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Mr. Cash: Does my hon. Friend agree that the National Audit Office is taking a diligent interest in off balance sheet activities and that we are considering another example that it will have to examine?

Chris Grayling: I hope that the National Audit Office never gets the opportunity because the House will accept the Lords amendment and reject the provisions. I do not believe that the measures will provide educational benefit or generate significant cost savings for schools. They risk being a distraction to those who run schools—a job that is already greatly burdened. I hope that hon. Members will come to their senses, support the Lords and accept that such provisions should not be included in the Bill.

Mr. Miliband: Our debate of the past hour and a half has been interesting. The hon. Member for Stone (Mr. Cash) said that he did not want to be considered difficult. I do not want to make any such accusation against him; his contributions are all part of the parliamentary scrutiny that the Government welcome because we hope that it will improve the Bill. However, I wish that he had shown a little more of the spirit of the hon. Member for Altrincham and Sale, West (Mr. Brady), who so passionately supported the concept. The debate has covered a wide range of issues, and I shall try to deal with as many of them as possible.

6.15 pm

Many contributions focused on liability and I shall deal with that. I shall also try to cover the more basic issues that the hon. Member for Harrogate and Knaresborough (Mr. Willis) raised. He asked what the point of the provisions were. First, I want to make an important

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preliminary point. No school will be able to form a company unless it gets the LEA's agreement. The hon. Member for Stone gave an example of a failing school that, not content with failing its pupils, could create a company that would fail the pupils of other schools. Frankly, that will not happen. No LEA will agree to allow a failing school to set up a company.

Mr. Cash: The Minister knows about the exchanges that took place in another place. First, there is the question whether the LEA has the competence to handle questions on the matters that we have been discussing. Secondly, I am sure that he remembers that Lord McIntosh said that the LEA would intervene only when the companies had got into serious trouble. That is too late. We want to avoid companies getting into trouble in the first place. The Bill will not help with that problem.

Mr. Miliband: I look forward to lengthy discussions about the operation of local education authorities as part of the hon. Gentleman's new, roving brief. We will see whether his new alliance with the Liberal Democrats survives such scrutiny. We are now in the second round of Ofsted inspections of LEAs. That is a rigorous process, and it is inconceivable that any LEA, however poor its performance, will agree that a failing school should set up a company. The Bill contains a safeguard that LEAs can agree or disagree with any proposal.

Mr. Andrew Turner (Isle of Wight): Perhaps LEAs would not agree to allow a failing school to set up a company. However, some LEAs are surprised by the failure of schools. They may already have given such schools approval.

Mr. Miliband: We have rich data sets that explain the performance of different schools. They are based not only on raw scores but increasingly on value-added information. The identity of schools that are not performing as well as they might are clear to any LEA. Ofsted inspection increasingly focuses on making sure that LEAs are clear about that. The hon. Member for Isle of Wight (Mr. Turner) missed the early part of the debate and I do not believe that his point was valid. Out of the corner of my eye, I can see the hon. Member for Harrogate and Knaresborough twitching, and I am delighted to give way to him.

Mr. Willis: I am delighted that the Minister is delighted. However, there is a genuine contradiction in the provisions. It relates to part 1, which deals with innovation. In some of the so-called failing schools or schools in challenging circumstances, there may be a need to do exactly what the Minister supports. Is the Minister saying that we want the Bill only for so-called successful schools?

Mr. Miliband: The hon. Gentleman may be trying to have his cake and eat it. I am trying to make it clear that the provisions contain a safeguard to ensure that LEAs consider seriously any proposals for school companies.

Mr. Brady: Will the Minister confirm whether it would be possible for the LEA to contract out that function?

Mr. Miliband: It would not be possible for LEAs to do that. The Bill is clear that LEAs must give the school permission to set up a company. We focused on the financial management of companies.

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It is important that companies, like schools, are well managed. That is why we proposed a supervising authority to provide a protective framework. If a school company fails financially, each company member's liability will be limited to a nominal figure of approximately £10 in the case of a company limited by guarantee, or the amount outstanding on the shares in the case of a company limited by shares. Company members would determine the value of the shares, which may be a nominal sum and the amount, if any, outstanding on the shares would always be comfortable with the liability.

Hon. Members asked what would happen if the company got into debt. It will be difficult for a company to get into debt through borrowing and be unable to repay the debts out of future income. We are including in the regulations the requirement for the company to seek the supervising authority's permission before it can borrow money. A company that gets into debt will have to arrange a schedule of repayments with its creditors.

Chris Grayling rose

Mr. Miliband: I want to make some progress, because I have taken five interventions and I am still on my first point. [Interruption.] I shall answer hon. Members' questions in my own way. I think that I am answering them pretty accurately, but it is hard to answer them if I am not allowed to make my case.

I shall carry on with my argument. Several hon. Members asked what would happen if a company were to fail. The delegated budget of individual member schools would not be at risk, and I shall explain why. Purchasing companies would be spending member schools' delegated budgets, and would therefore be deemed to be acting as agents of the LEA. The LEA would be liable for the company's debts, in the event of company failure, in the same way that the LEA would be liable for an individual school's debts when the school was acting as the LEA's agent. This would not be the case for service delivery companies, because such a company would not be acting as the LEA's agent. If a service delivery company became insolvent, its liabilities would not pass to its members, because it would be a limited liability company.

If a school company were unable to pay its debts, the normal route, which applies to all companies, of placing the company in administration or winding the company up, would be open to it and its creditors. I can see the hon. Member for Harrogate and Knaresborough twitching again. If he will let me proceed, I shall see whether I can answer his question.

Clause 2 has been mentioned by several hon. Members. Nothing in the power to innovate can affect company law. This provision will apply only to educational law, so it cannot affect liability in the way that has been suggested. School companies are not qualifying bodies under clause 2, so companies cannot be exempted from any law. All the examples, including that of sports injuries, raised by the hon. Member for Stone in his wide-ranging speech, are existing potential liabilities. The existence of companies will have no effect on them. Companies will not be running schools, so none of the issues raised in relation to the running of schools arises. The companies will not own schools' premises or employ their staff.

The hon. Member for Stone also asked whether a school company would be required, by regulations, to take out insurance to cover potential liabilities. These

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companies would not be able to take over the running of a school, so they would not be liable in the example that he gave, which related to negligence and causing injury during sports activities.

Mr. Cash: The Minister is obviously relying heavily on the notes with which he has been supplied. [Interruption.] That is a simple fact; he is just reading out what he has been given. I have the gravest doubt that what he is saying will turn out, in due course, to be the case. There is an interaction between the potential use of clause 2 and the removal of these education functions—if that is to happen. The Minister has not given the House an answer on whether it is intended to use those provisions in this context, and we take issue with the Government on that point.

Mr. Miliband: I am not sure whether the hon. Gentleman is as well known for his generosity to other hon. Members as he is for his warnings about the dire consequences of various Government actions, but we shall see.

The hon. Gentleman also raised the question of assets, as did the hon. Member for Harrogate and Knaresborough. It will be up to a school to decide whether to transfer assets to a company, but there would be no reason for it to do so. A school would be no more likely to transfer assets to a school company in future than it is now. Schools do not do so now, and there will be no reason for them to do so in future.

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