Standing Committee G
Tuesday 18 December 2001
[Mrs. Irene Adams in the Chair]
The Minister for School Standards (Mr. Stephen Timms): On a point of order, Mrs. Adams. It has been drawn to my attention that I undersold my case to the Committee last Thursday. We discussed who should be liable for the employer's pension contributions where a school has earned autonomy. I have written to Committee Members about that, and I want to put on record that contrary to what I said on Thursday, the employer's pension contribution will be taken from the school's budget share. There is therefore no question of a school increasing an LEA's pension liability after earning greater autonomy, which was the concern of several members of the Committee. I am sure that hon. Members will welcome that correction. The employer's contributions will come from the school's budget share and not the other part of the LEA's budget.
Mr. Graham Brady (Altrincham and Sale, West): Further to that point of order, Mrs. Adams. We are grateful to the Minister for that clarification, but since he was not sure of the position on employers' pension contributions in regard to variation in pay and conditions, can he assure us that a local education authority will never incur liability as a result of decisions taken by a school?
Mr. Timms: I said earlier that the cost of changes to the software system, for example, would be low. I cannot say that there will be no liability whatever but I am not aware of any significant liability that will fall on the LEA budget.
Chris Grayling (Epsom and Ewell): Further to that point of order, Mrs. Adams. Will circumstances exist in which a school could rewrite the terms of an individual's pension arrangements or are they rigidly subject to the authority's pension fund provisions, so that they cannot be varied?
Mr. Timms: The terms of the teachers' pension scheme are clearly laid down. A school could enter into a different kind of pension arrangement with a teacher, but in such a case the LEA would not be liable to make contributions beyond those to the teachers' pension scheme. I have considered that possibility but, although the avenue is open, it would not place liabilities on the LEA beyond those that I have mentioned.
Powers of governing bodies to form or
invest in companies to provide services etc
Mr. Stephen O'Brien (Eddisbury): I beg to move amendment No. 22, in page 7, line 28, at end insert-
' ''prescribed description'' means in accordance with the Memorandum and Articles of the Company.
''prescribed person'' excludes-
(i) the Secretary of State; and
(ii) any member or officer of a local education authority.'.
I add the warm appreciation of Opposition Members at seeing you here, Mrs. Adams. Our sympathies are with you; we have all suffered from the queues to the car park.
The amendment seeks to add two definitions to subsection (8)-the definition of ''prescribed description'', which appears in clause 11(3)(a), and ''prescribed person'', which appears in clause 11(4). In our previous discussion, it became clear that at the heart of the series of amendments on chapter 3 is the lack of clarity and specificity about the nature of the corporate entity that it is intended will come into being with the encouragement of the Secretary of State or under the other powers conveyed under the chapter.
Clarity and specificity must be put in place because we are dealing with risk. Wherever there is a corporate entity, directors have a duty to assess risk. They have a fiduciary duty, not only to the board and the company but in terms of their authority in committing the company to risks and liabilities. The commitment that they give each time they contract with any supplier or provide any service to customers must be undertaken on the basis that those treating with the company know its assets and the level of liability that can be met, and can therefore judge risk. We need to probe in detail what corporate entities the Government envisage. It would be helpful to have a set of pro forma regulations as we deal with this chapter. So much is left in airy-fairy terms that it is difficult to know whether the Government are aware that the regulations would deal with a raft of matters that we will be discussing later. The amendments, some of which are probing, are appropriate.
In vain, I have searched for help in the explanatory notes, which I thought might have been some of assistance. However, they do not help in the slightest. I hope that I am wrong, but the Government appear to believe that if one calls something a company, all will be in rosy in the garden. No one with corporate experience would believe that.
In using the phrase ''if regulations so provide'' in clause 11(3)(a), the Government are maintaining a discretion not to issue regulations, which makes my points all the more germane. The Minister said earlier that regulations will be promulgated, and although he could not commit to having them available this morning, he hoped that they would be before the Bill went to the other place. It would be exceptionally helpful if they could be available before the Committee progresses, as they are critical to so many points. If the regulations were satisfactory, it would curtail the time required to consider the Bill.
Clause 11(3)(a) states:
''The company must, if regulations so provide-
(a) be prohibited by its constitution from admitting to its membership any person who is not of a prescribed description''.
The amendment would ensure that that ''prescribed description'' means in accordance with the memorandum and articles of any company. One might expect that to be axiomatic and that regulations would provide for it, but in their absence it is necessary to make that point. A cursory understanding of company law clarifies that anything of a prescribed description not encompassed within the memorandum and articles of association-under table A in former days as the pro forma type of memorandum and articles-would technically be ultra vires. We must ensure that we do not pass law that has the potential to make regulations forcing any company-not just ones limited by guarantee-to conform to requirements at odds with its memorandum and articles. We must ensure that we are not creating the potential for ultra vires measures. We have discussed lawyers' charters in the past, but any judge who had to make a decision based on the Bill would rightly be critical of a Committee that did not highlight this issue and get a satisfactory answer from the Government.
I turn to the critical issue of ''prescribed description'' being in accordance with the memorandum and articles of association of the company. There is always a section in the articles about the rights, duties and, indeed, capacity of directors. While the articles do not have to define in detail the type of person the director is, the overall duties of a director, in particular the producing duties, where they are owed, must be defined. Given that we are talking about companies which will provide services and facilities to schools, and that the Government have already admitted that they can easily be expected to own assets which might well be owned by the LEA or by the school itself, to whom are the primary duties owed: shareholders, employees or customers?
The facile answer frequently used by the Government in rhetorical utterances-which has even become the fashion in the City of London-is the stakeholders. That is a convenient way of saying, ''I do not have to give you an answer at present. I am waiting to see which way the wind will blow and I will try to create a sense of partnership with everyone and try to be all things to all people.'' In corporate life strict duties are owed to shareholders for the capital employed, in customer service and above all, as a company director, to employees and staff, the terms and conditions pertaining to their employment and, increasingly, their well-being, under a raft of regulatory and further statutory provisions.
It is not clear whether, unless persons are vetted under the term ''prescribed description'' in accordance with the memorandum and articles before a company can be approved, there would be a duty to pupils. I aired my greatest concern in my debate with the hon. Member for Harrogate and Knaresborough (Mr. Willis) on the previous clause-it is a matter to which we will come and I had to beg his indulgence to wait for further amendments. When such companies come into existence, I would be staggered, and I dare say so would the Government, if there was not rapid consolidation of the market within a five-year view. There will be takeovers and corporate activity. At that point, where are the pupils' interests protected? As regards borrowing money, if a company is at risk of financial difficulty, the greatest danger is faced by the pupils. That is notwithstanding the fact that they have had to earn the right of being an LEA-approved facility, which can be trusted because it has demonstrated a good track record. These things can often go in cycles; they depend on individuals and particularly on the head teacher at the time. Who is to say that there will not be a failure? Will the pupils be at great risk if the company suddenly becomes at risk? In those circumstances the Secretary of State is meant to have powers to intervene and there are various probing amendments on that matter.
The Bill should contain a provision suggesting that the ''prescribed description'' is in accordance with the memorandum and articles of the company. I am by nature a deregulatory person, but if regulations are to be issued, one of the prerequisites for such a company should be that in the memorandum and articles heed must be paid to pupils' interests. Squaring that with the responsibility to shareholders would be a matter of judgment. In the case of unexpected financial difficulty in the company, pupils going through a school will therefore not be the victims. At the moment there is no such protection. This amendment is intended to flesh out that necessary priority. We as a Committee have a common interest in ensuring that pupils' interests are not at the mercy of the risks of corporate life.