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Lord Tope: The noble Lord, Lord Morris of Castle Morris, indicated that I would speak, in particular, upon Amendment No. 5. I shall do as he suggested. However, we support fully what he said in regard to Amendments Nos. 4 and 86 which we believe to be extremely important.

In the Second Reading debate I expressed some anxiety about the effects of a flat-rate voucher scheme, currently suggested as £1,100. That was intended to cover capital costs as well where appropriate, and certainly no separate provision has been made. If, as stated, one of the principal aims of the scheme is to expand nursery provision as the noble Lord, Lord Morris, said, it is particularly important that we attempt to target resources on those areas which currently have less or low provision.

If we are to see an expansion, then, by definition, it will not come in those areas which are already well provided for and where the need for additional capital expenditure will be less. If we are to see an expansion,

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it will come in areas of low provision where there will inevitably be considerable capital costs both in terms of premises and in terms of new equipment in order to run the nursery provision. The purpose of this amendment is to try to draw that out and to enable a scheme to be set up which can target resources where a high level of capital expenditure will be necessary in order to achieve that expanded provision.

I have an additional concern that the present approach will disadvantage local authority providers as compared to providers in the private sector. Local authorities are subject to stringent capital expenditure controls imposed by central government, whereas private providers will be free to borrow to finance capital expenditure, presumably on the security of the expanded provision they will then be able to provide and the income they will get in order to resource their debt.

The purpose of the amendment is to try directly to target any new resources on areas where expansion is necessary and thus to make better use of scarce resources to achieve the object of the Bill, which is the expansion of nursery education.

6 p.m.

Lord Skidelsky: The purpose of the amendment is to prevent any local authority losing resources but the purpose of the Bill is that local authorities should lose resources if the pre-school provision they provide is not approved of by parents. That is precisely what is meant by freedom of choice. There will be £150 million of new money going into this provision in the first year. All of it, minus administration costs, will go to local authorities if parents decide that it is to local authority schools they wish to send their children. How one can complain about that and say that the Bill will deprive local authorities of resources I do not know. If they are doing the job that parents want them to do, that will not happen. If we believe in freedom of choice, as do noble Lords on this side of the Committee, and we accept that local authorities which are not efficient in providing what parents want should lose resources and others which are efficient should gain resources, the total effect will be the expansion of pre-school provision. But we do not believe that local authorities should have a monopoly of that provision irrespective of the standard of service they provide. This is a wrecking amendment because it cuts out the primary purpose of the Bill.

Lord Prys-Davies: Perhaps I may deal briefly with Amendment No. 86 which is grouped with Amendments Nos. 4 and 5. I have little to add to what my noble friend Lord Morris of Castle Morris said in his speech in favour of the other two amendments. The purpose of Amendment No. 86 is to clarify and make explicit in the revenue support grant settlement for local authorities each year the basis on which deductions will be made to fund the voucher scheme. It also draws attention to the different methods being used for England and Wales, but I am comfortable with the situation in Wales as far as the methodology is concerned.

As I understand it, in England the deduction, as my noble friend Lord Morris indicated, will be calculated in each local authority area according to the number of

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four year-olds in nursery places rather than in the population. On the other hand, the basis of deduction in Wales will be the number of four year-olds in the population. The Government claim that this is for a technical reason: that Welsh authorities, unlike English ones, do not have a separate standard spending assessment for nursery education. However, I am glad to acknowledge that a fairer basis of deduction has been positively adopted in Wales.

I would refer in particular to the Welsh Office document entitled Pre-school education: Implementation of the voucher scheme, which was published on 8th July last year. In that document the Welsh Office examined both options and concluded that the first option--the deduction by the number of four year-olds in the population--appeared more equitable since it would not penalise those authorities that had traditionally made a particularly high level of investment in pre-school provision. The nursery SSA for English authorities is calculated on the basis of numbers of four year-olds in the population and therefore it can be argued that the deductions consistent with that should be on the same basis.

The amendment would require the Secretary of State to set out in the RSG report laid before Parliament each year the basis of the grant deduction and the effect on the distribution to each authority through the SSA mechanism. That would enable Parliament to decide whether it considered that the basis was fair and consistent between the authorities and, I suppose, between England and Wales.

Earl Baldwin of Bewdley: I should like to add my voice to Amendment No. 5, with some slight surprise that it is linked with Amendment No. 4 because we seem to be slightly jumping between topics here, and reinforce the point about some of the problems there might be. I saw today in my post from the Pre-school Learning Alliance, which has done a study of the four pilot areas, quite strong evidence that there will be a problem among its members on the capital element of expanding provision. As has already been noted, if there is a problem on the private side, there will be even more of a problem on the LEA side. So this business of capital costs, which it is hard to see will be satisfied within the £1,100 flat rate, looks like being a real problem.

Lord Henley: I offer my apologies to the noble Earl, Lord Baldwin, if he thinks that the grouping of Amendments Nos. 4 and 5 is not appropriate. I can assure him that myself and my team and the noble Lord, Lord Morris, and his team, went to considerable trouble to try to get the grouping right. It is always a difficult matter but it probably assists the work of the Committee, or of the House at Report stage, if we can group as much as possible in order to try to speed up the process of debate and try to bring together matters that ought to be brought together. I think that we can have a perfectly useful discussion on these three amendments even though they are all on slightly different subjects. I hope the Committee will therefore bear with me if I go through the three amendments in much the same way as the noble Lord, Lord Morris, suggested we should, first

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dealing with Amendment No. 4, then going on to Amendment No. 86 and then coming back to Amendment No. 5.

Perhaps I may deal with a couple of misconceptions of the noble Lord, Lord Morris. First, he said that what is proposed is likely to affect provision for three year-olds. I must remind the Committee that no deduction will be made in respect of three year-olds. Only the voucher value in respect of four year-olds already in maintained schools, all of which can be regained if recruitment of four year-olds remains the same, will be deducted. Three year-olds will not be affected in any way. If parents choose the maintained places, as they do now, maintained schools need have nothing to fear.

Secondly, he made the point, which again I do not accept, that it will be virtually impossible for the LEAs to plan forward. Again I would have to say, as others have said on previous occasions, that that is not the case and that they are in no different a position from either the private or the voluntary sector.

The essential principle behind the voucher scheme is that grant should follow the pupils. Neither the noble Lord, Lord Morris, nor myself would want the LEAs providing good quality provision--I am grateful for the stress that my noble friend Lord Skidelsky placed on that--to be financially disadvantaged. But under the funding mechanism proposed for the voucher scheme such LEAs will not be disadvantaged. We have already been told just how good much of the LEA provision is. No LEA, both high and low providers alike, will lose funding if they continue to recruit the same number of four year-olds. So the only LEA provision that is threatened by the voucher provision, as my noble friend Lord Skidelsky, made clear, is poor provision and provision to which parents do not choose to send their children. To me, that suggests that those who talk about schools of their acquaintance losing funding have relatively little faith in the quality of those schools.

But why should LEAs have their existing level of funding guaranteed even if the quality of their provision is poor? I refuse to limit parental choice, which that would do, and remove incentives to improve quality by providing a guarantee in primary legislation that the LEAs cannot lose no matter what they do.

The noble Lord, Lord Morris, also asked why deductions are not based on population rather than provision. Deductions from the SSA are made for four year-olds with places to ensure that each LEA can regain its funding, as I have said three times, by recruiting as many four year-olds as they do now. If they do that no LEA will lose out whether a high or low provider.

Noble Lords spoke about the different SSA deduction mechanism in Wales and asked why we had gone down a different route when comparing England with Wales. Overall, there is a higher provision for four year-olds in Wales and less variation between the LEAs as to what the provision is. Therefore, the effect of the "top slice" deduction will be much more evenly balanced than would be the case in England. Moreover, as I believe the noble Lord, Lord Prys-Davies, made clear, local

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government funding in Wales is somewhat different to that in England in that there is no specific education budget. I hope that both noble Lords will accept that as a reason for that difference.

I now turn to Amendment No. 86, to which, I believe, the noble Lord, Lord Prys-Davies, spoke. The amendment seeks to adjust the presentation of two local government finance procedures--the Secretary of State for the Environment's determination of revenue support grant, and local government finance reports. The amendment is based on a misapprehension of the technical workings of the revenue support grant and standard spending assessment processes. However, I am confident that the effect the amendment seeks will be achieved in other ways. Every step will be taken to ensure that the effect of the voucher scheme on local authority funding allocations is transparent.

In summary, the Government will discuss fully with the local authority associations the way in which the SSAs take account of the introduction of nursery vouchers. Individual local authorities will have the opportunity to make representations about the pupil numbers on which their own proposed SSA reduction is based before it is finalised. The effect of the reduction on the final distribution formula for RSG will be notified to each local eduction authority as for 1996-97; and the Secretary of State for the Environment's determination of revenue support grant will show the amount of revenue support grant which local authorities will receive taking into account the reduction in SSA. As usual, the distribution of revenue support grant and so, by implication, SSAs, must come under parliamentary scrutiny. I accept that that is necessarily complicated. I hope that the noble Lords concerned will at least read what I have said in due course before taking matters further.

I now turn to Amendment No. 5, to which the noble Lord, Lord Tope, spoke. It deals with capital expenditure. Clause 1 as presently drafted does not preclude the payment of grant for specific capital purposes to providers in any sector; nor does it prevent providers from using voucher income for capital purposes. The amendment seeks to provide a separate stream of capital funding for nursery education.

We expect the voucher scheme to lead, over time, to an expansion of places. In some cases expansion will not entail capital expenditure because new premises can be leased. In other cases, premises can be converted at limited cost. Where appreciable capital expenditure is required, we envisage equal, but different, treatment for all providers. The private and voluntary sectors will be able to borrow on the strength of voucher income, as is common business practice. LEAs can set their own priorities for capital expenditure and, subject to the passage of this Bill, grant-maintained schools will be able to borrow commercially. Total allocations to LEAs for county and voluntary controlled schools this year will be £458 million, a rise of 7 per cent. on the current year.

Many LEAs have already made nursery education a priority within their own capital programmes. Annual capital guidelines do not represent spending limits on

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school buildings. LEAs are also able to invest capital receipts and transfer from their revenue budgets if they choose. The maintained sector can also enter into partnerships with the private sector under the new freedoms offered by the private finance initiative. That will bring private sector investment and expertise into the public sector. I suspect that both the public and private sectors will benefit.

Within the department we are currently working with a number of local education authorities to develop pathfinder PFI projects. Although none of the more advanced schemes is in the nursery sector, the department is aware of interest in the PFI approach to nursery proposals. Phase 1 of the voucher scheme I hope will provide an opportunity to develop the potential of PFI in nursery education.

I appreciate that we have taken together three amendments of some complexity. I hope that that explanation will be sufficient and that the noble Lord, Lord Morris, will be able to withdraw his amendment.

6.15 p.m.

Lord Morris of Castle Morris: As the Minister said, this is a technical matter. Among the papers that have been showering on me like confetti the Committee may like to know that I have just received another petition against this entire Bill from a primary school in Haringey. The petition is signed by between 180 and 200 parents, saying they are not happy about it. I do not know where the paper has come from or why it is here. But I put that forward as an example of the way in which we are being deluged with concern from people everywhere about nursery vouchers.

Perhaps I may take up a few matters in an attempt to throw some light on what is obviously a difficult situation. I take the point that the noble Lord, Lord Skidelsky, makes. I shall want to study and think about it. I say to him that what we are proposing here is not in any way a wrecking amendment because it uses the Welsh model to fund expansion; it does not in any way deny that deductions should take place. We are rather more concerned about the way in which those deductions are taking place.

If the highest provision is in Wales, to me that only underlines the need not to imperil high provision in England. The fact that there is no Welsh SSA is not relevant. The English SSA, the grant to the LEAs, is calculated by population. The grant from the LEAs will be by the numbers of four year-olds. It could easily be done in the same way as it is done in Wales as far as we can see. But it is, I agree, a complicated situation. We would all do well to think about it at greater length and come back to the matter at Report stage when we have had time to talk to each other.

Perhaps I may take just a few minutes to put before the Committee a theoretical example which has been presented to us which I think throws a certain amount of light on the way in which the scheme might work at individual local authority level. Let us imagine two local authorities--this is taking me back to what I like doing, which is teaching--authority A and authority B. The SSA for nursery education for authority A is £4 million.

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The number of four year-olds in LEA nursery places in authority A is 2,700. The number of three year-olds in LEA nursery places is 1,000. The deduction from SSA will be £1,100 multiplied by 2,700 which is £2.97 million. The amount remaining in the SSA of authority A is therefore £1.03 million. Let us compare that with our imagined authority B, which has an SSA for nursery education of £4 million, which is exactly the same as that of authority A. The number of four year-olds in LEA nursery places is only 750 and the number of three year-olds in LEA nursery places is just 50. The deduction from SSA is £1,100 multiplied by 750 which is £0.825 million and the amount remaining in the SSA is £3.175 million. There is a tremendous difference between the two.

On the basis of the figures given for authorities A and B, if it is assumed that all children currently in LEA nursery places redeem their voucher (so the income from vouchers is equal to the deduction from SSAs)--a reasonable supposition--authority A will have an SSA of £1.03 million for making provision for 1,000 three year-olds and for extra provision for special educational needs. It may also have to cope with the financial consequences of providing any new places for four year-olds if the £1,100 voucher income does not cover the full cost of the new places. Authority B will have an SSA of £3.175 million for making provision for 50 three year-olds and for extra provision for special educational needs.

The Government argue that the practical effect of their proposals is that if all the four year-olds currently in local authority schools stay in those schools and redeem their vouchers, deductions will be equal to income and there will be no net effect. However, the difficulty with that argument is that deductions based on actual numbers of children and based on an actual amount (£1,100) are being made from notional indicators of need. These notional indicators of need (SSAs) are related in a very complex way to the amount of grant a local authority actually receives from the Government and is allowed to raise through the council tax by the Government. There is a theoretical possibility that if the Government proceed on this basis, some high-providing authorities could actually end up with negative SSAs for nursery education.

It is clear that authorities will suffer highly differential effects by this operation. Those which are already committed to high levels of provision will, we believe, suffer a financial consequence which will place current provision in a great deal of doubt. That is why we felt that this group of amendments was well worth considering. We agreed to the grouping--I believe that the Government were content--of Amendment No. 4 with Amendment No. 86 because the position in Wales seems so much clearer, granted that provision in Wales is, as the Minister said, much more even because the spread of high providers and low providers is so much less.

We should like to return to this matter on Report. We have now got our point on the record, so let us see what happens when we start to think about it. This is a technical and important point and I do not want to bandy

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figures across the Dispatch Box with the Minister. Having put this on the record, let us think about it before the next stage. That might be a better way to proceed than arguing the toss.

We think that it might be better if something close to the Welsh scheme were adopted in place of what seems to be proposed to cover a situation where there is a wide spread of provision. Having said that, I do not feel that this is an issue on which we should ask the Committee to express an opinion now--not least because several Members of the Committee might not feel that they have total command of all the detail, such as the Minister and I--and obviously several other noble Lords--have had to attain by a process of black coffee and wrapping wet towels around the head for a considerable period of time. I hope that the Committee will agree to return to this on Report. Perhaps we can make some progress with it then rather than now. If that is the feeling of the Committee, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 5 and 6 not moved.]

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