HL Deb 07 May 2002 vol 634 cc1087-136

8.45 p.m.

House again in Committee on Clause 10.

On Question, Whether Clause 10 shall stand part of the Bill?

Baroness Sharp of Guildford

We have already debated the clause fairly widely, but one or two questions remain to be asked. The power for governing bodies to form or invest in companies was not made explicit in last September's White Paper, Schools—achieving success, and was therefore not subject to consultation. The proposal is far more radical than simply enabling private companies to provide support or to manage schools and LEA services. The Government have issued no justification for the move and no obvious educational benefit has been identified.

There are a number of important questions. Where do the funds come from to support the initiative? What happens if it goes wrong? Schools are funded not only by government grant, through the SSA process, but also by the local education authorities from local council tax. Although there has been a reduction in recent years in the number of LEAs spending more than the sum identified in the education SSA, £6 billion of a total education budget of £50 billion is still provided in that way. It is not reasonable for schools to be able to siphon off funds raised by council tax payers if there is no proper democratic accountability for their decisions.

Who is responsible if it goes wrong? There is a lack of clarity in the liability for debts. The Minister has said that the LEA is responsible if the organization goes wrong. Let us consider experience in further education. A college in Derbyshire purchased a night club, ostensibly linked to a curriculum area. When the night club went bust, considerable pressure was placed on the college budget.

What protection is there for the school budget if the company goes wrong? Under local management of schools it has always been possible for schools to vire their annual delegated budget. That budget is obviously intended for revenue expenditure, but many schools have utilised the freedom to build up unspent balances, often with the express intention of spending the money on large-scale capital projects. That has resulted in a reduction in staffing levels. If schools are able to establish companies, the potential for siphoning off delegated budgets for the purposes of funding the company will be huge. The experience of virement under LMS can lead only to the conclusion that there are likely to be detrimental effects on the funding of mainstream education.

What will happen to terms and conditions for staff? As the noble Baroness, Lady Blatch, has pointed out, Clause 10(5) allows governing bodies to provide staff to a company. There is a real danger that the concentration on forming companies, in particular the provision of staff, could be counter-productive to the standards agenda, with governing bodies and teachers being distracted from their main focus on the provision of high-quality education to pupils on the roll. Although the Bill makes no specific reference to teaching staff being provided to the company, they will undoubtedly be included in the generic term. This is a particular concern in the context of the crisis in teacher recruitment and retention and the severe problems of excessive workload now acknowledged by the Government.

The Government were forced to change their provisions on advanced skills teachers on the grounds that schools and individual teachers found the requirement to spend time supporting other schools unattractive and difficult to manage. It is regrettable that the Government have not learned from that experience but continue to advocate the sharing of staff.

What will happen if everything goes wrong? It is likely to be argued that the safeguard to the provision to form and invest in companies is in Clause 11 and its subsections which specify that the consent of the LEA would be required before the governors were allowed to embark on that course of action. However, again it is totally unclear whether in the event of the LEA withholding consent the Secretary of State has the power to intervene and overrule the LEA. The relationship of the Secretary of State's powers as detailed in Clause 12 to Clause 11 and its subsections still needs to be clarified.

All told, there are still many questions to be asked and answered in relation to Clause 10. That is one reason why I question whether it should stand part of the Bill.

Lord Roberts of Conwy

We have heard a great deal in our discussion of Clause 10 about the possibility of profit, but now we are beginning to hear about the possibility of loss, and who is ultimately responsible for such a loss. There is a prior question about companies to which I should very much like to know the answer. What will happen when a company of the type proposed in Clause 10 borrows money? Of course it has to have the consent of the LEA. However, I believe that the borrowing may very well count against the local authority's borrowing. I should like some clarification of whether that is a correct understanding of the position.

Moreover, not only one local authority—the local authority of the school—would be involved, as demonstrated by clauses subsequent to Clause 10. Indeed, the Minister has told us about the idea of schools grouping together to form companies and to benefit as companies. So more than one local authority would be involved, and a number of local authorities could be involved. However, although there will be a designated supervising authority, in the event of loss, what is the liability of the other authorities supervising schools which are part of the group forming the company? Not only would I like an answer to that question, but local authorities are somewhat anxious about the position.

Baroness Blatch: The unfortunate aspect of this debate is that we are arguing not about the principle, but about the dearth of answers to many of the questions posed. I read with great interest the discussions that took place in another place, but the quality of the answers given in those discussions left a great deal to be desired. Consequently, we shall have to ask the questions again, in the hope that we shall receive clearer answers.

More commercial freedom for our schools is a good thing. As we know, our schools have much to offer their local communities in many ways. As we also know, there is much that they are able to do already under current law. Indeed, the noble Lord, Lord McIntosh, confirmed earlier that schools are already able, if they so wish, to set up companies, sell their wares to another school and join together in consortiums for procurement purposes.

Lord McIntosh of Haringey

Will the—

Baroness Blatch

I shall, if I may, tell the noble Lord that, 20 years ago, when I served on my local authority, we did just that. We established a joint procurement operation which schools in four counties could buy into. We bulk ordered books and equipment for our schools. Nothing stopped us from doing that 20 years ago, and I see nothing at all stopping us now. That is not forming companies, but forming consortiums to gain the advantage of bulk purchasing. As I understand it, that is what the Bill is proposing. However, schools can already make sense of their buying power by coming together in larger numbers. I am talking about doing what makes sense for schools at a local level.

Although my noble friend Lord Baker of Dorking and the noble Lord, Lord Alton, are not in the Chamber, I want to make the point that schools are very different from city technology colleges and from universities. City technology colleges are independent schools, albeit in the state system, and universities also are independent. They are masters of their own affairs and own the responsibility for all that they do. They gain or not, as the case may be, by their own actions. The proposals are very different from that. The proposals impose a number of layers, the first of which is the school governing body together with any other schools, companies or outside bodies with which they join up. Superimposed on that is the local authority. Superimposed on that is the supervisory body, which may be the local authority. Superimposed on that is the Secretary of State. That makes for a fairly chaotic management line for running a company.

Moreover, the proposals are being made in the context of a shortage of teachers, a shortage of governors and a crisis in core funding for education. The Government do a great deal of boasting about how much they are putting into education, and, within a matter of days or weeks, we shall undoubtedly hear about a great deal more funding coming from on high to education. However, it is the core funding into our schools that is seriously depleted. Only today, I received notice of yet another project, this one for £27 million. However, every time the Government launch another such programme from the centre, more money is taken from the education budget, making less money available to schools.

These days, it is quite difficult to recruit governors—unpaid volunteers who can barely keep up with the new burdens imposed on them by much recent legislation. They are extremely responsible and give a great deal of time and commitment to their work. The Bill, however, proposes imposing on them a very complex set of arrangements, the operation of which will depend very much on guidance and regulations. In another place, Members from all parties pleaded with the Government to provide draft regulations so that we could actually see some of the detail which we have been trying to elicit from Ministers. Although those have not yet been produced, we have been given a policy paper to which I shall refer in detail later.

Meanwhile, I have tabled to the Government some Questions for Written Answer. On 23rd March, I asked, What would be the liability of governors, head teachers and other partners if a company, set up under Chapter Three of the Education Bill, were to fail; and who would be responsible for assessing the risk".—[Official Report, 25/03/02; cot WA 26.] The Answer stated that, we would expect the liability of each company member to be limited to a nominal sum. In other words, presumably, those who were owed money would simply go to the wall. The Answer continued: In the case of a company limited by guarantee, this would be the nominal guarantee figure of perhaps £10". That is not much of a guarantee. It is certainly not much of a guarantee for those who might be let down by the company's failing. It continued: In the case of a company limited by shares, this would be any amount outstanding on the shares, which we would anticipate to be a nominal sum". If the value of the shares decreases, someone is going to lose out. If the company fails, the shares will become worthless to those who own them. The Answer continued: For member schools, the liability would not rest with individual governors or the head teacher". That is good for the governors and the head teacher, but, as the noble Baroness, Lady Sharp, said, the culpability and liability will lie with the LEA. What pot of unused money do LEAs have to deal with the failures of the companies? Who would settle the outstanding accounts? The Answer continued: Other partners could include other company members whose liability would be limited in the same way as school company members. The situation of LEAs would differ depending upon the type of company. Just as schools spend their delegated budgets as agents of the LEA, so a purchasing company, when spending those delegated budgets, would also be acting as an agent of the LEA. This would not be the case for service provider companies, who would be spending income from contracts". It continued: It would be up to a school governing body to assess operational risks". That really is putting a burden on a school. The Minister stated that financial liabilities for school companies which failed would not rest with governors or the head teacher. Who will settle outstanding liabilities? The Government stated that the delegated budget of individual member schools would not be at risk. In the case of a purchasing company, the company would be spending member schools' delegated budgets and therefore would be deemed to be acting as an agent of the LEA. The LEA would be liable for the company's debt in the event of company failure. It is clear that someone somewhere would have to pay and from within the system. If it is the LEA, it would come from money that it would otherwise spend on education in its area.

The policy paper which is meant to be helpful in terms of detail states at paragraph 1.2: A great deal of work is under way both as part of the Department's New Models pilots and independently to investigate new ways of discharging LEA responsibilities in partnership with others in the public, private and voluntary sectors. The model of a more focused and strategic LEA, combined with that of the self-managing school". It is hardly self-managing. If a school is not controlled by the LEA, it is controlled by the Secretary of State and self-management becomes far removed from what it was under the grant-maintained system. Paragraph 1.3 goes on to say: The first is that of enabling LEAs to contract out additional core functions to groups of schools as well as to other bodies". LEAs can contract out now; they can contract out their services either to schools or to a third party to provide services for schools. The document continues, examining alternative provision for auditing"— auditing can be contracted out— grounds maintenance"— that can be contracted out— building maintenance"— that can be contracted out— cleaning and security"— that can be contracted out. The document then goes on to say, carrying out a market scan of alternative broker/provider organisations". What does that mean? Can the noble Lord help me on that?

Paragraph 1.5 refers to PFI contracts. I accept the point that is made by the Government but I do not think that this is the way to resolve it; namely, that the preparation of PFI contracts needs a great deal of expertise and certainly is a difficult and daunting task for schools. I say to the right reverend Prelates that it is particularly difficult for Church schools to cope with the complexities of putting together a PFI bid. I refer to either buying in the expertise to do that or working with other schools. I believe that it can be done without forming companies. However, the noble Lord will have to disabuse me of that view.

Paragraph 1.5 goes on to say: More efficient ways of procurement are needed and ideas being developed involve more collaboration between LEAs, schools, central government and the private sector". It would be helpful—outside of what can already be done under the law—if the noble Lord could give examples of what needs to be underpinned by new legislation that would help schools in this situation. As I say, a group of Church schools coming together could, if they wished, corporately together purchase the expertise that they would need in order to put together a PFI bid. The document continues: Schools would be able to form companies to purchase collectively goods and services for member schools". As I said, that was done 20 years ago and I see no reason why it cannot be done now. The document continues: schools would also benefit from a division of labour using a dedicated staffing resource so as to free teaching staff". What does that mean? Paragraph 1.9 states: Schools with particular strengths and capacity would be able to share their experience and expertise with other schools, and use the proceeds of any sales of services to invest in improving their capacity further". Again, that can be done now. As I said earlier using the phrase, under the panoply of company law", a company would need a managing director, a chief executive, a company secretary and would need servicing in some way. We are talking about teachers, head teachers and people who are running schools. If they have to buy the expertise for someone to run a company, why do we not have the example of the 3E's or some such company which can do all of the things that are required by the Government; in other words, be entrepreneurial, commercial and assist schools to do their jobs better, but also become independent enterprises without using the precious staff of the schools?

In paragraph 1.11 there is already a significant demand for financial, legal and technical expertise in the development of PFI, to which I have referred. Which schools, even if they all come together corporately, have spare lawyers or spare financial experts? They do not have that; they would need to buy it in. That they can do now. Regulations are mentioned 11 times in the paper. How many sets of regulations will there be? What will they cover? Schools are saturated—we shall come to this on a later amendment—with guidance, guidelines and regulations. As I say, there are 11 references to regulations. It would be helpful to know how many sets of them we shall see. I do not know how many sets of guidance have been referred to by the noble Lord and by the Minister earlier.

Paragraph 2.3 refers to regulations which, may prohibit organisations other than maintained schools from joining service delivery or purchasing companies, unless they are specified in regulations. Bodies allowed to join would be: LEAs, independent schools, private sector companies … voluntary organisations … further education institutions, local authority owned public sector companies, individuals, except those with certain criminal convictions". Tell that to the people who invented individual learning accounts. It seems to me that the Government have a lot to learn there. Co-operation between independent schools and maintained schools has never been better. There is a great deal of co-operation at the moment in terms of equipment, using technology centres, music centres, drama centres and all the rest.

Paragraph 2.5 states that, because members are private companies, they are the only people who will have shares (or a guarantee) in the company and the only way in which the company can be 'taken over' is by those members agreeing to sell all or some of their shares or allowing persons to become members by giving guarantees. They will not be able to sell shares to or allow guarantees to be given by anyone outside the permitted list of members otherwise the company will breach the regulations". That does not appear to be in the Bill. It would be helpful to know about the conditions under which they would be free to sell shares or to invite new shareholders in. What protection is there against being taken over? In terms of protection from being taken over, how different are they from companies under company law?

Paragraph 2.8 of the paper states that, regulations will not specify the details", and that that will be left to companies themselves to agree. We are talking about voluntary governors in that regard, who are already terribly busy running schools. The paper states that we will not give them details and that we will tell them to work it all out for themselves. Is that really the best use of governors' time?

Paragraph 2.10 states: The precise arrangements may have to vary according to the circumstances of the individual company. Following consultation, we will ensure a proper balance between protecting the public money spent by those companies and enabling them to operate without undue restriction". How will that happen?

Paragraph 2.12 states: If a member school's budget were to be suspended, the school would not normally be required to leave the company as this could be unduly disruptive but would become a 'silent member, contributing no further money or time to the company until their budget is restored to the school". I find it inconceivable that a school that has been suspended would remain part of the company as a silent member and that absolutely nothing would be done about that. If a school that has had its budget suspended cannot join a company, how can a school with a suspended budget remain part of a company? That seems to be a contradiction.

Paragraph 2.13 states: Regulations may require the designation of a supervising authority for each company". I believe that the supervising authority of each company would have to be a local education authority but it would be helpful to have that confirmed. Who will set it up? Who will serve on it? What powers of intervention will they have? Who will meet the costs of that company? Will it be a cost to the school budget, the LEA or the Secretary of State? Or would it, like so many other projects, come from the global education budget?

Paragraph 2.14 asks: Which LEA would be the supervising authority"? According to the paper, that would be determined by local agreement. If one LEA had more schools as members of a company than any other LEA, it might make sense for the LEA with most schools to be the supervising authority. Again, where is that in the Bill? It is merely stated in a policy paper.

Paragraph 2.16 deals with borrowing. It states: Regulations may include a requirement for any company wishing to borrow to seek permission from the supervising authority". It has to go to the LEA in order to set up a company and to the supervising body to get permission to borrow. Would the supervising authority consider the financial state of each of the schools, or would the corporate body—the company—be considered? The supervising authority would consult other LEAs that have schools as members of the company. Where will schools find the time to do all of that? Moreover, that proposal is not in the Bill.

Paragraph 2.18 states: In order to be able to claim VAT back, purchasing companies are deemed to be acting as agents of the LEA as they are spending their budget share. The LEA therefore becomes liable for debts". Again, where will those funds in the LEA come from? As I asked earlier, can those companies offer services on a profit-making basis? If not, there would be no benefit to the company. If so, it makes a nonsense of what Members opposite have said about wanting no private sector involvement in education unless that is on a non-profit-making basis. It would be helpful to have some confirmation of that.

Paragraph 2.20 states: The Code of Practice on Local Education Authority—School Relations contains guidance on when LEAs can exercise their powers of intervention in schools". Is that code of practice the one that is already in existence? Is it likely to be updated as a result of Clauses 10 to 12?

Paragraph 3.1 states: The power is drafted widely to enable flexible policies to be pursued". It also states that the Government envisage, that the first use of the power would be to provide an alternative way to enable voluntary-aided schools to make use of the PFI to deliver their major capital investment needs". What is the problem that has brought the Government to that view?

In paragraph 3.2 the Government say that they are investigating the use of joint venture companies to assist with these problems. Initially they expect to form a joint venture company with the Church of England, the National Society for Education and possibly with Partnerships UK. My first point is that the Government do not have a locus in all those organisations. What, in any event, is there to stop the Church of England, the National Society for Education and even Partnerships UK from forming a consortium? So far as I know, in law there is nothing to prevent that. Why do they necessarily have to form a company under Clauses 10, 11 and 12? It seems to me that they are independent of the state system and therefore should be able to operate in their own right.

I understand that a similar company is likely to be set up with the Catholic Education Service and that possibly another will be set up for all voluntary aided schools. Again, I do not argue against that. The point that I made earlier to the right reverend Prelate is that I believe those schools need more collaborative working in order to exploit for their own benefit both PFI and other possible commercial ventures.

Paragraph 3.4 states: Schools would be able to take advantage of the powers in Clauses 10 and 11 of the Bill to participate in a company and LEAs have powers in the Local Government Act 2000 to do the same. The Secretary of State might decide to join one or more of these [other] companies, by agreement with the other parties involved". As I said, I consider that it would be a recipe for disaster if the Secretary of State, the LEA and one or more schools were involved in a consortium as a company under company law. They would face the possibility of shares growing or failing, of profits rising or falling, and the possibility of succeeding or failing. Culpability would perhaps lie with the schools and the companies, and liability would lie with the LEAs.

I am not concerned about the principles underlying these clauses; I am concerned about the detail. Thus far, we have not had a satisfactory answer to the questions raised in relation to the detail.

9.15 p.m.

Lord McIntosh of Haringey

The Question before the Committee is whether Clause 10 shall stand part. We have heard one speech about Clause 10 and, from the noble Baroness, Lady Blatch, a very thorough going-over of the policy statement, which of course refers to Clauses 10, 11 and 12. I shall have to start somewhere in responding to her.

I begin by responding to the noble Baroness, Lady Sharp. I believe that fundamentally she asked where the idea came from, who needs it and why we cannot do it in other ways. On the other hand, the noble Baroness, Lady Blatch, went on to say, "Yes, it sounds all right in principle but there are huge difficulties in practice". Therefore, I believe that they are approaching the issue from rather different positions.

In response to the noble Baroness, Lady Sharp, in the work that the department has been doing, particularly in its new models work, over a considerable period there have appeared to be gaps in the powers that schools have to innovate. Those gaps have appeared not only to the department but to schools which talk to the department. The schools appear to believe that they are constrained by difficulties in getting together and constrained by the powers that they have when they do get together for mutual benefit. Many schools believe that the department should devise ways of freeing them from the restrictions which inhibit their innovative ability.

Of course, there are proper questions to be raised. In opposing the group of amendments starting with Amendment No. 51, I have already said that it appears to us that the Companies Act model is by far the simplest. It does not have to be reinvented; it does not require new sets of regulations; and it does not require intervention by the Secretary of State. One can buy companies off the shelf; one knows what the responsibilities and limitations are; and one knows what the limitations on liabilities are because, after all, companies have limited liability—that is what they are about. And one can fairly readily, with a modicum of expertise which may have to be brought in but which might easily be found among the members of a group of governing bodies, find the professional expertise which is necessary to set up a company. Virtually anyone can do it. It does not cost much to start or keep a company going, although perhaps it costs a little more to start it.

The noble Baroness, Lady Sharp, asked where the initial funds come from. My answer is that they are very minimal for a group of schools with any spare capacity. Rather than find funds, they must determine what they want a company to do—whether it is to be a service provider or a purchasing company—and what the business plan for it is. They will have to produce a proper business plan and have objectives and a memorandum of articles. There must be within the memorandum of articles a statement of what they intend to do with their company. They will have to satisfy a supervisory authority, which will normally be the local education authority, that it is a good business plan and that the objectives are genuinely for the educational benefit of the member schools.

I was asked what happens if it goes wrong. It is true that in the end, just as now, if anything goes wrong in a school the local education authority is ultimately responsible. If a maintained school overspends its budget, a solution has to be found. In the end, if there are creditors they have to be paid and the matter comes to the local education authority. However, there is nothing new about that. There is nothing to lead us to expect that a school company will be more likely to get into debt than a school at the present time.

I was given the example of a night club set-up by a Derbyshire college. Let me make clear that there is no possibility that a school company will get into that position. It will not be permitted for them to have a general trading object. As regards the relationship with the school budget, it simply is not possible for the company to drain the school budget in that way. It is not possible for a company to take over a maintained school. The governing body of the school is in all circumstances responsible for the conduct of the school. A company formed by schools cannot do anything that any other company cannot do. There is no justification for thinking that the fact that a school can set up a company means that it can charge for education—we have been through that argument—or do other things that are specifically prohibited.

I come back to the starting point of all this. No governing body or group of governing bodies is required to establish a company. If it does not want to do so, that is its choice. If it has a good relationship with its local education authority, as in the example of the noble Baroness, Lady Blatch, of 20 years ago, or if it wants to form a larger consortium in a different way, there is nothing to stop it doing that. The proposal is in response to a communication from schools which said that in certain circumstances this could be helpful.

The noble Lord, Lord Roberts, asked about borrowing.

Baroness Blatch

I wonder whether in the course of the debate we can see the information from schools which have been clamouring for this. Apart from Thomas Telford, I do not know of one. That would be helpful. Perhaps I may go back to a comment made by the noble Lord about what schools could not do and read again from col. 157 of Standing Committee G on 13th December. Chris Grayling, MP, asked: Is it conceivable that a governing body would have the right to sack its head teacher and staff, and bring in a company established by a more successful school, that is another school, which could come in, to run the school? In theory, could a governing body subcontract out the entire management and educational management of its school to a more successful school? The Minister replied: That does not sound like a likely scenario. The governing body has clear responsibilities in this area, which it will exercise normally. The scenario is possible—subsection 1(a) makes this clear—because we are considering services provided to schools by other schools. We want more examples of that". He is saying that these clauses would allow a school to provide a full management service to another school.

Lord McIntosh of Haringey

I do not think that that is what Stephen Timms meant. I do not have the text in front of me. On a matter as complicated and textual as this, it is better that I write to the noble Baroness, Lady Blatch, and others who have taken part in the debate and put a copy in the Library. What I have said throughout is that there is nothing in the Bill which creates a new vehicle for contracting out the running of schools. That is the fundamental point. I am not prepared to answer definitively whether there is provision in previous legislation which makes it possible under certain circumstances, but there is not here.

I return to the point raised by the noble Lord, Lord Roberts, about borrowing. Borrowing would have to be approved by a prescribed person. That is the provision. The normal situation which we expect the regulations to prescribe is that the prescribed person will be the local education authority acting as the supervisory body.

I admire the noble Baroness, Lady Blatch, for going through our policy document from paragraph 1.1 to 3.5 covering three clauses and the regulations. She raised a series of questions which would take me at least 45 minutes to respond to if I had the ability to do so in these circumstances, and I do not. I shall try to respond to those points which seem to me significant now. I shall read the points she made and write her a rather long letter—I apologise for its length now—again with copies to other noble Lords who have taken part in the debate, with a copy placed in the Library.

We are talking here about maintained schools whereas the example—the 3E's in Guildford and other parts of Surrey—is a city technology college. It is independent and nothing to do with what is provided for in the Bill. We are now talking about something which is possible for maintained schools. It may have been possible for other schools in the past but not for maintained schools. I entirely agree with the noble Baroness when she speaks of the difficulties of finding enough teachers and governors. That is common experience. By making the provision as simple as possible, it is our intention that a limited amount of staff and governor time should be taken up in providing this vehicle; and—I repeat—only if they want to do so. The availability of a statutory model which has existed for a long time should make that considerably simpler. The intention is that there should not be any diversion from any core funding of the school and no diversion from the determination of the schools to devote themselves to achieving standards.

With regard to Answers to Written Questions, it is probably better if the answers come officially in response to the noble Baroness's supplementary Written Questions rather than my attempting to elaborate on the Answers to Written Questions that she has already received. I confirm that the limitation on the liability of members in the case of a company limited by guarantee is to the guarantee, which will normally be a nominal sum; and in the case of a company limited by shares to the amount outstanding on the shares.

The noble Baroness is right to say that a local education authority can contract out now. That is a route which is more likely to be widely pursued than the school company route. I express a personal opinion, but I think that where there is a good relationship between schools and the local education authority, where schools ask the local education authority to provide services or to purchase functions and are assured that it can be done and done properly, that is what will happen. I think it likely that this will be a minority activity.

The noble Baroness answered herself when she talked about the PFI contracts. She talked about the examples given in the policy statement of the relationships with the Church of England. Those are by no means complete; indeed, they cannot be complete because the legal framework for them is not yet in place. However, if one reads the policy statement and takes note of what the Government and the Church of England are thinking of doing, it must be seen to be positive.

The noble Baroness also asked how many groups of regulations would be introduced. The answer is one: they will be produced in the form of one group. I was asked more than once about the freedom to sell shares and about new shareholdings, as well as the possibility of take-overs. The answers to those points is that this is no different from any other Companies Act company. It is always possible for a Companies Act company to protect itself by ensuring that the sale of shares, which in any case can only take place within the permitted categories, will be constrained by its memorandum and articles. Any sensible school company—indeed, any company that is advised by a supervisory body—would ensure that that is the case.

I believe that I have gone as far as I can in dealing with the detailed points raised. The fundamental lesson that I want to leave with the Committee on Clause 10 is that we are doing no more here than respond to a certain amount of indication—not perhaps, a large amount—that schools would like to have greater freedom than they have at present. This was expressed, and examples given, at a conference in London in April organised by the Centre for Education Management, where 20 representatives of schools and LEAs indicated interest in the powers to form companies for a variety of purposes. If there is a report of that conference and I can make it available to noble Lords, I shall gladly do so. Clause 10 is intended to be a responsive clause. It is not intended in any way to be an imposition on schools or on local education authorities.

Clause 10 agreed to.

Clause 11 [Limits on powers conferred by section 10]:

9.30 p.m.

Lord Roberts of Conwy

moved Amendment No. 62: Page 7, line 35, after "authority" insert "and any similar authorities affected The noble Lord said: The amendment is inspired by concern on the part of the Welsh Local Government Association that governing bodies forming companies should have the consent of their local education authority not simply for forming companies or participating in them but for borrowing money. As I said during the clause stand part debate, the association is worried because such borrowing would count as borrowing by a local authority. That seems to me to be a very fair starting point.

In his reply to the clause stand part debate, I noticed that the noble Lord, Lord McIntosh of Haringey, said that such consents as would be necessary for borrowing would be provided—or not provided, as the case may be—by the designated supervisory authority. Local authorities tell me that the consent of such an authority is insufficient. They point out that as their schools would be participating in the company, they, too, should be involved in the matter of consent, especially in the case of borrowing. I am bound to say that the consent required under Clause 11(1) appears to be uncertain in its scope. Similarly, it is not clarified later in the clause.

It is not just the local authority mainly responsible for the governing body that may be involved; other local authorities and their governing bodies which may participate in the company could also be involved, as anticipated in subsection (5)(a) of this clause. The Minister has already acknowledged that one of the purposes of these clauses is to encourage schools to cooperate and act as consortia companies.

Amendment No. 62 addresses the point about the multiplicity of authorities which may be affected. It requires their consent as well as that of the designated supervisory authority. My noble friend Lady Blatch in the course of her speech said that all the references have been to the consent of the designated supervisory authority. As many authorities, as well as many schools, may be involved in these consortiums it would surely be as well to ensure that their consent is secured. That is what the amendment seeks to do. I beg to move.

Lord McIntosh of Haringey

With due respect to the Welsh education authorities, I do not understand the amendment. If the schools in a group seeking to form a school company are with one local education authority then that authority's permission is needed.

What can "similar authority" mean? It may mean another local education authority. But it is not necessarily limited to that. How an authority which is not an LEA would be affected is not clear to me. I think that the noble Lord, Lord Roberts, means that if the schools from more than one LEA want to join a company, each of them should seek the consent of their own LEA. If that is what the noble Lord seeks, I can assure him that that is what the Bill means. It may have to say so in regulation—I do not know.

Lord Roberts of Conwy

I am grateful to the noble Lord for his clarification, but I must tell him that it is somewhat different from everything that we have heard today. When we have talked about these companies and participation by other schools in such companies, the reference with regard to consent has always been to the designated supervisory authority and that authority alone. But clearly a company that involves participation by schools in other authorities has a responsibility to those authorities too. It is natural for an LEA to be concerned, particularly if that company becomes involved in borrowing money. That is the concern of the local authority. It is not sufficiently covered on the face of the Bill.

Lord McIntosh of Haringey

I think that there may be confusion between consent to form a company and becoming a supervisory authority afterwards. The amendment seeks—maybe it is not intended—to bring a body, possibly other than a LEA, into the consent procedure. I am saying that the consent procedure is very clear. If all the schools are in one local authority, obviously consent is needed from that LEA; if they are from more than one authority, then each of them should seek the consent of their own LEA. In other words, if one has five schools in authority A and one school in authority B, the five schools should go to authority A for consent and the one school should go to authority B for consent, but they should not have to seek consent from each other's LEA.

The question of who is the supervisory authority afterwards is a different question which is not addressed by the amendment. I should be happy to consider any amendment on that issue at a later stage.

Lord Roberts of Conwy

I am again grateful to the Minister for his explanation. I am bound to tell him that I am not entirely satisfied. I shall obviously study what he has said and what has been said in our previous debates on this issue. I beg leave to withdraw.

Amendment, by leave, withdrawn.

[Amendments Nos. 63 and 64 not moved.]

Baroness Walmsley

moved Amendment No. 65: Page 7, line 42, at end insert— ( ) A governing body may not require any person employed to work at the school to provide services in connection with the activities of any company in relation to which the governing body has exercised a power under any of subsections (1) to (4) of section 10 otherwise than under a contract entered into for that purpose. ( ) No person employed to work at the school for purposes other than those of a company in relation to which the governing body has exercised a power under any of subsections (1) to (4) of section 10 shall be dismissed, nor be subjected to any disciplinary process, nor in any other way be disadvantaged by reason of his unwillingness to provide services in connection with the activities of any such company nor shall any person be refused appointment to a post other than for the purposes of a company because of such unwillingness. ( ) Sections 115 to 127 shall not apply in relation to any employment for the purposes of any company in relation to which the governing body has exercised a power under any of subsections (1) to (4) of section 10. The noble Baroness said: I rise to move Amendment No. 65 and to speak to Amendment No. 79. The amendments are designed to probe whether a member of staff of a school that had set up a company could be required to take on company duties, be dismissed for refusal to do so or have his or her remuneration affected by the exercise of the school's power to form a company.

Amendment No. 65 would ensure that teachers and other staff would not be forced to take on company duties and, if they were to refuse, that they would not suffer any disadvantage. It would ensure that teachers were not put under any pressure to run or to work for such companies and that refusal to take part would not affect the teachers' careers.

We on these Benches are concerned that the proposals for schools to form companies could mean that good teachers who have what we used to call a vocation for teaching—who love the job and do it well—may be pushed into doing all sorts of other things or risk damage to their opportunities for career progression. At a time when there is such a concern about the impact of excessive workload and bureaucracy on teacher morale, the amendments' safeguards are necessary.

The PricewaterhouseCoopers report on teacher workload by the Department for Education and Skills states: Teachers in many schools perceive a lack of control and ownership over their work, undertaking tasks—particularly documentation—which they do not believe are necessary to support learning". We are concerned that the Government expect more and more of teachers, heads and governors in relation to school improvement. It is therefore vital that they are not also expected to deliver additional services that may previously have been conducted by LEAs, social services or the health authorities without additional resources.

So far, we have received very little in the way of assurances on the matter. On the contrary, last October the Secretary of State told the Education and Skills Select Committee: I do not think we can get better public services without asking more of those who work in them. That is an inevitability. Where we have a responsibility, and I have a responsibility, is to make sure that in pushing forward that change and implementing that change we explain things carefully, we make sure what we do is on a clear evidence base, we resource it sufficiently, we offer professional development opportunities for those in the front line and we understand the pressure that we put on them". That suggests that teachers will be asked to train as company managers as part of their professional development, that more will be asked of them as long as the No. 10 Policy Unit can trump up an evidence base for the establishment of companies within schools and that more pressure will be put on teachers. Can the Minister give us an assurance that teachers and other school staff will not be required to perform company duties in addition to their existing responsibilities? I beg to move.

Baroness Blatch

In view of the fact that my earlier citation of comments made by Mr Timms in the Standing Committee apparently turned out to be wrong—I cannot quote him now because I have sent off my copy of the Standing Committee report—perhaps I may paraphrase him, I think pretty accurately. He said that schools would be free to second teachers full-time or part-time and that schools would also be free to contract out their teachers full-time or part-time. It would be helpful to know if that is the case.

To pick up on the point made by the noble Baroness, Lady Walmsley, teachers are concerned that when schools that are already part of a company are recruiting they will be looking for teachers with that expertise—they will be touting for the kind of teacher that they want, who will not philosophically object to working within a company. That would work against the interests of teachers who come into teaching to teach and not necessarily to run companies.

One of the answers that the Minister may give to the noble Baroness, Lady Walmsley, in response to the amendment will be that no teacher will be forced to do anything against their will. Mr Timms also said that in another place, adding that teachers would get involved only by agreement. However, there is such a thing as pressure. There is the pressure that will come from people who will say that the company is buzzing and that it is making a lot of money for its school. If that becomes the predominant activity, rather than running the school and teaching the children, there will be pressure on teachers to become involved in order to keep their job or stay in the school in a positive role. That pressure may make them feel inhibited, and, against their better judgment, they may feel it necessary to get involved.

Although the technical answer is that no teacher will be required to act against their will, there should be some safeguard. There should be no prejudice against a teacher whose mission in life is to teach, not to be a member of a company.

9.45 p.m.

Lord McIntosh of Haringey

I agree entirely with the principle behind the first two paragraphs of Amendment No. 65 and with what the noble Baroness, Lady Blatch, said about pressure on teachers, even if the formal position is that nothing can be done without agreement. All of us have worked in circumstances in which pressure is put on people to do things that they do not want to do. It is a fact of working life. Sometimes, it is justified; sometimes, it is not. We must make sure that the occasions on which it is not justified are kept to a minimum.

Clause 10 defines the functions that may be performed by school companies. Companies that want to share their expertise and skills with other schools will, to some extent, involve the staff of schools that are company members. That must be understood. Amendment No. 65 would prevent staff being forced to work for—or, indeed, act in connection with the activities of—a company.

I agree with the first two parts of Amendment No. 65: staff should not be required to work for companies against their will, and they should be protected. They are, of course, protected, not necessarily by this Bill, but by employment law. They are employees like anybody else and, under employment legislation, a company cannot force an employee to work for a second employer. Before any member of staff could be asked to work for a school company, they would first need to agree to do so. There is no compulsion.

I hope that the Committee will agree that, beyond that, details of working arrangements are best left to local agreement between staff, the school and the company. Amendment No. 65 would introduce rather rigid requirements that could stifle innovation and could replace local agreement, which would be better.

The first part of Amendment No. 65 would put in place a requirement that no member of staff could be forced to work for—or in any way deal with—a company, other than by a specific contract. The second part would provide that staff should not be disadvantaged by their refusal. That is where pressure comes into it. There are many ways in which a member of staff could work for a company. As the noble Baroness, Lady Blatch, said, a teacher could be on temporary secondment or could spend part of the working week with the company. There would have to be remuneration arrangements for that.

The amendment would mean that a member of staff could not be required to have normal dealings with a school company. I am sure that it was not intended that it should mean that, but it does. A book order could be placed with a company, rather than with a traditional supplier. It would be inappropriate to require the contract of a member of staff to be specifically amended before he or she could be asked to deal with the ordering of books in such circumstances.

Baroness Walmsley

I am grateful to the Minister for giving way. The amendment does not state that teachers will be prevented from dealing with a company. It refers only to their being forced to work for a company.

The Lord Bishop of Blackburn

Perhaps I may make a contribution to the debate. It seems to me that we are all with the spirit of what is behind the amendment, but, sadly, I question whether we are in the real world. Let us take the recent example of the head teacher in Grimsby. As he justified his absence, he spoke of himself not as a teacher but as a principal. I may regret that, but it seems to me that much will depend on the nature of the company's activities. I can see teachers relishing educational activities in which companies may wish to engage or want to sponsor.

Therefore, while I am with the spirit of the noble Baroness's amendment, I wonder whether we are addressing the situation in many of our high schools where with delegated budgets teachers are being asked to do, and want to do, things which I, with my vision of teaching, would rather they did not do. However, we need to protect those who do not want to do that from being forced to do so. I want to encourage teachers to teach; managers to manage; and company experts to "companify" or whatever the word is.

Lord McIntosh of Haringey

I agree with all that. I was saying—and my comments may have been unworthy—that the words, unwillingness to provide services in connection with the activities of any such company could be interpreted as "dealing with". I know that it is not intended and I should not make textual criticisms of amendments having spent 14 years in Opposition and having had to make up amendments. I know what that means.

Let us be clear. I believe that we are all in agreement on the matter. It is understood that we cannot have force, but we do not want unreasonable pressure. I hope that if sufficient companies are set up they will free teachers to carry out their core activities and that duties which they are presently required to do but which could be contracted to a company may be done by someone else rather than a professional teacher. That would be my objective for this part of the Bill and I hope that any regulations involved will be written in that sense.

The final part of Amendment No. 65 relates to pay and conditions and appraisal. Amendment No. 79 relates to the same subject. I have made it clear that there is no sense in which a school company can take over a school. We are giving schools the powers to form companies so that they can pursue innovative means of working. They will not assume responsibilities for running member schools; that will remain the responsibility of the governing body and the head teacher. The clauses do not alter that in any way.

Clause 11 provides for regulations to cover various aspects of company operation. Amendment No. 79 would provide an enabling power that regulations could make provision regarding the pay and conditions of persons employed with school companies. We anticipate that there will be circumstances in which companies recruit staff and become the employer. I understand the need to ensure that staff employed by a company have proper terms and conditions—they might not and probably would not be the same as those of teachers—and that that is a matter for local decision.

We do not want to specify the terms and conditions of locally employed staff when they will be covered by existing employment law, but we intend to issue guidance to governing bodies which consider forming or joining a company. I can assure the noble Baroness, Lady Walmsley, that the guidance will refer to appropriate approaches to the employment of staff. I hope that that gives the noble Baroness the reassurance she seeks.

Baroness Walmsley

I thank the Minister for his response and I welcome his reassurances that there will be no force on teachers to work for companies if they do not want to do so. However, teachers would be a little more reassured if the point were on the face of the Bill. Having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 66 not moved.]

Baroness Sharp of Guildford

moved Amendment No. 67: Page 7, line 43, leave out ", if regulations so provide The noble Baroness said: I rise to move Amendment No. 67 and to speak at the same time to Amendment No. 68. The purpose of the Amendment No. 67 is to make mandatory in primary legislation the three conditions listed in Clause 11(3). The provisions would then not allow those conditions to be discarded by the absence of regulations; in other words, rather than, "if regulations so provide", a company set up by a school shall meet the conditions listed in subsection (3).

In addition, we propose a further subsection. Subsection (3)(b) is already in place and is significant in this context because it requires any company set up under these proposals to be a company limited by guarantee rather than a company limited by shares. The new proposed subsection set out in Amendment No. 68 would reinforce that provision and specifically ensure that any profits made by the company would be ploughed back into the school rather than distributed to shareholders.

This proposal takes up once more elements of our earlier discussions about the form of any company, but I should like to say a few words about exactly what is a company limited by guarantee. Such a company has its own distinct identity. It does not issue shares as a tradable commodity. Members of such a company simply guarantee that they will contribute a fixed amount from their personal property to meet the company's debts. Often this will be set at no more than a nominal amount.

Such companies normally exist for charitable or other similar public good purposes. A great many companies limited by guarantee are in fact charitable companies. Member guarantees do not represent an investment in the company from which members might expect to derive a personal profit or gain; the expectation is that any profits from the company's business will be returned to serve the purpose for which the company was formed. Member guarantors can form companies with their own legal identity to pursue good causes in a trading environment, but they can do so without putting at risk their personal property. Companies limited by guarantee are not generally regarded as commercial propositions for acquisition, take-over or merger.

In our discussions until now we have assumed that the companies set up by schools either could be companies limited by shares or companies limited by guarantee. I read that as meaning that, on the whole, it is more likely that such companies would be companies limited by guarantee. For that reason, I would be interested to learn from the Minister what is the Government's interpretation of this subsection, and whether, if profits are made, they would normally be ploughed back into the school. I beg to move.

Lord McIntosh of Haringey

Let me start by saying what I hope is what the noble Baroness, Lady Sharp, really wants to hear; that is, there will be regulations. The phrase, "if regulations so provide", has been used because, as the noble Baroness rightly pointed out, sub-paragraphs (a) and (c) of Clause 11(3) refer to prescribed requirements, while sub-paragraph (b) does not.

Baroness Sharp of Guildford

I am most grateful to the Minister. Perhaps I may point out that the phrase, "if regulations so provide" implies an element of discretion. When the phrase is left out, there is no discretion.

Lord McIntosh of Haringey

That is absolutely true, but if the phrase were to be left out, then the level of discretion would be reduced because it would be more difficult to introduce different regulations for different purposes. Basically, aside from joint ventures, there are two kinds of companies, one of which is a purchasing company while the other is a service provider company. It could be appropriate for companies to have different structures.

A purchasing company formed by a school to purchase goods and services could well be suited to being limited by guarantee. However, in the case of a service delivery company then the situation already anticipated by the noble Baroness, Lady Sharp, could arise, where one would want a company limited by shares because one would want to have people outside the member schools participating in order to bring in certain expertise. There is a list of the permitted members of such a company. Indeed, the noble Baroness, Lady Blatch, read it out during the debate on Clause 10 stand part. The policy statement which she dissected with such skill is our brief for the regulations, as I am sure the Committee understands. So one might want to have a company limited by shares for those purposes because one might want to have partners in the company who would be interested only if there were shares and the possibility of profit for them. I do not believe that anyone would say there was anything wrong with that. We have not formalised the regulations because we have not yet had the opportunity for public consultation on them.

Clause 10 also enables schools to join companies to obtain services through PFI contracts. Given the Secretary of State's likely involvement in such a company, one would not necessarily have the same regulatory regime for that. I do not feel very strongly about Amendment No. 67, but I believe that it is too restrictive to allow the flexibility that we need for these different kinds of companies.

Amendment No. 68 seeks to restrict the ability of a company to run its affairs as it sees fit. 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.

If we accepted Amendment No. 68 there would be no incentive for any organisation other than schools to join companies as it could not take its share of any profit earned by its activity. We intend to allow local education authorities, further and higher education providers and private and voluntary sector companies with an educational or training focus to join companies. We shall make this clear in the regulations, on which we will consult.

As to the distribution of profit, I emphasise that the constitution of the company—that is, its memorandum and articles—should and will specify how profit could be used. We envisage a situation where profit would be used for developing the aims of the company—for example, by purchasing new equipment—or it could be paid to members at a level recommended by the directors of the company, dependent on the nature and circumstances of the company and approved by the members of the company in general meeting. So the prospect of profiteers coming in and taking advantage of such a structure is not only remote but inconceivable.

Baroness Blatch

Is a member the school, or can a member be an individual? For example, can an individual of a school become a member of the company? In which case, if it was a profit making company, he or she could be in receipt of a share of profits.

Lord McIntosh of Haringey

Basically, the member is the school, not an individual within the school—a governor, a head teacher, a teacher and so on. As an extreme example, in addition to the school being a member it is possible that one could have someone connected with the school as a director or an outside member of the company. But those involved in such a way would have to take very great care about potential conflicts of interest.

Baroness Sharp of Guildford

I thank the Minister for his reply. I am left a little uncertain. Presumably when the Minister indicated that the school would be the member, he meant that it would be the governing body of the school.

Lord McIntosh of Haringey

It would be a corporate body.

Baroness Sharp of Guildford

As a body corporate it could be a member of a company. Indeed, it might be the only member of a company.

The Minister is not quite right to say that there would be no incentive to form a company if the profits had to be ploughed back into the school, as suggested in my second amendment. If we think about the amount of time that schools spend running fairs, jumble sales and other such projects—all the funds from which are ploughed back in for the benefit of the school—we see that there is a great deal of altruism around. People are prepared to take part in such activities. Schools are already selling software and ploughing the money back into the school.

What is envisaged here for the typical school that wants to start a company is a company limited by guarantee. Any profits it made would almost certainly be ploughed back into the school. Therefore, very little restriction would be imposed. Nevertheless, I thank the Minister for his reply. For the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 68 to 81 not moved.]

Lord Roberts of Conwy

moved Amendment No. 82: Page 8, line 31, leave out subsection (7). The noble Lord said: Clause 11 (7) provides that, Regulations may restrict the circumstances in which a local education authority may refuse to give any consent applied for under subsection (1)". It is worth asking what the circumstances are in which such regulations might be brought into force.

This provision has caused some consternation in Wales. My friends in the local government association are simply asking in what circumstances it would be proper for the National Assembly for Wales to over-rule the local education authorities. Therefore, the amendment proposes the deletion of subsection (7).

I have some sympathy with the local government association. Why should the Assembly have this power to override the local education authority, which is, after all, a democratically elected body? The same argument applies to local education authorities in England. Again, they can be over-ruled by regulation so far as concerns the matter of consent. I beg to move.

Lord McIntosh of Haringey

Without the provision in Clause 11(7), there would be no power for the Secretary of State to make regulations to restrict the circumstances in which an LEA might refuse to give consent to a governing body applying to form or join a company. If we took that literally, and LEAs did not want schools to have companies, this could vitiate the whole purpose of Clauses 10 to 12 and there would not be any, because the wicked LEAs would say, "We don't want schools to engage in this initiative". That is not what we want, and I do not think that it is what the noble Lord, Lord Roberts, wants either.

Perhaps I may explain the intention of the restriction. We understand that schools as well as LEAs would welcome clear principles setting out when local education authorities can withhold this consent. We have therefore provided for regulations under Clause 11 to give schools more certainty about whether their application to join or form a company is likely to be successful.

In Committee in another place it was stressed that there was a need for a clear indication in regulations of when permission could be denied. We expect that under these regulations an LEA would be able to refuse consent when, for example, it had concerns about the leadership, management or financial health of a school. Other sensible circumstances would include when the school had serious weaknesses or was subject to special measures. We have given more detail on that in the policy statement that has already been referred to. We shall consult on the regulations and allow schools and LEAs to comment on the circumstances that we propose. We do not want local education authorities to have the power to refuse schools the opportunity to take part in this initiative just on a whim, but we think that they should have the power to refuse if, given their special knowledge of the schools, they consider them to be unsuitable for such a venture.

Baroness Blatch

There is no doubt in the case of a school that has serious weaknesses or is in special measures. That is a publicly known state of affairs. It could be automatic that any school in that situation need not apply. The Minister referred to an LEA believing that a school had serious weaknesses. It is possible that some LEAs with a philosophical objection to the setting up of a company could use that as a reason. Is there any right of appeal for the schools that would form the company against a malicious or vexatious withholding of consent?

Lord McIntosh of Haringey

That is a useful consideration that could be taken into account when we consult in public on the regulations. Regulations could say that.

I have a specific Welsh point for the noble Lord, Lord Roberts. He knows that the National Assembly for Wales has said that it supports the proposals and will make a commencement order when it wants the provisions to apply in Wales. It is for the National Assembly for Wales to consider what it will put in its regulations, just as the Secretary of State will do for England. The same arguments apply, but in the end it is for the National Assembly for Wales to make its own decision on what the regulations contain.

Lord Roberts of Conwy

I am grateful to the Minister for his explanation. Although many questions could arise, the comparative lateness of the hour dictates that I should suppress them for the time being. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 11 shall stand part of the Bill?

Baroness Blatch

The Minister will be pleased that I am not going to go back over our earlier debate on Clause 10. He rightly said that I dealt with all three clauses in some detail. However, there are one or two outstanding questions. One relates to a company that had school body members and a wholly commercial member involved. I take it that it would be either a company by guarantee or a company with shares. Although the school bodies would be interested in education, the commercial member would be a separate independent body making a profit for its own purposes, which may, incidentally, have something to do with education, but may not necessarily. Am I right in thinking the body would have to be either a share-based company or a company by guarantee and it would not be possible to have a mix? If a commercial venture was underwritten by shareholders, they would be walking off with a great deal more of the profit than the school-based members, who were limited by guarantee. I do not know the answer. I am asking as someone who is not as au fait with company law as the Minister is.

I agree with the noble Baroness, Lady Sharp, about the words, "if regulations so provide". Why are those words used here, when every other reference in the Bill says that regulations "may" or regulations "shall"? What prevented parliamentary counsel from saying—there has to be a reason; there always is a reason—that "regulations may provide for the prohibition by its constitution from admitting", and so on? It would be helpful to know that. The provision says that the company must "if regulations so provide", but where does that leave the company if regulations do not so provide? The word "must" allows no flexibility.

Finally, subsection (3)(a) provides that the company, must, if regulations so provide … be prohibited by its constitution from admitting to its membership any person who is not of a prescribed description". Who will prescribe?

10.15 p.m.

Lord McIntosh of Haringey

The answer to the first question is a basic tenet of company law: one cannot have a company in which there is a mixture of limit by guarantee and limit by shares. It has to be one or the other. If it were a company limited by shares rather than limited by guarantee—in other words, if outside people had to be shareholders rather than members in the guarantee sense—one would have to write the memorandum and articles to protect the interests of shareholders who are bodies corporate—in other words, schools. It would have to be clear that the extent to which they are responsible for the activities of the company and responsible for any risk taking is reflected in what they get out of the company, so that the schools' financial interest is protected. I do not think that it will be possible to write that in regulations, but it will certainly be possible to write it in terms of a model memorandum and articles for the companies. I am sure that we would wish to do that.

The second question was about the phrase, "if regulations so provide". The phrase puzzled me. My understanding is that paragraphs (a) and (c) of subsection (3) continue to use the word prescribe, so that there will have to be regulations in respect of them, whereas paragraph (b) does not. I think that it is simply a matter of drafting that three paragraphs with different relations to regulation have been included together. If there is any better explanation than that, I shall write to the noble Baroness, Lady Blatch.

Baroness Blatch

I think that that is a very skilful answer. If it is correct, and I suspect that it may well be, the word at the beginning of the subsection should be not "if" but "where". It should therefore read, "The Company — where regulations so provide".

Lord McIntosh of Haringey

I shall see that that view is conveyed to parliamentary counsel. I shall not go any further than that. I have also forgotten the third point.

Baroness Blatch

Who will prescribe?

Lord McIntosh of Haringey

If it is necessary to do so, it could be prescribed in regulations. Our wish, however, would be to have as much local decision-making as possible.

Clause 11 agreed to.

Clause 12 [General powers of the Secretary of State in relation to companies]:

Lord Roberts of Conwy

moved Amendment No. 83: Page 8, line 34, after "State" insert "(in relation to England) or the National Assembly for Wales (in relation to Wales) The noble Lord said: There is some doubt as to whether Clause 12 applies to Wales, and one purpose of my amendment is to give the Government a chance to clarify the position. The Government may well say that the position is already clear. Indeed, the Wales Office brief notes Clause 12 as applying to England only, and the Assembly Minister for Education, Jane Davidson, told the Assembly as much on 10th January.

The Welsh Local Government Association, however, points out that the clause as drafted appears to give the Secretary of State power in respect of England and Wales. The association refers in particular to Clause 209(4). What it is getting at, I think, is that Clause 12 comes into force on the day on which this Bill becomes an Act and that there is nothing to stop the Secretary of State from forming or participating in companies which may operate on an England and Wales basis. I think that the association is probably right in its interpretation.

The Welsh Local Government Association is not partial to this clause and would not favour the amendment that I have tabled in order to clarify the situation. My amendment would give the Assembly the same power to set up companies as the Secretary of State has. The present Assembly Lib/Lab government do not wish to have the power either. However, a future Welsh administration might have a different view, especially if it found that the power was successfully applied in England.

I am bound to say that the deliberate refusal of the power sits oddly with the power taken in Clause 10. Clause 12 is obviously complementary in many ways to the power of governing bodies to form companies. It allows the Secretary of State a similar power if he or she wishes to participate or operate on a larger, possibly national, England and Wales basis. On that basis it is a power that I should have thought should be available to the Assembly as well as to the Secretary of State if it is to be available at all. I beg to move.

Lord McIntosh of Haringey

I can hear from here the rejoicing in the Valleys at the prospect of a Conservative government in Wales. I shall live long enough to see it!

The difference between England and Wales concerns a difference of the existing law. Section 40 of the Government of Wales Act 1998 gives the Assembly the power to form a company if it should in future choose to do so. As the noble Lord, Lord Roberts, rightly said, the National Assembly for Wales sees governing bodies as having a role to play in forming, joining and investing in companies which are covered in Clauses 10 and 11, but it does not see a need to be able to form companies in this area because it already has the power under the 1998 Act. If a specific power were included in the Bill, it would carry the implication of limiting the Assembly's general powers to form companies, which I think would be accepted as being unhelpful.

Baroness Blatch

If it has the power under the 1998 Act, it must be a power that has been passed by this Parliament and it must be a power that also applies to England.

Lord McIntosh of Haringey

No, I am talking about the Government of Wales Act. The provisions of the Government of Wales Act apply to Wales and not to England.

Lord Roberts of Conwy

I believe that the National Assembly for Wales is a corporate body. I am most grateful to the Minister for his explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 84 to 86 not moved.]

Baroness Sharp of Guildford

moved Amendment No. 87: Page 9, line 3, at end insert— ( ) Subsections (3) and (4) of section 11 shall apply to any company referred to in subsection (1) as they apply to companies in relation to which a governing body has exercised a power conferred by subsection (1) of section 10. The noble Baroness said: In moving Amendment No. 87, I wish to speak also to the Question that Clause 12 shall stand part of the Bill.

Amendment No. 87 brings us back to the whole issue of a company by guarantee but it is set in a different context. Clause 12 concerns a company being established by the Secretary of State rather than by a school or group of schools. The question posed by the amendment is whether such a company should not also, as is proposed in Clause 11(3)(b), be a company limited by guarantee meeting prescribed regulations.

The advantage of the company being limited by guarantee is one to which I drew attention on previous occasions; namely, that the profits made by that company would be ploughed back into education. The issue is whether the Secretary of State should be involved in a business that is making profits out of education. The possibility of the Secretary of State being a participant in a company and making profits out of education is raised by Clause 12. The fact that profits can be made in education is illustrated by the degree to which companies such as Nord Anglia are successful these days. For example, Capital Strategies, an analyst of the education market, indicated that share prices in the top 25 education firms during the five years 1996 to 2001 rose by 293 per cent. It predicts that the value of the education market will double to more than £5 billion in the next five years. In other words, it is a good investment, if any Members of the Committee are looking for good investments at the moment.

Companies that derive large parts of their income from the education sector are already performing three times as well as the average stock market company. The growth of the UK education market could be compared with the situation in the US. Education management organisations over there have increased from one to 45 companies in five years, and every major brokerage firm in the country now has an education division.

I turn to the clause stand part debate. There was a time when there was a clear distinction between the public sector and the private sector. Many objected to the public sector entering enterprise of any sort—public or private enterprise—because the public sector could raise capital at unduly preferential rates. It was felt that a public sector company had an unfair advantage over other companies. That was one of the main arguments against nationalised industries for many a long year.

We are now seeing a merging of the public and private sectors in several spheres. That is not necessarily something from which to run away. The Government are probably anxious to promote that merger. However, it raises problems, in particular with regard to the Secretary of State as an active player. One can understand the way in which local authorities—hospital trusts—can play a part in PFI contracts.

Another problem involves the whole question of public sector workers and the concept of the ethos of the public sector. For example, in a recent submission to the Select Committee on Public Administration, the TUC said that the values that constitute the foundations of the relationship within the public sector were trust, professionalism, concern and respect, that those are essentially non- commercial and that to introduce a wholly commercial motive would lead to a worse result for both parties.

In Just Capital, Adair Turner states: There is a danger that the introduction of overt commercial relationships cannot be achieved without eroding those intrinsic motivations [as opposed to the commercial motivations]… The market economy is a tremendously powerful tool to achieve ends, but it should not pretend to reflect the full range of human motivation and aspirations". I therefore pose the question: what will happen to educational services if the Secretary of State does create companies? Will those companies be companies limited by guarantee? What happens if the company goes bust or into administration? I beg to move.

Baroness Blatch

Those are important questions. I know that the Minister probably knows more than most of us about company law but it seems to me that if the Secretary of State is to set up companies himself and/or participating companies limited by guarantee is he guaranteeing himself? Is he underwriting his own activities? It is either that or Mr Gordon Brown has to bail him out; I am not sure which is the case. If there have to be calls on the guarantee or on the failure of the company, would that come from the global fund for education?

10.30 p.m.

Lord McIntosh of Haringey

I shall deal first with Amendment No. 87. The amendment seeks to provide enabling powers for the Secretary of State to make regulations which could require companies in which the Secretary of State is investing—that is, under Clause 12—to comply with the same requirements as companies formed by governing bodies under powers conferred by Clause 10. I hope that I have that right.

Under the amendment, any company in which the Secretary of State invested would have to prohibit membership for non-prescribed persons, meet restrictions as to its constitution and other matters connected with the company's affairs, and obtain permission to borrow money from a prescribed person. One of the main objects of the clause is to provide more efficient and less expensive means of procurement and management of facilities for and services to schools and LEAs. The amendment would slow down those processes and increase costs to government.

The requirement to place these companies under the same regulatory controls as those formed by governing bodies is unnecessary because all companies in question will be subject to the requirements of company law. The directors of the company will have a legal duty to ensure lawful and effective financial controls. Although the suggestion sounds superficially reasonable, it would be unnecessarily restrictive to the conduct of efficient business.

I turn now to the broader issue of Clause 12 and the Question whether the clause should stand part. I start by saying that there are those who argue that the Secretary of State already has inherent powers to do everything that is in Clause 12. Indeed, the department's lawyers believe that to be the case. However, by placing this clause in the Bill we want to clarify the position and put the matter beyond doubt, not only for the sake of government but for the sake of anyone who is likely to deal with a company of this kind.

The existence of a specific statutory provision will reassure prospective partners in any company who are more comfortable with written statutory powers than with looking up the cases and evidence, which the department's lawyers have been looking up, as to whether the Secretary of State has the powers. For example, they will be familiar with Section 2 of the Local Government Act 2000, or, in relation to the National Assembly for Wales, Section 40 of the Government of Wales Act 1998, or Section 4 of the Health and Social Care Act 2001. We want the power to be set out in one place; we want it to be clearly stated; and we want other people to be able to understand where it is. That will save people seeking expensive, independent advice if they want to deal with a company set up in this way.

Taking part in companies will not simply involve a handing over of cash. Each company with which the Secretary of State is involved will have to demonstrate, as do all other companies, value for money and robust business plans. They will have to seek to protect the public investment at all times. Individuals who seek to exploit this provision will find themselves subjected to close scrutiny before any decision to invest is taken and close shareholder scrutiny thereafter. In putting this clause on the face of the Bill, we believe that we are making it easier for companies to understand what is involved, but we do not believe that we are making it easier to take part in the sense of lowering any of the barriers.

Experience has shown that schools—particularly small schools and those in the voluntary-aided sector—often have difficulty in obtaining access to advice and services through conventional means, other than by incurring considerable costs. A single school might incur costs of several hundred thousand pounds for legal, financial and technical advice which may not be of the quality it would expect. Therefore, we are taking these measures to develop, in the first instance, the use of joint venture companies which will provide advice, procurement and contract management services to individual schools, local education authorities or representative bodies of voluntary-aided schools, such as faith groups.

To some extent, we have already talked about the experience of the discussions between the department and representatives of the National Society (Church of England) for Promoting Religious Education. They are working through the processes to establish the first of these companies, which will be able to take place when the Act has been passed. They will develop a partnership that will enable the national society, the Government and, more importantly, schools to minimise the time and cost involved in delivering large-scale capital projects. The first project for the new company will be to secure the necessary funding to ensure that as many of the 20 or so Church of England primary schools chosen for this project are refurbished or replaced to enable them to continue this Government's drive to raise standards and to provide an improved learning and working environment for pupils and teachers.

The Church of England project will be only the first use of the clause and we shall use the experience of this project to inform future developments in handling and financing major capital projects for local education authorities, establishing a consultative user group within the Church of England project that brings together representatives from a wide range of partners such as LEAs, the Local Government Association, local diocesan officers and other faith groups. In that way we shall seek to take the views of those most affected by these ways of working. The projects will have to demonstrate value for money and will have to be approved by the project review group, which is chaired by the Office of Government Commerce before any contracts for PFI projects can be signed. Indeed, as this will be a commercial venture we expect to see any profits ploughed back into enhanced services for those schools making use of the joint venture company.

Concern has been expressed about the liability of the Secretary of State. The answer to that is that which I have given throughout. We are talking here of a limited liability company. Those who deal with limited liability companies know what is meant by "limited liability". It is no different for companies set up under Clause 12 than for those set up under Clauses 10 and 11.

The Lord Bishop of Blackburn

I intervene briefly to support the Government's intention in Clause 12 and to hope that, indeed, it does stand part. Much of what I intended to say the Minister has said on my behalf. We are all keen to improve educational standards. However, I have listened a lot in the last two days of debate on the Bill. Given that we are a revising and probing Chamber, it seems that we are slightly reluctant to give the powers of innovation in order that these fresh initiatives to raise standards may be achieved. This is an enabling power to ensure that the Secretary of State has the powers which many believe the Secretary of State already has. It clarifies that and clears it away.

I am tempted to say a word about Mammon. However, in response to the noble Baroness, Lady Sharp, it seems to me that the motivation for commercial enterprise can be good. There are companies which are motivated to market a good product and to provide employment almost as much as to make a significant profit, or at least there should be. We are concerned that innovative projects go ahead in the way that the noble Lord, Lord Dearing, remarked earlier today, which would not go ahead without a power of this kind. I am grateful to the noble Baroness, Lady Blatch, for referring to that earlier in this group of amendments.

The Minister spoke about the PFI and the national society initiative. I declare an interest as chairman of the council of the national society. No one is forcing the 20 or so small schools to go into this. They have self-selected themselves. However, there is no way that they could achieve this on their own without an umbrella organisation such as the national society engaging with the Secretary of State in the Conflation of such a company. I hope that with those few remarks I can support the inclusion of the clause and hope that it does, indeed, stand part of the Bill.

Baroness Sharp of Guildford

I thank the Minister for his reply and take on board the remarks made by the right reverend Prelate. However, I remain somewhat unconvinced. It seems to me, as I understand it better now, that the proposal is a vehicle for PFI. As always, one sometimes wonders whether PFI is necessarily the best way forward for some of these initiatives. As the Minister well knows, from these Benches we feel that on occasions the Government could raise money more cheaply outside PFI than within a PFI context. In those circumstances, it is only the somewhat arcane rules of the Treasury which prevent Government from raising capital in that sense. Nevertheless, having heard the Minister, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 12 shall stand part of the Bill?

Baroness Blatch

I shall be brief as I spoke to this matter in debate on whether Clause 10 shall stand part of the Bill.

First, the right reverend Prelate mildly criticised those of us who have spent quite a lot of today sounding hesitant and cautious about what the Government seek to do. I have made clear, and continue to say, that I have no difficulty with the principle. However, we have given up on another place acting as a check and balance on the Government. This is the Chamber which does so. We have a duty to protect the interests of all those who will be involved. At the end of the day they could be deemed culpable if the companies fail.

My second message is serious. The Government's venture into the world of privatisation was through the individual learning account. We have just received the report. Having read it over the weekend, it makes fairly awful reading. Some innocent people have been harmed. Companies have gone bust as a result of that exercise. Many are in grave difficulty. Potential students who would have taken advantage of individual learning accounts have been left with no provision. We await with bated breath some substitute scheme. Real people have been hurt: teachers, school staff, non-teaching staff and people who we feel have a primary duty to education and children, not to private companies. Whatever happens as a result of these clauses—it may be the most exciting development we have had in a long time—it is right that we challenge the detail and ensure that if the measure goes back to another place it is with many of those questions answered because that is important.

I think that parliamentary counsel must have had an attack of the vapours. I have never known parliamentary counsel to be flexible. For parliamentary counsel to agree that an otiose provision should be in the Bill seems to be a real coup. I do not know who managed to convince them that it is worth putting a clause in the Bill that is unnecessary. Perhaps parliamentary counsel are changing the habits of a lifetime.

I am not convinced that one needs this vehicle for the PFI exercise which is being talked about. I am not sure that a company needs to be set up with regard to the collaborative effort to exploit the PFI schemes for the benefit of faith schools. However, we have another stage of the Bill to explore that issue. I withdraw my objection to the clause standing part of the Bill.

Lord McIntosh of Haringey

It is incumbent on me to do two things. First, we shall pass on to those who wrote instructions to counsel the congratulations of the noble Baroness, Lady Blatch. It is not true to say that the provision is otiose. There is a significant value in having in one place the powers of the Secretary of State so that those who are dealing with such projects know what to rely on without extensive constitutional research.

Secondly, without in any way seeking to excuse what happens with individual learning accounts, this is a very different beast. We are talking about local projects with people who know each other. It is very different from the scale and procedures of individual learning accounts.

Clause 12 agreed to.

Clause 13 [Power of Secretary of State and National Assembly for Wales to give financial assistance for purposes related to education or childcare]:

10.45 p.m.

Baroness Blatch

moved Amendment No. 88: Page 9, line 17, leave out paragraph (b). The noble Baroness said: We come again to a provision to which I have no objection in principle. Clause 13(1) says: The Secretary of State (in relation to England) or the National Assembly for Wales (in relation to Wales) may give, or make arrangements for the giving of, financial assistance to any person for or in connection with any of the purposes mentioned in subsection (2)". Among the items mentioned in that subsection are services related to childcare. It also makes provision in relation to higher education. However, in moving this amendment I wish to speak specifically about childcare services.

The noble Lord, Lord Peston, who is not now in the Chamber, has tabled a later amendment for which he will receive my wholehearted support. I am worried about the finances for education. As noble Lords will be aware, education has a global budget that starts with Mr Gordon Brown, the Chancellor of the Exchequer, and then moves to education—which has beaten all records for top-slicing money held by the centre to spend on whatever the idea of the day may be. Indeed, only today I received yet another missive from the Department for Education and Skills regarding the spending of £27 million on another project. In themselves these projects are sometimes very attractive and sometimes very quirky. However, every time that £27 million, £1 million or even £1 is taken off at the national level, such money does not find its way to local government. If that is the case, it does not find its way into schools. The perennial point that I have been making is that the core funding of schools is being depleted all the time.

We are constantly adding to the burdens of local government. Every time we do so there is a cost involved which has to be met. If the cost is met, it is met from the education budget. The increasing incidence of national government and local authorities holding back money continues to deplete schools' core budget. The provision in Clause 13 to pay for childcare services represents a new burden. I suspect that the noble Lord, Lord Peston, will not be moving his later amendment tonight. However, it provides that any funding spent in this area "must relate" to education. If that is not the case, it is not a genuine call on education funding.

I am concerned that we are imposing functions on the education budget that properly belong under the umbrella of social security or social services; or, indeed, which should come under the Home Office. Such functions do not always belong to education. As I read the clause, childcare services relate to a child from a very early age through to the point of moving into statutory education at the age of five. As there is no reference in the financial memorandum of the cost involved, it would be helpful if the Minister could tell us whether that cost will come from within the education budget. Alternatively, will there be a new allocation, or a transfer from another department into the education budget? Further, what kind of service is envisaged in totality that will require proper funding? We are not talking about inexpensive services; indeed, they are very expensive. This is not an argument against the principle of doing what we can to ensure that young people below the age of five are better prepared to take advantage of mainstream education when they reach the statutory age.

I do not wish in any way to deny the merits of the case that will be put forward by the noble Lord, Lord Northbourne, because he will have my support. I know that the noble Lord will argue most strongly for the policy. However, I believe that there needs to be some honesty in politics at this point. If it is a new burden and it is to be properly met, local authorities should be given the wherewithal to deal with it. I beg to move.

Lord Northbourne

I wish to speak to Amendment No. 89, which is tabled in my name. I support the noble Baroness, Lady Blatch, in her view that proper funding for new functions imposed on the DES ought to be provided. However, the purpose of my amendment is rather different.

At the end of the 19th century, a small minority of children arrived in school disabled by rickets or tuberculosis. It was only when medical science discovered the causes of those diseases that society moved in to prevent their causes—malnutrition, poor ventilation, poor housing and so on. Today there are few, if any, children who arrive at school with rickets. There are, unfortunately, a very few who arrive with tuberculosis.

However, in the 21st century a significant minority of children arrive at school disabled mentally or emotionally by the environment in which they have lived during the first years of their lives. I argue that the foundations of education are laid in the years before the child reaches his second birthday. That is the period of his life when a major part of his brain development takes place. That development is influenced not only by heredity but also by the environment in which the child grows up.

If those foundations are laid wrong the damage may be hard to change later. I add, in parenthesis, that much of the knowledge of this subject has become available only in the last decade or two through new neurological discoveries based on more powerful brain scanners.

Rather like the situation with rickets and tuberculosis, now we have new information on which arguably we should be acting. A child who arrives in school with learning difficulties which arise from the environment in which he grew up, may not be statemented but he is a disadvantaged child and a potential problem for the school.

So, is there not a case for taking measures in the early years which would reduce the number of children who arrive in a school in that category? I predict that within five years, and perhaps within two years, the Secretary of State will come to the conclusion that that prevention is worthwhile. I think that nearly all parents of young children start off wanting to do their best for their child. I believe and am confident that many parents welcome information, support and help, provided that it can be given without being stigmatising or intrusive. From my experience of the Parenting Forum I believe that it is possible to do this. My amendment, therefore, is simply permissive. It gives the Secretary of State the power to act if and when she decides that it is right to do so.

Baroness Howe of Idlicote

I speak to Amendment No. 89. Although I understand the reason the noble Baroness, Lady Blatch, moved Amendment No. 88, I am not really in favour of it.

I start by congratulating the Government on the clause. Frankly, I would have given my eye teeth for it at a time in the 1960s when people were scrabbling around to get funds to start pre-school playgroups, adventure playgrounds in deprived areas and to use school premises for other community purposes.

In those days, state pre-school education was minimal. Any expansion of it was prohibited until the noble Baroness, Lady Thatcher, managed to abolish circular 8/60. Again I congratulate the Government and their predecessors on the fact that nursery education is available for some 90 per cent of three-year olds.

However, as the author in those times of a pamphlet entitled Under 5, I always felt that the nought to three year olds were a particularly vital age—particularly for supporting especially vulnerable parents and children. All of that and the reasons for it, which have now grown, have been most ably explained by my noble friend Lord Northbourne. Therefore, I shall not expand further on that matter.

I was especially pleased that Ofsted's annual report noted the nought to sixes as one of six key issues on which it hopes to focus in coming decades. So presumably it considers the nought to threes to be within its education remit. I hope that the Minister, too, considers the nought to threes—the nought to sixes, but specifically the nought to threes—to be within her education remit. I also hope that in response to the amendment, she will provide examples of how the clause could be used to help families in deprived areas where the earlier that educational support, whether childcare or whatever, can be given the greater the hope of a successful, fulfilling statutory educational period for both the child and, I would argue, the teacher.

Baroness Walmsley

I support the amendment moved by the noble Lord, Lord Northbourne. I remember clearly a remark made to me by a reception teacher whose lesson I was observing many years ago as part of my teacher training. She said, "You know, when they arrive in my class, in many cases their educational attainment is already determined. If they are lively and curious when they enter the reception class, we can develop them and they will do well. But if they arrive incurious and with a dull look in the eye, they are already lost and it is difficult for the best of schools to bring them back in again". My experience as a parent backs that up.

Best practice in early years education acknowledges that the development of children's verbal skills, physical co-ordination, emotional development and social skills in those early years, before they go to school, are most important. Of course, those things do not start at the age of three when they enter a nursery setting. They start at the age of zero. Those who are most influential in assisting a child to develop all those things, which are so important for the beginning of formal education really to take off, are parents.

I heartily endorse the amendment to give support to parents to understand how children develop and to find ways efficiently to further that development so that when they enter the nursery setting they can take advantage of what one hopes will be good quality nursery education and that when they enter formal education—perhaps not quite as early as four—they will really fly.

Lord Rix

I know that my noble friend Lord Northbourne is especially anxious to ensure adequate support for young children who may suffer mental, emotional and cognitive disabilities as a result of their early upbringing before entering school. That concern is laudable, and as such I support Amendment No. 89. However, I am sure that Mencap and the Special Education Consortium would want to add to the list of potentially deprived children those born with a learning disability. Additional financial assistance for their early education would be welcome, as would the maximum possible guidance and support for their parents. The amendment accords with my aspirations, and I should be glad to hear whether the Government's putative plans in that direction are indeed beginning to take shape.

Lord Alton of Liverpool

I add my voice in support of the amendment moved by my noble friend Lord Northbourne. In particular, I support what my noble friend Lord Rix said about the importance of parents being involved in, the task of developing the child's emotional, educational or physical potential"— the words used in the amendment.

There is always a temptation to assume that the institutional care offered by the education system to children of any age can, in some way, compensate for the involvement of the parent in the child's upbringing. I was struck by what Dame Elizabeth Butler-Sloss said in an interview with The Sunday Times about three weeks ago. She said that we all needed to revisit the arguments of the 1970s and consider the importance of both parents being available during a child's upbringing. She was particularly emphatic about the emotional scarring that could happen to a child if one or other parent was not available.

We should not lose sight of that part of the amendment proposed by noble friend Lord Northbourne. According to one survey, 800,000 children no longer have contact with their father. The absence of male figures from the upbringing of children has a profoundly disturbing effect on those children and is one of the reasons why we see youngsters behaving in the dysfunctional ways about which so many people are now rightly concerned.

The amendment should cause us all to pause and think about what we want of the children coming through our schools. Where does the process start? For children at such an early age, it starts in the home and the school. However good teachers in nursery schools or early years education may be, they are not a replacement for parents who are not engaged in the process, playing their important role. We would be foolish to think that they could be a substitute.

11 p.m.

Lord Jones

Parents carry a great responsibility, and I hope that the Government will make even more effort to ensure that they do. I hope that the amendment proposed by the noble Lord, Lord Northbourne, will get more than a sympathetic response from the Dispatch Box at this late hour. As long ago as 1976, when I was a young Minister with an education brief, I was able to make the first grant ever to the Pre-school Playgroup Association in Wales. I realise that I did that without access to the pamphleteering skills of the noble Baroness, Lady Howe of Idlicote.

Will the Minister tell us where she believes our local education authorities are going? In the series of mini-debates that I have heard tonight, it has been clear that our schools are—necessarily—getting more and more power, more discretion and more authority. Do Ministers believe that the local education authorities will, over time, wither on the vine? Do they have confidence in the local education authorities? Do they believe that the powers now being vested in our schools are at odds with the long-term future of the local education authorities?

I end as I began: I hope that the amendment gets more than a sympathetic hearing.

Baroness Ashton of Upholland

It has been an interesting debate in which everyone has spoken in support of the principles behind support for childcare. I welcome that. The Government are pleased that we are well on the way to fulfilling our ambition of providing an early education place for all our 3 and 4 year-olds whose families want one. At the same time, we are expanding the number of childcare places by stimulating the growth of provision in the private sector through the introduction of subsidies aimed particularly at the disadvantaged.

We all know that there is still a significant gap between demand for affordable, accessible, good quality childcare and what is available, especially—as Members have said—in disadvantaged areas and for disadvantaged groups. One of our aims is to respond to parents' wishes for early education and childcare to be more closely integrated. Findings emerging from the effective provision of pre-school education illustrate the educational benefits of integrated services. Centres providing integrated provision are consistently associated with greater developmental progress in other centres. Individual combined centres scored highest in the assessment of quality.

That is the background against which we are debating the amendments. I agree with the noble Lord, Lord Alton, that parents play a most important role in the early development of their children. I also agree that it is important that both parents are involved—although we know that that is not always possible and occasionally not always desirable.

I was delighted that the noble Lord, Lord Rix, spoke of special educational needs for the early years. We are looking to develop that more, in particular for our children in early years education. With the development of special educational needs co-ordinators, we are now working closely to enable us to do what we have always wanted to do; that is, to identify special educational needs as early as possible in order to address them and equip children. I often say in the department, and I believe I have previously said it in this House, that I want all children to arrive at school with their rucksacks containing their apples and rulers and their special educational needs kits should they need them to enable them to receive the appropriate provision to develop educationally.

I am grateful for the support of the noble Baroness, Lady Howe, for our proposals. In referring to the nought to three year-olds, it is important to remember our Sure Start programme. That has been funded with £449 million in order specifically to work with parents and children, and in particular to focus on the physical, intellectual and social development of babies and young children under four. We are working closely to realise that ambition in order to ensure that in our most disadvantaged neighbourhoods we have Sure Start programmes in operation and to develop the programme so that everywhere we can support our children.

I want to deal specifically with the concerns raised by the noble Baroness, Lady Blatch, and, as she rightly requested, to do so with honesty. We are concerned to ensure that we have provision for childcare, particularly in our early-years work. The providers in the voluntary and private sectors want to be able to access it more easily. It is about cutting down on regulation, bureaucracy, guidelines and so forth by encompassing those within one power.

However, it will not be drawn from the school's budget. There would not be provision within that for a school to move money within its budget. It is about a separate funding scheme coming together. It is part of the spending review currently before the Treasury and it will be part of a separate pot of money. I know that the noble Baroness feels passionately about attempts to move money out of education and I agree with her. Our scheme is about a separate budget. It lives within the Department for Education and Skills and part of it is aimed at working with our providers in the public, private and voluntary sectors who are also providing early education.

We want to provide what we describe as "wrap-around" care; to provide for some children the ability to have their early education and to be cared for beyond that in the same setting in a childcare way, not in an education way. That is the purpose behind the proposal to include childcare within the provision.

I turn to the amendment tabled by the noble Lord, Lord Northbourne. It proposes to add support for early years education to Clause 13(2)(b). I should make it clear that the definition already in place in Clause 13(2)(a) to support education or education services will include pre-school children such as those in receipt of nursery education. In addition, the amendment includes services to support carers with the emotional, educational or physical development of children aged nought to three. We are doing that through the Sure Start programme, as I have indicated.

I hope that on that basis the noble Lord will feel able to withdraw his amendment.

Lord Jones

Before my noble friend concludes her remarks, will she consider the question I posed about the long-term future of local education authorities?

Baroness Ashton of Upholland

I apologise to my noble friend Lord Jones. I knew as I was about to sit down that I had missed something of great importance. Local education authorities have a great role to play. I do not see them in any way withering on the vine—the expression used by my noble friend.

Local education authorities are developing in ways that will enable them, particularly through the Education Bill, to develop their strategic role. But we as a Government are not committed to seeing them disappear. We are interested in ensuring that schools are able to do things that schools can do best and local education authorities are able to do things which we believe they can do best

Baroness Blatch

On that point I think we should say that the jury is still out. Certain colleagues of the noble Baroness in other departments are talking about the development of regional government. As a result, the position of county government has now become rather vulnerable. The notion of regional and district government means that local education authorities could either become even more local or they could expand up to the regional level. Furthermore, we must consider devolution, which certainly reflects the ambition of some of the political advisers in No. 10 Downing Street. I do not think we have heard the last with regard to the future of local education authorities, or at least government at county level, in which most authorities reside.

I should like to say to the noble Baroness, Lady Howe, that the proposal in the amendment seeking to remove this power merely served as a mechanism to stimulate the discussion that we have now had this evening. I thought that it was important to address not only the policy aims which were enshrined in the amendment tabled by the noble Lord, Lord Northbourne—and which I support—but also to ensure that the poor old local education authorities, which ultimately will have to deliver the policy, are given the wherewithal to do so. If they are not, then we have a situation where LEAs have to rob Peter to pay Paul. It was important that the position was made clear.

The noble Baroness has promised totally new money. We shall be looking for that in the CSR review when it is announced. The noble Baroness is right to point out that cross-departmental arrangements are continually developing both through the previous government and with the present Government. I know that the Home Office has worked with both the education and health departments. That is good, but it has always been difficult to arrange cross-departmental funding. Persuading one department to pay for a function in another department is always difficult. If this is a pot of new money that will reside in the education budget, I hope that it will be sent down to the local education authorities, as is their due.

Baroness Ashton of Upholland

I should point out to the noble Baroness that we already fund childcare. Because we are already doing that the funding is already is existence. I would not want the noble Baroness to think that a new pot of money was being introduced because we were not already making headway in this area.

What I sought to indicate was that the money for childcare is currently a distinct sum that we are spending. When we look to allocate moneys in the spending review, they too will be distinct.

Baroness Blatch

I am grateful for those comments, which lead me to the next point I wish to make: why have these provisions been included in this part of the Bill? The power to give financial assistance for childcare is already in place. Indeed, the entire list of educational provision set out in subsection (2) repeats powers that are already in existence. I do not know whether this reflects the attack of the vapours to which I referred earlier; namely, that this is a another clause which is not strictly necessary but it has been included in order to put the position beyond doubt.

It would be most helpful if the noble Baroness could say what is distinctive about subsection (2)(b), the provision, or proposed provision, in the United Kingdom or elsewhere, of childcare or of services related to childcare", and explain why it has been included at this point, given that the provision is already in existence elsewhere.

Baroness Ashton of Upholland

The point of the clause is to bring together a series of different funding streams that are currently in operation. At present they are being handled in several separate ways. Perhaps it would help if I cite one or two examples for the noble Baroness.

At the moment we have the Standards Fund, but we have to limit the use that schools can make of it because it has a separate basis on which it is organised and recognised. We cannot allow schools the freedom to use the fund in the ways they might wish to. We were unable to use educational funding powers to support the threshold pay costs for those employed by local authorities to work in care homes. That, too, is a separate funding stream. We are now bringing those funding streams together under one power, thus enabling the Secretary of State to use the money for these purposes.

Baroness Blatch

I am puzzled by the noble Baroness's words because the power here is one only to make financial provision. There are already powers to make financial provision. If the Government wish to reduce the amount of money in the Standards Fund and then use some of that money for childcare purposes, the Secretary of State does not need further legislation to allow him to do so. In fact, the Secretary of State always alters the Standards Fund on an annual basis. In one year it may cover X, but then the following year it will cover X-minus or X-plus. I cannot understand why it is included as a new power. I queried it because if it is a new power there should be new money. But the Minister said that there would be a specific additional sum of money which would not come from the existing education budget, and that is what we shall look forward to in the forthcoming review.

My fundamental point in initiating the debate on the whole funding issue was that it should not be a financial burden at the expense of core funding for schools. With that, I rest my case and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

11.15 p.m.

Lord Northbourne

had given notice of his intention to move Amendment No. 89: Page 9, line 18, at end insert— ( ) the provision of early years education; ( ) the provision of services, support or guidance to parents or other carers to help them in the task of developing their child's emotional, educational or physical potential during the period between birth and the age of three; The noble Lord said: I am not sure whether or not I shall move the amendment. I intend only to respond briefly to the Minister.

The Government deserve to be congratulated on what has been achieved in childcare for three and four year-olds. However, the debate today has raised a number of interesting questions about funding. I should like to read the debate rather carefully before Report stage.

As to the question of nought to three year-olds, the noble Baroness has been able to tell me only that this issue is being dealt with by the Sure Start programme. I should like to know a great deal more about the programme—how it is going; how much has been achieved; whether it is only a talking shop, which is the impression that one gets; examples of projects that are underway; how much money has been spent so far and by which department. I believe that this should be a matter, at least in part, for the Department for Education because the education of a child essentially starts when its mind begins to develop, and that is at conception but certainly at birth.

Perhaps it will be possible for me to have a dialogue with the Minister or her officials before Report stage. On that basis I shall not move the amendment.

[Amendment No. 89 not moved.]

[Amendment No. 90 not moved.]

Baroness Blatch

moved Amendment No. 91: Page 9, line 39, leave out "but does not include higher education, The noble Baroness said: Amendment No. 91 relates to a rather pedantic point about accurate drafting. Clause 13(3)(b) states: social and physical training (including the promotion of the development of young children), but does not include higher education". However, subsection (2)(c) states: enabling any person to undertake any course of education, or any course of higher education provided by an institution within the further education sector". I know exactly what it means but it does not say what it means. It means that it is not funding higher education in higher education institutions but it will fund higher education modules which are taught in further education institutions.

There needs to be some qualification of the meaning of "does not include higher education" in subsection (3)(c). I do not know how that is to be done. I have not been critical of parliamentary counsel; I have referred to its uncharacteristic behaviour. However, this issue should be attended to because otherwise it looks contradictory. I beg to move.

Baroness Ashton of Upholland

I shall try to explain precisely what it means and, I hope, address the problem raised by the noble Baroness.

Clauses 13 to 17 are aimed at rationalising and simplifying our currently disparate powers to support childcare, early years, school education and further education. We believe that it is important to cover all these in one consolidated power so that funding systems can deal consistently in areas of overlap. We have briefly discussed the issues between childcare and early education, and of course, in pushing forward with our ambitious agenda for 14 to 19 year-olds spanning schools and further education, the existing fragmented powers stand in our way of ensuring that financial assistance can be provided in a simple and fair manner. That is the basis for the clauses.

We have found, as the noble Baroness rightly said, our current powers for funding the Higher Education Funding Council for England—in the Further and Higher Education Act 1992—to be fully adequate, and do not see the need to make changes there. We have ensured that Clause 13 covers some very specific areas of overlap between schools or further education and higher education, in terms of teachers' professional development, support for people undertaking courses of higher education at a further education institution, and so on. Beyond that, it is our belief that there is no need to change the existing funding regime for higher education, and I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Blatch

I understand the explanation, but it is my belief that the drafting is wrong. That was my point. I understand perfectly—although I always thought that HEFC was the body that funded higher education modules in further education, and I did not think that there was a need for this—and I accept the Minister's explanation. Wording such as "not including higher education provided in higher education institutions" might be used. Subsection (2)(c) includes the words, or any course of higher education", and subsection (3) includes the words, does not include higher education". That is contradictory. There ought to be some qualification as to precisely what the Minister means and what I believe she means.

Baroness Ashton of Upholland

I shall try. In subsection (2)(c) the first occurrence of "education" does not include higher education; but subsection (2)(c) also makes explicit reference to higher education, which is therefore an omission. We hold the view that the drafting is okay. However, in the light of the very positive contribution that the noble Baroness has made to the egos of parliamentary counsel, I am more than prepared to take this matter away and check it out.

Baroness Blatch

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 13 agreed to.

Clause 14 agreed to.

Clause 15 [Terms on which assistance under section 13 is given]:

Baroness Sharp of Guildford

moved Amendment No. 91A: Page 10, line 19, after "terms" insert "as prescribed by regulations The noble Baroness said: The reason for the amendment is to write some form of accountability into the grant-giving powers given to the Secretary of State under Clauses 13 to 17.

These provisions have received wide approval from all sides of the Committee. However, as the noble Baroness, Lady Blatch, pointed out in speaking to the amendments to Clause 13, there is not a bottomless purse of money. Resources dispensed in grants by the Secretary of State mean less money being distributed to schools by LEAs.

It is for the Secretary of State to balance the pros and cons of resources being devoted to one cause or another. But at some point the Secretary of State has to be answerable to Parliament for those decisions. It may seem odd that from these Benches we should be seeking more, rather than fewer, regulations; but the mechanism of a regulation provides—especially if such regulations require an affirmative resolution—for the Secretary of State to come before Parliament and justify his or her decisions before Parliament. That is why we seek to include the amendment in this clause.

An increasing share of our resources in education are now being channelled through the Secretary of State. This set of clauses enlarge and consolidate the powers of the Secretary of State in this respect. It is important that these powers should be subject to parliamentary scrutiny and accountability. That is the purpose of the amendment. I beg to move.

Baroness Ashton of Upholland

Since the purpose of this clause is to provide the Secretary of State with a single, simple power, it needs to cover many different payments and grants—from the substantial sums paid to local education authorities through the Standards Fund, to the grant-in-aid which supports the National College for School Leadership, to one-off individual payments; for example, to provide a particular service such as a training programme.

Were a requirement for secondary legislation to be incorporated in the power, as proposed, then the benefits of simplification and reducing bureaucracy that the power is intended to bring could hardly be realised. Different regulations would introduce different rules, accounting practices and restrictions—precisely the situation that the new power is intended to move away from.

It is worth putting on record that more than 85 per cent of the funding for education and childcare would not be provided under this power. That funding—the main support for schools and LEAs in the local government finance system—is provided with no secondary legislation governing the purposes to which it is put.

There remain many mechanisms by which Parliament would be informed of and decide upon the funding of education and childcare: through voting funds in the first instance and monitoring their use through the department's annual report, through Select Committee inquiries, through debates and through parliamentary Questions. The detailed terms and conditions under which grants and other financial support are made are fundamentally administrative considerations rather than matters for statutory instruments. Their inclusion in secondary legislation creates cumbersome and lengthy instruments that are inflexible and subject to lengthy amendment processes when required. That is why, in framing this funding power, we have followed the example of Section 2 of the Employment and Training Act 1973, which provides similar broad powers to support training programmes. Similarly, the powers under which the higher education funding councils and the learning and skills councils are funded do not require secondary legislation. This power simply puts another major strand of support for education and training on the same footing as that already agreed by Parliament elsewhere.

Other major aspects of public expenditure are not governed by secondary legislation. For example, defence spending is made on the authority of the vote without recourse to any further primary legislation. The same is true of grants for social care services. On that basis, I hope that the amendment can be withdrawn.

Baroness Sharp of Guildford

I hear what the Minister says. I am not totally satisfied with her answer, but I shall ponder on it further. At this late hour, I shall not take the matter any further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 15 agreed to.

Clauses 16 and 17 agreed to.

Baroness Match

moved Amendment No. 92: Before Clause 18, insert the following new clause— "REDUCTION OF REGULATION (1) In relation to the conduct of education in schools and nursery schools, the Secretary of State and local education authorities shall have an overriding duty to minimise regulation and to reduce the amount of material they send to governing bodies and head teachers. (2) The Secretary of State must publish an annual report to Parliament setting out the progress he has made in the preceding year in reducing the number and volume of regulations, circulars and codes of practice that he or his predecessors have published. (3) Each set of regulations, circular or code of practice issued by the Secretary of State shall include a statement by him of the time he expects it will take for governing bodies or head teachers of schools or nursery schools, as appropriate, to read, consider and implement the regulations, circular or code of practice concerned. (4) In making his estimate under subsection (3), the Secretary of State shall impose no additional burden on schools or nursery schools to provide him or local authorities with information. The noble Baroness said: The amendment would require the Secretary of State and local education authorities to minimise the amount of regulation and bumf going to schools and nursery schools. Even as we speak, we are already endorsing the provision of more regulation. A great deal more guidance and bumf will end up going into schools. If the policy papers that I have received are any indication, schools will receive a large amount of paper.

Between 1997 and July 2000, schools received more than 1,000 publications and regulations from the department. In the first six months of 2000 alone, the DfES sent out 140 circulars to teachers—one directive for every working day. A recent report by the National Union of Teachers found that 57.8 per cent of teachers leaving the profession were doing so because of the workload. That is well documented and we have discussed it in other debates.

Local education authorities now have to produce 17 different plans for the department, including a plan of plans, bringing together all the other plans—in fact, the mother of all plans, the local government plan. In a very good pamphlet on the subject for the Centre for Policy Studies, Andrew Povey said that it would take more than 1,000 man hours for teachers and local authorities to consider and complete all the plans that the Government have imposed on teachers.

The crisis of teacher shortages is building nationwide. The Government's response so far has been complacent and inadequate. One action that they could take today is to stop the flow of unnecessary directives and paperwork that the department sends out, much of which merely ties teachers up in form-filling when they would prefer to be working in the classroom. That extra work is driving many teachers out of the profession and preventing them from doing the job that they know best—teaching.

No doubt the Minister will tell us that the burden has been considerably reduced. That does not show on my desk. Every day when I come in I find not just one, but often two, three or four releases from the department—and I receive only the press releases, not all the papers and reports that come out of the department. I certainly receive only a fraction of what schools receive.

I understand from an announcement in the past week that one answer proposed by the Government is to employ more people in the classroom to assist the teachers to cope with that level of bureaucracy. The fundamental question is this. Would it not be more effective to cut the level of bureaucracy in the first place? Then, we could put both teachers and teaching assistants to better use in the classroom, to teach the children. I beg to move.

Baroness Sharp of Guildford

I rise very briefly to support Amendment No. 92. We on these Benches have long argued for rather less regulation and rather fewer directives being issued by the Secretary of State. I entirely endorse the comments of the noble Baroness, Lady Blatch, on the amount of paperwork that arrives on the desks of noble Lords, let alone on those of head teachers and teachers. If there is a way of limiting the flow of paper, it would be an excellent matter to pursue.

Lord Alton of Liverpool

Clause 19 deals with the composition of governing bodies, and, as the noble Baroness, Lady Sharp, has just said, Amendment No. 92 touches on the very important point of the build-up of bureaucracy and the build-up of requirements on teachers and governing bodies. When I was a young teacher, one of the joys of teaching was the fact that one was not encumbered with vast amounts of bureaucracy. My friends who have remained in the profession complain bitterly about the sheer volume of paperwork that is now inflicted on them. It seems to diminish their capacity to do their job properly as teachers.

Knowing that the Government are concerned to increase the number of people serving on governing bodies—and I entirely support them in that ambition—we should look at ways of trying to reduce the burdens placed on governors. In saying that, I should declare a non-pecuniary interest as a foundation governor of the Liverpool Bluecoat School. Moreover, like the Minister, I have also served on the governing bodies of maintained sector, voluntary aided and independent schools. In performing that role, I have found, just as I did as a local councillor, that the paperwork has exceeded anything that I was warned to expect. It could be a major disincentive in encouraging people to take part in school governance. People could be put off by the sheer scale of the paperwork that can arrive on their desks. I also think that much of that paperwork is repetitive and unnecessary.

Although it may not be necessary to include in the Bill a provision along the lines of the fairly dirigiste Amendment No. 92, we should all warmly support the spirit of the amendment. If the Government can give it a fair wind and say that they will look at ways of trying to reduce bureaucracy, everyone will be much happier.

Baroness Ashton of Upholland

I think that we all share the objective behind Amendment No. 92, to reduce the bureaucracy, paperwork and regulatory burdens placed upon our schools. I could not agree more with the comments of the noble Lord, Lord Alton, on that issue. Not today, but later we shall discuss governance issues and how to ensure we have a good system that enables us to recruit and retain our governors, who play such an important voluntary role in our schools. This objective is an important part of that, and I take nothing away from the noble Baroness, Lady Blatch, in moving the amendment.

I understand from parliamentary counsel that the effect of the amendment would be to reduce the level of regulation to nothing. Although I know that that is not what the noble Baroness is proposing, it is worth putting that on the record. We all recognise that there needs to be some regulation and bureaucracy within the system. It is also very important to ensure that we give schools the right kind of information. As a Minister, I tackle that issue every day. We are seeking a balance in ensuring that schools receive good information. I am particularly concerned with special educational needs. We have to ensure that we give schools the right type of information about the different types of special educational needs, for example, while not overburdening them with paperwork, as noble Lords have said.

The department is guarding against requiring schools to jump through bureaucratic hoops when there is no need to do so. Last year, we said that key measures in the Bill would be implemented according to best practice, including looking at their implications for those working in schools. We are doing that with the aim of lightening the load on our schools as far as possible. We have set out in the Government's regulatory reform action plan our programme to reduce the burden of regulations on the schools sector. Moreover, as noble Lords have said, we have significantly increased the number of support staff to help tackle the type of work that teachers can genuinely hand over to other people, leaving them free to teach. I know that the Committee agrees with that. On the basis that I support the spirit of the amendment even if I cannot accept it, I should be grateful if the noble Baroness would withdraw the amendment.

Baroness Blatch

I am grateful for that reply. Certainly, I should not want an onerous burden to be placed on the Government given that I argue that there should not be an onerous burden placed on local authorities or schools. It is important that the Government should indicate that the Secretary of State is conscious of the workload that is being imposed upon local authorities, governing bodies, head teachers and schools. I see now what the noble Baroness meant when she said that parliamentary counsel envisaged a situation where no measures of the kind we are discussing would exist. If every year one had to report a reduction on the previous year, eventually they would disappear altogether. That would be a heavenly situation for schools but I believe that even they would argue that they required some information from those on high.

However, I believe I can find a suitable form of words here. The very fact of a report being made to Parliament each year on the volume of information that had been disseminated in the school system would constitute a control on the Government's appetite for sending out circulars, regulations, codes of practice etcetera. Given that there has been some welcome of the intention behind the amendment, I shall take it away and try to find some way to beat parliamentary counsel at their own game with an acceptable form of words. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Davies of Oldham

I beg to move that the House do now resume.

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

House resumed.

House adjourned at twenty-two minutes before midnight.