School Funding

HL Deb 07 May 2003 vol 647 cc1126-64

5 p.m.

Lord Hanningfield rose to call attention to the funding of schools; and to move for Papers.

The noble Lord said: My Lords, I am pleased to be able to introduce this debate on the funding of schools. I declare an interest as leader of Essex County Council, but more of that later.

Education is a mammoth service—more than 25,000 schools; more than 8 million schoolchildren—and if the Government get wrong the delivery of education we are all in serious trouble. The debate today will probe whether the Government have done just that.

Over the past few months we have seen a steady stream of reports suggesting a dangerous black hole in the funding of schools. That culminated on Friday with the National Association of Head Teachers describing the funding situation this year as "catastrophic".

The National Association of Head Teachers blames the Government for this disastrous funding situation. It states: It is very clear to us that although there are local authorities who are guilty of not passing on as much money as they should, the problem lies not with LEAs but with the Government. It has simply not put enough money into the new funding system this year".

So we have a catastrophic situation. A government flagship policy; unions talking about strike action; schools handing back their budgets. By any definition it demands to be taken seriously.

But what is the Government's reaction? According to The Times Educational Supplement the Secretary of State for Education told chief education officers that requests for more money, just flood straight over my head".

He went on to say, I don't listen to what you say quite frankly".

In the run-up to this year's NUT conference, Doug McAvoy said, We've not had the relationship we've got now with the Government during my time as general secretary and deputy general secretary. It's worse than anything that happened through the Thatcher years". Rather than partnership, we have confrontation and a break-down of communications. In their flagship policy area, the Government have succeeded in alienating teachers, head teachers, chief education officers, unions, local authorities and the Local Government Association.

There is absolutely no doubt that the problems schools are facing this year are a direct result of changes that the Government have made to the funding formula. Enormous turbulence was introduced into the system as a result of the changes. The Government are absolutely responsible for the effect of this review and for its conduct and timing.

The ODPM Select Committee noted in its report on the new funding formula that, although there had been three years to work on the review, most of the substantive work … was carried out in the last year … The result is that many of the new formulae do not appear to be evidence-based and can be criticised for being insufficiently robust and more open to judgement than was previously the case".

In the end, the formula review had the appearance of being rushed. Local authorities had to set budgets on the basis of a settlement that was finalised only at the eleventh hour. That obviously makes budgetary planning difficult for local authorities and, as a consequence, for schools.

What of the levels of funding themselves? The first point to make is that, rather than taking money out of schools, local authorities actually put additional money in. In 2003–04, the Local Government Association estimates that local authorities will put £100 million more into schools than has been provided by the Government. This continues a trend that has seen additional investment of £4.3 billion by local authorities in schools since 1993. If the Secretary of State wants to take powers to pass money to schools directly, he should be aware that this additional investment will be taken out of the system.

But let us return to the head teachers' contention that the Government have simply not put enough into the system this year. According to the Local Government Association the Government's funding settlement did not take into account a number of significant pressures. For example, teachers' employers' pension increases of between 13.1 and 13.5 per cent will cost schools £50 million this year; additional national insurance contributions will take another £115 million out of the system; teachers' pay increases will account for the loss of a further £548 million; schools' inflationary pressures are worth £200 million; and the withdrawal of the Standards Fund grants will cut a further £335 million from the available funding. When one takes all of these pressures into account it is no wonder that some schools are finding themselves in difficulties. The Government have simply got their sums wrong.

On Friday, the Government published tables purporting to show that rather than a lack of central funding the problem was that money was being held up in the system by local authorities. That is quite outrageous and totally wrong. It is typical of the Government that while there is a crisis in our schools that teachers and local authorities are working hard to address, they are focused on passing the buck and spin.

My own education authority, Essex County Council, is one of the authorities identified in the Department for Education and Skills' release as withholding money from schools. That is an accusation I absolutely refute. Indeed, I find it risible, as will others who understand the funding system. Essex has an excellent track record on devolving budgets to schools. According to the DfES's own data, we delegated more cash per pupil than any other shire authority in 1999, 2000 and 2001. In 2002–03, we were the third best performers on this measure. At the same time we are the lowest spenders of any education authority in the country on central administration. I stress that we are the lowest spenders in the whole country on central administration.

The Government and not the LEA are to blame for the difficulties now being faced by schools in Essex and their hundreds of thousands of pupils. After all, the Government have imposed on Essex the worst grant settlement of any authority in the country. We lost £30 million this year. The formula changes mean that we will retain only a further £45 million as a consequence of the floor mechanism.

Turbulence and uncertainty are the future for Essex schools because our funding levels will depend on where the Secretary of State chooses to set the floor. If the floor were to be removed we would lose £45 million, which is equivalent to 11.5 per cent on the council tax. Even with the floor, we are running just to stand still and losing out in relation to all other authorities.

Three times I have mentioned in the Chamber—I still have not had an answer as to whether the Government accept this—that the increase in the total grant to the county council was £7 million less than the increase in our education formula funding share alone. I repeat: the money we received from the Government to pay not only for our schools but for community care, child protection, roads, the environment, waste management, libraries and so on, was £7 million less than the Government expected us to passport to schools. Our predicament was so severe that even the Government recognised it and granted an additional £1.2 million to Essex schools, about £6 per pupil.

The effect of the Government's changes to the funding mechanism and the turbulence created in the system was that some authorities—such as Birmingham—received an excess of grant over formula share approaching £40 million, whereas Essex received minus £7 million. Where is the equity in that?

Despite these difficulties we went ahead and passported. We held back £1 million because there was not enough early years demand to justify the expenditure—another government Minister told us to do so—although we still spent £1 million on early years in excess of funding from the Government. We were able to do that only by ratcheting up the council tax. It is the people of Essex, not the Government, who are paying to maintain the quality of education in our schools.

Finding that extra £7 million by itself added more than half of a percentage point to our budget and, because of the gearing effect, it added 2 percentage points to the council tax alone. Government underfunding is responsible for the crisis in our schools and government underfunding is responsible for the steep rises in council tax throughout the South East this year.

For the sake of completeness I must comment on the Government's publication of the numbers relating to allocated spend. Associating this figure with the financial crisis in schools is absurd. It is a policy agreed with our head teachers—all authorities have this underspending and most of them discuss it with their head teachers—and much of the unallocated money is due to restrictions that the Government place on the funding that we can distribute to schools. For example, a third of the unallocated money, more than £7 million, is the ICT component of the Standards Fund. It is the Government who require schools to jump through hoops before this money can be allocated to them through the LEA. It is not the LEA's fault but the Government's regulations. Ministers do not seem to understand their own regulations.

We also hold money centrally to fund in-year pupil number increases and to support the education of pupils out of school. Under the old system, we would delegate the pupil retention budget to schools and then claw back the funding where pupils had to be taken out of schools. The Government told us that we could not do that and that we should hold the money centrally.

The point is that we do this in discussion with our schools and our head teachers. Our funding system is quite transparent: we sit down with our head teachers and discuss how to delegate the money. They know that the £21 million is theirs and will be allocated to them as the year goes on. They do not need the money upfront, of course. That is not what the underfunding crisis is about. Schools do not pay all their hills at the start of the financial year. Let us be clear that schools are underfunded because the Government have not put in enough money. It is nothing whatever to do with the profiling of payments.

Some press releases indicate that local authorities are sitting on pots of money. That is not the case. Our finances come in, as the Minister will know, over the year. Revenue support grant and council tax income are basically paid to us monthly, not as a lump sum at the beginning of the year. We receive income from government and council tax payers over the year. We passport it and give it to schools monthly, over the year. It is not a funding problem at this moment but over the year. As I said, press releases have indicated that local authorities are sitting on money. I am afraid that that is simply one more red herring thrown up by the Government to try and avoid shouldering the responsibility for this mess.

The final irony, so far as I am concerned, is that within the figure of £21 million of unallocated funding for Essex, the Government have counted in the £1.2 million they have just given us because they recognised we were underfunded. Needless to say, the money will be passed directly to the schools as soon as we receive it from the Government.

The Office of the Deputy Prime Minister is committed to freeing up local authorities. Let us accept that proposition in good faith. The Department for Education and Skills, however, is obsessed with centralisation. It wants to micromanage inputs as well as specify outputs. In attempting to do so, it has got itself into one almighty mess.

Instead of focusing on raising standards in schools, the Secretary of State for Education and Skills has become obsessed with LEA spending profiles. It is irrelevant. The plain fact is that the Government have got their sums wrong and have not invested enough money in schools. They should stop digging now, own up to their mistakes and work with LEAs and schools to seek ways out of this situation.

If the Department for Education and Skills wants to continue down the road of centralisation, it can expect more of the same. The more it insists on taking the reins, the more it will have to be prepared to accept accountability for its failure to deliver. The Secretary of State for Health wants to do the opposite for the health service—he wants to delegate more downwards.

While the Government pay lip service to the principle of devolution, the actions of departments such as the DfES make it clear that there is only one game in town—centralisation, centralisation, centralisation.

I am grateful for the opportunity to have opened this debate. I am very concerned about the situation; I live with it in Essex every day. If we had more money to give the schools, we would love to give it to them, but a council tax increase of 16.7 per cent was high enough. Anything I can do to help the people of Essex I will do. I hope the Minister will say the same when she responds.

I look forward to hearing the contributions of your Lordships to this debate. I beg to move for Papers.

5.14 p.m.

Baroness Warnock

My Lords, I am extremely grateful to the noble Lord, Lord Hanningfield, for giving your Lordships' House the opportunity to debate what has manifestly become a crisis in the funding of schools. No one can open a newspaper without realising that there is a crisis. However, it is a very complex matter, and I cannot claim to understand the funding formula that is now in place.

There are conflicting stories about what has happened to the extra funding that was promised and seems to have got lost. I look forward to hearing some clarification from the Minister on this point.

I want to confine my remarks to the funding of secondary schools, where there is no doubt that teachers are to be made redundant or not be replaced, and thus the staff-student ratio will be badly affected. Who exactly is responsible for the current chaos seems to me less important than the probable consequences. How is it possible to expect more pupils to stay on at secondary school and more to go on to higher education if educational standards are allowed to drop through lack of resources? That is the real issue in this debate.

In some ways, an under-resourced secondary school system is even more disastrous than lack of funding for undergraduate teaching, because everyone has to go to school and everyone deserves proper teaching at this stage.

It has been suggested, according to accounts in the press, that a revival of the grant-maintained system is being considered. This, I suppose, is simply because the Government seem to be laying the blame for the crisis on the local education authorities—as we have heard—from whom the grant-maintained schools were virtually freed. But without a further outlay by the Treasury, this would not make matters any better. What is needed is plainly more resources, and these resources must come from somewhere. I do not believe in the least that the local education authorities are sitting on vast sums of money. It is impossible that they should be.

I would like to think that, at this moment of crisis, the Government might take a rather longer look at some of the systems for putting more resources into the secondary school system than simply shuffling more money between the local education authorities and the Treasury. I would like to think that they might at least consider mixed public and private funding, not unlike—although not exactly the same as—the direct grant system, which was abolished, as everyone knows, by the Labour Party in the 1960s. The abolition of the direct grant nearly 40 years ago was largely the work of Anthony Crosland, who was determined—I think very properly—to give the new comprehensive system every possible chance by stemming what he thought of as the flood of talented children into a form of the private sector. I respect his arguments and I respected him enormously as a Secretary of State for Education.

I suppose that here I must declare an interest, though not a current interest. I was headmistress for six years of a direct grant school in Oxford, and for much longer I was part of the council of the Girls' Day School Trust, all 24 of whose schools were once direct grant schools. Later, when they became independent schools, they took up as many assisted places as they could.

The great fault, in my view, of the direct grant schools was that free places were offered to children from maintained primary schools if they did well in the entrance examination, without parental means tests. In a place such as Oxford, the parents of the brightest children from maintained schools could very well have afforded fees which, in any case, could not be raised from their relatively modest level without consultation with the government department. That was the fault of the system.

The glory of the system, however, was that in addition to the free places there was a sliding scale of fees. The parents of all children who wanted to, who had been admitted to school, could apply for a means test. There were children who paid no fees—as well as the scholarship or free place children—on a sliding scale going up to children who paid the full fees. No one except the administrators at the school and in the department knew what fees other children paid. That seemed to me an enormous advantage. Of course, there were some extremely good schools in the direct grant sector. One has only to think of Bristol Grammar School, Manchester Grammar School and so on.

Crosland was right in that the principle of the direct grant schools was incompatible with the comprehensive principle on which he set so much store. As a matter of fact, the comprehensive schools were never given a full chance to show what they could do—which some of them continue to do. However, the comprehensive principle has been long abandoned.

It is hard to reconcile the theory of specialist schools with that principle, for example, although I have never really understood that theory. I have a granddaughter at a sports specialist school, which is the only accessible school in the rural area where she lives. She is keen on tennis and girls' football, but she has played neither of them in the two years that she has been in the school. I am a bit baffled by the theory of specialist schools, especially in rural areas.

It is hard to reconcile the theory of specialist schools, technical colleges and city academies with the comprehensive theory. The crucial advantage of reinventing something like the old direct grant schools is that it is a living example of public and private funding being mixed and harmonising in potential centres of excellence. As far as I know, there is only one example of such a school at present, although there may be others, and I may be misinformed. That is the Belvedere School in Liverpool, which has some very good as well as very had comprehensive schools.

That school belongs to the Girls' Day School Trust and is supported by the generosity of Mr Peter Lampl's trust, which funds children who apply from maintained primary schools all over Liverpool and whose parents are means tested. That is a crucial difference between Mr Lampl's system and the old direct grant schools. The rest of the children's parents pay full fees, although they may also ask to be means tested and their children receive bursaries as appropriate rather than free place scholarship. The experiment seems to be working very well.

I suggest that parents who wish to pay for their children's education should be encouraged to do so. However, their children and the educational standards at such newly invented direct grant schools as I have described would greatly benefit from a proper social mix at the schools as well as their high academic ambitions.

It was the previous Conservative government's hope, as it has been the hope of this government, that industry would be a source for mixing private and public financing in secondary schools—hence the technical colleges. However, industry has not proved willing to help out in the necessary business of finding new resources for education, and it may not be in a position to do so. The Government cannot rely on that source, nor have they successfully relied on it in the past. They are far more likely to succeed in attracting more resources into secondary education by enlisting parents with moderate—not necessarily enormous—incomes, who are ambitious for their own children and for children who are less well off.

It is sometimes assumed that parents will always resent paying for children other than their own children at school. The principle of the direct grant showed that that was not so. No parents, in my experience, ever objected to the fact that they paid full fees when they knew that a large number of children paid no fees at all or paid fees on a sliding scale. The only thing that they objected to was that some children who happened to have been at maintained primary schools and whose parents were equally as well off as them—in exactly their income position—had free education. In a university town in those old days, people were reasonably well off, although they are not now. But that was the system of scholarships to which people were accustomed.

It is interesting to note that many of the big boys' public schools, starting with Eton but led by Mr Graham Able at Dulwich, are now saying that in future there will not be non-means-tested scholarships. All scholarship money will go to children who cannot afford the fees. That is a worthy and prudent move.

Parents who are academically ambitious for their children, or musically ambitious or ambitious in sports, will like the idea of schools such as I describe. They have the chance of being both socially mixed and, undoubtedly, centres of excellence. I hope that the Minister will undertake to consider not necessarily the scheme that I have outlined but some such way in which to mix private and public finance for secondary education.

5.27 p.m.

Lord Henley

My Lords, I start by offering my thanks to my noble friend Lord Hanningfield for introducing this debate. As we all agree, the subject is highly topical and crucially important. We know how much importance the Prime Minister himself attaches to education—"education, education, education", as he put it some years ago. As a result, we know how much importance his party attaches to it.

For that reason. I offer my commiserations to the noble Baroness, Lady Ashton, who does not seem to have attracted as much support as one would have expected on this occasion. The Benches behind her were pretty empty earlier on, although they seem to be filling up a bit, if not much. One would expect on an occasion such as this that she would have brought in a few more speakers to support the Government's case, which no doubt she will make very effectively at the end of the debate. She may make it so effectively that she finds herself transferred to the equally hot spot—the vacant spot in this House—of health spokesman. But that is a matter for other people and another day.

As my noble friend Lord Hanningfield made clear, this is a very complicated subject and it has become much more so in recent years, especially with changes to the formula. I suppose that I ought to know something of what I am talking about. I served in the 1980s as a member of a local education authority in Cumbria. In the mid-1990s I was a Minister in the Department for Education and Employment, as it was known. I continued briefly as spokesman in opposition after the 1997 election before relinquishing that honour to my noble friend Lady Blatch, who will speak for us at the end of the debate. I ought to know a little about education funding, although I never had responsibility for it in the department. However, as Lord Palmerston famously said about the Schleswig-Holstein question, he had forgotten what it was about. I have certainly forgotten what little I did know about the complexities of funding. I also imagine that—just as Lord Palmerston commented on those who went mad—the funding formula is perhaps driving Ministers and others who have to deal with it mad at this very moment. I leave that for the noble Baroness to answer in due course.

What I do know is that, last December, the School Standards Minister announced that, in 2003–04, there was, I believe, an extra £1.4 billion for local education authorities. He went on to make it pretty clear that every LEA would receive an increase of at least 3.2 per cent per pupil and that no one would lose out in real terms. The Government made quite a thing of that announcement—but they always make quite a thing of such announcements. We seem to have new announcements daily. We have heard new boasts about spending on this and spending on that. What we have slightly less of are improvements as a result of those spending increases. What we have even less of is talk about the extra burden on individuals and businesses as a result of those spending increases which I believe now amount to a sum roughly equivalent to £5,500 per household in extra taxation since 1996–97. All of that spending has gone on worthy causes such as health and education but we see relatively few improvements.

I return to education itself. We were told that there was to be the increase mentioned by my noble friend Lord Hanningfield of £1.4 billion for the LEAs. Since then—and my noble friend has put the case very strongly for Essex—we have heard not only from LEAs but from the schools themselves on what is really happening. Again and again we have heard examples of schools that have lost out and seen dramatic funding cuts. A survey of the Sunday Times top-performing 25 schools carried out by the shadow schools Minister, my colleague Graham Brady, showed that, of the 20 schools that responded, 17 face certain cuts, five of at least £100,000 and two of at least £250,000; that the anticipated range of cuts is £60,000 to £300,000; and that the average shortfall for schools able to give a figure is £155,000. We all know just how many people can be employed in a school for £155,000. Such cuts really do make quite a difference.

We have even heard from one Fiona Millar, personal assistant to the Prime Minister's wife and partner of Alastair Campbell. She could not restrain herself in her role as chairman of the governors of a north London primary school in complaining about the cuts to her school. She said: Although we will do our best to maintain standards, we cannot guarantee that the quality of education will not suffer. In particular, it is our most needy children who stand to lose most because we will not have the staff to provide the same level of extra support. We believe the Government has not thought through the implications of all its changes for some of the neediest schools. Parents can protest in many ways. For example, letters of protest need to be written". That school was facing a shortfall of £127,000.

As we know, the Government responded to all the criticism by saying that the money had been held back by the local education authorities. Last Friday, I believe, a letter was sent to all LEAs and directors of education seeking detailed answers. I have seen a copy of what I presume is a fairly standard letter, with various additions for local areas, which was sent on 2nd May to the director of education of Cumbria County Council. No doubt there are similar letters, and no doubt my noble friend Lord Hanningfield has seen the one sent to the director of education in Essex County Council. My noble friend spoke about the micro-management that the Government are seeking in education and this letter seems a pretty good example of it. It presents that local authority, and no doubt other local authorities, with a whole raft of extraordinarily detailed questions.

I can assure the noble Baroness that Cumbria's local education authority is not holding back any of the money and has passed more than 100 per cent of the schools' budget on to schools. In fact, the figure is 100.6 per cent. It is the burden on the LEAs which has been increased. For example, the pay increases to which my noble friend referred amount to £445 million in total. Pension contributions also have been increased, amounting, I believe, to £635 million. Gordon Brown's famous increases in national insurance contributions amount to another £115 million. All of that adds up, I understand, to £1.195 billion—which goes quite a long way into the £1.4 billion that the Government have boasted about.

I think we can say that the Government's handling of the education budgets and allocations has been unsatisfactory for a number of reasons. There has been, as my noble friend put it, a great deal of tampering with and changes to the funding mechanisms which have left schools and probably some LEAs struggling to get to grips with the absurd and unnecessary complexities of the system. That has been exacerbated by the separate but unrelated funding for the Learning and Skills Council, which now, I understand, funds post-16 education. There has also been the failure of the Secretary of State and his department to warn schools well in advance of the increases which I just mentioned in national insurance contributions, pensions and teachers' pay.

I should give other examples, such as the problem with the teachers' pay progression. There has also been the Government's failure this year to fund adequately the threshold payments for teachers. As I understand it, two years ago funding was provided and about 90 per cent of teachers passed through the threshold. This year, however, the Government incorrectly calculated—I should be grateful for the noble Baroness's comments—that 60 per cent of teachers will pass through the threshold, whereas schools calculate that the figure is nearer to 100 per cent. The Government have awarded funding sufficient only for their original 60 per cent.

I turn to specific grants. There was, I believe, a grant to reduce infant class sizes to less than 30 this year. This year that grant has been subsumed into overall funding and is therefore not targeted as it should be. Some schools must therefore receive less than in previous years. If those schools have taken on classroom assistants or additional teachers to service the commensurate increases in the number of classes, they will inevitably be faced with higher staffing costs. Therefore, there must be redundancies or economies elsewhere if the financial books are to be balanced.

Finally, there is the question of whether the extra money even reached the schools. Yesterday we saw the publication of the Public Expenditure Statistical Analyses 2003, a very complicated and weighty document with which greater experts than me will perhaps eventually get to grips and make interesting discoveries. I am grateful to The Times, which has already done some of that work, for pointing out that although the Government boasted about their £1.4 billion spending increase—when in reality we have seen thousands of schools complaining about cuts—that money might not even have got through to the local authorities. According to The Times, the statistical analysis for 2003 published only yesterday shows that the DfES underspent by £1 billion. The Government are complaining that £590 million is missing from education and blaming it on local authorities. Perhaps it is the Department for Education that has the money and not the LEAs. Perhaps the noble Baroness will comment on what The Times business section says about the underspend in the Department for Education where spending fell more than £1 billion short of its target.

5.40 p.m.

Baroness Byford

My Lords, my main responsibilities in this House are agriculture, the environment and rural affairs. However, education is an important if not vital part of all three.

As education is not my main interest my knowledge is limited compared with that of some other noble Lords. However, I listen to the radio, watch TV, read the newspapers and my husband is chairman of governors at an inner-city primary school and a governor at a county middle school. Between them all I am subjected to a constant background hum of discontent, concern and occasional despair.

I am aware that education funds come from the Government to county and metropolitan councils. I understand that the means of calculating the amount each council receives is very complicated and that they all get different amounts according to their circumstances. That means that in 2003–04, Tower Hamlets has £5,337 per pupil whereas there is £3,354 for Milton Keynes, £3,162 for Southend, £2,990 for Poole and, at the bottom of the heap, £2,930 for Leicestershire.

I know that Tower Hamlets has enormous problems of poverty, social inadequacy and ill health but I do wonder what its education offers that, in a climate of national curriculum and national pay scales, costs £2,407 per pupil per year more than Leicestershire. I note, moreover, that in the years since 1997–98, Tower Hamlets has had a real terms increase of £1,160 per pupil compared with Leicestershire's £500. If I were a cynic. I would say that that is beginning to look like favouritism.

The consequences of those disparities will vary from place to place, from school to school and will be affected by the calibre, or lack of it, of LEA officers, head teachers, governors and other staff. In Leicester in the inner-city primary there is no funding crisis as such but there is only one parent governor out of a complement of four. The school has some 270 pupils; 17 mother tongues are spoken; 120 pupils have special educational needs; approximately 35 are children of asylum seekers and 65 per cent receive free lunches. I appreciate and understand the extra demands made in those circumstances. The school also runs a breakfast club. The children need a lot of love, care and support in addition to their educational needs.

In Leicestershire in the 11 to 14 middle school there is a deficit of over £150,000. That will mean that some teachers will not be replaced. The school has approximately 940 children. It expected 30 more and budgeted for that number. As I say, there is a huge finance problem. The LEA and the school have got together and produced a three-year plan but because there is no additional funding there is a need to rationalise resources—for example, staffing—and to review contracts and budget allocations. The school and the local education authority are confident that over the next three years the deficit will be cleared but the school should not have been put in that situation in the first place.

There are problems today but there are even bigger problems looming in the years ahead if funding is not sorted out. Many schools are rotting away from within. The landlords look after the structure and the externals but schools are having to make choices between resources for teaching and learning and building maintenance. Can the Minister tell us how many councils have served hygiene warnings on local schools, especially in relation to the state of repair and decorative order of kitchens and washrooms?

One of the costs of running a school is resources and nowadays they are expensive. The National Grid for Learning has helped equip most schools with computers, interactive white boards, access to the Internet and administrative and curriculum software. My worry—I believe that I am not alone—is what will happen in two or three years' time when all of this comes up for renewal? Software and service packages are not likely to fall in price. Indeed, some software manufacturers sell licences which involve schools in updating at the behest of the maker and being required to upgrade the computers needed to run the upgraded programmes.

Some noble Lords will know of my interest in broadband, particularly in rural areas. Depending on how it is installed it may be capital expensive with low running costs or capital acceptable but with high running costs.

Lord Graham of Edmonton

My Lords, I am grateful to the noble Baroness for giving way. Like other members of her party who have spoken, the noble Baroness sincerely and genuinely reiterates the constant theme that more money needs to be spent on education, especially secondary education, to iron out some of the anomalies. Will the noble Baroness tell us how that would be achieved as her party has pledged to cut public expenditure by 20 per cent?

Baroness Byford

My Lords, I thank the noble Lord for his intervention. I shall let my colleague on the Front Bench respond to that point. I speak as a Back-Bencher, not as a Front Bench spokesman That obviously makes a difference. But my interpretation of the matter is very clear. It is not always a question of what money is available but rather of how it is used. I believe that at the moment it is not being used to best advantage. I say to the noble Lord, Lord Graham, that the school I mentioned is examining the way in which it operates to see whether it can save money. However, it is not simply a question of money although money is obviously a dominant factor as regards a school being able to work successfully. However, I shall leave the more detailed response on that point to my colleague on the Front Bench.

I have raised, and will continue to raise, the issue of broadband. As I say, depending on how it is installed it may be capital expensive with low running costs or capital acceptable but with higher running costs. Can the Minister tell us how many LEAs have gone down the latter route? There is a difference between the two routes.

Funding problems lead inevitably to cost saving schemes, reallocation of duties and task reduction. I was surprised and alarmed to hear that fire risk self-assessment is now a standard part of modern governance in schools. A group of governors and the head teacher sit round and simply fill in a form designed to highlight areas in the school which may be a source of risk either of starting a conflagration or of injuring staff or pupils in the event of one. Is that really something that they should be doing? Are they adequately trained? I am assured that the form is simple and that the task is easy but there are many aspects of fire hazard which are not even touched upon. Does the Minister support that delegation? In the event of a major fire with one or more fatalities and some serious injuries, will the Minister assure the House that governors, schools and head teachers cannot be held responsible in any way? At the moment I believe that they can.

The Government are increasingly passing even more responsibilities to hard working, unpaid governors who do their best to ensure a safe environment for our children. Does the Minister appreciate the great responsibility which is being given to them? Is she content that schools will be able to attract and keep governors in the future?

Like a previous speaker I touch briefly on the question of supply teachers. Increasingly schools are spending many thousands of pounds on supply teachers when regular teachers are absent. What are the Government doing about that? Will the Minister give the House some figures with regard to supply teachers?

I thank my noble friend Lord Hanningfield for giving us the opportunity to debate funding in schools. Before the noble Lord, Lord Graham, leaves the Chamber perhaps he will be interested to hear—as other noble Lords have said—that this Government claimed that for them "education, education, education" was a real priority. I put it more strongly than the noble Lord, Lord Henley. How disappointed the Minister must be that there is not one spokesman on the Labour Benches in this debate, and nor is there one from the Liberal Benches; I exclude the winding-up speeches. Last week, on 29th April, there was a debate in another place with no speaker from either party. Has "education, education, education" lost top slot? Perhaps noble Lords on those Benches realise that the Government are not achieving what they set out to achieve.

Before I finish, I would like to pay my tribute and thanks to all those who work within our schools. Teachers are obviously key to the success, but thousands of other workers all play their part. The one thing for which they all hope is financial stability. As other noble Lords have said, confidence in that has been shattered. Teachers are considering striking, as my noble friend Lord Hanningfield said. The Government accuse the local authorities, but I believe that the funding arrangements are inadequate or, at best, unfair.

Who picks up the underfunding? The local authorities, of course, which send it on to us, the council tax payers. Enough is enough. A likely disaster faces us. Perhaps that is why speakers are absent from other Benches. I do not wish to make a political issue of that, but I think that means that noble Lords from those Benches either do not appreciate that there is a dire crisis in the funding of schools, or accept it and feel that they can do nothing more. At best, the Government's priorities are not being fulfilled.

I have spoken of two schools particularly. As I said at the beginning, funding is not purely the problem at the inner-city school of Leicester, which has adequate funding. However, some of the other schools are really struggling. To be faced with a deficit of £150,000 with that number of pupils is indeed unacceptable.

I would like to thank again my noble friend Lord Hanningfield for giving us the opportunity to debate the subject, and I look forward to the Minister's response.

Lord Graham of Edmonton

My Lords, this is not the first time that the noble Baroness and I have crossed swords on her drawing the attention of the House to the absence of Labour Members in certain debates. I assure her that there will be occasions in future when the Opposition Benches will be empty of speakers. I would not dream of drawing attention to the fact that that indicates that Opposition Members are not interested. The pot should not call the kettle black.

Baroness Byford

My Lords, the noble Lord and I have had debates across the Chamber on the subject, usually when debating housing and circumstances for poor families or families in need. He accepted, quite rightly, that there were only a few speakers from our Benches, but there were at least some speakers. Today there is no speaker from the Government Back Benches.

5.53 p.m.

The Lord Bishop of Chelmsford

My Lords, it is a particular pleasure in my last few weeks as Bishop of Chelmsford to contribute to a debate introduced by the noble Lord, Lord Hanningfield, who shares an interest in a considerable part of the same patch as I do. I warmly welcome his bringing this important debate to your Lordship's House, rooted as it is in his long experience of public service in Essex. He has argued trenchantly in support of our county.

In many ways, local education authorities have a difficult task. In all the various celebrations last year, their centenary went almost unnoticed. Perhaps that is not surprising. They are ground between the upper millstone of central government and the nether millstone of schools. No longer do either central government or schools see the money that they administer as the local authority's money. Central government sees the money as the Treasury's money and wants to see it handed on to schools; schools see it as their own money and, quite naturally, want to have as much of it as they can. No wonder local government is ground line.

But it seems that the Government have taken on an almost impossible task this year as well. For many years, as noble Lords will recognise, schools and local authorities in parts of the country far distant from London have complained that the funding formula has seemed to benefit schools in London and the South East at their expense. The formula was ripe for refinement, perhaps even for scrapping and starting again. In any change there are likely to be winners as well as losers. Nor would it be surprising if a great noise of protest was heard from the losers and not overwhelmed by the deafening silence from the winners. That is human nature.

The Minister and her colleagues may regret, however, that the change eventually took place at a time when the upward pressure on teachers' salaries, pension contributions and national insurance costs was so great. Some indication of the current situation is that independent schools seem to be planning to increase fees to parents on average by at least 12 per cent, more than the total increase in government allocations for school budgets.

The Church of England has a very substantial stake in the educational system throughout this country, with a quarter of all primary schools and a comparatively small but growing number of secondary schools. I must therefore speak from beyond the experience of the county of Essex and the east London boroughs in my diocese. But before I do, I should like to express my own delight that a secondary school in Chelmsford, Rainsford High School, is this autumn to be reopened as the new St Peter's Church of England arts college. That development has arisen from the diocese's good partnership with the local authority.

For the Church of England, the partnership with local government in education is as important as the vital partnership with central government. That is not a matter of lip service but of practical action, and it is equally true in other dioceses and with other local authorities. That is why, 10 or 15 years ago, diocesan directors of education were often seen on school platforms explaining to parents' meetings why they supported maintaining a funding arrangement through the local authority.

Noble Lords will remember that that was a time of uncertainty for local education authorities regarding their role and their future. Now there are clear expectations of them and no doubt about their role in school improvement and other connected services. There should be no doubt therefore as to the funding that they need for that work. On the other hand, schools deserve a clearer picture and straightforward expectation of the funding that they hope to receive. They should be able to plan forward for more than one year and to know where they are. If, as it seems, the Government have indicated an intention to look again at direct school funding, I hope that our partners in local government no longer see that proposal as a direct assault on their integrity. On behalf of these Benches, I would welcome that exploration.

Finally, I hope that the current debate in and around schools about funding does not put at risk the prize of remodelling the school workforce. Incidentally, that is not language with which I feel comfortable, but it is the language that the Government use for a goal that we support. Teaching will not be undermined by increasing support staff in schools; rather it will be enhanced. I have seen far too many teachers demoralised by too much bureaucracy and the demands of unsupportive parents. They need all the help they can receive. We want to see the teaching profession increasingly recognised for what is—immensely significant for our country and its future, and immensely honourable.

6 p.m.

Baroness Seccombe

My Lords, I thank my noble friend Lord Hanningfield for allowing us to debate this issue. It is not only topical, but disturbing and vital to practically everyone in this country. Whether we are parents, grandparents or members of the general public, we all have a vested interest in the nation's children having the best possible education.

It does seem very odd that a Government who came to power with the slogan—and we have it again—"education, education, education", should have got it so wrong and landed themselves in such difficulty. I suspect that there are two main reasons: first, the never-ending thousands of directives initiated over the past six years by various Secretaries of State, so that no one knows whether they are coming or going, making life much complicated; secondly, this Government are so hooked on always exaggerating a story that they find themselves wound up in the spinning network to such an extent that even they do not know what is happening outside the department. The same money has been announced over and over again, and triple accounting has been the order of the day. In the end, no one has a clue how much extra funding has been given to schools. As a result of this fiasco, everyone has lost confidence, is suspicious of every announcement and thinks, to quote a saying, "What a fine mess we are in now!".

Government intervention over how councils spend their money and the very real problem that many authorities face under the new funding formula have not only been confusing to councils but have left schools lurching from crisis to crisis. The Government just do not seem to have learnt that you cannot control from the centre; life is not like that and the result is only too plain to see.

The fundamental necessity for any head teacher is the knowledge that there are sufficient funds to employ the required staff to man all the departments, so that they are able to nurture the children and so achieve the best possible results for the pupils in their care. If heads do not have confidence in their financial future, it must be impossible to function efficiently. Therefore, it is not surprising that we hear of head teachers facing the sacking of staff. Many feel that they have now had enough and are under such pressure that they are contemplating resigning their posts.

The Government appear to refuse to recognise the full impact of their actions in such matters as raising the national insurance contribution and the vast sums required to fund the pensions black hole. Both of these, together with teachers' complicated pay awards, will be ongoing burdens as the Chancellor of the Exchequer continues to drain pensions funds of £5 billion each and every year, and no doubt the national insurance contribution will increase year by year. That will be a massive extra expense on public services. These escalating costs are real taxes on jobs; and I am afraid that sacking is how they will have to be paid for unless the Secretary of State and the Chancellor make the required funds available.

This past week has seen some bizarre events; and some say that timing is everything. First, just two days before the local elections, the newspapers reported that on Friday the Secretary of State would name and shame the councils which had failed to pass on the money to schools—The Times even quoted a leaked document which actually names some councils on the list. However, later in the week the Secretary of State said that it was not about naming and shaming but only to highlight the situation for discussion.

Ministers appear to be very complacent and wish to shift the blame on to LEAs. Sir Jeremy Beecham of the Local Government Association said: Local councils are not holding back millions of pounds. Much of these funds are being allocated to a range of educational needs and some are due to be distributed later in the year". Councils are obliged by government to withhold sufficient funds for the considerable number of initiatives so ordered by the DfES and it does appear that there are just insufficient funds since the assessment which took place earlier this year—an assessment which resulted in enormous sums of money being transferred from southern areas to those in the North, and happily for some Ministers, to the advantage of schools in their constituencies.

I was very amused and indeed delighted to see that the Secretary of State is now actively considering reviving grant-maintained schools. It is reported that he considers it an error to have abolished them. I only wish that he had thought so at the time. It would give some form of comfort to those of us who fought so hard for their retention in the first education Bill that new Labour brought before this House in 1998. Grant-maintained schools were most successful and the initiatives that emerged were exciting and inspirational. Head teachers took opportunities to develop and generate ideas. The 1998 Act deprived them of their independence and so, frustratingly, much was lost when the dead hand of government took over.

I conclude on an optimistic note. It takes courage to change your mind in the way we understand the Secretary of State to be thinking; but what could be better than for all heads to be given the freedom to take their schools forward without all the interference and bureaucracy that stems from centralisation? Such action would give huge numbers of people great pleasure and would really benefit future generations of our children.

6.6 p.m.

Baroness Cumberlege

My Lords, I begin by declaring an interest. I chair two panels which recommend the level of county councillors' remuneration. Like other noble Lords, I thank my noble friend Lord Hanningfield for securing this debate, which is not only very interesting but important. After all, children make up 16 per cent of the population but 100 per cent of our future.

There can be few who are more concerned than the noble Baroness, Lady Ashton, who carries huge responsibilities, and the nation's aspirations. It is a perverse parent who does not want his or her child to receive the very best education, and a perverse school that does not want its pupils to succeed. In addition, every government want to provide enough money for every child to optimise his or her potential. But the current position, where schools are distraught, local education authorities betrayed and the Government angry, does nothing to improve the quality of education.

As I understand it, the genesis of the current problem lies in the September 2000 finance Green Paper, Modernising Local Government. This promised reform of the local government finance system was intended to produce a simple "plan based" system as opposed to a formulaic one. But Ministers were overwhelmed by a barrage of opposition from many quarters and dropped the idea of a plan based system. As my noble friend Lord Hanningfield said, the work on the new formula then started late. The policy was delayed and options for consultation were not published until July last year.

The Department of the Deputy Prime Minister was thrown by the delay, allowing the Department for Education and Skills to devise its own grant formula and protection arrangements.

In December, the local government finance proposals were at last published. They were of unprecedented complexity and lacked the background information which would enable local government to work out the implications. Far from producing a system that was simpler, fairer and more transparent—as was promised—they produced a system that was more complicated, unfair and totally opaque. Even the DfES seems to have problems understanding its own system. As John Crase wrote in the Guardian yesterday, The reason Miliband cannot put his finger on the missing £500m is because there is no missing £500m. It was a chimera all along". None of us would dispute that the national amount of money for education is probably just about enough. The problem is that the formula inevitably creates winners and losers at local level. The Government set a floor, or minimum, of 3.2 per cent for every LEA, but that, as I shall explain later, has significant drawbacks. The DfES damping arrangements operate on per-pupil funding and are entirely separate from the overall ODPM floors and ceilings which operate in the central government grant. That further complicates the picture in that the two dampened systems are not internally consistent. The problem is made worse by two further technicalities in that some authorities are affected by the results of the census, affecting ODPM damping, but that does not change pupil numbers or DfES damping. Consequently resource equalisation does not affect education's formula spending share but it does distort the distribution of overall grant.

As the right reverend Prelate the Bishop of Chelmsford has said, because of all these interacting factors, winners and losers were produced. Some authorities are rightly complaining that they do not have enough grant to passport the extra money into schools. Responding to that impossible situation of their own making, Ministers have tried to introduce a number of quick fixes. They include an additional London grant of £11 million, but that is not targeted at passporting problems, so it has only helped some of those London boroughs in difficulty. Ministers have realised that because of movements between formula and specific grants—another significant complexity in the system—some education authorities have not had the education floor increase of 3.2 per cent funding per pupil. That is because loss of standards funds were not taken into account in the DfES protection arrangements. In March of this year Ministers, realising that the position was untenable, found another £28 million for 36 local education authorities to correct the problem and ensure that all authorities had the minimum of 3.2 per cent per pupil.

Despite all those attempts to fix the problem many authorities and schools are still rightly complaining. Even if the education protection system is working, which it is not for many local authorities, individual schools may have budget problems for three reasons. First, Learning and Skills Council funding for sixth forms is at about the right level for LEAs but its distribution is very different, creating another set of winners and losers. Secondly, some schools have had more standards funds than others, so loss of these will affect them more. Indeed my own LEA has decided to restore the two Standards Fund Grants in spite of the Government's actions, and that will safeguard some teachers' jobs. As a consequence, we council tax payers have the highest county council increase of any in the country. I do not resent it—much. It shows the courage and commitment of East Sussex to education, but it is a council that has a declared policy of low council taxation. What I do resent is that my council has been forced to set aside its policy in order to bail out the Government's incompetence. As a council tax payer my increase of 19.6 per cent does nothing to improve the quality of education, nothing to develop, innovate or create projects within the curriculum, but is simply to maintain the status quo and to save us from the consequences of an inept government. Thirdly, changes in pupil numbers will always going be a significant problem for some schools. Many, perhaps most primary schools, face falling pupil numbers, so it is difficult in those LEAs to protect the budgets of all schools. A loss of 20 pupils could equate with at least one teacher, but since all classes have to be kept, savings are difficult to achieve.

In the light of these problems—serious problems when we consider that a child has only one opportunity for pre-adult education—it is foolish and unhelpful to portray the LEAs as the villains of the piece. Not only does it damage the important partnership between government and local authorities, but because the Government's figures cannot be trusted it reduces the Government's overall credibility. Even when I was a county and a district councillor we were making hard choices but there was a feeling that both national and local government were working towards the common good. Our priorities were just that—our priorities; not a remote bureaucracy that had no understanding or feeling, imposing its will on us, the locally-elected members who were trying to respond to our local electorates.

This year in East Sussex our position is similar to that of Essex, which we have already heard about from my noble friend Lord Hanningfield. East Sussex has received an extra £10 million in its overall grant to cover all county council services. The Government's "passporting" target required an increase in schools' expenditure alone of £12.6 million. I am not very good at maths but even I can see that that is a nonsense. Initially the council was accused of holding on to the money but it seems to me right that a modest (13 per cent should be held as a contingency to cover costs such as places in special schools which arise during the year; salary protections where there are major changes in schools; free school meals; running costs of temporary accommodation installed during the year and so on. A further £1.3 million has yet to be allocated with the full agreement of schools and their governing bodies to cover other contingencies such as support for newly qualified teachers, infant class downsizing and so on. That is a prudent policy which even the Chancellor should applaud. The Minister will know that that is the way LEAs have always worked in that the Government themselves phase their allocations throughout the year.

In conclusion, this is not the first government to recognise the complexity of schools funding but after six years there are no signs of radical change. The cry "education, education, education" was great. We are now inspired. We know the priority. We see the path. We have heard the cry, but all campaigns are won by the quality of the people on the ground doing the work and the logistics involved. Will the Government change tack? Will they trust teachers, encourage, listen and concentrate on those rather boring technicalities that are the Government's responsibility and can be done by them alone? Will they learn the lessons of grant-maintained schools, as my noble friend Lady Seccombe has said, and fund each school directly by a simple, transparent and fair national funding system? Will they support LEAs in their difficult task, recognising that greater autonomy goes hand in hand with innovation, creativity and increased quality, and that blaming and shaming does nothing but demoralise and ensure a downward spiral?

On a more positive note, what plans do the Government have to sort out the problem so that next year schools, governors and parents do not endure a repetition of the same shambolic situation?

6.18 p.m.

Baroness Sharp of Guildford

My Lords, I thank the noble Lord, Lord Hanningfield, for introducing this debate so ably and for giving us an opportunity to debate this important issue, which seems to have arisen relatively suddenly, although, as has been pointed out, there have been a number of pointers going in that direction for some while.

The substantial black hole that has opened up in school budgets poses real problems for the Government, LEAs and schools. In this debate, we have heard many of the reasons why that black hole emerged. Those reasons fall into three categories. Of the extra money that the Government allowed for the financial year 2003–04, which I believe was approximately £1,500 million, they did not allow fully for the increase in employers' pension fund contributions, or for the increase in national insurance, or fully for the increase in teachers' pay, or for supplements in the performance-related pay scheme, or fully for the withdrawal of the standards fund.

On top of that, it appears, through discussions with schools, that a number of other issues have arisen. One of them is that, given the recruitment and retention issues that schools have faced, they were anxious to keep rather than to lose staff and there has been what might be called a creep in terms of pay scales. Many staff are now moving on to the upper end of the performance-related pay scales. A problem in that regard is that while 75 per cent of the actual cost, the basic pay cost, is still currently met by the Government—therein lies a problem further down the road—that is not true with regard to national insurance contributions or pension contributions. Schools are therefore having to find larger sums to meet such costs.

Other costs arise, partly as a result of legislation that we passed in this House. For example, many schools must meet costs from the Special Educational Needs and Disability Act for equipment and necessary changes to buildings. They, too, must be funded from the annual budget rather than from special funds.

In my discussions with a local school, another issue that came up was insurance. The cost of insurance at the school rose from £17,000 a year to £28,000 a year; that is an increase of £11,000 in one year, which is a fairly substantial increase. In itself, perhaps it is not so substantial, compared with the school's budget, which is getting on for £1 million. Nevertheless, it is an extra cost that must be met from somewhere and is difficult to cope with. As the noble Baroness, Lady Cumberlege, said, there have been changes in funding for sixth forms, which have helped some and hindered others.

On top of all that, at the LEA level, has come the redistribution of funding through the Office of the Deputy Prime Minister. As the noble Lord, Lord Hanningfield, and the noble Baroness, Lady Cumberlege, said, problems of turbulence and uncertainty have arisen. There are clearly some losers and some gainers and, as always, the losers are screaming and the gainers are not. That has posed real problems and it has not solved some of the more fundamental problems that we face in this country. I refer to the sheer opacity of local government funding, the fact that there is no transparency and the fact that the voter cannot understand where accountability lies.

We want to resolve that crisis. The Government have, as many noble Lords have said, pointed at their favourite Aunt Sally, local education authorities. The Harry Potter of the education world, the schools Minister, David Miliband, wrote what many regard as an aggressive and offensive letter to local education authorities making it clear that, in his eyes, the fault lies with them and with no one else.

When reading the detail of the 18-page press release issued by the noble Baroness's department, time and again one comes to the conclusion that LEAs have, on the whole, been doing precisely what they were told. Last year, we passed that splendid Act, in which we made it clear that money must be passported through to schools. So far as I can see, most LEAs have been doing that.

I shall give an example that I know in detail. Like other noble Lords, I went to my local LEA and said, "What has been happening to your budget?". Surrey has one of the bigger budgets—it is one of the bigger LEAs. Its total budget for education is £456 million, of which £409 million was passported straight to the schools, leaving £47 million. Of that £47 million, which has not yet been passed on to schools, the largest item is £21 million for transport. The next largest item is £8 million for youth services, which the Government were keen for local authorities to improve. I for one am delighted about that and would like more money rather than less to be spent on youth services. Another £8 million was put aside for school improvement activities, which, again, is part of the Government's programme. There is £4 million extra for special educational needs support. Yet the Secretary of State criticises local authorities for putting too much on one side for special educational needs support. At the same time, the Audit Commission published a report that said that, by and large, LEAs are not spending enough on special educational needs. One is sometimes left rather perplexed by all of this. Surrey for one is not doing anything wrong; I applaud the fact that it put some extra money on one side for special educational needs support.

As with many other LEAs, Surrey is spending above SSA by £3 million this year—I believe that only 19 out of 148 spent below the SSA. It is doing so despite the fact that we, along with many other LEAs in the South, have just undergone a council tax increase of nearly 20 per cent.

The conclusion that has been reached by many noble Lords, and to which I have come, is that LEAs are not in this case to blame. Who then is to blame? Are the schools to blame? No, certainly not. Expectations were built up by the Government of a substantial real terms increase. Now that they have done their sums for next year, the money is just not there. Some schools—perhaps the lucky ones—have reserves. The National Association of Schoolmasters and Union of Women Teachers was very upset about the degree to which schools have built up reserves. Nevertheless, those schools with reserves currently have a buffer against the vagaries of the funding mechanisms that have hit them. They are the lucky ones. The problem that arises is that many schools must conclude with deficit budgets unless something is done by 31st May, when all of these matters must be decided. There is a real problem that must be solved.

The conclusion that one comes to is that, like it or not, the DIES and the Office of the Deputy Prime Minister together got their sums wrong. There is a serious problem. That suggests that the DfES does not understand the full complexities of local government finance; but very few people do.

We should look forward and recognise that this issue can and may well arise again in subsequent years. The new workload agreement will appear later this year. There is just not enough money in the system to fund it; the Government want to carry it forward. Coming down the line is the question of the full funding of performance-related pay. Once again, that must involve a major transfer of funds from central government to local authorities and on to schools. There are real problems in that regard.

What can be done about this? The DIES got its sums wrong and schools, through no fault of their own, are running substantial deficits and must lay off staff unless some rapid relief can be found. In the short run, I have three ideas for some rapid relief that the DIES might find. In agriculture there is such a thing as red diesel. The noble Baroness, Lady Byford, knows all about it. One of the largest items that is not on the schools budget in Surrey is transport costs. That is also true of other authorities. Currently, much of those transport costs are the costs of duty paid to the Government, which are taken from LEAs. The Government may refund those duties to the LEAs or pray that in aid. One of the reasons for having school transport is to stop children being taken to school in private cars. We are anxious that children use public transport. One may call it green diesel instead of red diesel.

The school teachers superannuation scheme is a pay-as-you-go scheme and not a funded scheme, despite the fact that increased contributions have been called for. It is perfectly feasible for the Government to say that for this year those extra employers' contributions need not be paid. Why not consider that as a way of relieving the budgets of local authorities in the short term? If there are to be retirements, perhaps it would be wise for the Government to reopen the national early retirement scheme.

The noble Baroness, Lady Cumberlege, mentioned that primary school rolls are falling and in the next few years that will roll on to secondary schools. Perhaps we shall have to consider early retirement and a nationally funded scheme rather than one that has to be met by local authorities. That is another idea that perhaps could be considered.

In the long run it seems to me that something more serious needs to be done. We on these Benches do not follow the route of the noble Baronesses, Lady Warnock and Lady Seccombe. We do not believe that the right route is grant maintained schools or direct grant schools. We believe in a system of education and we believe that there need to be links between primary and secondary schools. Also secondary schools need to work together. Therefore, we believe that local education authorities should co-ordinate at the local level. It is absurd to think that the Government could run the 25,000 schools in this country. I recall a previous Secretary of State for Education saying that if there were no local education authorities they would have to be invented.

Local education authorities in this country have a proud tradition of running schools and running them well. We need to reinforce those local education authorities. Indeed we need to reinforce the whole of local government, to devolve responsibilities down and to have a taxation system whereby what is raised locally funds local services so that people can see clearly that the one is linked to the other, rather than a system whereby the Treasury dictates who may spend what. There is such opacity that people vote in local government elections protesting about a council tax which has largely been imposed by central government and which has nothing to do with local services whatever.

We on these Benches would like to restore the power of local education authorities rather than to take power further away from them. We want a funding system that is transparent, clear and gives the taxpayers some idea of the services that are provided for them.

6.33 p.m.

Baroness Blatch

My Lords, this is an important debate. I am grateful to my noble friend Lord Hanningfield for initiating it. An important theme has come through all the contributions. My noble friend Lord Hanningfield gave some fairly impressive statistics from his own authority, Essex, but such a story could be repeated by many authorities all over the country.

There is no doubt that there is a crisis, not only in the funding system, but also in the trust that people place in the Government and particularly in the Ministers of the department. The insensitivity of Ministers to the level of frustration, even anger, over the handling of this year's settlement is palpable. I do not want noble Lords to take my word for it because the Minister opposite will say, "You would say that, wouldn't you?". The Prime Minister himself, unlike the departmental Ministers, has to be fair, accepting that there are problems for particular schools in particular local education authority areas.

Fiona Millar, the partner of the Prime Minister's aide, Alastair Campbell, and a very New Labour lady, spoke out bravely as chairman of school governors in support of Gospel Oak Primary School. In her letter to parents—I quote a different part of that letter—she wrote: The Government has changed the way it allocates block grants to councils and has moved money from the South East to the North. We believe the Government has not thought through the implications of all changes for some of the neediest schools. We will have to cut our spending on resources drastically". A recent Select Committee report dated 17th December 2002. commenting on the development work for the new funding formula, reads: The result is that many of the new formulae do not appear to be evidence-based and can be criticised for being insufficiently robust and more open to judgment than was previously the case". The report describes the system as "confusing".

At the Secondary Heads Conference, John Dunford told the Secretary of State that schools across the country were stunned by budget allocations that left many schools with large deficits. A head teacher, Michael Chapman, speaking for heads in East Yorkshire, told the conference: In the last 12 years, this is far and away the worst budget settlement that I have had to manage as a head teacher". On 4th April The Times quoted David Hart of the NAHT as saying: We are facing the ultimate absurdity of being required to recruit extra teachers and support staff to deliver the changes to teachers contracts, while at the same time schools are talking about redundancies. We are parties to this agreement but we have come to the conclusion that if the Government can't deliver on the funding that it promised, then we are entitled to say we can't agree to these changes". I could go on quoting teachers, governors, parents, teacher unions and others, but I shall cite only one more criticism of this year's settlement, that of the department itself. In a leaked memo, sent between the Department for Education and Skills and No. 10 Downing Street, the scope of the Government's deception and incompetence has been revealed.

As an aside I hope that Ministers, who have to date accused local government, will not now turn their fire on to officials. Whatever the role of officials in all this may be, Ministers are responsible for the decisions that they make in their department and they are also responsible for the public relations that accompany those decisions.

The leaked memo seen by the Times Educational Supplement shows that the record investment in education promised by the Chancellor last year is no more than a mirage. The memo also shows for the first time that Ministers accept that councils are not solely to blame. Even if all the additional money intended were passed to schools, rises in teachers' pay, national insurance and pension costs, among many other pressures, mean that they would receive an average increase of just £26 per pupil this year. That represents barely 1 per cent, which contrasts sharply with a promise made by Ministers of an increase after inflation of 3.2 per cent at least for each local education authority. However, as reported by the Times Educational Supplement from the leaked memo, the 3.2 per cent floor is a little less than schools would need to meet all the pressures that they face.

Mr Miliband and the Secretary of State are guilty of building up expectations; they are guilty of spinning this settlement announcement into a gross distortion; they are guilty of pointing the finger of blame at local education authorities and schools; and they are guilty of dashing the hopes of so many in our schools by wilful deception. Consider the behaviour of a Secretary of State for Education, who says, when addressing the Association of Chief Education Officers—this has been quoted before in the debate—that directing more money towards schools would not solve their problems and that any such request, just floods straight over my head". He added: I do not listen to what you say quite frankly". I can do no better than to quote the leader in the Times Educational Supplement of 2nd May, which stated: Even by the Department for Education and Skills's own account, the way the Government has managed to turn supposedly record rises in school funding into a shambolic crisis is astonishing. Ministers' attempts to shift the blame to local authorities are somewhat undermined by the memo the department sent to 10 Downing Street. This shows that the much vaunted £2.7 billion increase is largely illusory". Such an admission of culpability by the department, albeit in private, will come as little comfort to those staff in our schools who will lose their jobs or to the pupils who will face larger class sizes or even a shorter school week.

Certainly the Secretary of State and Mr Miliband have been in denial over this issue during endless public appearances, placing the blame on virtually anyone passing Sanctuary Buildings. Their performances compared well with the Iraqi information Minister for misinformation; except that they were not as enjoyable.

The letter to heads from schools' Minister, David Miliband, late last year guaranteeing an across-the-board rise in funding raised expectations that were unlikely ever fully to be met. Misunderstandings could have been avoided if Mr Miliband had taken more care with the drafting of that correspondence. The letter ignored two basic issues: first, that increases in the education formula spending share do not necessarily translate into increases in council grant; secondly, that a major part of many schools' overall funding—namely, the Standards Fund—was being cut. The new formula devised by the Government for funding local authorities effectively redistributed funds around the country—mainly from the south of England to the north.

The overall reduction in the Standards Fund impacts especially severely on councils funded on or near the floor, because they receive no compensating increase in general council grant—a point made extremely well by my noble friend Lady Cumberlege. The lumpy nature of Standards Fund applications and the implications for schools as Standards Fund categories come and go is not a new phenomenon but, when combined with other financial pressures, it means that some schools will experience levels of financial hardship well beyond the norm.

Although the department deleted several Standards Fund grants in 2003–04, the burdens placed on schools previously receiving those grants remain. Although new Standards Fund initiatives have been introduced, schools are not always eligible for, for example, Excellence In Cities grants.

Secondly, as I said, the fact that an increase in the EFSS is not necessarily translated into a corresponding increase in council grant does not appear to have been understood by the Government; neither does the effect of changes in grant distribution. Some councils are even being told to pass extra funds to schools greater than the total increase given to the council for all services—a point made by my noble friend Lord Hanningfield. From what I have heard about meetings with the schools Minister, Mr Miliband, to discuss school funding with local authorities, his lack of technical understanding of how the funding system works did not exactly generate confidence and served only to highlight the level of incompetence displayed by Ministers.

To turn to another aspect of budgeting, many councils are obliged to pay teachers at inner London rates, yet feel that that is not fully reflected in their revenue support grant. Also, the flat rate nature of the school standards grant is recognised to discriminate against London and parts of the South East because of the higher costs in London and the surrounding counties, so increasing the proportion of funding by that means helps only to exacerbate the problem.

As many people have said, the cost pressures on schools have not been fully met. There is a shortfall in employers' superannuation contributions of £50 million; we know that national insurance contributions are £115 million. The teachers' pay increase of 2.9 per cent, which, when aggregated, is in fact 3.25 per cent, taking into account the London area, totals £548 million. There are other inflationary issues, including non-pay cost increases and support staff pay. The withdrawal of the Standards Fund is of course part of the equation.

There is also the cost of integrating the changes to teachers' contracts and additional costs resulting from the recent special educational needs Act. The Autistic Society, whose Autism Awareness Week is next week, states in its most recent press release: the present funding crisis facing UK schools is causing serious concern". Rather than accept and acknowledge the inherent weaknesses in the system, together with the impact of those financial burdens, the Government decided to blame local education authorities for the crisis, alleging that they had somehow conspired to withhold £500 million from schools, in a cynical piece of political buck-passing. The Minister may deny that, because such a denial is true of her personally, but her colleagues in another place are on record as having blamed local authorities, so they cannot be defended. Not only were certain LEAs named and shamed, but the Secretary of State for Education, no doubt wanting to live up to his "bruiser" image, made a thinly veiled threat that local authorities would be removed from the education system altogether.

Ministers' role in the process has been central. They really must accept more responsibility. As requested, local authorities have told the Government that they will be spending £100 million above the Government's provision for schools. The Secretary of State insisted on approving every council's schools budget before it was allowed to set its council tax.

I shall use Wandsworth as an example. Wandsworth has been accused of holding back £4.1 million. That breaks down into £3.5 million from the Standards Fund and £600,000 for newly-qualified teachers and special educational needs. Rightly, it says that the key issue is that the academic and financial years do not coincide. That has two major implications for funding of schools. Some funding, notably some Standards Fund grant, is allocated on the basis of the academic year. Standards funding is allocated on the basis of a school's needs on an academic-year-by-academic-year basis, as it always has been.

It is misleading in the extreme to say that Wandsworth is holding back the 7/12ths of the financial year 2003–04 funding that corresponds to the 2003–04 academic year—September to April 2004—because it will not know where it should be allocated until the new school circumstances are known in September. What is it supposed to do? Schools are used to that. If the Secretary of State wants Wandsworth, or any other LEA, to allocate everything on 1st April, it can of course do that, but the effect will be to freeze the allocation on the basis of the needs of academic year 2002–03, rather than on the basis of the needs of the academic year 2003–04.

There is £600,000 that has been held back for support to newly-qualified teachers and special educational needs—the former because education authorities do not know until later on in the year which schools will be appointing newly-qualified teachers; the latter to fund youngsters who receive statements during the course of the year. Of course, again, the authorities could allocate the money to schools now—perhaps on a guesswork basis as to where the statements may arise—but how would they provide the extra help needed for youngsters statemented later in the year?

Similarly, in Wandsworth, 5/12ths of the ethnic minority achievement grant is also allocated now; the rest in September. As the noble Baroness knows, the issue of special educational needs is important. Wandsworth says that this year it has increased provision for SEN by 18 per cent, although the inner London average is higher than that, so it now needs a clear steer from the Secretary of State—does he really want Wandsworth to cut funding for special educational needs to delegate more money to mainstream schools?

This is certainly a crisis made in Whitehall, not in the town hall. The reality is redundancies, resignations and a real possibility that the teachers' workload agreement will not be realised. Indeed, the National Association of Head Teachers has rightly expressed concern about the Government's boast about the generosity of a settlement for the coming two financial years. The Government themselves have accounted for almost all of this year's increase—in national insurance contributions, pensions, pay awards, and incremental pay. But they have not included—and almost totally disregarded—class size reforms, the implementation of the workload agreement, special educational needs reforms and the effects of two major changes to the way in which schools are funded.

I return to the Times Educational Supplement leader of 2nd May, which referred to the changes. It states: The DIES is not responsible for all of this. But it apparently went along with— the Office of the Deputy Prime Minister— without bothering to investigate the effects at school level. Only now has it woken up to the realisation that there is worse to come. Next year the fuller costs of the workload agreement begin to bite. But the department now says even more money will have to be found just to stand still and avoid 'large numbers of losers'. None of this can have enhanced the Treasury's confidence in the DfES. The truculence of Charles Clarke when first confronted by complaints about funding probably stemmed from the ignorance and complacency displayed by his department. This incompetence even outstripped that shown at the DIES last year over A-level reforms. At this rate, David Miliband, implicated in both of these blunders and responsible for the workload agreement, will need more than friends at Number 10 if he hopes to survive in office". The funding increases for education, for which schools are exhorted to be grateful, have been soaked up by the Government's own actions and policies. Billions are held back every year by the department. Record numbers of centrally controlled initiatives are spawned, many to no benefit, and largely at the expense of core funding for schools. New burdens such as Learning and Skills Councils, admissions forums and schools forums all pre-empt monies that could be spent more wisely at local level. Time prevents me from completing a sorry catalogue of fund-wasting projects. We are within the time allocated for this debate. I have no doubt whatever that the Minister will also use the time wisely.

The important message is not the quantum of funding, as pointed out by the noble Lord, Lord—

Lord Graham of Edmonton

Graham.

Baroness Blatch

My Lords, I was going to call him Lord Ted. The noble Lord, Lord Graham of Edmonton, is in his place. The important message is that central funding and centrally controlled funding should form a greater proportion of schools' core funding. Convert the burgeoning of national bureaucracy into funds for schools. Abolish the command-and-control system. I can say categorically at this Dispatch Box that we have no plans as a party to reduce expenditure by 20 per cent. But we believe that there is enormous scope within the system to convert money spent on bureaucracy and unnecessary projects to put into front-line services. That is where our energies will be spent.

The Government promised simplicity, transparency and fairness. They have failed on all counts. The level of anger and frustration in our schools shown by staff, parents and governors is considerable. Teachers feel betrayed. Greater honesty, a little humility and even an apology would not go amiss.

6.52 p.m.

Lord Graham of Edmonton

Go on, sock it to them!

The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland)

My Lords, I am grateful to my noble friend "Lord Ted" for his comment. I thank the noble Lord, Lord Hanningfield, for securing the debate. I am very aware of the strength of feeling about the issue that has arisen since we announced the settlement for 2003–04. I accept, as the noble Baroness, Lady Blatch, would expect me to, that there are problems in schools and that we need to look for ways to resolve them. I understand the particular interest of the noble Lord, Lord Hanningfield, in his role as leader of Essex County Council. I recognise how the arrangements are affecting schools in Essex.

I am grateful to the noble Lord, Lord Henley, for offering me a change of role. Perhaps I can look forward to debating foundation hospitals with noble Lords. But I can assure him of my sanity, or at least I hope I can. It is always a delight when the noble Baroness, Lady Byford, participates in debates. The noble Baroness is eminently qualified to participate, as are all noble Lords, in this important discussion.

As noble Lords have said, it is a year of change for the schools funding system. I say to the noble Baroness, Lady Cumberlege, that it has been a year of radical change. The local government funding formula has changed. There have been significant changes in the balance between central and local discretion. There has been an end to some ring-fencing of central grants by central government. We are not micromanaging, as the noble Lord, Lord Hanningfield, said, but looking to develop that relationship. Many local authorities and schools have criticised ring-fencing for a long time. There have been changes to the distribution of the money.

There has been a significant drive by the Government to encourage three-year budgets for schools of the type that the noble Baroness, Lady Byford, mentioned, in the context of schools which, I recognise, have fluctuating pupil numbers and related issues to deal with. I agree with all noble Lords that, as schools begin to plan, it is important for their confidence and planning that they have as much notice as possible of the three-year horizon. That view is widely shared in your Lordships' House and, perhaps even more importantly, in schools and education authorities.

In response to the noble Baronesses, Lady Warnock and Lady Seccombe, my right honourable friend does not propose a return to grant-maintained schools. Eminent though our press reports can be—I can perhaps speak with some authority on the subject—not all journalists get everything right all the time.

In response to the noble Lord, Lord Henley, the important issue is performance in schools and delivery. Noble Lords have heard me speak often on the quality of education that we have. I agree with the noble Lord that it is very important that we see the results of our expenditure. I believe that the rise in standards in primary and secondary education are a testimony to that. I know that noble Lords will want to join me in supporting what the noble Baroness, Lady Byford, said about the absolute importance and value that we must all place on our teaching profession. In response to the noble Baroness, Lady Cumberlege, I do trust teachers. They almost perform miracles every day on behalf of our children.

I wish to try to shed some light on some of the issues raised. I apologise now if any noble Lord feels that I have not done that as adequately as I might in the time I have. I give my usual assurance that I shall write to any noble Lord who feels that I have not adequately answered any point. I am very conscious, given the knowledge and experience around the House, that many noble Lords have had long experience of funding issues both in local and central government. I listened with great interest to the noble Baroness, Lady Cumberlege, who gave an exposition of the history of the issues surrounding local government finance, and to many noble Lords, not least the noble Lord, Lord Hanningfield, who has personal experience of dealing with the issue at local authority level. I pay tribute to all that experience. I am humble in the remarks that I make in your Lordships' House.

It is universally accepted that there has been an increase in revenue funding for schools. All the teacher conferences recognise that we were talking about an increase of the order of £2.6 billion. In that context, there is no mirage. We agree that that has happened. It is an increase of 11.6 per cent, which is £250 million more than the pressures that we calculated from pay, pensions, national insurance and the ending of grants. We calculate that nationally those pressures represent an increase in costs of 10.5 per cent.

I could describe those figures in many different ways. I shall give one other example to try to convey the information as simply as I can. The education formula spending share for 2003–04 has increased by 6.5 per cent, or 5.2 per cent per pupil. Noble Lords will know that there are different ways of looking at the figures. That is sometimes one of the difficulties. Those figures are in addition to compensation of £586 million for the hulk of the pension contribution increase and £500 million of grant funding transferred into general funding in 2003–04. The school standards direct grant is increasing by almost £150 million in 2003–04. I wish to make clear to the noble Baroness, Lady Blatch, that we did not promise an increase after inflation of 3.2 per cent. We promised an increase in cash of 3.2 per cent after taking account of the transfer of funds to pensions and for specific grants. I hope that teat has clarified the position.

As noble Lords indicated, we have listened to representations from education authorities and schools. We recognise that the combination of a low increase in education formula spending share, coupled with a reduction in the grants through the Standards Fund, would lead to low budget increases for some schools. For that reason, we announced an additional grant of £28 million to ensure that the effective increase in education funding for all education authorities and their schools between 2002–03 and 2003–04 is no less than 3.2 per cent. The noble Lord, Lord Hanningfield, said that in Essex the figures were 3.02 per cent, I think, supplemented by £1,162,000 to bring the total to 3.2 per cent.

Taking those factors into account, 36 local education authorities received a share of that additional money. They are now at the level of 3.2 per cent per pupil for every local education authority. We have set as a condition to the allocation of the money that it must be passed on in full to schools. But it is for each local education authority to use its judgment and local knowledge to decide how much funding individual schools should receive.

The majority of education authorities have received more than the 3.2 per cent minimum increase. But I recognise what noble Lords have been saying about the issues for authorities who feel that the increases need to be considered in the context of what is happening in individual schools. I shall discuss that matter further in a moment.

I think that the noble Baroness, Lady Cumberlege, implied that the London costs did not include authorities that were on the floor because of the ODPM grant floor, as opposed to the DIES grant floor of 3.2 per cent. I checked with officials, and I can say that we have added those authorities to the list of those who received the £11 million.

Baroness Blatch

My Lords, we must be certain about this. It is important that the figure of 3.2 per cent is properly understood. If schools have lost substantial sums of standards grant and are given an increase of 3.2 per cent on what they had last year, will that be a 3.2 per cent cash increase on top of what would have been their budget last time, including standards grant, or does the standards grant, in many cases, invalidate the 3.2 per cent?

Baroness Ashton of Upholland

My Lords, I shall try to explain by going through the figures one more time for the noble Baroness and others. I hope that that will help.

We took the pensions, the class size grant and the nursery education grant. The total was £986 million. That was paid out before we sorted out the floors and ceilings, which, as noble Lords are aware, are between 3.2 and 7 per cent. Because of the £400 million changes in the other grant—I think that that was the point that the noble Baroness was making—what happened in some areas was that schools that had received more money in direct grants received less. That was where the £28 million came in. As a consequence, some local authorities slipped below the 3.2 per cent level. The £28 million was the amount required to bring everybody back to the 3.2 per cent level in the light of the way in which the allocation of the grants had affected funding. I hope that that clarifies the situation for the noble Baroness.

Noble Lords rightly raised the issue of special educational needs. I want to make a couple of points about that. To the noble Baroness, Lady Sharp of Guildford, I say that the schools access initiative is partly a contribution towards making sure that schools can manage the changes that have resulted from legislation. There is no criticism from my right honourable friend the Secretary of State. We can see how important it is, as the noble Baroness, Lady Blatch, said, to support those of our children who have special educational needs. I am also aware that next week is autism awareness week. I spoke to the All-Party Group on Autism yesterday and made the point that we will recognise the needs in the work that I will do as Minister responsible for special educational needs in the coming months.

When considering funding, we must ensure that we are clear about what funding is retained at the centre—rightly, I hasten to add—to ensure that children can be funded at special schools or that funding is available for low incidence special educational needs and so on, as well as funding that will, perhaps, go into schools but of which schools are not yet aware. That is an important element of the thinking that is going on.

Noble Lords will not be surprised to hear that I shall not dwell too much on the question of funding in Essex per se, although I have information for the noble Lord, Lord Hanningfield. The noble Lord covered many of the issues, but I want him to be aware that I have considered the matter carefully. In that context, I say to the right reverend Prelate the Bishop of Chelmsford that I was delighted to hear of the partnership between the Church of England and Essex County Council. I am sure that noble Lords will agree with me that Chelmsford will miss the right reverend Prelate's contribution. I gather that this is his final week of duty in your Lordships' House. We can all agree that we shall be the poorer when he goes.

Noble Lords

Hear, hear.

Baroness Ashton of Upholland

My Lords, the noble Baroness, Lady Byford, mentioned capital. Capital has increased, since 1996–97, from £700 million to £3.8 billion this year. By 2005–06, it will be £5 billion. That is important. Noble Lords will know from their experience how necessary it is to ensure that our buildings are fit for purpose in a developing and changing world. I am proud that we have invested so much in capital expenditure and continue to do so.

The noble Baroness raised specific issues about hygiene orders and fire risks. I apologise for not being able to answer those questions now, but I agree with her about the critical importance of the role of governors and the need to ensure that we have as many governors as possible. I ask any noble Lord here present who is not a governor to become one promptly. I shall write to the noble Baroness on the specific issues that she raised.

I share the noble Baroness's commitment to ICT in schools. I have a passion for broadband, and I recognise its value and importance, particularly to rural communities. On behalf of the department, I can say that we fully understand that we have an ongoing commitment that must be sustained. I am sure that noble Lords opposite will agree. We must ensure that that commitment to ICT in schools and to broadband continues.

The noble Lord, Lord Henley, raised the question of supply teachers. I struggled to get the figures for this year, but the latest figures that I have show that supply teacher numbers are falling, partly, as noble Lords will be aware from my comments last week, because teacher numbers are rising.

The noble Baroness, Lady Sharp of Guildford, and the noble Lord, Lord Henley, talked about performance-related pay and the commitment to the threshold. We must be clear about what the Government are doing in that area. We continue to fund 100 per cent of the cost of teachers passing through the threshold. We continue to fund those who have already gone through the threshold. We have said that we have a pot of money—£210 million this year—that is available for teachers who will go through the threshold and go onwards and upwards through the spine. We anticipate that, as with any other performance-related pay, schools will make decisions and will, this year, reward teachers who, they feel, need to continue on that way. We do not anticipate that that will be 100 per cent of teachers. I mean no criticism of teachers: that is simply a recognition of the way in which performance-related pay works and the way in which we approached it. I hope that that answers that question.

I want to spend a few minutes—I hope that I am using time wisely, as the noble Baroness, Lady Blatch, put it—talking about the critical issue of the role of local government. The noble Baroness, Lady Blatch, said that she felt that there had been overt criticism of local government. That is not how I interpret what we have tried to do. It is not about criticising local government; it is about recognising that there is a partnership between central and local government aimed at ensuring that we have adequate funding in schools. To the noble Lord, Lord Henley, I say that it is the Section 52 statements that tell us about the situation in schools—the list was published on Friday—and not press reports, however eminent.

I accept that, in many cases, there are good reasons for the way in which local authorities handle their expenditure. We do not say that there are not good reasons for some of the ways in which money is held back by local authorities.

Lord Hanningfield

My Lords, the Minister used the words "held back". I repeat what I said earlier: we get the money in monthly instalments over the year, and we agree with our head teachers a formula for distributing it over the year. It is particularly offensive to say that we were holding back £20 million. We have not got the £20 million, and we have agreed with our head teachers how it will go to them. It was a big mistake to publish that last week. I am sure that it is the same in Birmingham, Kent or any other authority that does it: we agree a formula with our head teachers, and the money comes to us monthly.

The use of the words "held back", when we have agreed a process, has misled the public. Many people have asked me, "What are you doing with that money?". We have not got it. Will the Minister comment on that and, perhaps, correct it?

Baroness Ashton of Upholland

My Lords, if I have offended the noble Lord, I apologise unreservedly. I meant that, when we got the Section 52 returns, it was interesting to see that, in the local authority structure, there was quite a variation in different parts of the expenditure and in the amount of money within the local authority. I meant no offence to the noble Lord, and I apologise if there was any.

For the noble Lord's benefit, I shall go through some of the interesting things that we found. I say that they are "interesting", not that they are wrong. That is important. Our purpose is to understand the issues so that, working with local authority partners, we can resolve them. Nineteen local education authorities appear not to be passporting the full increase in their schools formula funding share into their schools budget. Eight of those said that they would. That means that £23 million that we understood would go into schools has not yet done so.

Most local education authorities—125—are increasing funding for their centrally funded pupil provision faster than they increase the funding for individual schools. In total, schools are getting £235 million less than a proportionate share of the increased resources.

There are big variations in the increases that local education authorities are making in their central funding for special educational needs. Forty-five education authorities have increased funding in this area by more than 30 per cent while 33 LEAs have increased their spending by only 5 per cent or less. These increases may be justified by local circumstances but will have an impact on schools' budgets, and we need to understand that.

Half of local authorities have increased their spending on educating pupils outside school—for example, at pupil referral units—by 30 per cent or more. Again, that has an impact. I do not criticise it, I simply say that it has an impact. Forty per cent of authorities are planning to spend more than £1 million from revenue budgets on capital spending at a time as I have explained to your Lordships' House already—when there is increasing funding from central government, and it continues to rise.

Over two-thirds of LEAs are holding hack more than £100,000 for contingency purposes. This amounts to approximately £64 million across the country. Again, it is important that we understand what is happening. A total of £533 million which LEAs have specifically earmarked for individual school budgets had not been allocated at the point that we received their statutory statements. Again, we need to understand that.

Finally, within many LEAs there are big budget differences in what is happening for individual schools. This means that in some education authorities schools are getting funding increases of 10 percentage points more than other schools in the same authority.

Against that backdrop, the Government think that it is legitimate for the department to be asking LEAs questions about their spending decisions which reflect what I said within the eight issues I set out. We want to work with education authorities and asked them to point to the steps that they intend to take to avoid any needless redundancies of staff to cover funding issues. We expect replies by 12th May.

In the light of that information, the Government will consider what changes might be made regarding funding arrangements for 2004–05. It is essential that we get a full understanding with LEAs about the decisions they have made and the impact those decisions have had on schools. Then we can look for a way forward, taking full account—I repeat, full account—of the views of education authorities and schools.

I am very grateful for all the analyses that I shall take away from this debate. I recognise that I shall run over on time, but I should like to refer to two or three points on the Standards Fund raised by noble Lords. The purpose of what we have done with the Standards Fund is to increase the control that schools and local authorities have had over how they manage their budgets.

The noble Lord, Lord Hanningfield, raised specifically the matter of the £7 million for the ICT Standard Fund and I should like to speak to this point. I believe that we have already said, but I want to place it on record with the noble Lord, Lord Hanningfield, and other noble Lords, that we shall work with education authorities to help them get all the money allocated. If that requires changes to the rules of the Standards Fund we are very willing to look at that. I shall take away the particular point raised by the noble Lord, Lord Hanningfield, about ICT and I shall ask the department to look at it at once. I hope that the noble Lord will take some comfort from that.

I do not believe that we have had a rushed change; we have had a very significant change to a number of the ways in which we produce the formula. Noble Lords will know that the formula is designed to bring a fairer system of funding; to recognise the need to provide funding for every pupil in this country regardless of where they are; and to take into account the issues that confront our children who are greatly disadvantaged in our areas where, for example, transport costs are very high and to ensure that we have dealt with those issues.

I say to the noble Baroness, Lady Byford, that the reason why Tower Hamlets receives more funding than Leicestershire is that when we looked at the additional costs of funding for some of our most deprived pupils we recognised that we needed to put more money into Tower Hamlets where we have many deprived pupils but also, within the fairer funding formula, to recognise the needs of all local authorities.

Baroness Byford

My Lords, I am grateful to the Minister for that comment. I no longer have my figures, but my query was that obviously it is a substantial figure. I was trying to question more acutely the reason why there was such a difference in funding. As I explained, in the two schools which I gave as examples, I suspect that the inner school in Leicester has as many if not more problems than the school in Tower Hamlets. Obviously, that is why I raised the issue; it was a significant difference.

Baroness Ashton of Upholland

My Lords, I am grateful to the noble Baroness for that clarification. Of course, within the overall education authority the issue of how many pupils are in need of additional support will be the factor. Perhaps the noble Baroness will agree with me that in a sense we are not comparing like with like in quite the same way. That is why it has been important to have the formula for ensuring that the basic amount payable for all pupils is the same and to then recognise areas of great deprivation; to recognise areas where costs are very high—which has been the other side of that equation—and to ensure we understand that; and, as I have said before and other noble Lords have raised, to look at issues of transport.

If the noble Baroness, Lady Byford, would like more information, I shall send her a fuller reply. Essentially, that is what we were trying to do by using more up to date information, recognising that the information, which I think is from 1991, is out of date in terms of where our children are and the needs and support they require.

As I said to the noble Baronesses, Lady Byford and Lady Sharp. I recognise the issues of transport and those are built in. I shall pass on the idea of the red diesel. Of course, as noble Lords would expect me to say, from these Benches I am delighted that it is red.

Therefore, within the context of a funding formula designed to deliver for every pupil a similar amount of money and to look at the issues that face education authorities in terms of deprivation, high costs and transport, I believe that this funding formula is a significant contribution and a much better formula than that we had before. I recognise the problems within the schools. We are committed to working with our partners in local government to resolve that, not only for this year, but to look at the issues for future years in the context of budgets that can be for three years ahead.

I am also very conscious of the role of school forums. I dug out some of the debates we had in your Lordships' House about the value or otherwise of these bodies. As we have said to a great number of schools all over the country, I urge that school forums are used exactly as we wanted them to be. The noble Lord, Lord Hanningfield, said—I am sure that he is right—that school forums are the opportunity for transparency which is critical in all local education authorities. I believe that that is an important contribution.

This Government are committed to education, education, education. We are committed to rising investment in schools; that will remain a priority. The noble Baroness, Lady Cumberlege, put it very well: children are 100 per cent of our future.

Baroness Cumberlege

My Lords, just before the noble Baroness sits down, perhaps I may ask whether this is the formula that will be used for next year's allocations or is she telling us that during the coming year it will be refined and changed so that we do not have the same shambolic situation we have at the moment?

Baroness Ashton of Upholland

My Lords, what I am saying is that my right honourable friend is extremely keen to work with his partners in local government and to look at precisely what is happening. Part of that is understanding why we have the variations that we do. As I said, there are significant variations between schools which are of great interest. He is committed to looking at the implications of that and, in particular—as I said to the noble Lord, Lord Hanningfield—at the Standards Fund issues, and at anything which might be done. I cannot commit him to saying that that means he will change the formula or anything of that nature, merely that he wants to ensure that as we move into this formula these concerns have been addressed.

7.17 p.m.

Lord Hanningfield

My Lords, I thank the Minister for that very comprehensive and courteous reply. It has been a debate with a lot of questions and I am sure that we shall have a great many more debates about education funding during the coming months. I was pleased to hear the Minister say that the Secretary of State wants to work with the departments in local government.

We shall certainly return to this issue but I should like to thank all noble Lords who participated in this debate, particularly the right reverend Prelate the Bishop of Chelmsford who is making his last appearance in the House of Lords. I thank all participants. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.