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Mr. William Cash (Stone): We have heard an extremely truncated version of what the Government

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propose. The Minister will be well aware that these matters received extensive consideration in the other place, in Committee, on Report and on Third Reading. I am sure that he did not mean any disrespect, but the manner in which he shot through the Government's explanation left me surprised, as I think it did other hon. Members. It appeared that he was not prepared to go into the serious issues that are involved.

The Minister may wonder why it is that the shadow Attorney-General would rise to deal with these matters. The reason is simple. There are a number of issues that relate to the interaction between company law and education legislation. Precisely for that reason, I have made criticisms of the Minister. He did not even attempt to deal with any of the issues, although he knows perfectly well what they are. When the Lords finished their consideration of the Bill, the relevant issues were left for further consideration. That is precisely why the Lords, by a substantial majority, proposed that clauses 10 and 11 should be deleted. That proposal allows amendments Nos. 12 and 13 to be considered in this place.

We have heard a great deal from the Chancellor of the Exchequer this afternoon about prospective increases in education spending. There was much about freedom and control this morning from the Chief Secretary to the Treasury on "Today". We have been told that there will be no blank cheque. These are important matters because education has been given a certain priority by the Government, at any rate in the initial stages since the Labour party won the general election before last. The debate on school companies raises these issues. Specifically, they are at the heart of the system that the Government have adopted to implement their policy, especially in terms of education. This raises the question of companies limited by guarantee, although at the last minute in the other place the Government added arrangements for companies limited by shares, which the Liberal Democrats in their wisdom—we wait to hear what they have to say—seek to eliminate.

Questions arise that are not confined to education. They arise also in terms of health, not to mention Network Rail. These are matters that relate to the philosophy behind which the Government are hiding on public expenditure.

Similar serious questions and problems arise in many instances, and the debate gives us the opportunity to examine them in the context of education. Let us leave aside the spinning and weaving and examine the mechanics, the legislation and administration, the delivery and practice, the impact on schools, teachers, governing bodies, and local education authorities—and above all what it is all meant to be about, which is the education of our children.

We heard from the Prime Minister only a few years ago that the Government's watchwords were "education, education, education." What do we have? We have administration, administration, administration along with uncertainty, uncertainty, uncertainty. And under the proposed arrangements, we have litigation, litigation, litigation.

There was a protracted debate in the other place on the issue of school companies. I pay tribute to Baroness Blatch and also to Baroness Sharp, of the Liberal Democrats. Similarly, I pay tribute to other noble Lords across the board and to my hon. Friends who considered the Bill in its early stages both in Committee and

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on Report. I congratulate them on their tenacity and perspicacity in this difficult and opaque area of company law and education. The noble Lord McIntosh cannot be accused entirely of not seeking to alleviate their concerns, but we continue to have them. We do not believe that those concerns have been allayed, whether in the other place or by the absurdly short representations that the Minister has just given in respect of these matters.

The issues with which we are now concerned arise out of Lords amendments Nos. 12 and 13, which seek to reintroduce what were clauses 11 and 12 of the Lords Bill, which were defeated on Third Reading in the other place, with some amendments, by the combined vote of Conservatives, Liberal Democrats and others. I will set out the main features involved in those clauses and deal with our objections.

5.15 pm

First I shall raise a question, which, as far as I am aware, has not yet been dealt with in the Bill. It arises from the potential interaction of the implementation of these provisions within part 1, which is entitled, "Provision for new legal frameworks", and which also includes clause 2, which confers power to suspend statutory requirements. The interaction between those provisions is very important.

Clause 2 is very general, especially in its potential implications for the provisions with which we are dealing today. It provides that, on the application of one or more qualifying bodies—which are defined as including, among others, a local education authority, as well as a governing body of a qualifying school, which, in turn, is defined as including a community, foundation or voluntary school, a community or foundation special school, or a maintained nursery school—the Secretary of State can make an order exempting those bodies from any requirement imposed by the Education Acts, the Learning and Skills Act 2000 or any of the subordinate legislation. That will surprise hon. Members, as it is a very big shift.

Indeed, the clause provides that the Secretary of State can relax such requirements, enabling the applicant to exercise educational powers and duties or make modifications to education legislation. That is a very important and draconian measure. I raise that in connection with the clauses that the Government intend to reintroduce to the Bill simply because it relates to the question of ultimate liability were a school's company to fail, whether it is a company limited by guarantee or, in line with the Minister's amendments—which are disputed by the Liberal Democrats—a company limited by shares. In either case, there is only a minuscule, nominal amount of liability.

In a parliamentary answer given by Lord McIntosh on 25 March 2002, which was also given by Baroness Ashton, to which a letter to my noble Friend Baroness Blatch referred, it was stated that the ultimate liability would fall on the local education authority. In such a case, the local education authority will pick up the tab—that is the expression that is being put around. Will the Minister today reaffirm unequivocally whether that is so? If, by order, the Secretary of State has exempted a local education authority or a school of the kind mentioned above from its statutory functions, surely, the opportunity

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for the enforcement of those duties by judicial review could be taken away by such an order? That would have grave implications were a school's company to go bust, for the creditors and a whole chain of others affected, who would have no recourse in the last resort—on the face of it—to the Government and the Exchequer.

One of the few comments that the Minister made with regard to the Bill and these amendments when he opened the debate was that financial risk to the companies would be reduced. Surely he understands, however, that, although financial risk to the companies concerned is a matter for consideration, there is also financial risk to all the other people in the chain. I shall come to those others shortly.

The matter is also important given the Chancellor of the Exchequer's announcement about the sums of money that will be made available to education. Does the potential removal, under such orders, of the duties—we do not know what they are, because they are so vague—and hence the liabilities of local authorities and governing bodies create the possibility of a legal void? Would the liabilities be off balance sheet? It would be interesting to learn whether the Minister has anything to say about that. Will he address the question of school companies—whether they are limited by guarantee or by shares—as the provision for them was made only on Third Reading, in the dying moments of the Bill's consideration in the House of Lords?

Insurance is another issue that was not dealt with greatly, if at all, in the House of Lords. We all know that the compensation culture, as it so described, is growing. Some claims are entirely justified, but the sums of money involved are growing exponentially. For example, the case of Pamela Phelps is important for local education authorities. In 2000, this former pupil successfully sued the London borough of Hillingdon for more than £44,000 after it was proved that her teachers had failed to diagnose her dyslexia, leaving her with the reading age of a seven-year-old.

I could give many examples and I have no doubt that the Minister's advisers would be able to provide even more. A teacher, Carol Ellen Harper, is suing my county council of Staffordshire in the High Court for more than £50,000 after she slipped on food debris and broke her ankle. In Waltham Forest, the head teacher of the Norlington school for boys said:

His school has faced six legal challenges in the past 18 months after legal firms operating on a no-win, no-fee basis targeted parents on surrounding estates, tempting them—so it is said—with the prospect of large compensation payments. Judith Waugh, the head of the John F. Kennedy lower school in Stratford, east London, won £119,000 in High Court damages after she was attacked by a 14-year-old boy in 1998.

There has been a flood of legal actions from pupils, who claim that schools have failed to protect them from bullies. Indeed, a High Court judge ruled that a school had to pay substantial compensation for not protecting a 17-year-old pupil from his own irresponsible behaviour on a school trip. We all know that serious problems can arise from the manner in which schools and education establishments are affected by serious accidents, such as those that have taken place on school outings recently.

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The problem of teachers' liability has been discussed by Veronica Cowan, among others. A glance at The Times Educational Supplement, which is bulging with thousands of hard-to-fill teaching vacancies, gives a clue as to how difficult it will be for the Prime Minister to deliver on his promise of "education, education, education". Indeed, teachers could be forgiven for thinking that the more likely scenario will be litigation, litigation, litigation. It would be invidious of me to go through all the examples that I could give, but I will be more than happy to supply them to the Minister in case he has not come across them already.

Newcastle-under-Lyme abuts my constituency and many of my constituents go to school there. In a rugby game in 1997, a boy was lifted into the air and landed on his head. He decided to sue the boy who tackled him, and he was covered by the school's insurance. We are not, therefore, being difficult for the sake of it. I am not using graphic examples to raise questions that are irrelevant to the way in which schools are run. The point is this: we are interested in knowing whether regulations on schools companies will require adequate insurance provision to cover the enormous costs that could arise if a company fails.

There is also the related problem of the responsibility of directors. The Minister probably knows that a Government consultation paper outlines proposals to change the criminal law as it relates to the responsibilities of directors. Although I will not go into that in detail, I want to highlight the fact that the Government seem willing to introduce a proposed new offence of corporate killing, which is broadly equivalent to gross carelessness. Pupils are sometimes involved in desperately tragic accidents on school outings. Will the directors of schools companies be advised in advance, in the practice guidelines, that they could be caught up in serious criminal accusations and convictions if things go wrong?

The emphasis—the rationale of the offence—will be based largely on management failures. Although the offence of corporate killing would apply only to corporate bodies, it is important to take account of the fact that it may affect school companies. The consultation paper and the Law Commission's paper refer to the Health and Safety at Work, etc. Act 1974 and to new offences that are committed if people give undertakings. They say that that offence could apply to all employing organisations, including schools, hospital trusts, partnerships and unincorporated charities. Again, the Government need to give that careful consideration, because we need answers.

What will happen if a company goes bust? That is an important practical matter for those concerned—children, parents, teachers, governing bodies, local education authorities, creditors and local communities. The idea of greater local freedom to manage has its attractions, but has the legislation been properly thought through? We all remember the total failure in some schools and the arrangements for LEAs and/or the Government to step in. We demand to know what will happen under the new arrangements.

In law, if a company goes bust, perhaps because of overtrading or a massive insurance claim, the assets have to be sold. Staff have to be laid off, redundancy has to be paid and the debts must be paid off. If there is no money, insolvency will apply, under which the liquidators' remuneration and expenses take first call even before redundancy payments. Creditors, such as builders, those

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who provided furniture and other contractors, come way down the line. It will not just be the bankers who are involved; many small businesses will also be affected.

We are told that if a company is limited by guarantee or shares with only, say, a £10 liability, then that is all that will be available. We are also told, however, that the LEA will pick up the tab. How will the liability be enforced? How will the LEA be expected to pay up? If the regulations are implemented, an act which could remove the duties imposed by the Government, what effect would that have? In other words, is there a legal void? If not, will the Minister give us chapter and verse to reassure us that there is none, as I am sure he will want to?

The Government tell us that, under regulations, the company will be prohibited from admitting to its membership any person who is not of a prescribed description, and that regulations may impose requirements for the company's constitution and any other matter connected with its affairs. What exactly will that involve? That is not a theoretical but a practical question. The Minister knows perfectly well that all these matters were considered in the House of Lords and no satisfactory answer was given.

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