Select Committee on Deregulation and Regulatory Reform Fourth Report



Appendix 1

Letter from the Clerk of the Committee to the Department for Education and Skills

Proposal for the Regulatory Reform (Voluntary Aided Schools Liability and Funding) (England) Order 2002

The House of Commons Deregulation and Regulatory Reform Committee considered the above regulatory reform proposal at its meeting earlier today. I have been instructed to ask you to reply to the following points:

1.  Transitional provisions

The transitional provisions contained in the proposed Order are not clearly explained in the explanatory statement. Please explain what those provisions are; and how the tests in the Regulatory Reform Act are met in respect of them.

2.  100% grant for condition­related work in excepted buildings

The Committee notes that the provision to pay grant at 100% applies only to capital work on excepted buildings; and not to any other capital work liability for which is to be transferred to VA governing bodies. Has the Department assessed the likely total backlog of capital work required in respect of all liabilities to be transferred to VA governing bodies (for example by examination of schools' Asset Management Plans); and is it satisfied that no individual school will be substantially disadvantaged by the transfer to them of liability for items which have suffered from significant under-investment?

3.  Protection of governing body capital expenditure on excepted buildings

Currently, this aspect of the proposal is framed so as to cover only caretakers' dwellings. The Committee notes that the explanatory statement says that "In practice, this arrangement would normally only be relevant in respect of caretakers' houses, as they are the excepted buildings which are most likely to be in a position to be sold as an individual item"; but would nevertheless be grateful for further reassurance. Is the Department certain that these arrangements are not necessary in respect of any other excepted buildings? Would it not be better to frame the Order so as to cover all excepted buildings?

4.  Proposed setting of a statutory de minimis level

The explanatory statement is unclear as to whether, and how, this aspect of the proposal meets the tests set down in the Regulatory Reform Act. The Committee would be grateful for clarification of the benefits of setting a statutory de minimis level (and of setting it at the particular level of £2000); for an explanation of whether the Department considers that this provision would impose a burden on either schools or LEAs; and for the Department's assessment of whether the benefits are proportionate to any burden which would be created.

Additionally, the Committee has noted the comments of certain consultees regarding this aspect of the proposal. In particular, it notes the observation that the de minimis level applied to non-VA schools varies between LEAs. If the level for non-VA schools is set higher than the £2000 proposed for VA schools (as the explanatory statement indicates will normally be the case), those other schools will presumably need more money for maintenance than VA schools do. The Committee has noted your response, in para 75, "that there may some inconsistencies between categories of schools and across LEAs", and that "We see this as part of the transition to a funding process which is more in line with those for other schools." The Committee would be grateful if you would explain what is meant by the process of 'transition' to which you refer; and indicate what impact you anticipate the setting of the de minimis level will have on all maintenance budgets delegated to schools by LEAs.

5.  Arrangements for claims and payments

The Committee suggests that it could be argued that the current arrangements for claims and payments, whereby claims can only be made for payment already made, could be considered to offer some protection against fraudulent or erroneous claims. How is protection against fraudulent or erroneous claims maintained?

6.  Liability for insurance

The Committee notes that you propose (para 81) to make available to it all information relevant to the potential insurance implications which might arise from the transfer of liabilities. It would be helpful if you would do so; and further, if you would confirm whether, and how, necessary protection is maintained in respect of insurance arrangements.

7.  Increase in the rate of grant support

The Committee wishes to consider further the aspect of the proposal which would increase the rate of grant support to VA schools for their liabilities. In order to do so, it would be grateful for answers to the following questions:

  • What proportion of the 5% increase (from 85% to 90%) may be accounted for by the need to compensate VA governing bodies for VAT increases and changes in the allocation of liabilities; and what proportion by the desire to make increases in available capital funding affordable to VA schools?

  • What relevant responses have been received to the further consultation on the White Paper Schools: Achieving Success (mentioned at para 31 of the explanatory statement); and what implications, if any, do those responses have for this aspect of the proposal?

  • How does the Government respond to the argument that, even if, as the explanatory statement suggests, additional support for VA governing bodies would be provided from funds already allocated to the sector, VA schools should still, as a matter of principle, have to pay a contribution equivalent to that which they paid previously if they are to access the funds available?

8.  This proposal and the Department's legislative programme

The Committee has of course noted that the Government has recently introduced an Education Bill, which Ministers have described as a "deregulatory measure". The Committee assumes that the proposal before it has been introduced through the regulatory reform procedure, rather than being included in the Bill, because it is intended that it have effect from 1 April 2002, by which time it is unlikely that the Bill will have completed its passage through Parliament. However, the Committee would be grateful for some clarification of how this proposal fits with the remainder of its legislative programme; and why no proposals contained in the Bill have been brought forward as regulatory reform proposals. In this regard, the Committee notes particularly that the Bill includes, for example, provision to give governing bodies the power to provide after-school childcare, one of the list of 51 examples of potential regulatory reform orders which the Government published during passage of the Regulatory Reform Act.

9.  Financial implications

A number of points regarding the financial implications of the proposal (which are of course crucial to a proper understanding of the effects of the proposal and how it meets the tests set down in the Regulatory Reform Act) remain unclear after consideration of the explanatory statement and the draft Regulatory Impact Assessment. Clarification of those points would be eased by the receipt of answers to the following questions:

  • It is not clear from the explanatory documentation what changes would be made to local authority funding to take account of this proposal. It would be helpful if the Department would explain, and preferably illustrate by means of an example, precisely what those changes would be; if it would explain what, if any, impact these proposals would have on council tax levels; and if it is able to give an absolute guarantee that the requisite funding will be transferred to local authorities, firstly through the Standards Fund, and ultimately through Standard Spending Assessment, so that local authorities do not lose out in financial terms.

  • The financial picture is considerably complicated by the effects of VAT. Would not be fairer and more straightforward, if compatible with EU law, simply to abolish liability for VAT on all school premises-related work?

  • The figures in the explanatory statement vary from those set out in the consultation document. Those in the consultation document were verified as reasonable by independent accountants. Is this also the case for the revised figures?

  • The Committee understands that the figures in the draft Regulatory Impact Assessment provided with the explanatory statement differ from those in the draft RIA published with the consultation document; and that the figures were revised because of concerns that the package of changes would not be "cost-neutral", because of historic under-investment. However, because the revised figures are based on estimates of the cost of maintaining VA schools, it is not clear that they give an accurate representation of the actual effects on the parties involved. In particular, the additional capital funding which the Government is making available to schools complicates the picture greatly; and the provision to pay grant at up to 100% in certain circumstances (see above) is not factored in to the calculations in the RIA. Is the Department able to illustrate more precisely the actual effects it expects these changes to have?

  • The explanatory statement says (para 52), "Increasing the rate of grant support might be considered to reduce the total value of the work which would be funded from the VA capital programme... However, this is countered by the fact that funds which are currently allocated to LEAs for their liabilities, would become available to VA schools by way of grant support." However, funds currently allocated to LEAs for their liabilities would presumably have been spent by LEAs on VA schools anyway. The meaning of this sentence is therefore unclear. Would the Department please explain this sentence, and preferably illustrate it with the appropriate figures; and would it also explain whether the total value of the work which would be funded from the VA capital programme would reduce, and if so by how much?

  • At paragraph 51, the Department state, "As a consequence [of the revised financial estimates], however, there is not as much left to provide the additional financial support to VA governing bodies which we indicated in the consultation document." This "additional financial support" appears to refer to the extra grant support (at 90% instead of 85%). If that is the case, it is not clear how it squares with the apparent implication of the statement referred to above, that the total value of the work to be funded from the VA capital programme would not necessarily reduce. It would be helpful if you could clarify this point.

  • Finally, the Committee would be grateful if the Department would clarify precisely what it understands the term "cost neutrality" to mean in this context; whether it is intended that "cost neutrality" be achieved for each of the three parties (VA governing bodies; DfES; and LEAs); and if so if it would demonstrate how these proposals achieve "cost neutrality".

The Committee also note that, at paragraph 97, the Department indicate that illustrations of the impact on individual schools will be made available in guidance to them; and that that guidance would be made available to the Committee when available. The Committee would be grateful to know when that will be the case.

10.  Wales

Is any further information available on how the National Assembly and the Wales Office intend to proceed in respect of VA schools in Wales? If so, how would any change proposed be achieved (bearing in mind particularly the "two-year rule", which prevents further change to the relevant provisions of the Act concerned by means of regulatory reform order within two-years)?

11.  Drafting

Finally, the proposed draft Order appears to the Committee to have been very poorly drafted in a number of respects. (A note illustrating some relevant points is enclosed with this letter.) The Committee has suggested that its legal advisers contact the Department's own legal team to try to sort out some of these issues: if it is to clear the proposal, it will need assurances that at least the more serious of the drafting problems will be resolved before a draft Order is laid for 'second-stage' scrutiny.

Additionally, the Committee staff have derived from the figures set out in the Regulatory Impact Assessment a summary of the financial effects on each of the three players (DfES, VA governing bodies; and LEAs). The summary is [attached]: it would be very helpful if the Department could verify the accuracy of those figures.

... I have copied this letter ... to Tom Mohan, Clerk to the Lords Committee, and to Nick Montague in the Cabinet Office.


The effect on each of the principal players is as follows:


Total liabilities on LEAs would reduce by around £89m. Although they would gain liability for some revenue expenditure, this would be more than offset by the loss of liability for certain capital expenditure.

DfES/VA governing bodies

Liabilities on VA governing bodies are shared by DfES, who cover 85%.Total liabilities on the DfES and VA governing bodies would rise by around £100m. They would lose liability for certain revenue funding; but this would not match the liability they gain for certain capital funding. Furthermore, unlike LEAs themselves, they would not be able to reclaim VAT on the liabilities transferred from LEAs. Total liability for VAT would therefore rise by £11m: hence the discrepancy between the £89m saved by LEAs and the £100m extra incurred by DfES and governing bodies.

The disaggregated effect on each of these parties is as follows:


DfES liability will increase by £103.75m. This amount is made up as follows:

£75.65m net extra liability transferred from LEAs (85% of £89m)

£10.55m extra VAT

£17.55m extra paid to governing bodies (both to cover their additional liabilities; and as a result of the increase in grant support from 85% to 90%)

VA governing bodies

VA governing bodies' liability will reduce by £3.75m. This amount is made up as follows:

£0.45m extra VAT

£13.35m net extra liability transferred from LEAs (15% of £89m)

-£17.55m extra paid by DfES (to cover additional liabilities; and as a result of the increase in grant support from 85% to 90%)

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