L. Ampthill, L.
Ahmed, L. Andrews, B.
Alli, L. Archer of Sandwell, L.
Amos, B. Ashton of Upholland, B.
Barnett, L. Hoyle, L.
Bassam of Brighton, L. Hughes of Woodside, L.
Berkeley, L. Hunt of Kings Heath, L.
Bernstein of Craigweil, L. Islwyn, L.
Bhatia, L. Jones, L.
Billingham, B. Judd, L.
Blackstone, B. Kirkhill, L.
Blood, B. Laming, L.
Boothroyd, B. Layard, L.
Borrie, L. Lea of Crondall, L.
Boston of Faversham, L. Lipsey, L.
Bragg, L. Lockwood, B.
Brennan, L. Lofthouse of Pontefract, L.
Brett, L. Macdonald of Tradeston, L.
Brooke of Alverthorpe, L. McIntosh of Haringey, L. [Teller]
Brookman, L.
Brooks of Tremorfa, L. MacKenzie of Culkein, L.
Burlison, L. Mackenzie of Framwellgate, L.
Campbell-Savours, L. Maginnis of Drumglass, L.
Carter, L. Marsh, L.
Chan, L. Mason of Barnsley, L.
Christopher, L. Massey of Darwen, B.
Clarke of Hampstead, L. Merlyn-Rees, L.
Clinton-Davis, L. Milner of Leeds, L.
Cohen of Pimlico, B. Mishcon, L.
Corbett of Castle Vale, L. Mitchell, L.
Craig of Radley, L. Morgan, L.
Crawley, B. Morris of Aberavon, L.
Croham, L. Morris of Manchester, L.
Darcy de Knayth, B. Moser, L.
David, B. Nicol, B.
Davies of Coity, L. Orme, L.
Davies of Oldham, L. Ouseley, L.
Dean of Thornton-le-Fylde, B. Oxford, Bp.
Dealing, L. Parekh, L.
Desai, L. Patel, L.
Dixon, L. Patel of Blackburn, L.
Donoughue, L. Pendry, L.
Dormand of Easington, L. Peston, L.
Dubs, L. Pitkeathley, B.
Eatwell, L. Plant of Highfield, L.
Elder, L. Portsmouth, Bp.
Evans of Parkside, L. Prys-Davies, L.
Evans of Temple Guiting, L. Puttnam, L.
Evans of Watford, L. Radice, L.
Falconer of Thoroton, L. Ramsay of Cartvale, B.
Falkender, B. Rea, L.
Farrington of Ribbleton, B. Rees-Mogg, L.
Faulkner of Worcester, L. Rendell of Babergh, B.
Filkin, L. Richard, L.
Fitt, L. Rix, L.
Fyfe of Fairfield, L. Rochester, Bp.
Gale, B. Rogan, L.
Gavron, L. Rooker, L.
Gibson of Market Rasen, B. Sainsbury of Turville, L.
Gladwin of Clee, L. Scotland of Asthal, B.
Golding, B. Serota, B.
Goldsmith, L. Sheldon, L.
Gordon of Strathblane, L. Simon, V.
Goudie, B. Simon of Highbury, L.
Gould of Potternewton, B. Slim, V.
Graham of Edmonton, L. Smith of Gilmorehill, B.
Gregson, L. Smith of Leigh, L.
Grenfell, L. Stone of Blackheath, L.
Grocott, L. [Teller] Strabolgi, L.
Hardy of Wath, L. Strange, B.
Harris of Haringey, L. Symons of Vernham Dean, B.
Harrison, L. Taylor of Blackburn, L.
Haskel, L. Temple-Morris, L.
Haskins, L. Tenby, V.
Hayman, B. Thornton, B.
Hilton of Eggardon, B. Tomlinson, L.
Hogg of Cumbernauld, L. Turnberg, L.
Hollis of Heigham, B. Turner of Camden, B.
Howells of St. Davids, B. Walker of Doncaster, L.
Howie of Troon, L. Warnock, B.
Warwick of Undercliffe, B. Williams of Mostyn, L, (Lord Privy Seal)
Weatherill, L.
Whitaker, B. Williamson of Horton, L.
Whitty, L. Winston, L.
Williams of Elvel, L. Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.

5.57 p.m.