Local Government Finance (England) Special Grant Report (No. 96)

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Mr. Mark Todd (South Derbyshire): I want to raise an issue that relates to the second part of the report, the transition from LEA to LSC funding for sixth forms. The Minister referred to the formula briefly, but did not deal with the mathematics of it, saying that it compensated some of the LEAs that had had more money withdrawn from them than they had spent on sixth form education. That is a welcome step. However, the difficulty is that that package did not compensate all the LEAs involved, and I hope that he will be able to explain the methodology used better at the end of the debate, at his leisure, than he found time to do in his opening speech.

Derbyshire lost about £2.8 million. I do not want to bore Members from other parts of the country—I tend to go on about this—but Derbyshire is one of the worst funded local education authorities, and its spending on sixth form education may therefore have been rather tighter than what it was expected to provide by the LSC. I have attempted to get my mind around the methodology employed, and some time ago I discussed it briefly with the LEA. It appears to be based on the principle that compensation is paid when an LEA is unable to pass on 85 per cent. of its SSA increase to forms of education other than sixth form education. That is related to the size of the education SSA rather than to the amount of money lost in the LSC transfer. Derbyshire's loss of £2.8 million was one of the larger discrepancies.

I ask the Minister to explain why that methodology was chosen, rather than one that sought to identify the authorities that had lost the most. I assume that it was not possible—again, my hon. Friend may choose to tell us why—simply to compensate all LEAs that had not funded sixth form provision to the level that the LSC now believes necessary. Derbyshire's schools are poorly funded, and one can imagine that when it had to decide how to make the budget work, that additional task was not greeted with great enthusiasm.

None the less—I want to end on a positive note—the LEA did its very best to cope with the problem. It drew on a fortuitous saving from the previous year to boost its spending for this year. Again, I look to the Minister in the firm expectation that the review of

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local government finance formulae for SSAs will be rather more generous to counties such as Derbyshire. I hope that a one-off ability to boost the budget in 2002–03 will not be penalised by a continuation of the current underfunding.

First, why was that particular method chosen? Secondly, what representations has the Minister received? I know that his Department had one from me, to which I have not yet had the pleasure of a reply. Thirdly, what does the future holds for counties in such circumstances?

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Mr. Phil Willis (Harrogate and Knaresborough): On behalf of the Liberal Democrats, I take the opportunity to welcome you to the Chair, Mrs. Roe. This is the first time that I have had the pleasure of working under your stewardship.

It is always interesting to hear a Labour Back Bencher questioning a Minister. It is also somewhat unusual, and we look forward to the Minister's response.

As ever, the hon. Member for Altrincham and Sale, West (Mr. Brady) has done his homework. He presented many of the arguments that we wanted to raise, and we do not want to repeat them. He made the point well about the inequity of that way of calculating the additional school standards grant allocation according to size of school. Clearly, there is a far better mechanism. The Minister was asked for a different mechanism, and the method whereby local authorities allocate funding to schools via a formula is such a mechanism. It is very much based on student numbers, so it is equitable. The more students a school has, the more resources it receives.

Perhaps the Minister will say when the Government intend to get rid of the rather silly way in which resources are allocated to schools, and to include the allocation in their base budgets. As the hon. Member for Altrincham and Sale, West made clear, the one thing that schools cannot do is budget long term on an annual increase that may or may not come from the Chancellor of the Exchequer and the Treasury.

Another factor on which I want the Minister to comment is the balances—their size borders on the obscene—that some schools are developing. Some have huge balances of many millions of pounds, which often exceed a local authority's balances by a factor of 20. The Government must tackle that issue. If there were baseline funding in a much more permanent sense, schools would not need to hoard their additional resources in case the Chancellor suddenly found that education was not the flavour of the day and had to move on to something else.

Mr. Brady: Does the hon. Gentleman accept that a wise head teacher—I am sure that he was one in his day—would seek to maintain such a balance against precisely the type of eventuality that has now arisen? I refer to the sudden and unanticipated hit caused by the increase in employers' national insurance contributions, which will apply next year. If schools did not have a balance to provide for such eventualities, they would have serious problems.

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Mr. Willis: The hon. Gentleman states the obvious. That is the point that I am trying to make to the Minister. Unless there is a guarantee on long-term funding, the situation is difficult and leads to hoarding balances. However, I doubt whether a school needs £1 million in its balance to cover such eventualities.

The hon. Gentleman made a relevant point when he claimed that many schools were seriously disadvantaged when the original settlement for the transfer of resources from local authorities to the LSC and back to local authorities and schools came out. Therefore, the need for some balances was important. I hope that the Minister will respond to that point in his usual frank way.

I shall move on to the other aspect of the report, which is the real-terms funding guarantee. I thank the Minister—Labour Members sit up and take note—because the original settlement was deeply flawed. After the real-terms funding guarantee for school sixth forms was introduced, albeit on a short-term basis, many local authorities made representations to the Minister and the Secretary of State, including my own, North Yorkshire. It is good that the Government listened, changed the methodology and introduced the special grant to ensure that no local authority or school was significantly affected as a result of the change to the LSC funding.

The provisional settlement was much larger than any of us expected. My constituency has significant-sized sixth forms, including, as I often remind hon. Members, the largest ecumenical sixth form in the country. Money came to us the like of which we had never seen before. Something was clearly wrong, especially when a school with a small sixth form down the road suddenly found that it had huge losses as a result of the transfer of resources. However, we are grateful, and the special grant will be particularly welcome.

One of the sad things about the arrangement, including the special grant, is that the effect on further education colleges has not been considered. Despite the real-terms funding guarantee for schools, the appalling situation persists in which further education colleges find themselves receiving up to £1,000 less per student in order to produce exactly the same courses, with the same components and the same back-up facilities. Will the Minister agree that that is totally unacceptable and that something needs to be done about it as soon as possible?

Bob Spink (Castle Point): The hon. Gentleman has mentioned a matter that I was going to raise. Can I ask him to confirm that we want to protect the level of funding in school sixth forms and to raise it in colleges—not to do anything else? I hope that the Minister will confirm that that is the Government's intention and that they will carry it out very quickly.

Mr. Willis: I am grateful to the hon. Gentleman. That was the very basis on which we debated in this Committee Room two, three or four years ago—we seem to have been sitting here for a long time, on and off—and we received that exact guarantee. The report of the proceedings of the Standing Committee on the Learning and Skills Act 2000 when it was a Bill will

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show that it was often repeated that funding would be levelled up. Upward convergence was also the message that we received from the Secretary of State and her Ministers at Education questions last week. Convergence upwards, as the Minister will confirm, will be completed next year and we shall all cheer—or perhaps it will be the year after, or the year after that.

If the grant is to apply for one year and be based on student numbers for the previous year, may I ask the Minister about sixth forms with rising numbers? Many authorities have fast-rising numbers of post-16 students in both schools and FE, particularly in schools. What will happen about retrospective funding? Imagine a sixth form that, having been funded and received its additional grant through the LEA on the basis that it had 500 students, expands to take in an extra 100. Would it be able to make a retrospective claim for a proportion of the grant through the LEA? If so, has any contingency arrangement been made for that purpose? The Minister has made it clear that if resources are not spent for the purpose for which they were allocated, the money can be clawed back after the audit. I assume, therefore, that he will have a pot of money to use when additional places need to be funded. Will the Minister comment on that?

May I ask the Minister about the audit mentioned on the final page of the report? The Government are right to want an audit of the additional resources. However, will the Minister explain how the audit will take place? We are told that the Secretary of State will deliver a special form—''book'' might be a better description of it. Will it have to be demonstrated that the money was spent purely on post-16 students? That would cause schools particular problems, because money was taken out of school budgets to meet the requirements of post-16 funding, and this was intended to fill that gap. If the audit says that it has to be spent on post-16 students, that will create similar problems. Can we have an assurance about that? Will the audit follow the same mechanisms as in FE? Will it be about allocating resources according to recruitment, retention and achievement, or a one-off audit simply for this form of grant?

All schools are vexed with the issue of what happens when the real-terms funding guarantee finishes. We appreciate that during the passage of the 2000 Act, a limit was put on that guarantee. I have no reason to disbelieve the Minister when he says that he is committed to upward convergence for funding similar packages in FE, sixth forms, sixth form colleges and tertiary colleges, and for private sector providers, which are presumably entitled to receive state funding for their provision.

During debate on the Green Paper on provision for 14 to 19-year-olds, however, the hon. Member for Altrincham and Sale, West asked the Parliamentary Under-Secretary of State, the hon. Member for Bury, South (Mr. Lewis) a pointed question about whether the Learning and Skills Council was going to extend its remit to the 14 to 16 age group, in view of the fact that it could fund programmes in that age group through

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its own budget. The Under-Secretary gave a one-word answer: No.

I was sorry to hear that simplistic answer, in view of the current farcical funding system that allows money to be top sliced from schools budgets through the LEA, effectively given to the LSC, and then given back to the LEA to give to the schools. No one would dream up such a system, unless there were a particular necessity to move from one arrangement to another. The Government had to move from where they were to where they now, but will the Minister explain where they want to be?

Surely it is time to reconsider the funding of the 14 to 19 sector through the LSC, if we are genuinely to have a 14 to 19 framework and a simplistic method of funding all institutions, and if, as the hon. Member for Castle Point (Bob Spink) suggested in his intervention, we are aiming for upward convergence to create parity of funding and esteem between the different sectors.

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