House of Commons - Deregulation and Regulatory Reform

Select Committee on Deregulation and Regulatory Reform Seventh Report

THE DRAFT REGULATORY REFORM

(VOLUNTARY AIDED SCHOOLS LIABILITIES AND FUNDING)

(ENGLAND) ORDER 2002

9. On 25th February 2002 the Government laid before Parliament the draft Regulatory Reform (Voluntary Aided Schools Liabilities and Funding) (England) Order 2002, together with an explanatory memorandum from the Department for Education and Skills.[8] We have already reported on the Government's proposal for this draft Order, which would simplify the arrangements for deciding liability for the cost of, and thus funding for, premises-related work at voluntary aided (VA) schools.[9]

'First-stage' scrutiny

10. We recommended that the proposal should be amended before a draft Order was laid before the House. Apart from recommending that the drafting of the proposal be significantly improved before a draft Order was laid before Parliament,[10] we recommended only one amendment to the proposal, relating to governing body capital expenditure under the new arrangements on certain buildings which they do not own.[11] The Department has already accepted this amendment. However, we also sought assurances from the Department on a number of further issues:

the legal implications of taking on liability for items which are the subject of a considerable backlog of repairs;[12]

insurance arrangements;[13] and

arrangements for claims and payments.[14]

We also expressed the hope that it would be possible before concluding our consideration of the draft Order to see a draft of the guidance on the effects of the changes which is to be issued to VA schools, Dioceses and LEAs.[15]

The Government's response

INSURANCE ARRANGEMENTS AND LEGAL IMPLICATIONS OF LIABILITY FOR ITEMS WHICH ARE THE SUBJECT OF A CONSIDERABLE BACKLOG OF REPAIRS

11. We were concerned about two separate, but connected issues regarding the implications of the proposed transfer of liabilities. Firstly, we wished to be assured that VA governing bodies would be adequately insured for any additional liabilities they would be required to meet. Secondly, we wished to know how VA governing bodies would be protected against any potential claims for damages resulting from a backlog of repairs which could not immediately be remedied.

12. The Department acknowledges that these are complex areas which are currently the subject of somewhat unsatisfactory arrangements.[16] Some work on resolving the situation has already been done, and further work will be undertaken in the coming months to ensure that respective roles are clarified. In particular, the Department notes that the Local Government Association has considered the issues involved, and has indicated an acceptance that liability for funding insurance premiums should be with LEAs.[17] The Department does not now intend to make any further changes to the legislative position by means of the current Education Bill, as indicated previously, but suggests rather that the legal position will be clarified (albeit unintentionally) by the amendment to section 22(5) of the 1998 Act made by Article 3 of the draft Order.[18]

13. Final arrangements should be confirmed in the next Fair Funding Regulations, which would have statutory effect from April 2003.[19] Meanwhile, the Department intends to take the following steps to minimise the potential for problems in the first year of the new arrangements for liabilities, financial year 2002-03. Further guidance will be issued to LEAs for that financial year in respect of VA schools. Additionally, VA schools will be advised:

to assure themselves of appropriate insurance coverage, in the light of advice in the Department's Good Practice Guide;

in particular, to ensure that they have adequate employer's and public liability insurance;

to clarify funding arrangements with their individual LEA and Diocese; and

to liaise with their insurance provider to consider whether their premises policies adequately reflect the proposed changes to liabilities.

14. If any VA governing body is unable to obtain cover for parts of the buildings liability for which has transferred to them (for example, because their provider will not accept the risk because of a backlog of essential work), then the Department has indicated that it would consider sympathetically any shortfall for funding at up to 100% as an 'exceptional circumstance'.[20] This would apply to any capital work arising from what would otherwise have been covered by insurance. It would not relate to work in what are currently 'excepted buildings', where the Department has already undertaken to pay grant at 100% for any condition-related backlog. This arrangement would, in the first instance, apply only for 2002-03, until formal arrangements are agreed between the Department and the LGA and implemented in the next Fair Funding regulations (as above). The Department also proposes to review the effects on insurance arrangements as part of its formal post-implementation review.[21]

15. These precautions should also ensure that VA governing bodies are properly covered by insurance in respect of any potential claims for damages resulting from a backlog of repairs which cannot immediately be remedied. In addition, the Department points out that any urgent issues arising in the short term in other than excepted buildings (which already qualify for 100% funding in respect of any agreed backlog of work) could be considered as 'exceptional' and thus also qualify for up to 100% capital grant support; and the option of emergency capital funding would remain. In the event that any major difficulties occur, the Department has indicated that it would deal with the situation on the basis of individual circumstances.[22]

16. The need to clarify insurance arrangements in respect of their own schools may necessitate a considerable amount of additional work on the part of VA governing bodies. It is unfortunate that these issues were not sorted out well in advance of the introduction of this package of changes. However, in view of the widespread support for the proposed changes, and the desire that they be implemented as soon as possible, together with the assurances which the Department has given that schools will be given the necessary advice and support to ensure that they are adequately insured, we do not believe that it would be appropriate to delay passage of the Order on the grounds that the arrangements are unsatisfactory.

ARRANGEMENTS FOR CLAIMS AND PAYMENTS

17. We were concerned to ensure that the aspect of the proposal which would enable grant to be paid in respect of expenditure which is to be incurred by VA governing bodies, rather than expenditure which has been incurred and paid for, did not remove any necessary protection against fraudulent or erroneous claims. The Department acknowledged that it would need to ensure that appropriate controls were in place, and informed us that it had asked its internal auditors for a view on what those controls might be.[23]

18. The auditors' advice is published as an Annex to the explanatory memorandum which accompanied the draft Order. The Department has accepted that advice, and we are thus satisfied that necessary protection against fraudulent or erroneous claims will be maintained. We also note the intention that the auditors' suggested "assurance review" of the arrangements for claims and payments be linked with the Department's post-implementation review of the package of changes as a whole.

GUIDANCE ON THE EFFECTS OF THE CHANGES

19. The Department indicated that precise details of the effects of the proposed changes to arrangements for the determination of liabilities would be illustrated in detailed guidance to be provided to VA schools, Dioceses and LEAs.[24] We have now seen a draft of that guidance, and are satisfied that it will provide the necessary advice and information to ensure the smoothest possible transition to the new arrangements.

Drafting of the Order

20. We are pleased to see that the Order is now adequately drafted, and incorporates our recommended amendment concerning the protection of governing body expenditure on excepted buildings.[25] There are two further points, however, to which we wish to draw attention.

21. Firstly, article 14 of the draft Order is intended to give effect to the proposal that the Secretary of State should pay grant at 100% in respect of any agreed backlog of conditionrelated work in excepted buildings at the point at which liability for them transfers to VA governing bodies, for a period of five years. As it is drafted, however, it would allow the Secretary of State to pay grant at 100% in respect of any capital work on excepted buildings, whether or not that work formed part of the agreed backlog. We see no reason why the Secretary of State should wish to do so, and we do not therefore believe it necessary for the draft Order specifically to prohibit such payment. However, as suggested in our discussion of the proposal to raise the standard rate of grant support from 85% to 90%,[26] we do not believe that it would be appropriate for the Secretary of State to pay grant at more than 90% except in those circumstances described in the explanatory memorandum, and our recommendation of the approval of the Order is based on an assumption that she will not do so.

22. Secondly, it was brought to our attention that the revised paragraph 5(5) of Schedule 3 of the 1998 Act, as substituted by article 7(d) of the Order, may not fully reproduce the effect which that paragraph has currently: namely, that priority will be given to paying grant to VA governing bodies in respect of alterations which have to be undertaken by those governing bodies to secure conformity with the standards prescribed under section 542 of the Education Act 1996 or other work needed to comply with their other duties; and that (in the latter case) such grant will be paid at the maximum rate. The revised paragraph states that priority will be given to paying grant, and that grant will be paid at the maximum rate, in respect of "expenditure which is necessary to make such alterations as will be required" in broadly the same circumstances as is currently the case. However, the term 'alteration', as defined in the 1998 Act, would not cover certain kinds of work which remain the liability of the governing body following the changes made elsewhere in the Order and which are covered by the existing legislation. For example, if a roof was unsafe and needed to be replaced, this would be 'capital' expenditure as defined by the Order, and thus would be the liability of the governing body; but would not be an 'alteration' as defined by the Act, and thus would, technically, not qualify for priority grant under the revised para 5(5).

23. However, we do not think it necessary to recommend the amendment of the draft Order to rectify this oversight. The Department has written to us to confirm that it is the intention that the principles of the existing legislation should be retained;[27] and we would therefore expect that, should such work as described above be required, the Secretary of State would give priority to paying grant in respect of it, and that grant would be paid at the maximum rate.

Report under Standing Order No. 141

24. We recommend unanimously that the draft Order be approved.

8 Copies are available to Members from the Vote Office and to members of the public from the Department for Education and Skills. It is also available on the Cabinet Office website http://www.cabinetoffice.gov.uk/regulation/act/ proposals.htm. Back

9 Fourth Report, Session 2001-02 (HC 583). Back

10 Report, para 56. Back

11 Report, para 32. Back

12 Report, para 33. Back

13 Report, para 44. Back

14 Report, para 46. Back

15 Report, para 51. Back

16 Explanatory memorandum, para 24. Back

17 ibid, para 28. Back