APPENDICES
CORRESPONDENCE CONCERNING THE PROPOSAL
Appendix 1
Letter from the Clerk of the Committee to the
Department for Education and Skills
Proposal for the Regulatory Reform (Voluntary
Aided Schools Liability and Funding) (England) Order 2002
The House of Commons Deregulation and Regulatory
Reform Committee considered the above regulatory reform proposal
at its meeting earlier today. I have been instructed to ask you
to reply to the following points:
1. Transitional provisions
The transitional provisions contained in the proposed
Order are not clearly explained in the explanatory statement.
Please explain what those provisions are; and how the tests in
the Regulatory Reform Act are met in respect of them.
2. 100% grant for conditionrelated work
in excepted buildings
The Committee notes that the provision to pay grant
at 100% applies only to capital work on excepted buildings; and
not to any other capital work liability for which is to be transferred
to VA governing bodies. Has the Department assessed the likely
total backlog of capital work required in respect of all liabilities
to be transferred to VA governing bodies (for example by examination
of schools' Asset Management Plans); and is it satisfied that
no individual school will be substantially disadvantaged by the
transfer to them of liability for items which have suffered from
significant under-investment?
3. Protection of governing body capital expenditure
on excepted buildings
Currently, this aspect of the proposal is framed
so as to cover only caretakers' dwellings. The Committee notes
that the explanatory statement says that "In practice, this
arrangement would normally only be relevant in respect of caretakers'
houses, as they are the excepted buildings which are most likely
to be in a position to be sold as an individual item"; but
would nevertheless be grateful for further reassurance. Is the
Department certain that these arrangements are not necessary in
respect of any other excepted buildings? Would it not be better
to frame the Order so as to cover all excepted buildings?
4. Proposed setting of a statutory de minimis
level
The explanatory statement is unclear as to whether,
and how, this aspect of the proposal meets the tests set down
in the Regulatory Reform Act. The Committee would be grateful
for clarification of the benefits of setting a statutory de
minimis level (and of setting it at the particular level of
£2000); for an explanation of whether the Department considers
that this provision would impose a burden on either schools or
LEAs; and for the Department's assessment of whether the benefits
are proportionate to any burden which would be created.
Additionally, the Committee has noted the comments
of certain consultees regarding this aspect of the proposal. In
particular, it notes the observation that the de minimis level
applied to non-VA schools varies between LEAs. If the level for
non-VA schools is set higher than the £2000 proposed for
VA schools (as the explanatory statement indicates will normally
be the case), those other schools will presumably need more money
for maintenance than VA schools do. The Committee has noted your
response, in para 75, "that there may some inconsistencies
between categories of schools and across LEAs", and that
"We see this as part of the transition to a funding process
which is more in line with those for other schools." The
Committee would be grateful if you would explain what is meant
by the process of 'transition' to which you refer; and indicate
what impact you anticipate the setting of the de minimis
level will have on all maintenance budgets delegated to schools
by LEAs.
5. Arrangements for claims and payments
The Committee suggests that it could be argued that
the current arrangements for claims and payments, whereby claims
can only be made for payment already made, could be considered
to offer some protection against fraudulent or erroneous claims.
How is protection against fraudulent or erroneous claims maintained?
6. Liability for insurance
The Committee notes that you propose (para 81) to
make available to it all information relevant to the potential
insurance implications which might arise from the transfer of
liabilities. It would be helpful if you would do so; and further,
if you would confirm whether, and how, necessary protection is
maintained in respect of insurance arrangements.
7. Increase in the rate of grant support
The Committee wishes to consider further the aspect
of the proposal which would increase the rate of grant support
to VA schools for their liabilities. In order to do so, it would
be grateful for answers to the following questions:
- What proportion of the 5% increase (from 85%
to 90%) may be accounted for by the need to compensate VA governing
bodies for VAT increases and changes in the allocation of liabilities;
and what proportion by the desire to make increases in available
capital funding affordable to VA schools?
- What relevant responses have been received to
the further consultation on the White Paper Schools: Achieving
Success (mentioned at para 31 of the explanatory statement);
and what implications, if any, do those responses have for this
aspect of the proposal?
- How does the Government respond to the argument
that, even if, as the explanatory statement suggests, additional
support for VA governing bodies would be provided from funds already
allocated to the sector, VA schools should still, as a matter
of principle, have to pay a contribution equivalent to that which
they paid previously if they are to access the funds available?
8. This proposal and the Department's legislative
programme
The Committee has of course noted that the Government
has recently introduced an Education Bill, which Ministers have
described as a "deregulatory measure". The Committee
assumes that the proposal before it has been introduced through
the regulatory reform procedure, rather than being included in
the Bill, because it is intended that it have effect from 1 April
2002, by which time it is unlikely that the Bill will have completed
its passage through Parliament. However, the Committee would be
grateful for some clarification of how this proposal fits with
the remainder of its legislative programme; and why no proposals
contained in the Bill have been brought forward as regulatory
reform proposals. In this regard, the Committee notes particularly
that the Bill includes, for example, provision to give governing
bodies the power to provide after-school childcare, one of the
list of 51 examples of potential regulatory reform orders which
the Government published during passage of the Regulatory Reform
Act.
9. Financial implications
A number of points regarding the financial implications
of the proposal (which are of course crucial to a proper understanding
of the effects of the proposal and how it meets the tests set
down in the Regulatory Reform Act) remain unclear after consideration
of the explanatory statement and the draft Regulatory Impact Assessment.
Clarification of those points would be eased by the receipt of
answers to the following questions:
- It is not clear from the explanatory documentation
what changes would be made to local authority funding to take
account of this proposal. It would be helpful if the Department
would explain, and preferably illustrate by means of an example,
precisely what those changes would be; if it would explain what,
if any, impact these proposals would have on council tax levels;
and if it is able to give an absolute guarantee that the requisite
funding will be transferred to local authorities, firstly through
the Standards Fund, and ultimately through Standard Spending Assessment,
so that local authorities do not lose out in financial terms.
- The financial picture is considerably complicated
by the effects of VAT. Would not be fairer and more straightforward,
if compatible with EU law, simply to abolish liability for VAT
on all school premises-related work?
- The figures in the explanatory statement vary
from those set out in the consultation document. Those in the
consultation document were verified as reasonable by independent
accountants. Is this also the case for the revised figures?
- The Committee understands that the figures in
the draft Regulatory Impact Assessment provided with the explanatory
statement differ from those in the draft RIA published with the
consultation document; and that the figures were revised because
of concerns that the package of changes would not be "cost-neutral",
because of historic under-investment. However, because the revised
figures are based on estimates of the cost of maintaining
VA schools, it is not clear that they give an accurate representation
of the actual effects on the parties involved. In particular,
the additional capital funding which the Government is making
available to schools complicates the picture greatly; and the
provision to pay grant at up to 100% in certain circumstances
(see above) is not factored in to the calculations in the RIA.
Is the Department able to illustrate more precisely the actual
effects it expects these changes to have?
- The explanatory statement says (para 52), "Increasing
the rate of grant support might be considered to reduce the total
value of the work which would be funded from the VA capital programme...
However, this is countered by the fact that funds which are currently
allocated to LEAs for their liabilities, would become available
to VA schools by way of grant support." However, funds currently
allocated to LEAs for their liabilities would presumably have
been spent by LEAs on VA schools anyway. The meaning of this sentence
is therefore unclear. Would the Department please explain this
sentence, and preferably illustrate it with the appropriate figures;
and would it also explain whether the total value of the work
which would be funded from the VA capital programme would
reduce, and if so by how much?
- At paragraph 51, the Department state, "As
a consequence [of the revised financial estimates], however, there
is not as much left to provide the additional financial support
to VA governing bodies which we indicated in the consultation
document." This "additional financial support"
appears to refer to the extra grant support (at 90% instead of
85%). If that is the case, it is not clear how it squares with
the apparent implication of the statement referred to above, that
the total value of the work to be funded from the VA capital programme
would not necessarily reduce. It would be helpful if you could
clarify this point.
- Finally, the Committee would be grateful if the
Department would clarify precisely what it understands the term
"cost neutrality" to mean in this context; whether it
is intended that "cost neutrality" be achieved for each
of the three parties (VA governing bodies; DfES; and LEAs); and
if so if it would demonstrate how these proposals achieve "cost
neutrality".
The Committee also note that, at paragraph 97, the
Department indicate that illustrations of the impact on individual
schools will be made available in guidance to them; and that that
guidance would be made available to the Committee when available.
The Committee would be grateful to know when that will be the
case.
10. Wales
Is any further information available on how the National
Assembly and the Wales Office intend to proceed in respect of
VA schools in Wales? If so, how would any change proposed be achieved
(bearing in mind particularly the "two-year rule", which
prevents further change to the relevant provisions of the Act
concerned by means of regulatory reform order within two-years)?
11. Drafting
Finally, the proposed draft Order appears to the
Committee to have been very poorly drafted in a number of respects.
(A note illustrating some relevant points is enclosed with this
letter.) The Committee has suggested that its legal advisers contact
the Department's own legal team to try to sort out some of these
issues: if it is to clear the proposal, it will need assurances
that at least the more serious of the drafting problems will be
resolved before a draft Order is laid for 'second-stage' scrutiny.
Additionally, the Committee staff have derived from
the figures set out in the Regulatory Impact Assessment a summary
of the financial effects on each of the three players (DfES, VA
governing bodies; and LEAs). The summary is [attached]: it would
be very helpful if the Department could verify the accuracy of
those figures.
... I have copied this letter ... to Tom Mohan, Clerk
to the Lords Committee, and to Nick Montague in the Cabinet Office.
SUMMARY OF FINANCIAL EFFECTS
The effect on each of the principal players is as
follows:
LEAs
Total liabilities on LEAs would reduce by around
£89m. Although they would gain liability for some revenue
expenditure, this would be more than offset by the loss of liability
for certain capital expenditure.
DfES/VA governing bodies
Liabilities on VA governing bodies are shared by
DfES, who cover 85%.Total liabilities on the DfES and VA governing
bodies would rise by around £100m. They would lose liability
for certain revenue funding; but this would not match the liability
they gain for certain capital funding. Furthermore, unlike LEAs
themselves, they would not be able to reclaim VAT on the liabilities
transferred from LEAs. Total liability for VAT would therefore
rise by £11m: hence the discrepancy between the £89m
saved by LEAs and the £100m extra incurred by DfES and governing
bodies.
The disaggregated effect on each of these parties
is as follows:
DfES
DfES liability will increase by £103.75m. This
amount is made up as follows:
£75.65m net extra liability transferred from
LEAs (85% of £89m)
£10.55m extra VAT
£17.55m extra paid to governing bodies (both
to cover their additional liabilities; and as a result of the
increase in grant support from 85% to 90%)
VA governing bodies
VA governing bodies' liability will reduce
by £3.75m. This amount is made up as follows:
£0.45m extra VAT
£13.35m net extra liability transferred from
LEAs (15% of £89m)
-£17.55m extra paid by DfES (to cover additional
liabilities; and as a result of the increase in grant support
from 85% to 90%)
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