Education Bill

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Mr. Brady: Will the Minister explain why he thinks it necessary to have the LEA's consent to form a company, whereas the LEA's consent is not required in chapter 1 for exemptions for innovation, or in chapter 2 for earned autonomy?

Mr. Timms: As I said earlier, in some circumstances with the procurement companies, the LEA's budget could be at risk if things go wrong. The LEA must have a say about whether it goes ahead and, in the circumstances that I outlined, it may need to withhold its consent.

Mr. Brady: Is the Minister saying that when a firm is a service provider company-the Minister confirmed earlier that the LEA would not be liable for debts or financial liabilities-the LEA will not be able to deny consent?

Mr. Timms: No, I am not in a position to say that at this stage. Before the Bill leaves the Commons, we will set out in a consultation document the precise circumstances in which that would happen. However, in some circumstances, for example if a school or its leadership was weak or failing, it might be inappropriate for it to enter a certain kind of service provider company. The hon. Gentleman is right to suggest that the major financial risk to the LEA arises with the procurement companies, but I cannot say at this stage that I would exclude the possibility of the LEA withholding permission for service provision companies.

On amendment No. 25, clause 11(1)(b) requires that only schools with a delegated budget can form or join companies, so the amendment would require that LEAs do not unreasonably delay the allocation and delegation of a school's delegated budget. The principle of the amendment is entirely fair-schools should not be deprived of a delegated budget-but it does not add anything to the carefully constructed provisions of the School Standards and Framework Act 1998, under which a new school must be given a delegated budget not later than its opening date unless the LEA has obtained special permission from the Secretary of State to postpone delegation beyond that date. In practice, many LEAs allow new schools to have delegated budgets prior to opening, which is to be welcomed. However, there is not a sufficient case for bringing forward the statutory deadline for delegation. The LEA is under a strict duty to delegate budgets to existing maintained schools, and regulations under section 49 of the 1998 Act provide that the amount of a school's budget share must be determined before the start of the financial year.

If delegation has been suspended, schedule 15 requires the LEA to review suspension annually and allows for more frequent reviews if the LEA so chooses. If delegation has been suspended on the ground of financial mismanagement, the school may appeal to the Secretary of State against the suspension. I think that those measures provide sufficient safeguards. In any event, the amendment simply requires LEAs to act reasonably, but they are under a general duty to do so anyway. Any safeguards that the amendment would provide are already available under general law.

Given my explanations and reassurances, I hope that hon. Gentlemen will not press the amendments to a vote.

Mr. Andrew Turner: If I may recapitulate, I understand the Minister's assurances to mean that under the limited conditions by which the local authority is entitled to withhold consent, they shall do so if the school is weak or failing and they may do so in the other two circumstances that he set out. If that is the Minister's reassurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Stephen O'Brien: I have listened carefully to the Minister. Yet again, this is difficult without having the pro forma regulations in front of us, but the exercise of decisions ''reasonably'' is critical to ensuring no gamesmanship in statute. We hope that gamesmanship will not be encouraged, but it is conceivable. Experience teaches us to think carefully about what we put on the statute book.

The Minister has sought to be constructive and has said that the yet unpublished regulations may well be stronger than the wording in amendments Nos. 24, 25 and 59. In the absence of those regulations, however, it would be irresponsible for the Committee not to demonstrate the seriousness of these issues, which are germane to the operation of the Bill's underlying concept. We are dealing with the mechanics and architecture of the Bill to ensure its effectiveness.

Government Members have given an attentive hearing to our arguments. Heaven forfend the suggestion of a whipped vote. I hope that, before the Bill leaves this House, hon. Gentlemen will join me in pressing for the Government's feet to be held to the fire. If the regulations turn out not to be stronger, the subject of the amendments would be a proper matter for further debate. The amendment should be accepted and the Government's intentions kept honest. I shall press for a vote on amendments Nos. 24 and 25, and I also intend to press amendment No. 59.

Mr. Laws: I shall not press the excellent, but marginally flawed, amendment No. 56, but I am pleased that other amendments in the group are being pressed to a vote.

Amendment proposed: No. 24, in page 7, line 35, after 'authority', insert

    '(which shall not unreasonably be withheld)'.-[Mr. Stephen O'Brien.]

Question put, That the amendment be made:-

The Committee divided: Ayes 6, Noes 11.

Division No. 10]

AYES
Brady, Mr. Graham Grayling, Chris Laing, Mrs. Eleanor
Laws, Mr. David O'Brien, Mr. Stephen Turner, Mr. Andrew

NOES
Bailey, Mr. Adrian Coaker, Mr. Vernon Flint, Caroline Francis, Dr. Hywel Heppell, Mr. John Kumar, Dr. Ashok
Lewis, Mr. Ivan Miliband, Mr. David Purnell, James Timms, Mr. Stephen Touhig, Mr. Don

Question accordingly negatived.

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

    '(which shall not unreasonably be delayed in being allocated and delegated)'.-[Mr. Stephen O'Brien.]

Question put, That the amendment be made:-

The Committee divided: Ayes 6, Noes 11.

Division No. 11]

AYES
Brady, Mr. Graham Grayling, Chris Laing, Mrs. Eleanor
Laws, Mr. David O'Brien, Mr. Stephen Turner, Mr. Andrew

NOES
Bailey, Mr. Adrian Coaker, Mr. Vernon Flint, Caroline Francis, Dr. Hywel Heppell, Mr. John Kumar, Dr. Ashok
Lewis, Mr. Ivan Miliband, Mr. David Purnell, James Timms, Mr. Stephen Touhig, Mr. Don

Question accordingly negatived.

Mr. Stephen O'Brien: I beg to move amendment No. 28, page 8, line 2, after 'guarantee', insert

    'or a limited liability partnership under the Limited Liability Partnerships Act 2001'.

I touched briefly on this subject in a previous discussion. The amendment would add the possible alternative of a limited liability partnership under the Limited Liability Partnerships Act 2001 to the definitions and opportunities that exist for the companies that will be registered under clause 11, if regulations so provide. My concern is that, in the absence of regulations, it may be presumed that it would not have to be a company limited by guarantee. I think that I understood the Minister to say as much.

We are working on the presumption that there will be regulations, and the more we explore the chapter, the more it is clear that the regulations will be detailed and all encompassing. Those who want genuinely to scrutinise and understand the Bill are naturally disappointed. As the regulations are well developed, perhaps the Bill could have been a little more detailed and less of a blank cheque for the Secretary of State.

The opportunity that the Government rightly provided by the introduction of the Limited Liability Partnership Act had been recommended for some time by bodies outside the House, and was driven through against the wishes of several Government Back Benchers who took a somewhat hostile view to the accountancy profession. In the end, the Government prevailed, and that provision is now on the statute book. That move was driven primarily by the large accountancy partnerships, which have consolidated in recent years. We have limited liability partnerships because it became unreal in today's world to expect partners to be liable to the extent of the shirt on their back when operating in a professional environment with liabilities well beyond what anyone could reasonably expect, and for which insurance cover was becoming increasingly difficult or expensive to provide.

Mr. Timms: I acknowledge the hon. Gentleman's expertise on this matter. Will he confirm that the Limited Liability Partnerships Act was passed in 2000 rather than 2001, as the amendment suggests?

Mr. O'Brien: I remember serving on the Standing Committee in 2000, but I had thought that it had taken longer to gain Royal Assent. It seemed an inordinately long time, and I am grateful for the correction. I hope that, as we discuss the amendment, we can treat that as a typographical slippage. My pen did not quite make the full circle of the final zero.

The Minister commented earlier that the Government envisage that companies will be set up to procure services and facilities and to provide services directly. Some of those companies may well provide professional services. Although they may not be accountancy practices or law firms, such companies are developing and embracing the corporate entity known as a limited liability partnership. Many of the management consultancy services that they offer, in addition to audit work performed by accountants, are very much the sort of services that can be provided collectively to schools to achieve economies of scale. Such firms offer legal or accounting expertise, which will increasingly be needed as the number of companies grows. Even if the hon. Member for Yeovil is right in saying that only about 10 per cent. of schools will be subject to the corporate mechanism, that could run into billions of pounds of turnover, and there would be potential for consolidation.

12.15 pm

If companies draft in professional expertise, a company limited by guarantee may not be appropriate, and we should perhaps consider the use of limited liability partnerships. The flexibility that the amendment would engender is important, particularly if professional expertise is being offered. The limited liability partnership may be the appropriate corporate mechanism for obtaining the necessary professional indemnity liability insurance.

A school contracting accountancy services may be anxious about whether a corporate entity providing such services has the wherewithal, if it is limited by guarantee, to indemnify it for acting on inappropriate advice. Therefore, the school would look to the insurance cover that professional indemnity insurance would provide, and that would be much more appropriate under a limited liability partnership, as envisaged under the Limited Liability Partnerships Act 2000.

I know from my experience as the director of a limited liability partnership in California that such entities operate successfully. They are increasingly used not only in manufacturing, which I was concerned with, but in the provision of more general services, such as bus transportation. The amendment would offer appropriate flexibility. In the absence of regulations, we do not know whether we are dealing with a chimera or something that will be so prescriptive that companies will not be free to operate independently. With the consolidation that it is envisaged will occur in the marketplace, it is important that the Government accept the amendment as an indicator at least.

 
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