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Lord Graham of Edmonton: My Lords, I am grateful to the noble Baroness for giving way. Like other members of her party who have spoken, the noble Baroness sincerely and genuinely reiterates the constant theme that more money needs to be spent on education, especially secondary education, to iron out some of the anomalies. Will the noble Baroness tell us how that would be achieved as her party has pledged to cut public expenditure by 20 per cent?

Baroness Byford: My Lords, I thank the noble Lord for his intervention. I shall let my colleague on the Front Bench respond to that point. I speak as a Back-Bencher, not as a Front Bench spokesman. That obviously makes a difference. But my interpretation of the matter is very clear. It is not always a question of what money is available but rather of how it is used. I believe that at the moment it is not being used to best advantage. I say to the noble Lord, Lord Graham, that the school I mentioned is examining the way in which it operates to see whether it can save money. However, it is not simply a question of money although money is obviously a dominant factor as regards a school being able to work successfully. However, I shall leave the more detailed response on that point to my colleague on the Front Bench.

I have raised, and will continue to raise, the issue of broadband. As I say, depending on how it is installed it may be capital expensive with low running costs or

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capital acceptable but with higher running costs. Can the Minister tell us how many LEAs have gone down the latter route? There is a difference between the two routes.

Funding problems lead inevitably to cost saving schemes, reallocation of duties and task reduction. I was surprised and alarmed to hear that fire risk self-assessment is now a standard part of modern governance in schools. A group of governors and the head teacher sit round and simply fill in a form designed to highlight areas in the school which may be a source of risk either of starting a conflagration or of injuring staff or pupils in the event of one. Is that really something that they should be doing? Are they adequately trained? I am assured that the form is simple and that the task is easy but there are many aspects of fire hazard which are not even touched upon. Does the Minister support that delegation? In the event of a major fire with one or more fatalities and some serious injuries, will the Minister assure the House that governors, schools and head teachers cannot be held responsible in any way? At the moment I believe that they can.

The Government are increasingly passing even more responsibilities to hard working, unpaid governors who do their best to ensure a safe environment for our children. Does the Minister appreciate the great responsibility which is being given to them? Is she content that schools will be able to attract and keep governors in the future?

Like a previous speaker I touch briefly on the question of supply teachers. Increasingly schools are spending many thousands of pounds on supply teachers when regular teachers are absent. What are the Government doing about that? Will the Minister give the House some figures with regard to supply teachers?

I thank my noble friend Lord Hanningfield for giving us the opportunity to debate funding in schools. Before the noble Lord, Lord Graham, leaves the Chamber perhaps he will be interested to hear—as other noble Lords have said—that this Government claimed that for them "education, education, education" was a real priority. I put it more strongly than the noble Lord, Lord Henley. How disappointed the Minister must be that there is not one spokesman on the Labour Benches in this debate, and nor is there one from the Liberal Benches; I exclude the winding-up speeches. Last week, on 29th April, there was a debate in another place with no speaker from either party. Has "education, education, education" lost top slot? Perhaps noble Lords on those Benches realise that the Government are not achieving what they set out to achieve.

Before I finish, I would like to pay my tribute and thanks to all those who work within our schools. Teachers are obviously key to the success, but thousands of other workers all play their part. The one thing for which they all hope is financial stability. As other noble Lords have said, confidence in that has been shattered. Teachers are considering striking, as my noble friend Lord Hanningfield said. The

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Government accuse the local authorities, but I believe that the funding arrangements are inadequate or, at best, unfair.

Who picks up the underfunding? The local authorities, of course, which send it on to us, the council tax payers. Enough is enough. A likely disaster faces us. Perhaps that is why speakers are absent from other Benches. I do not wish to make a political issue of that, but I think that means that noble Lords from those Benches either do not appreciate that there is a dire crisis in the funding of schools, or accept it and feel that they can do nothing more. At best, the Government's priorities are not being fulfilled.

I have spoken of two schools particularly. As I said at the beginning, funding is not purely the problem at the inner-city school of Leicester, which has adequate funding. However, some of the other schools are really struggling. To be faced with a deficit of 150,000 with that number of pupils is indeed unacceptable.

I would like to thank again my noble friend Lord Hanningfield for giving us the opportunity to debate the subject, and I look forward to the Minister's response.

Lord Graham of Edmonton: My Lords, this is not the first time that the noble Baroness and I have crossed swords on her drawing the attention of the House to the absence of Labour Members in certain debates. I assure her that there will be occasions in future when the Opposition Benches will be empty of speakers. I would not dream of drawing attention to the fact that that indicates that Opposition Members are not interested. The pot should not call the kettle black.

Baroness Byford: My Lords, the noble Lord and I have had debates across the Chamber on the subject, usually when debating housing and circumstances for poor families or families in need. He accepted, quite rightly, that there were only a few speakers from our Benches, but there were at least some speakers. Today there is no speaker from the Government Back Benches.

5.53 p.m.

The Lord Bishop of Chelmsford: My Lords, it is a particular pleasure in my last few weeks as Bishop of Chelmsford to contribute to a debate introduced by the noble Lord, Lord Hanningfield, who shares an interest in a considerable part of the same patch as I do. I warmly welcome his bringing this important debate to your Lordship's House, rooted as it is in his long experience of public service in Essex. He has argued trenchantly in support of our county.

In many ways, local education authorities have a difficult task. In all the various celebrations last year, their centenary went almost unnoticed. Perhaps that is not surprising. They are ground between the upper millstone of central government and the nether millstone of schools. No longer do either central government or schools see the money that they administer as the local authority's money. Central government sees the money as the Treasury's money

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and wants to see it handed on to schools; schools see it as their own money and, quite naturally, want to have as much of it as they can. No wonder local government is ground fine.

But it seems that the Government have taken on an almost impossible task this year as well. For many years, as noble Lords will recognise, schools and local authorities in parts of the country far distant from London have complained that the funding formula has seemed to benefit schools in London and the South East at their expense. The formula was ripe for refinement, perhaps even for scrapping and starting again. In any change there are likely to be winners as well as losers. Nor would it be surprising if a great noise of protest was heard from the losers and not overwhelmed by the deafening silence from the winners. That is human nature.

The Minister and her colleagues may regret, however, that the change eventually took place at a time when the upward pressure on teachers' salaries, pension contributions and national insurance costs was so great. Some indication of the current situation is that independent schools seem to be planning to increase fees to parents on average by at least 12 per cent, more than the total increase in government allocations for school budgets.

The Church of England has a very substantial stake in the educational system throughout this country, with a quarter of all primary schools and a comparatively small but growing number of secondary schools. I must therefore speak from beyond the experience of the county of Essex and the east London boroughs in my diocese. But before I do, I should like to express my own delight that a secondary school in Chelmsford, Rainsford High School, is this autumn to be reopened as the new St Peter's Church of England arts college. That development has arisen from the diocese's good partnership with the local authority.

For the Church of England, the partnership with local government in education is as important as the vital partnership with central government. That is not a matter of lip service but of practical action, and it is equally true in other dioceses and with other local authorities. That is why, 10 or 15 years ago, diocesan directors of education were often seen on school platforms explaining to parents' meetings why they supported maintaining a funding arrangement through the local authority.

Noble Lords will remember that that was a time of uncertainty for local education authorities regarding their role and their future. Now there are clear expectations of them and no doubt about their role in school improvement and other connected services. There should be no doubt therefore as to the funding that they need for that work. On the other hand, schools deserve a clearer picture and straightforward expectation of the funding that they hope to receive. They should be able to plan forward for more than one year and to know where they are. If, as it seems, the Government have indicated an intention to look again at direct school funding, I hope that our partners in

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local government no longer see that proposal as a direct assault on their integrity. On behalf of these Benches, I would welcome that exploration.

Finally, I hope that the current debate in and around schools about funding does not put at risk the prize of remodelling the school workforce. Incidentally, that is not language with which I feel comfortable, but it is the language that the Government use for a goal that we support. Teaching will not be undermined by increasing support staff in schools; rather it will be enhanced. I have seen far too many teachers demoralised by too much bureaucracy and the demands of unsupportive parents. They need all the help they can receive. We want to see the teaching profession increasingly recognised for what is—immensely significant for our country and its future, and immensely honourable.

6 p.m.

Baroness Seccombe: My Lords, I thank my noble friend Lord Hanningfield for allowing us to debate this issue. It is not only topical, but disturbing and vital to practically everyone in this country. Whether we are parents, grandparents or members of the general public, we all have a vested interest in the nation's children having the best possible education.

It does seem very odd that a Government who came to power with the slogan—and we have it again—"education, education, education", should have got it so wrong and landed themselves in such difficulty. I suspect that there are two main reasons: first, the never-ending thousands of directives initiated over the past six years by various Secretaries of State, so that no one knows whether they are coming or going, making life much complicated; secondly, this Government are so hooked on always exaggerating a story that they find themselves wound up in the spinning network to such an extent that even they do not know what is happening outside the department. The same money has been announced over and over again, and triple accounting has been the order of the day. In the end, no one has a clue how much extra funding has been given to schools. As a result of this fiasco, everyone has lost confidence, is suspicious of every announcement and thinks, to quote a saying, "What a fine mess we are in now!".

Government intervention over how councils spend their money and the very real problem that many authorities face under the new funding formula have not only been confusing to councils but have left schools lurching from crisis to crisis. The Government just do not seem to have learnt that you cannot control from the centre; life is not like that—and the result is only too plain to see.

The fundamental necessity for any head teacher is the knowledge that there are sufficient funds to employ the required staff to man all the departments, so that they are able to nurture the children and so achieve the best possible results for the pupils in their care. If heads do not have confidence in their financial future, it must be impossible to function efficiently. Therefore, it is not surprising that we hear of head teachers facing the

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sacking of staff. Many feel that they have now had enough and are under such pressure that they are contemplating resigning their posts.

The Government appear to refuse to recognise the full impact of their actions in such matters as raising the national insurance contribution and the vast sums required to fund the pensions black hole. Both of these, together with teachers' complicated pay awards, will be ongoing burdens as the Chancellor of the Exchequer continues to drain pensions funds of 5 billion each and every year, and no doubt the national insurance contribution will increase year by year. That will be a massive extra expense on public services. These escalating costs are real taxes on jobs; and I am afraid that sacking is how they will have to be paid for unless the Secretary of State and the Chancellor make the required funds available.

This past week has seen some bizarre events; and some say that timing is everything. First, just two days before the local elections, the newspapers reported that on Friday the Secretary of State would name and shame the councils which had failed to pass on the money to schools—The Times even quoted a leaked document which actually names some councils on the list. However, later in the week the Secretary of State said that it was not about naming and shaming but only to highlight the situation for discussion.

Ministers appear to be very complacent and wish to shift the blame on to LEAs. Sir Jeremy Beecham of the Local Government Association said:

    "Local councils are not holding back millions of pounds. Much of these funds are being allocated to a range of educational needs and some are due to be distributed later in the year".

Councils are obliged by government to withhold sufficient funds for the considerable number of initiatives so ordered by the DfES and it does appear that there are just insufficient funds since the assessment which took place earlier this year—an assessment which resulted in enormous sums of money being transferred from southern areas to those in the North, and happily for some Ministers, to the advantage of schools in their constituencies.

I was very amused and indeed delighted to see that the Secretary of State is now actively considering reviving grant-maintained schools. It is reported that he considers it an error to have abolished them. I only wish that he had thought so at the time. It would give some form of comfort to those of us who fought so hard for their retention in the first education Bill that new Labour brought before this House in 1998. Grant-maintained schools were most successful and the initiatives that emerged were exciting and inspirational. Head teachers took opportunities to develop and generate ideas. The 1998 Act deprived them of their independence and so, frustratingly, much was lost when the dead hand of government took over.

I conclude on an optimistic note. It takes courage to change your mind in the way we understand the Secretary of State to be thinking; but what could be better than for all heads to be given the freedom to take their schools forward without all the interference and

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bureaucracy that stems from centralisation? Such action would give huge numbers of people great pleasure and would really benefit future generations of our children.

6.6 p.m.

Baroness Cumberlege: My Lords, I begin by declaring an interest. I chair two panels which recommend the level of county councillors' remuneration. Like other noble Lords, I thank my noble friend Lord Hanningfield for securing this debate, which is not only very interesting but important. After all, children make up 16 per cent of the population but 100 per cent of our future.

There can be few who are more concerned than the noble Baroness, Lady Ashton, who carries huge responsibilities, and the nation's aspirations. It is a perverse parent who does not want his or her child to receive the very best education, and a perverse school that does not want its pupils to succeed. In addition, every government want to provide enough money for every child to optimise his or her potential. But the current position, where schools are distraught, local education authorities betrayed and the Government angry, does nothing to improve the quality of education.

As I understand it, the genesis of the current problem lies in the September 2000 finance Green Paper, Modernising Local Government. This promised reform of the local government finance system was intended to produce a simple "plan based" system as opposed to a formulaic one. But Ministers were overwhelmed by a barrage of opposition from many quarters and dropped the idea of a plan based system. As my noble friend Lord Hanningfield said, the work on the new formula then started late. The policy was delayed and options for consultation were not published until July last year.

The Department of the Deputy Prime Minister was thrown by the delay, allowing the Department for Education and Skills to devise its own grant formula and protection arrangements.

In December, the local government finance proposals were at last published. They were of unprecedented complexity and lacked the background information which would enable local government to work out the implications. Far from producing a system that was simpler, fairer and more transparent—as was promised—they produced a system that was more complicated, unfair and totally opaque. Even the DfES seems to have problems understanding its own system. As John Crase wrote in the Guardian yesterday,

    "The reason Miliband cannot put his finger on the missing 500m is because there is no missing 500m. It was a chimera all along".

None of us would dispute that the national amount of money for education is probably just about enough. The problem is that the formula inevitably creates winners and losers at local level. The Government set a floor, or minimum, of 3.2 per cent for every LEA, but that, as I shall explain later, has significant drawbacks.

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The DfES damping arrangements operate on per-pupil funding and are entirely separate from the overall ODPM floors and ceilings which operate in the central government grant. That further complicates the picture in that the two dampened systems are not internally consistent. The problem is made worse by two further technicalities in that some authorities are affected by the results of the census, affecting ODPM damping, but that does not change pupil numbers or DfES damping. Consequently resource equalisation does not affect education's formula spending share but it does distort the distribution of overall grant.

As the right reverend Prelate the Bishop of Chelmsford has said, because of all these interacting factors, winners and losers were produced. Some authorities are rightly complaining that they do not have enough grant to passport the extra money into schools. Responding to that impossible situation of their own making, Ministers have tried to introduce a number of quick fixes. They include an additional London grant of 11 million, but that is not targeted at passporting problems, so it has only helped some of those London boroughs in difficulty. Ministers have realised that because of movements between formula and specific grants—another significant complexity in the system—some education authorities have not had the education floor increase of 3.2 per cent funding per pupil. That is because loss of standards funds were not taken into account in the DfES protection arrangements. In March of this year Ministers, realising that the position was untenable, found another 28 million for 36 local education authorities to correct the problem and ensure that all authorities had the minimum of 3.2 per cent per pupil.

Despite all those attempts to fix the problem many authorities and schools are still rightly complaining. Even if the education protection system is working, which it is not for many local authorities, individual schools may have budget problems for three reasons. First, Learning and Skills Council funding for sixth forms is at about the right level for LEAs but its distribution is very different, creating another set of winners and losers. Secondly, some schools have had more standards funds than others, so loss of these will affect them more. Indeed my own LEA has decided to restore the two Standards Fund Grants in spite of the Government's actions, and that will safeguard some teachers' jobs. As a consequence, we council tax payers have the highest county council increase of any in the country. I do not resent it—much. It shows the courage and commitment of East Sussex to education, but it is a council that has a declared policy of low council taxation. What I do resent is that my council has been forced to set aside its policy in order to bail out the Government's incompetence. As a council tax payer my increase of 19.6 per cent does nothing to improve the quality of education, nothing to develop, innovate or create projects within the curriculum, but is simply to maintain the status quo and to save us from the consequences of an inept government. Thirdly, changes in pupil numbers will always going be a significant problem for some schools. Many, perhaps most primary schools, face falling pupil numbers, so it

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is difficult in those LEAs to protect the budgets of all schools. A loss of 20 pupils could equate with at least one teacher, but since all classes have to be kept, savings are difficult to achieve.

In the light of these problems—serious problems when we consider that a child has only one opportunity for pre-adult education—it is foolish and unhelpful to portray the LEAs as the villains of the piece. Not only does it damage the important partnership between government and local authorities, but because the Government's figures cannot be trusted it reduces the Government's overall credibility. Even when I was a county and a district councillor we were making hard choices but there was a feeling that both national and local government were working towards the common good. Our priorities were just that—our priorities; not a remote bureaucracy that had no understanding or feeling, imposing its will on us, the locally-elected members who were trying to respond to our local electorates.

This year in East Sussex our position is similar to that of Essex, which we have already heard about from my noble friend Lord Hanningfield. East Sussex has received an extra 10 million in its overall grant to cover all county council services. The Government's "passporting" target required an increase in schools' expenditure alone of 12.6 million. I am not very good at maths but even I can see that that is a nonsense. Initially the council was accused of holding on to the money but it seems to me right that a modest 0.3 per cent should be held as a contingency to cover costs such as places in special schools which arise during the year; salary protections where there are major changes in schools; free school meals; running costs of temporary accommodation installed during the year and so on. A further 1.3 million has yet to be allocated with the full agreement of schools and their governing bodies to cover other contingencies such as support for newly qualified teachers, infant class downsizing and so on. That is a prudent policy which even the Chancellor should applaud. The Minister will know that that is the way LEAs have always worked in that the Government themselves phase their allocations throughout the year.

In conclusion, this is not the first government to recognise the complexity of schools funding but after six years there are no signs of radical change. The cry "education, education, education" was great. We are now inspired. We know the priority. We see the path. We have heard the cry, but all campaigns are won by the quality of the people on the ground doing the work and the logistics involved. Will the Government change tack? Will they trust teachers, encourage, listen and concentrate on those rather boring technicalities that are the Government's responsibility and can be done by them alone? Will they learn the lessons of grant-maintained schools, as my noble friend Lady Seccombe has said, and fund each school directly by a simple, transparent and fair national funding system? Will they support LEAs in their difficult task, recognising that greater autonomy goes hand in hand

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with innovation, creativity and increased quality, and that blaming and shaming does nothing but demoralise and ensure a downward spiral?

On a more positive note, what plans do the Government have to sort out the problem so that next year schools, governors and parents do not endure a repetition of the same shambolic situation?

6.18 p.m.

Baroness Sharp of Guildford: My Lords, I thank the noble Lord, Lord Hanningfield, for introducing this debate so ably and for giving us an opportunity to debate this important issue, which seems to have arisen relatively suddenly, although, as has been pointed out, there have been a number of pointers going in that direction for some while.

The substantial black hole that has opened up in school budgets poses real problems for the Government, LEAs and schools. In this debate, we have heard many of the reasons why that black hole emerged. Those reasons fall into three categories. Of the extra money that the Government allowed for the financial year 2003–04, which I believe was approximately 1,500 million, they did not allow fully for the increase in employers' pension fund contributions, or for the increase in national insurance, or fully for the increase in teachers' pay, or for supplements in the performance-related pay scheme, or fully for the withdrawal of the standards fund.

On top of that, it appears, through discussions with schools, that a number of other issues have arisen. One of them is that, given the recruitment and retention issues that schools have faced, they were anxious to keep rather than to lose staff and there has been what might be called a creep in terms of pay scales. Many staff are now moving on to the upper end of the performance-related pay scales. A problem in that regard is that while 75 per cent of the actual cost, the basic pay cost, is still currently met by the Government—therein lies a problem further down the road—that is not true with regard to national insurance contributions or pension contributions. Schools are therefore having to find larger sums to meet such costs.

Other costs arise, partly as a result of legislation that we passed in this House. For example, many schools must meet costs from the Special Educational Needs and Disability Act for equipment and necessary changes to buildings. They, too, must be funded from the annual budget rather than from special funds.

In my discussions with a local school, another issue that came up was insurance. The cost of insurance at the school rose from 17,000 a year to 28,000 a year; that is an increase of 11,000 in one year, which is a fairly substantial increase. In itself, perhaps it is not so substantial, compared with the school's budget, which is getting on for 1 million. Nevertheless, it is an extra cost that must be met from somewhere and is difficult to cope with. As the noble Baroness, Lady

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Cumberlege, said, there have been changes in funding for sixth forms, which have helped some and hindered others.

On top of all that, at the LEA level, has come the redistribution of funding through the Office of the Deputy Prime Minister. As the noble Lord, Lord Hanningfield, and the noble Baroness, Lady Cumberlege, said, problems of turbulence and uncertainty have arisen. There are clearly some losers and some gainers and, as always, the losers are screaming and the gainers are not. That has posed real problems and it has not solved some of the more fundamental problems that we face in this country. I refer to the sheer opacity of local government funding, the fact that there is no transparency and the fact that the voter cannot understand where accountability lies.

We want to resolve that crisis. The Government have, as many noble Lords have said, pointed at their favourite Aunt Sally, local education authorities. The Harry Potter of the education world, the schools Minister, David Miliband, wrote what many regard as an aggressive and offensive letter to local education authorities making it clear that, in his eyes, the fault lies with them and with no one else.

When reading the detail of the 18-page press release issued by the noble Baroness's department, time and again one comes to the conclusion that LEAs have, on the whole, been doing precisely what they were told. Last year, we passed that splendid Act, in which we made it clear that money must be passported through to schools. So far as I can see, most LEAs have been doing that.

I shall give an example that I know in detail. Like other noble Lords, I went to my local LEA and said, "What has been happening to your budget?". Surrey has one of the bigger budgets—it is one of the bigger LEAs. Its total budget for education is 456 million, of which 409 million was passported straight to the schools, leaving 47 million. Of that 47 million, which has not yet been passed on to schools, the largest item is 21 million for transport. The next largest item is 8 million for youth services, which the Government were keen for local authorities to improve. I for one am delighted about that and would like more money rather than less to be spent on youth services. Another 8 million was put aside for school improvement activities, which, again, is part of the Government's programme. There is 4 million extra for special educational needs support. Yet the Secretary of State criticises local authorities for putting too much on one side for special educational needs support. At the same time, the Audit Commission published a report that said that, by and large, LEAs are not spending enough on special educational needs. One is sometimes left rather perplexed by all of this. Surrey for one is not doing anything wrong; I applaud the fact that it put some extra money on one side for special educational needs support.

As with many other LEAs, Surrey is spending above SSA by 3 million this year—I believe that only 19 out of 148 spent below the SSA. It is doing so despite the

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fact that we, along with many other LEAs in the South, have just undergone a council tax increase of nearly 20 per cent.

The conclusion that has been reached by many noble Lords, and to which I have come, is that LEAs are not in this case to blame. Who then is to blame? Are the schools to blame? No, certainly not. Expectations were built up by the Government of a substantial real terms increase. Now that they have done their sums for next year, the money is just not there. Some schools—perhaps the lucky ones—have reserves. The National Association of Schoolmasters and Union of Women Teachers was very upset about the degree to which schools have built up reserves. Nevertheless, those schools with reserves currently have a buffer against the vagaries of the funding mechanisms that have hit them. They are the lucky ones. The problem that arises is that many schools must conclude with deficit budgets unless something is done by 31st May, when all of these matters must be decided. There is a real problem that must be solved.

The conclusion that one comes to is that, like it or not, the DfES and the Office of the Deputy Prime Minister together got their sums wrong. There is a serious problem. That suggests that the DfES does not understand the full complexities of local government finance; but very few people do.

We should look forward and recognise that this issue can and may well arise again in subsequent years. The new workload agreement will appear later this year. There is just not enough money in the system to fund it; the Government want to carry it forward. Coming down the line is the question of the full funding of performance-related pay. Once again, that must involve a major transfer of funds from central government to local authorities and on to schools. There are real problems in that regard.

What can be done about this? The DfES got its sums wrong and schools, through no fault of their own, are running substantial deficits and must lay off staff unless some rapid relief can be found. In the short run, I have three ideas for some rapid relief that the DfES might find. In agriculture there is such a thing as red diesel. The noble Baroness, Lady Byford, knows all about it. One of the largest items that is not on the schools budget in Surrey is transport costs. That is also true of other authorities. Currently, much of those transport costs are the costs of duty paid to the Government, which are taken from LEAs. The Government may refund those duties to the LEAs or pray that in aid. One of the reasons for having school transport is to stop children being taken to school in private cars. We are anxious that children use public transport. One may call it green diesel instead of red diesel.

The school teachers superannuation scheme is a pay-as-you-go scheme and not a funded scheme, despite the fact that increased contributions have been called for. It is perfectly feasible for the Government to say that for this year those extra employers' contributions need not be paid. Why not consider that as a way of relieving the budgets of local authorities in

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the short term? If there are to be retirements, perhaps it would be wise for the Government to reopen the national early retirement scheme.

The noble Baroness, Lady Cumberlege, mentioned that primary school rolls are falling and in the next few years that will roll on to secondary schools. Perhaps we shall have to consider early retirement and a nationally funded scheme rather than one that has to be met by local authorities. That is another idea that perhaps could be considered.

In the long run it seems to me that something more serious needs to be done. We on these Benches do not follow the route of the noble Baronesses, Lady Warnock and Lady Seccombe. We do not believe that the right route is grant maintained schools or direct grant schools. We believe in a system of education and we believe that there need to be links between primary and secondary schools. Also secondary schools need to work together. Therefore, we believe that local education authorities should co-ordinate at the local level. It is absurd to think that the Government could run the 25,000 schools in this country. I recall a previous Secretary of State for Education saying that if there were no local education authorities they would have to be invented.

Local education authorities in this country have a proud tradition of running schools and running them well. We need to reinforce those local education authorities. Indeed we need to reinforce the whole of local government, to devolve responsibilities down and to have a taxation system whereby what is raised locally funds local services so that people can see clearly that the one is linked to the other, rather than a system whereby the Treasury dictates who may spend what. There is such opacity that people vote in local government elections protesting about a council tax which has largely been imposed by central government and which has nothing to do with local services whatever.

We on these Benches would like to restore the power of local education authorities rather than to take power further away from them. We want a funding system that is transparent, clear and gives the taxpayers some idea of the services that are provided for them.

6.33 p.m.

Baroness Blatch: My Lords, this is an important debate. I am grateful to my noble friend Lord Hanningfield for initiating it. An important theme has come through all the contributions. My noble friend Lord Hanningfield gave some fairly impressive statistics from his own authority, Essex, but such a story could be repeated by many authorities all over the country.

There is no doubt that there is a crisis, not only in the funding system, but also in the trust that people place in the Government and particularly in the Ministers of the department. The insensitivity of Ministers to the level of frustration, even anger, over the handling of this year's settlement is palpable. I do not want noble Lords to take my word for it because

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the Minister opposite will say, "You would say that, wouldn't you?". The Prime Minister himself, unlike the departmental Ministers, has to be fair, accepting that there are problems for particular schools in particular local education authority areas.

Fiona Millar, the partner of the Prime Minister's aide, Alastair Campbell, and a very New Labour lady, spoke out bravely as chairman of school governors in support of Gospel Oak Primary School. In her letter to parents—I quote a different part of that letter—she wrote:

    "The Government has changed the way it allocates block grants to councils and has moved money from the South East to the North. We believe the Government has not thought through the implications of all changes for some of the neediest schools. We will have to cut our spending on resources drastically".

A recent Select Committee report dated 17th December 2002, commenting on the development work for the new funding formula, reads:

    "The result is that many of the new formulae do not appear to be evidence-based and can be criticised for being insufficiently robust and more open to judgment than was previously the case".

The report describes the system as "confusing".

At the Secondary Heads Conference, John Dunford told the Secretary of State that schools across the country were stunned by budget allocations that left many schools with large deficits. A head teacher, Michael Chapman, speaking for heads in East Yorkshire, told the conference:

    "In the last 12 years, this is far and away the worst budget settlement that I have had to manage as a head teacher".

On 4th April The Times quoted David Hart of the NAHT as saying:

    "We are facing the ultimate absurdity of being required to recruit extra teachers and support staff to deliver the changes to teachers contracts, while at the same time schools are talking about redundancies. We are parties to this agreement but we have come to the conclusion that if the Government can't deliver on the funding that it promised, then we are entitled to say we can't agree to these changes".

I could go on quoting teachers, governors, parents, teacher unions and others, but I shall cite only one more criticism of this year's settlement, that of the department itself. In a leaked memo, sent between the Department for Education and Skills and No. 10 Downing Street, the scope of the Government's deception and incompetence has been revealed.

As an aside I hope that Ministers, who have to date accused local government, will not now turn their fire on to officials. Whatever the role of officials in all this may be, Ministers are responsible for the decisions that they make in their department and they are also responsible for the public relations that accompany those decisions.

The leaked memo seen by the Times Educational Supplement shows that the record investment in education promised by the Chancellor last year is no more than a mirage. The memo also shows for the first time that Ministers accept that councils are not solely to blame. Even if all the additional money intended were passed to schools, rises in teachers' pay, national insurance and pension costs, among many other

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pressures, mean that they would receive an average increase of just 26 per pupil this year. That represents barely 1 per cent, which contrasts sharply with a promise made by Ministers of an increase after inflation of 3.2 per cent at least for each local education authority. However, as reported by the Times Educational Supplement from the leaked memo, the 3.2 per cent floor is a little less than schools would need to meet all the pressures that they face.

Mr Miliband and the Secretary of State are guilty of building up expectations; they are guilty of spinning this settlement announcement into a gross distortion; they are guilty of pointing the finger of blame at local education authorities and schools; and they are guilty of dashing the hopes of so many in our schools by wilful deception. Consider the behaviour of a Secretary of State for Education, who says, when addressing the Association of Chief Education Officers—this has been quoted before in the debate—that directing more money towards schools would not solve their problems and that any such request,

    "just floods straight over my head".

He added:

    "I do not listen to what you say quite frankly".

I can do no better than to quote the leader in the Times Educational Supplement of 2nd May, which stated:

    "Even by the Department for Education and Skills's own account, the way the Government has managed to turn supposedly record rises in school funding into a shambolic crisis is astonishing. Ministers' attempts to shift the blame to local authorities are somewhat undermined by the memo the department sent to 10 Downing Street. This shows that the much vaunted 2.7 billion increase is largely illusory".

Such an admission of culpability by the department, albeit in private, will come as little comfort to those staff in our schools who will lose their jobs or to the pupils who will face larger class sizes or even a shorter school week.

Certainly the Secretary of State and Mr Miliband have been in denial over this issue during endless public appearances, placing the blame on virtually anyone passing Sanctuary Buildings. Their performances compared well with the Iraqi information Minister for misinformation; except that they were not as enjoyable.

The letter to heads from schools' Minister, David Miliband, late last year guaranteeing an across-the-board rise in funding raised expectations that were unlikely ever fully to be met. Misunderstandings could have been avoided if Mr Miliband had taken more care with the drafting of that correspondence. The letter ignored two basic issues: first, that increases in the education formula spending share do not necessarily translate into increases in council grant; secondly, that a major part of many schools' overall funding—namely, the Standards Fund—was being cut. The new formula devised by the Government for funding local authorities effectively redistributed funds around the country—mainly from the south of England to the north.

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The overall reduction in the Standards Fund impacts especially severely on councils funded on or near the floor, because they receive no compensating increase in general council grant—a point made extremely well by my noble friend Lady Cumberlege. The lumpy nature of Standards Fund applications and the implications for schools as Standards Fund categories come and go is not a new phenomenon but, when combined with other financial pressures, it means that some schools will experience levels of financial hardship well beyond the norm.

Although the department deleted several Standards Fund grants in 2003–04, the burdens placed on schools previously receiving those grants remain. Although new Standards Fund initiatives have been introduced, schools are not always eligible for, for example, Excellence In Cities grants.

Secondly, as I said, the fact that an increase in the EFSS is not necessarily translated into a corresponding increase in council grant does not appear to have been understood by the Government; neither does the effect of changes in grant distribution. Some councils are even being told to pass extra funds to schools greater than the total increase given to the council for all services—a point made by my noble friend Lord Hanningfield. From what I have heard about meetings with the schools Minister, Mr Miliband, to discuss school funding with local authorities, his lack of technical understanding of how the funding system works did not exactly generate confidence and served only to highlight the level of incompetence displayed by Ministers.

To turn to another aspect of budgeting, many councils are obliged to pay teachers at inner London rates, yet feel that that is not fully reflected in their revenue support grant. Also, the flat rate nature of the school standards grant is recognised to discriminate against London and parts of the South East because of the higher costs in London and the surrounding counties, so increasing the proportion of funding by that means helps only to exacerbate the problem.

As many people have said, the cost pressures on schools have not been fully met. There is a shortfall in employers' superannuation contributions of 50 million; we know that national insurance contributions are 115 million. The teachers' pay increase of 2.9 per cent, which, when aggregated, is in fact 3.25 per cent, taking into account the London area, totals 548 million. There are other inflationary issues, including non-pay cost increases and support staff pay. The withdrawal of the Standards Fund is of course part of the equation.

There is also the cost of integrating the changes to teachers' contracts and additional costs resulting from the recent special educational needs Act. The Autistic Society, whose Autism Awareness Week is next week, states in its most recent press release:

    "the present funding crisis facing UK schools is causing serious concern".

Rather than accept and acknowledge the inherent weaknesses in the system, together with the impact of those financial burdens, the Government decided to

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blame local education authorities for the crisis, alleging that they had somehow conspired to withhold 500 million from schools, in a cynical piece of political buck-passing. The Minister may deny that, because such a denial is true of her personally, but her colleagues in another place are on record as having blamed local authorities, so they cannot be defended. Not only were certain LEAs named and shamed, but the Secretary of State for Education, no doubt wanting to live up to his "bruiser" image, made a thinly veiled threat that local authorities would be removed from the education system altogether.

Ministers' role in the process has been central. They really must accept more responsibility. As requested, local authorities have told the Government that they will be spending 100 million above the Government's provision for schools. The Secretary of State insisted on approving every council's schools budget before it was allowed to set its council tax.

I shall use Wandsworth as an example. Wandsworth has been accused of holding back 4.1 million. That breaks down into 3.5 million from the Standards Fund and 600,000 for newly-qualified teachers and special educational needs. Rightly, it says that the key issue is that the academic and financial years do not coincide. That has two major implications for funding of schools. Some funding, notably some Standards Fund grant, is allocated on the basis of the academic year. Standards funding is allocated on the basis of a school's needs on an academic-year-by-academic-year basis, as it always has been.

It is misleading in the extreme to say that Wandsworth is holding back the 7/12ths of the financial year 2003–04 funding that corresponds to the 2003–04 academic year—September to April 2004—because it will not know where it should be allocated until the new school circumstances are known in September. What is it supposed to do? Schools are used to that. If the Secretary of State wants Wandsworth, or any other LEA, to allocate everything on 1st April, it can of course do that, but the effect will be to freeze the allocation on the basis of the needs of academic year 2002–03, rather than on the basis of the needs of the academic year 2003–04.

There is 600,000 that has been held back for support to newly-qualified teachers and special educational needs—the former because education authorities do not know until later on in the year which schools will be appointing newly-qualified teachers; the latter to fund youngsters who receive statements during the course of the year. Of course, again, the authorities could allocate the money to schools now—perhaps on a guesswork basis as to where the statements may arise—but how would they provide the extra help needed for youngsters statemented later in the year?

Similarly, in Wandsworth, 5/12ths of the ethnic minority achievement grant is also allocated now; the rest in September. As the noble Baroness knows, the issue of special educational needs is important. Wandsworth says that this year it has increased provision for SEN by 18 per cent, although the inner

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London average is higher than that, so it now needs a clear steer from the Secretary of State—does he really want Wandsworth to cut funding for special educational needs to delegate more money to mainstream schools?

This is certainly a crisis made in Whitehall, not in the town hall. The reality is redundancies, resignations and a real possibility that the teachers' workload agreement will not be realised. Indeed, the National Association of Head Teachers has rightly expressed concern about the Government's boast about the generosity of a settlement for the coming two financial years. The Government themselves have accounted for almost all of this year's increase—in national insurance contributions, pensions, pay awards, and incremental pay. But they have not included—and almost totally disregarded—class size reforms, the implementation of the workload agreement, special educational needs reforms and the effects of two major changes to the way in which schools are funded.

I return to the Times Educational Supplement leader of 2nd May, which referred to the changes. It states:

    "The DfES is not responsible for all of this. But it apparently went along with"—

the Office of the Deputy Prime Minister—

    "without bothering to investigate the effects at school level. Only now has it woken up to the realisation that there is worse to come. Next year the fuller costs of the workload agreement begin to bite. But the department now says even more money will have to be found just to stand still and avoid 'large numbers of losers'.

    None of this can have enhanced the Treasury's confidence in the DfES. The truculence of Charles Clarke when first confronted by complaints about funding probably stemmed from the ignorance and complacency displayed by his department. This incompetence even outstripped that shown at the DfES last year over A-level reforms. At this rate, David Miliband, implicated in both of these blunders and responsible for the workload agreement, will need more than friends at Number 10 if he hopes to survive in office".

The funding increases for education, for which schools are exhorted to be grateful, have been soaked up by the Government's own actions and policies. Billions are held back every year by the department. Record numbers of centrally controlled initiatives are spawned, many to no benefit, and largely at the expense of core funding for schools. New burdens such as Learning and Skills Councils, admissions forums and schools forums all pre-empt monies that could be spent more wisely at local level. Time prevents me from completing a sorry catalogue of fund-wasting projects. We are within the time allocated for this debate. I have no doubt whatever that the Minister will also use the time wisely.

The important message is not the quantum of funding, as pointed out by the noble Lord, Lord—

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