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Mr. Willis: Yes—that is why I was asking why we were taking this particular route. If the Government were proposing wholesale privatisation of the education system, that would be another story. I would not agree with what they were doing, but one could understand why they would wish to take the proposed approach. I cannot understand from the Minister's examples, or indeed those given by colleagues in another place, what great advantages the provisions have that could not already be achieved. We already have examples of schools working together to provide, for example, grant maintenance contracts or schools meals contracts. There are marvellous examples of bodies such as the Yorkshire Purchasing Organisation, which for 30 years has been providing joint purchasing arrangements for schools and local authorities. There are examples of airports, such as Manchester or Leeds-Bradford, in which local authorities are working together to provide a joint service. All the legislation is in place to enable those things to happen, yet we have had no explanation as to why we should proceed with the Bill.

Chris Grayling: I thank the hon. Gentleman for allowing me to intervene. Does he recall from the Committee stage that one of the areas in which

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the Government were unable to give clear answers was the possibility of the governing body deciding to close down its educational operations and contract in its entire education service from another school—possibly an independent school? At the extreme, the provisions allow steps to be taken that, I suspect, do not accord with the Government's aspirations.

Mr. Willis: That might be a little too close to the bone, because I think that in many ways that is the Government's aspiration. It is difficult to know exactly what they are hiding behind as regards these provisions.

6 pm

We are concerned that the Government have not properly thought through the implications for schools and LEAs in relation to company law. We are particularly concerned that school companies should not be a means for individuals to make a profit. I ask the Minister this direct question: what is there in the Bill to prevent any individual, including a member of the governing body, from siphoning off profits? On Third Reading, Lord McIntosh of Haringey stated:

"Let me make it clear that when talking about profits there is no question of governing bodies taking their share of the profits to use for anything other than the educational needs of their schools. There is no possibility of siphoning off profits".—[Official Report, House of Lords, 3 July 2002; Vol. 637, c. 252.]

In Committee, however, he was less emphatic about public funds being used for private profit when he said:

"Preventing any profit being used for purposes other than education in participating schools may in practice mean that it cannot be paid to company members other than schools. That is an unnecessary interference. There is no reason why schools should not innovate in potentially profitable ways and there is no reason why they should not bring in outside partners to help them to achieve that. They will still benefit financially from it, but that may be achieved only if they have outside partners who can participate for a profit."—[Official Report, House of Lords, 7 May 2002; Vol. 634, c. 1108.]

There is a direct contradiction between the statements that were made in Committee and on Third Reading, and it is important that the Minister makes it clear which is right.

That brings me to my amendment concerning whether school companies should be limited by shares or by guarantee. I want to remove the possibility of the former option because that would remove the element of potential profiteering by individuals. If the Government are determined to get the Bill through—the Minister will have to give a very convincing argument when he winds up—they must give us a guarantee that any profit made out of a public investment of funds into a company returns to the school or schools for investment and does not go to private individuals or private organisations. The amendment would limit school companies by guarantee rather than shares to ensure that no individual profits. If the Minister does not agree with that—if he believes that outside agents can invest and take a profit—he must accept that governors and teachers should also be able to invest and make a profit. I am not debating whether that is an honourable position for the Minister to take, but he must make it absolutely clear whether it is the case. If so, he will not have the support of Liberal Democrats here or in another place.

Chris Grayling: We had a robust debate about the provisions in Committee, and it is clear that the concerns

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that were raised in the series of amendments tabled by my hon. Friends and Liberal Democrat Members, and the whole tone of the debate, have been reflected in the other place and back here again through the amendments containing noble Lords' recommendations.

Those concerns arise because the provisions are confused and unclear, and contain several significant weaknesses. I am at a loss, as are other hon. Members, to understand what they will really add to the Bill or what benefits they will bring to schools. There is no great demand for those steps to be taken. The Government seem to be opening up the education system to complexity and risk that it does not need. My hon. Friend the Member for Stone (Mr. Cash) clearly set out many of the issues surrounding liability, especially financial liability, and the complexities of corporate law that schools will end up having to deal with.

The Government have failed to explain several matters. Indeed, some of the contributions made by Ministers in Committee were confused, to say the least. One such matter is LEA liability. The key question is how the LEA's ultimate liability is to be enforced in law. How is somebody who has suffered a loss as a result of mismanagement in a company established by a governing body to go through the process of getting their money back from the LEA? That is far from clear, as it is not stipulated in the Bill. We are on a wing and a prayer. The Government may be able to explain it—no doubt the Minister will say that "regulations may provide"—but there is no clear legal chain that would enable it to happen.

Nor has there been a clear explanation of the nature of the liability that will be built up. There is great confusion about that. The then Minister, the hon. Member for East Ham (Mr. Timms), said in Committee that he envisaged two types of companies being set up:

"One is formed to undertake procurement activities on behalf of several schools, and the other is a service provider company in which several schools come together to provide services to either themselves or other schools."

When he went on to talk about liability, he confused the matter considerably. He said:

"There is a distinction between the two. Local education authorities will be liable for some of the debts of procurement companies, but not for those of the service provider companies."—[Official Report, Standing Committee G, 18 December 2001; c. 170.]

If those lending money to, and doing business with, service provider companies do not have the security of LEA guarantees, where do those companies stand in terms of liability? Who is responsible for debts? What happens if debts are secured against assets? As the hon. Member for Harrogate and Knaresborough (Mr. Willis) said, the nature of those assets is a grey area between operational activities in the school and the activities of the company. How will liability be established in the event of the corporate failure of one of the service provider companies? When Ministers use the phrase, "It is envisaged that", as they frequently have in this context, how can anyone be clear about what the Government are trying to do?

My hon. Friend the Member for Stone referred to the complexities of dealing with company law. School governors already deal with huge amounts of complex rules and regulations. The days are long gone since governors could sit passively on the governing body,

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listening to what the head had to say and chipping in a few words here and there. That may have been so a generation ago, but there is a world of difference today. Governing bodies need to be sharp, to be on the ball and to have substantial professional expertise. Yet we are now saying to the all-too-few volunteers willing to join school governing bodies, "Not only do you have to take on board the very considerable regulatory responsibilities that are being placed on your shoulders"—particularly, but not exclusively, by this Government—"but if your school is to move down the road towards implementing these provisions, you will have to learn company law as well."

Mr. Cash: Does my hon. Friend agree that one of the most extraordinary contributions made by Ministers in the other House when these arguments were being advanced was to suggest that it is just a voluntary arrangement that does not have to be complied with? That is to dismiss the whole complexity of the framework in the Bill as something that might just happen on the margins. Does my hon. Friend agree that that is an extraordinary position for the Government to find themselves in?

Chris Grayling: My hon. Friend makes an important point. From the point of view of any governor or anybody who is involved in the management of a school, there is no way in which any of these activities could be at the margins. If the school sets up a company, that person must have a duty of care and a detailed knowledge and understanding of what is going on. The provision could represent a huge diversion for governing bodies.

The implications for the work load in schools are substantial. The Government failed to respond adequately to a point that was made about that in Committee. My hon. Friend the Member for Eddisbury (Mr. O'Brien) tabled an amendment that would have provided for the head teacher of a school that set up a company to be on the company's board. The Government said that that was unnecessary, but how can governing bodies make decisions that can fundamentally affect the school's operation, assets, grounds, space, staff and resources without the head teacher having a say in them?

Let us consider the work load of other staff. That, too, was tackled in Committee, but again the Minister gave only vague responses. When we considered work load, he said:

Any member of . . . a school who became involved with a company's activities would have to agree to do that. There is a variety of ways in which the member of staff could work for the company. For example, they could be on a temporary secondment, or part of the working week could be spent on company rather than school business. Different remuneration arrangements would be needed in different circumstances . . . In reality, arrangements would be best left to local discussion and agreement."—[Official Report, Standing Committee G, 13 December 2001; c. 157.]

How would that work practically in schools? When the governing body says that it has set up a company and needs the school to take specific action to contribute to it, how many members of staff will dare to say, "No"?

At a time when teachers' work load is already great, we risk placing on head teachers and staff considerable additional responsibilities for a measure that will provide no obvious benefits. As hon. Members have said, many schools are already undertaking the activities for which

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the Bill provides. The Minister mentioned common procurement; many schools do that. Many LEAs procure collectively on behalf of their schools. Schools already have the ability to work together. In Committee, the Minister suggested that schools might work together to provide common transport services. They do not need to set up a company and take on all the attendant responsibilities to do that.

As I said in my intervention on the hon. Member for Harrogate and Knaresborough, the provisions' boundaries are unclear. A school could contract out its whole education system under the Bill. When I made that point in Committee, the Minister replied:

"That does not sound like a likely scenario."—[Official Report, Standing Committee G, 13 December 2001; c. 157.]

In other words, it is possible in law; it is simply unlikely.

Let us consider the borrowing restrictions and the liabilities that the companies could accumulate. The Government are quick to say that the companies need the LEAs' permission to borrow and that everything is nicely covered. What about contingent liabilities? They are topical because the Government are keen on them and their non-appearance on national balance sheets. What happens if a company that a school set up accumulates substantial contingent liabilities that are not related to borrowing? Where is the watchdog control over that? Are we saying that LEAs are liable, regardless of what happens and of the financial steps taken by the directors? Can directors trade in the full knowledge that the LEA will ultimately pick up the bill if they do not succeed?

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