Education Bill

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Mr. Timms: I do not think that there is the confusion. As I said earlier, we want companies to operate as flexibly as possible but with several basic safeguards to offer protection. Those safeguards include preventing schools from borrowing money without permission. The hon. Member for Eddisbury asked several reasonable questions about the borrowing abilities of the company, and I should perhaps point out first that we envisage two types of company. One is formed to undertake procurement activities on behalf of several schools, and the other is a service provider company in which several schools come together to provide services to either themselves or other schools. There is a distinction between the two. Local education authorities will be liable for some of the debts of procurement companies, but not for those of the service provider companies.

The hon. Gentleman asked about limited liability companies. That will be set out in the policy statement that I promised the Committee. It is likely that many purchasing companies will be limited by guarantee, but much less likely for service delivery companies. If we decide that companies should be limited by guarantee, my expectation would be that the liability would be limited to a nominal amount-10, or along the lines that the hon. Gentleman suggested.

To reclaim VAT, which a company providing procurement for schools would need to be able to do, such companies will be deemed to be acting as agents of the LEA, which is why the LEA becomes liable in those circumstances. That does not arise with service provider companies. Purchaser companies will be spending their member schools' budget share; service delivery companies will not-they will be charging for their services. We will introduce a system through regulations whereby LEAs can monitor companies and act appropriately on that monitoring. Regulations will provide for the supervision and auditing of companies, which may involve designating a supervising LEA. Companies will be required to make financial information available to LEAs, so that risk can be minimised. If a company is financially mismanaged, regulations will provide a warning mechanism and, should it be necessary, arrangements for schools to leave the company or for winding up the company.

The amendment would grant governing bodies of member schools and companies the ability to borrow money secured on the company's assets, without having to seek permission. That would reduce the effectiveness of the basic financial safeguards that I described. Our proposition is that schools must seek permission to borrow because, in the circumstances that I outlined, liabilities could arise on an LEA. If the schools have permission, they will be able to secure the borrowing on the assets of the company. There is nothing to prevent that, and it might be appropriate.

It is worth noting that the companies are unlikely to be asset rich. For example, the land and buildings of the individual school members will not transfer to the company, so no loan could be secured on them. Ownership of land and buildings depends on the category of school in the framework. No maintained school would be free to transfer them. The LEA owns the land and buildings of community schools; trustees, which are subject to charity law, own the land and buildings of voluntary schools; and the governing body of a foundation school, which is also subject to charity law, owns the land and buildings of foundation schools.

11.30 am

Mr. Brady: The Minister's reply is helpful, as my hon. Friend the Member for Eddisbury will agree. In the instance of a governing body establishing a company to provide an educational service, which might be operating a school, possibly in an area where another school has failed, it would presumably be possible for that company to purchase assets, schools buildings and so on, in order to carry out its functions.

Mr. Timms: I am grateful to the hon. Gentleman for intervening on that point, as we do not envisage companies running schools. It will remain the governing body's task to run the school. Companies will be established to provide services to support the governing bodies in that work. Given that construct, the circumstances that the hon. Gentleman described will not arise. Indeed, his hon. Friend the Member for Eddisbury expressed anxieties about education being put at risk. The Committee should not worry about that; education will continue as normal. The school budget share is separate and will continue to be so. We do not envisage the companies running schools but providing services to support governing bodies in the work that they carry out.

Mr. O'Brien: The Minister shed some light on the nature of the ownership of assets, which was not clear from the Bill or the explanatory notes without having the regulations or the policy statement. The amendments are important in flushing out what the Bill intends, as it lacks clarity.

For example, under existing law and regulations, a private company has offered a high school in my constituency-one of the top five in the country-an information technology centre. The school has been exceptionally positive in wanting to accept it, but the LEA, which takes its responsibilities seriously, took a long time to negotiate the form of support and the contract. In this case, the assets are not land and buildings but the services being provided by the private company for the pupils.

Information technology assets tend to depreciate rapidly, which is an accounting issue, but, none the less, they are assets and in the early days before depreciation bites, they could be of great value. Have the Government taken account of the fact that assets are not just land and buildings?

Mr. Timms: I do not have details of the hon. Gentleman's example. He is right; there could be computer assets. It is unlikely that people would want to borrow on those assets, although that must be considered. I agree with the hon. Gentleman that it is helpful for questions and answers on what I accept are probing amendments to be placed on the record. There would be serious concerns if significant land and buildings were involved; I hope that I have reassured the hon. Gentleman that that is not the case.

Mr. Andrew Turner: I assume, when the Minister says that companies will not be allowed to run schools, that he means they will not be able to take the place of the governing body, which is the legal entity, but that otherwise the delivery of services to schools is more or less unlimited. That may be with the exception of clauses 34 and 35, relating to the provision of staffing, which is perhaps the most important service that a school can require. Have I understood the Government's approach correctly?

Mr. Timms: Yes, the hon. Gentleman is right. We envisage that governing bodies will continue to have their current role and will not be replaced. There could be models in which a company replaced a governing body, but it is important for the Committee to recognise that we do not envisage such a model in this respect.

Mr. O'Brien: I noted the Minister's explanation that an LEA would be liable for some of the debts of a procurement company, because it would be acting as the agent of the LEA. I was not sure where the definition of ''some'' would come. I hope that I heard him correctly. That situation will need to be explored. Although that is intended to be the use of a budget, a crisis will be caused when the money has been spent, the budget used and there is an inability to recover a payment. There will be such failures, because we do not live in a perfect world.

It would be inappropriate to delve into the detail, but the conceptual difficulty has been placed on the record. I very much hope that the Minister and his Department will reflect on it and that we shall hear more later, whether in Committee or in another place. In the light of our discussion, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 10 ordered to stand part of the Bill.

Clause 11

Limits on powers conferred by section 10

Mr. Andrew Turner: I beg to move amendment No. 97, in page 7, line 35, leave out-

    '(a) with the consent of the local education authority, and'.

The Chairman: With this we may discuss the following amendments: No. 24, in page 7, line 35, after 'authority', insert

    '(which shall not unreasonably be withheld)'.

No. 25, in page 7, line 37, at end insert

    '(which shall not unreasonably be delayed in being allocated and delegated)'.

No. 56, in page 8, line 31, leave out 'may restrict' and insert 'shall make clear'.

No. 59, in page 8, line 32, at end insert

    '(where such refusal cannot be exercised unreasonably)'.

Mr. Turner: The justification for amendment No. 97 rests very much with the Government's failure to provide information on their thinking beyond that in the explanatory notes on the conditions under which a local authority may be permitted to intervene to prevent a governing body from establishing a company of the relevant kind. I am sure that Government Members realise from our decision not to oppose clause 10 stand part that we broadly agree with the proposal.

Why should the local education authority have the opportunity to prevent a governing body from entering into the creation of such a company? Many local authorities are effective; some are utterly ineffective. I realise that the Government are struggling-I congratulate them on their struggle and, in one or two cases, on their achievements-to turn round those LEAs. I think that one LEA is now the subject of a third intervention, of a different shape from the previous two. I am not sure why that LEA, for example, should be entitled to intervene to prevent what may be an effective school from deciding to go down the road for which the Government have provided. That is a question of competence.

There is also the question of political will. Some LEAs may conclude that it is inappropriate politically for schools to take advantage of the legislation. I am sure that they would not be Labour-controlled local authorities and I am pretty sure that they would not be controlled by the party of which I am pleased to be a member. However, there may be local authorities, if not in England, perhaps in Wales, with a rooted political objection to the involvement of governing bodies in private companies.

The Government have not said why they believe that local authorities should have a role in preventing schools from taking such decisions where those schools believe them to be appropriate. The only clue is again in the explanatory notes, which state that

    ''Regulations will set out the basis on which an LEA may refuse consent.''

Subsection (7) also gives some indication, in that it empowers the Secretary of State to restrict consent by regulation.

One would be much happier if the regulations were an indication of the Government's thinking. Why are the Government establishing another hoop? If they have the power to foresee circumstances in which it will be appropriate for an LEA to be permitted to intervene, why give that power to the LEA? Why not simply restrict the powers of the governing body in certain circumstances? For example, the regulations may state that an LEA can refuse to allow a governing body to participate in a company only where the school is operating under special measures, or has serious weaknesses. If the Government believe that, why do they need the LEA to be in the loop? Why must the governing body jump through another hoop?

The Government seem to have a reasonable understanding of the danger of local authorities taking perverse, unnatural decisions for political reasons, or simply because of incompetence or stretching out the time to take those decisions. The Government are handing the decision to a subordinate authority, instead of making the decision themselves. I want to understand why that is the case.

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