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Mr. Edward Davey: The amendment, which we will not oppose, tries to deal with a problem that the Government have made for themselves in a number of areas, not only by taking the power to set minimum budgets but by the way in which they approached last year's local government finance settlement and failed to deal with the school funding crisis that we saw as a result of that settlement. What happened last year—I will not give a complete detailed account, as the hon. Member for Altrincham and Sale, West (Mr. Brady) has just done that—was that a number of Departments took different decisions that would affect schools' budgets and no one in this so-called joined-up government put them all together and worked out the net effect on different schools. That was the problem.

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What we should be hearing from the Government is that they will not allow that situation to arise again—that Whitehall Departments will talk to each other and that a Minister's local government finance settlement announcement in which the Government praise themselves and say how they are going to give local authorities more flexibility will not again be followed the next day by a letter from the Minister for School Standards—who I am delighted to see on the Front Bench—telling local head teachers what they must expect their local education authority to pass to them. We had one Department saying that it was all about flexibilities and freedoms and that authorities would be able to make choices, and another saying that a large slug of the money that had just been announced was earmarked and had to be passported through and that head teachers should expect and demand it. That is not the sign of a Government who believe in localism, or of a joined-up Government in which Departments of State are talking to each other. That was the major problem with the local authority finance settlement last year, and that is why the Government got into such a mess.

The question is whether the amendment and some of the other measures announced by the Secretary of State for Education and Skills earlier this year are up to the job of putting the problems right. I remain unconvinced. The measure may be taking a small step forward; it is clear from what the Local Government Association and others have said that it may help. The question is whether the Government will be able to deliver on the rules that they are setting themselves, but the proposal does not deal with the underlying issues; for example, the balance of funding issue, where if there is a shortfall, the effect on the council tax or on spending on services is so great. Those issues have not been dealt with. I know that a review is on the way but clearly it will not inform this year's settlement. These are fundamental issues with which we must grapple, but what we have are very much sticking plasters and second-best solutions. The Government have not grappled with the fundamental problems.

I agreed with a lot of what the hon. Member for Altrincham and Sale, West said in his castigation of the Government, but it was rich of him to say that this year's funding crisis was the worst for decades. Some of us can remember many funding crises in our schools under the Conservative Governments of the 1980s and 1990s, some of which were far worse than last year's. That does not excuse the Government and two wrongs do not make a right, but it ill behoves Conservative Front Benchers to make such remarks without apologising for their appalling record.

We will support the Government on the Lords amendment, which goes some way towards making a bad situation a little better, but we hope that the Government will learn the lessons from the chaos of last year. We look forward to seeing whether they learn the lessons in this year's local government finance settlement in terms of what it does for schools. Schools need that money, but the Government have to provide a framework and a joined-up approach to enable it to get through.

Mr. Raynsford: This has been a short but useful debate on an important subject. The hon. Member for

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Altrincham and Sale, West (Mr. Brady) stressed that he came late to the Bill; some would say that he comes at the eleventh hour. We welcome him none the less. He emphasised his involvement in earlier education issues, but I understand that he was not able to attend last week's debate on the very issues we are debating tonight.

I agree with the hon. Member for Kingston and Surbiton (Mr. Davey) that those with longer experience of education will know of the considerable difference between the financial problems that have occurred in the course of the current year—about which we have been open—as against the position when the Conservatives were in government, when schools, local education authorities and teachers faced much larger genuine crises in terms of inadequate funding.

The huge increases in funding for education introduced by the Government have made a difference, and everyone in education knows that only too well. My wife, a teacher, has shown me her new laptop, provided as a result of a Government initiative. That is an interesting indication of the way in which new investment is creating new technology opportunities to improve the ability of, if I may say so, excellent teachers to deliver high standards of education to their pupils. [Laughter.] I will say no more than that.

This year's settlement ensured an overall increase of some £2.7 billion in education funding—far higher than the sums that used to be available in the years of the Conservative Government.

9.45 pm

Mr. Brady: But at this point in this year's funding crisis, the Minister must surely acknowledge that nearly all of that money was taken out again through increases in taxation, and through changes in the standards fund and in the pension arrangements.

Mr. Raynsford: None of that money was taken out by the Government through changes in the standards fund; that was the increase available. A range of factors led to difficulties in distribution, when the funds that were available to education authorities were then transmitted to schools. These issues have been debated in this House in the past few months, and we reached an understanding of what the changes were. They were the result of a number of different factors coming together to create what was clearly a period of turbulence.

I shall describe some of those factors, the first of which was the change to local authority distribution of grant. It had been promised for some time, and lengthy consultation had taken place on that complex issue. The change happened to be introduced last year, which created a degree of turbulence in the system. However, every local authority in the country received an above-inflation grant increase—not something that they used to experience when the Conservatives were in power.

Secondly, there were changes to the standards fund, and I should like to highlight some of the issues involved. The standards fund has been hugely important in helping to drive improvement in a range of areas in schools, but it has been ring-fenced. That has had specific advantages in terms of enabling funding to be targeted at individual schools, but ring-fencing does have a downside. When sums have to be earmarked for specific programmes, it creates inflexibility and

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difficulties for local authorities in managing their wider responsibilities. So it is this Government's policy objective to reduce the degree of ring-fencing, while recognising the importance of what it can achieve in certain circumstances. This involves a difficult balance. In the course of this year, we sought to reduce the overall amount of ring-fenced funding.

Mr. Edward Davey: I have never understood the difference between ring-fencing and passporting; can the Minister help me by explaining it?

Mr. Raynsford: Let me run through the various components. Ring-fencing involves a clear insistence that sums allocated by Government for a particular purpose are used solely for that purpose. The objective is to ensure that those funds are made available for the purpose for which they were granted, and cannot be used for any other purpose whatsoever. The benefit is that that ensures input control, whereby those funds will go to the designated purpose; the downside, as the hon. Gentleman knows well, is that local authorities' freedom to use their overall funds in the most flexible way, taking account of the many pressures that they face, is inhibited.

Passporting has been a mechanism through which the Department for Education and Skills has sought to indicate the funding that should be passed on from local authorities to schools in any one year. As the hon. Gentleman is an expert in local government finance, he will know that that sum is largely made up of Government grant, but that it also includes an amount assumed to be raised by local authorities through their own council tax. That is the basis on which the formula spending share, which used to be known as the standard spending assessment, was constituted. So the passporting figures for the current year included the assumption that authorities would pass on to education sums related to the FSS for education, which embraced both sums made available by the Government in grant and those that might be raised by authorities from their own council tax, according to the assumption.

The hon. Gentleman knows very well that the difficulties occurred, in the main, when the total sum of Government grant made available to local authorities was less than the sum that they expected to passport on in education. That is one of the tensions, which I have already exposed, in the relationship between specific funding for a particular subject—in this case, education—and the wider issue of local government finance. That is why tensions are inevitably associated with ring-fencing and passporting, and why it is necessary to approach these issues in a sensible and consultative way.

I was talking about some of the changes that occurred this year. We know about increases in teachers' pay, which had a differential impact, with some schools facing more significant burdens than others. There were increases in teachers' pensions and increased pressures on some local authorities for special needs obligations—for example, for children with special educational needs and pupil referral units. All of those had differential impacts and the combination of all those factors resulted in some schools not receiving the level of increase that they had anticipated and in some authorities finding it difficult to ensure that education

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was funded to the extent that the Government wanted without a disproportionate impact on the council tax. We have been open about that and explored the issue in lengthy discussions with representatives of local government, head teachers, the unions and others to get to the bottom of what went wrong this year in order to ensure that it will be put right in future.

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