Oral evidence

Taken before the Education and Skills Committee on Monday 14 July 2003

Members present:

Mr Barry Sheerman, in the Chair
Mr David Chaytor
Valerie Davey
Jeff Ennis
Paul Holmes

Jonathan Shaw
Mr Andrew Turner

__________

Witnesses: RT HON CHARLES CLARKE, a Member of the House, Secretary of State for Education and Skills, examined.

Q128  Chairman: Secretary of State, can I welcome you to our deliberations. It is nice to see you again. I think you have been in your present role coming on for ten months now.

Mr Clarke: End of October to end of July, nine months.

Q129  Chairman: You have been in post for a reasonable time as Education Minister. It has been a very interesting period. One of the things that we were taking up with your Permanent Secretary was the fact that it had been an eventful year and I wonder, before we start off, if there are any reflections on this first nine or ten months you would like to share with the Committee in terms of how things are going in the Department under your captaincy?

Mr Clarke: I am not sure "captaincy" is the metaphor I would use, but I appreciate, firstly, Chairman, the chance to come and give evidence today. I enjoy these sessions and I hope that they will be generally useful for Parliament as a whole. My assessment of the period since I have done the job is that I feel very pleased with a number of initiatives that we have taken. If you go through the various policy documents we have done for primary, for secondary, for 14-19, for skills published last week, for higher education, for subject specialisms and so on, I feel that we have achieved a lot in those various policy statements which has moved us forward. I appreciated the response of your Committee to our higher education document that was published last week, and we have found the foundations of a significant and serious modernisation of the system, as I think we have done in the other policy areas that I have described. I feel pleased with those things. I was pleased with the decision of the Prime Minister at the time of the reshuffle to bring together responsibility for children in Social Services and education for the reason that I believe it allows us, for the first time ever, in an institutional way to bring all the various services and supports and funding streams behind the needs of the individual child, around the idea of the extended school for example, in a way that I think will be positive and constructive. I feel that many of the things that we have achieved have been very good, so my overall picture is positive. There is no doubt that the most negative aspect of the year since I have been doing this job has been the controversy around school funding, which has been a serious issue on the negative side, or the debit side of the ledger, if I were to put it like that, and in some ways has offset, at least in the public relations impact, the positive things which I have just set out which I think are strong and positive. My summary, Chairman, would be that I feel we have maintained and sharpened our agenda for reform and investment at the various levels of education literally from the age of nought through to lifelong learning right at the end in a positive and constructive way. I feel very pleased with many of the policy initiatives which I think stabilise where we are going, but I regret the fact that the school funding crisis throughout this period has caused a significant knock to what has been happening otherwise. Obviously my number one priority, as we speak, is to address that in the best way that I can.

Q130  Chairman: Thank you for that, Secretary of State. I just want to clear a couple of items out of the way before we get into the meat of the discussion that we are going to have today. I was commenting on Ofsted on pre-school in a programme that I appear on less often than the Today programme, Woman's Hour, and I promised Jenni Murray I would ask you when you appeared before the Committee this afternoon, are you content with the fact that if a child has an incident, accident, in a pre-school setting that Ofsted is unable under present law, they tell us, to give any details to parents about that? The latest press statement by Ofsted, following our discussions with them, is that they are going to have a code of conduct but it will not work if the pre-school setting in focus declines to involve themselves and to give any information. We are told by Ofsted that they need a change in the law. Is that something that you can look at, Secretary of State?

Mr Clarke: Very much so. Ofsted has built a very strong reputation. Principally it has built that strong reputation upon its inspection regime for schools and the various aspects of the operation of schools. It has extended that reputation into the operation of local education authorities where it has become the authoritative commentator on the effectiveness of LEAs and already it has begun to extend its remit into the pre-school area in the way that you describe. Since the machinery of government changes, which I mentioned earlier on, the question of how Ofsted relates to the other inspectorates that have responsibilities in this area is a very important matter which we will be addressing in the Children's Green Paper when it is published in September. I can give the Committee the assurance, and via the Committee Woman's Hour, that the issue Ms Murray raised with you is one that will be addressed within that context because we need to make sure that the inspection regime at this tremendously important stage of education is sufficiently robust.

Q131  Chairman: Thank you for that. If you look at the number of people employed in one way or another in education administration broadly, not just in your Department, which is 5,000-plus, Ofsted is now half that size and growing, between 2,500 and 3,000, and there are recent reports coming out questioning the whole effectiveness of Ofsted in improving standards. Given the massive investment the country is making in this process, I wonder does that give you any cause for reflection and doubt?

Mr Clarke: Yes and no. The no, which is perhaps more important than the yes, is that I think Ofsted has done an outstanding job inspecting various aspects of provision of education in Britain, quite apart from the operation of particular schools. I think the regime that Ofsted has established, for example to look at schools in special measures and so on, has been a very important and powerful tool for eliminating poorly performing schools and for raising educational standards generally. I also think that in attempting to identify, as it does, particular trends in educational performance which need to be addressed by Government, Ofsted has done exceptionally well. I will always remember when I was first in the Department in 1998-99 the work that they did on the education of children from different minority ethnic groups. That was path breaking of its type and allowed a much more substantive debate to take place than had otherwise been the case. So, no, I do not think there is a serious cause for concern about the way Ofsted operates. I think some of the criticisms of Ofsted have not been accurately based and in general I am supportive of the way that Ofsted operates. The yes aspect of it is I sometimes wonder whether we, as a Department, have too much of a resource, as it were, shadowing the agencies, such as Ofsted, QCA and so on. That is a matter that our Department is looking at very closely indeed at the moment not just in relation to Ofsted but all other agencies and non-departmental public bodies that we have. I think there is an issue there when you are talking about numbers of people. Do I have any serious doubts about the quality and ability of Ofsted to address key educational issues? No, I do not. I do agree with you, Chairman, that it is necessary to keep the matter under review but I do not have a lack of confidence in Ofsted in any way whatsoever.

Q132  Chairman: Just to finish our housekeeping, are you disturbed that all this time on from the Individual Learning Accounts ceasing to exist, we were told because of fraud, that there have been hardly any prosecutions against those people who defrauded that programme?

Mr Clarke: I have two responses. Firstly, as far as the responsibility of my Department is concerned, I think we have addressed it very fully and very substantially and the Permanent Secretary in his evidence to select committees of this House has set out very clearly the Department's attitude to this and the lessons we have sought to learn from it in terms of public policy. I feel that we have done as strong a job as we could have done, given that mistakes were made of the type that have been described by the Permanent Secretary, to learn what we can, set the record straight and make sure we do not make the same mistakes again. As far as the operation of the criminal justice system is concerned, I observe that, I do not comment on it, if I can put it like that. I have a large number of personal reflections - I had even more when I was Minister for the Police - on the operation of the criminal justice system and I think it would be foolhardy of me, even in these very discreet circumstances, to venture any other views on the matter.

Q133  Chairman: Last bit of housekeeping: University for Industry Learn Direct, is that a good investment? Is it coming to fruition, to maturity? What is your present evaluation of it?

Mr Clarke: Pretty good, pretty good. I think that if you look at the number of people who have been drawn into learning who had not previously been, they are a significant and positive impact. I think on the types of course which are available, the types of people who have been brought in and involved, pretty good. I would acknowledge that it is early stages yet and I would also acknowledge patchy across the county in certain respects and not yet consistent in the whole range. I have a regular keep---in-touch meeting with UFI Learn Direct and I feel they are going very much in the right direction.

Q134  Chairman: Good value for money?

Mr Clarke: I would say good value for money, yes. To an extent I could give a more balanced judgment with a bit more time having evolved, but the early signs are very much good value for money.

Q135  Chairman: Right, let us come on to the meat then.

Mr Clarke: I thought that was pretty meaty.

Q136  Chairman: What concerns the Committee at this stage of the year is if you look at the figures, as I said to the Permanent Secretary, what a massive and welcome investment we have had in education over the last six years. We look at the increase in capital spend, plus 80 per cent, the pre-school budget spend going up by 60 per cent, schools between 30 and 35 per cent, more 35 than 30 per cent. The ones that stand out, of course, are higher education, six per cent, that is treading water, and minus 12 per cent for student support. If you look at the large number of pluses, this is the most investment in education in our lifetime, yet over the last year or so we have seen two other instances that seem to have marred that progress so people get a negative image of the development of our educational service. We have mentioned ILAs but last summer with the A levels and the transition of A levels from AS into A2s, but most importantly of all in recent weeks many people listening to the radio and reading their newspapers would have thought the secondary school system in particular is in crisis with teachers being made redundant and schools saying that they have not got enough money. I said to the Permanent Secretary that you are snatching defeat from the jaws of victory. Do you feel let down by the information that you were given about what might happen with the change in funding to education?

Mr Clarke: May I deal with the first part of your question and then answer your final sentence. One of the problems of policy in a public and political goldfish bowl is the relationship between what happens in reality and the relationship with perceptions of what is happening generally. That is simply a fact of life in terms of the media world in which we live and the pictures that exist. I believe that most people who actually live in the educational system, whose children attend primary and secondary school, who go to university or whatever, feel positive about what is being achieved within our education system by teachers, by governors and so on. Although there are issues, and I will come to the school funding thing in just a second, I do not think most people would feel from their own personal experience that the situation is anything other than getting significantly better for their children at the schools that they go to. That is not to say that there are not many criticisms of the state of affairs and many improvements that could not be made, but I think that is the picture generally. If we then look at the two specifics you mentioned. I think the Individual Learning Account our Department was right to hold our hands up to and say that was a mistake and deal with it in the way that we did, but on A levels, which happened just before I took office, I have tried throughout to set in motion a process through the appointment of Mike Tomlinson, carrying through our actions in response to his report, to oversee the operation of the regime over this period to try to ensure that the problems that occurred there could not recur. It is worth pointing out again, of course, that the scale of what happened was relatively small across the total number of those taking the A level exam last summer. That is not to say it was not damaging, not to say difficult, but was relatively small. We will not know whether that has been fully successful until the exam results this time around have been announced and so on. At the moment I feel reasonably confident. The overall picture, I would say, except for school funding which I now turn to, the record and experience of most people involved in education and the record of this Department is strong and good. We then come to school funding. I want to say the following: firstly, whether you look at the number of teachers employed in schools in England, the number of classroom assistants employed in schools in England, the pay for teachers, if you take any of those three areas over the period since 1997 there have been very, very substantial increases in each of them, whether you take the figures for England as a whole or each region of England or whatever. I think that has been a good thing and it is that which has led to many of the positives I have just described. There is no doubt that the events of this summer on school funding led to a serious demoralisation amongst many teachers and governors in particular, not simply - I emphasise this - as a result of the media coverage of it, I am talking about people's actual experience not as a result of something that was, in a sense, manufactured. Although it was not universal there was at least a significant minority of schools where there were significant pressures which caused demoralisation of the type that I have described. I think that was a setback, but what I do not accept is the setback that arose this year on funding with its impact on teacher numbers, with its impact on classroom assistants and so on, is anything like equivalent to that tremendous increase which has taken place as a whole over the last four or five years. The only aspect of what happened in media terms which I really regret is the sense that some people tried to create that the events of this year offset all the advantages and moves forward there have been over the past four or five years, because I simply think that is not true and it is demonstrably not true in each area that you come to, but it did have a demoralising effect and real problems in certain schools, no question about it.

Q137  Chairman: In a sense you are head of PR for British education, are you not? The newspapers and media will run with stories if you do not counteract them, so in a sense you have to get that balance right and reassert that all the positives are much greater than the few negatives. If you are going to put people's minds at rest, could you clearly articulate what you think was the heart of the problem? Was it just the transition from one system of local authority funding to another? Interestingly enough, the difficulty with A levels was a transition problem. Was it just transition or did your officials get the figures wrong?

Mr Clarke: It was not either. It certainly was not just transition, nor was it my officials getting the figures wrong. Firstly, as head of PR, I wish as head of PR I could be as successful as to ensure that every story in every news medium is entirely positive to British education. That is certainly my ambition, but I do not think that will be achieved, there will be people who will make their points. The causes of what happened this summer are very clear and are very well set out. There were two decisions by Central Government which had a major impact. Decision one was the decision on the overall revenue support grant weightings for different parts of the country which had more negative effects for some parts of the country than others. That was there and it was a significant factor in the whole thing. That was not simply a transitional question, although there were some transitional aspects, there were serious actual resource implications which was not about transition, it was about the new state of affairs. The second was the decision to move part of the Standards Fund into the overall Government settlement. That too was not a transitional aspect, although there were transitional aspects to it, it was a decision of substance, a change in what happened. It led to a situation where many schools lost Standards Fund and that money was not replaced by an increase in grant from the local education authority and they felt that very acutely. Neither of those were transitional questions, they were actual decisions of a change in the regime and, as has been widely discussed, although there was a surplus of about 250 million across the country as a whole, the difference between a 2.7 billion increase in money and about a 2.45 billion increase in costs, that 250 million was not a sliver that was spread relatively equally across schools in the country, it was spread in a diverse way according to the mutual interchange of those two things. The third not national decision was the local decision as to how it was going to allocate the money at its disposal: one, how much it was going to spend on individual schools compared to the central schools budget; two, how much it was going to spend on capital, how much revenue it was going to divert to capital; three, what the relationship was between the overall spending of the authority and on things like special educational needs, pupil referral units and individual schools; and, four, the local funding formula they applied, different for each authority each having different implications. So you had quite wide variations in some authorities as between the per pupil increase for different schools. The effect of these three things that took place, two of them national and one of them local, was very variable across schools and it was a combination of those three things that led to a particular change in a particular school. Was any of that transitional? I do not think it was transitional, they were changes which took place. As far as my officials are concerned, the question you ask as to what extent this could have been modelled more greatly than it was, I think that is a very difficult question because a significant number of the decisions, for example the level of council tax increase by a particular LEA, the amount of passporting, the allocation to particular schools, the allocation as between secondary and primary schools, the question of how much went to special educational needs and so on, were all decisions of individual LEAs which by definition you could not model. You could have various hypotheses but you could not model what a particular LEA would do in those circumstances. I do not think it is true to say that my officials did not model the situation correctly. It is true that they did not produce 200 different computer printouts according to different criteria of what LEAs could or could not do. The one area of criticism which I think is warranted is not those that are generally made, but the fact that the whole thing came in too quickly at the end so that schools felt they got their budgets without knowing what the situation was going to be quickly enough to deal with it and they had a presumption, for rhetorical or other reasons that had gone on earlier, that the situation was going to be better than they expected and that speed of events led to some of the situations being as acute as they were. That is one of the reason why I have given a great priority next year to getting the earliest possible announcement of what schools budgets will be.

Q138  Chairman: We want to come to the next year in a moment, Secretary of State, but in terms of the present year, what is your view on those schools that really are severely out of cash now? As you know, there was a major story by Richard Gardiner of The Independent yesterday on parents being forced to bail out schools as the cash crisis deepens. That is an immediate crisis, is it not, not something that is going to be resolved next year?

Mr Clarke: I have got two or three things to say about that. The first thing is that I have been a sceptic all through - maybe I should not be - of the wide variety of surveys which have gone on about school funding from a wide variety of different media outlets in association, in some cases, with relevant trades unions and so on. The answer very much depends on the question that is asked in any given situation and the way that people feel. The fact that parents contribute money to help their schools operate in a variety of different ways has been widespread for a long period of time in different respects but that operates now - whether that is a good or a bad thing one can have a discussion about - and it does happen, ranging from the school fete, which is obviously entirely voluntary, to parents being asked to contribute to school trips, to a range of other different activities that come along. I read The Independent piece today and I cast no particular doubt on The Independent survey, but I do say generally that I do not think surveys of this type necessarily give a balanced view right across the whole range. Secondly, I think one of the things which struck me from The Independent survey as well is that there are a number of schools in the country which are spending a very, very high proportion of their income on salaries. One of the schools in The Independent survey today was reported - I do not know if it is true - to be spending 96 per cent of their expenditure as salaries. That is a very, very, very high proportion by any standards whatsoever. It was also argued that there was a 20 per cent increase in salary costs for that particular school. That also seems to me a very high figure by comparison with most schools in the country. I have not checked out the figures for that particular school, I just read The Independent piece, but it raises a question for me about the way in which we manage our school budgets and it seems to me that is quite an important aspect to address. Some of the areas where some of the amounts of money were greatest in the much publicised stories over the summer - I am not now referring to The Independent piece but in general - raised quite significant questions about how well school budgets are managed in certain circumstances. That was a problem for me throughout the whole of this.

Q139  Chairman: Could some schools not feel aggrieved about that view in the sense that I have got a BBC news press release here which says "Clarke calls for curb on teachers' pay", and the substance seems to me you are very worried about the increase of teachers' pay but most of the increase in teachers' pay comes from government policies. I am not saying while you have been Secretary of State, but policies that were introduced by your predecessors to pull more people into teaching and to stay in teaching and to encourage people to ascend the ladder of the teaching profession and, in a sense, many people in schools may feel that the increase in their budgetary demand is directly in response to your demand.

Mr Clarke: Indeed. I think what my Department has done in the past is entirely correct. What that BBC news cutting derives from is the evidence that we submitted to the School Teachers' Review Body, which we submitted last Friday, and what that evidence points out is that there has been a very significant increase in real terms in pay for teachers over this last period and that is something Government was positively seeking to achieve and it has had the effect, as the evidence indicates, of increasing recruitment and retention in all the main teaching areas in what I think is a very significant way. The question that arises is that ambition of Government having been made progress on, albeit with knock-on costs to schools we have seen this summer, is it not now the time to raise the question that we have got this moving and should we not be looking directly at a way of making sure the school funding increases that do go in go into the resources in the schools and not simply into teachers' pay. That was the essence of my point.

Chairman: It is a good juncture to break for ten minutes and Jeff will be questioning when we return.

The Committee suspended from 4.33pm to 4.45 pm for a division in the House.

Q140  Chairman: Just before we move to Jeff Ennis' question, I would not say the bell saved you at all but the bell interrupted you.

Mr Clarke: I am very grateful.

Q141  Chairman: As I understand, listening to you as the Division Bell was ringing, you did not actually answer my question that if there are schools still in trouble this year, is there any lifeline that you intend throwing to them in order to help them with the problems of now rather than the problems of the future?

Mr Clarke: Not in terms of financial allocations in this current year, no. The major step we took in that area, as you know, was to allow schools to spend devolved capital, which in itself was a controversial question, and to ask LEAs to work more closely with schools, but we do not anticipate making more resource available this year to deal with the situation. The general view that I have had from many, many schools, I have to say, is that the greatest thing that we could do to restore confidence for the current year is to ensure that schools feel that the resources for future years are secure and will enable them to develop in the way that they would do. That is what I have been focusing upon. At various points in the year before the devolved capital element we did put various other bits of funding, for example for London, following the teachers' pay announcement last January and for raising the floor to take account of Standards Fund for a number of authorities as well. There were various steps that we did take but I do not anticipate further steps of this kind for the 2003-04 year. Finishing the answer that I was giving previously, the quote that you gave was a quote on our evidence to the STRB this year, it was not, nor was it intended to be by me, a comment on in past years there having been too much pay or anything of that kind. It was a comment on saying that many of the strategic goals that we set have, in fact, in general been achieved and now is the time to look to how we can move in the way that we are suggesting in the evidence to the STRB. I do think that there is an issue about management which is important, which is not about individual teacher's pay but about how HR budgets are managed in schools, which we need to get a hold on.

Q142  Chairman: Comments like the one I quoted that came from the Department's press release are worrying in one sense, are they not? Recently we had the teaching unions in front of the Committee and although there was deep disagreement on some issues, particularly how many new teachers had come on stream, and Mr McAvoy disagreed with the rest of his colleagues on that, on one thing ----

Mr Clarke: He disagreed with historical accuracy as well, I think.

Q143  Chairman: What they did agree on was how upset they were in terms of the notion that their pensions would be affected and their right to retire at 60. It seems to me that running from the Comprehensive Spending Review you and others seem to be building up expectations in schools, 11 per cent was often mentioned as an increase for schools, and a lot of people who anticipated 11 per cent did not get anything near that, so their expectations were lifted up and when it came to the reality the average figure was nowhere near 11 per cent. Here you are, as Secretary of State, potentially delivering pretty much good resources to schools but at the same time being able to demoralise them.

Mr Clarke: Maybe I am making a mistake, Chairman, but I am bending over backwards not to build expectations in any area because a point that has been made to me very forcefully is that at the beginning of this financial year expectations were built up leading to the issues that you have described, so I am working very hard to depress expectations rather than do anything else. You may say that is a foolish approach but I would say the risks of over-hyping expectations for 2004-05 are greater than the risks of under-hyping expectations for 2004-05, if that word properly exists.

Q144  Chairman: Is it the Chancellor's fault for raising expectations rather than yours?

Mr Clarke: No, it is not anybody's fault in particular but the fact is expectations were raised beyond what they should have been and I criticise nobody for that in any way whatsoever. Simply, as you say, because of the costs involved, in particular the teachers' pensions element, which was far and away the most significant, if you look at the cost increases that went in, teachers' pensions was very significant, teachers' pay was very significant, even more significant than teachers' pensions, and NI was relatively insignificant compared to the others. Teachers' pay and teachers' pensions were the greatest and that is one of the reasons why I say we have got to deal with the teachers' pay situation in an effective way now. We have had a very significant increase in the number of teachers, a very significant increase in teachers' pay, a very significant increase in the number of classroom assistants taking burdens off teachers, these are big things that have happened over the last few years which have helped teachers and I think we should acknowledge that has happened, albeit there have been difficulties in this current year which has slowed that process of increase that has taken place, at least in some schools. We should celebrate what has been achieved but if anybody believes that we can go down the path of continuing a process of teachers' pay going up at the kind of level it has been, and at the same time continuing the process of increasing the number of teachers and teaching assistants at the same kind of level but not have school funding issues of the type we have seen this year, that is a mistaken view. I could wish I could deal in the politics of educational utopia but I choose not to, I think it is the job of the Secretary of State to try and deal with the politics of the educational real world and that can be problematic, but I see that as my leadership role at this time.

Chairman: Thank you. Jeff Ennis comes from near utopia, a place called Yorkshire, and he has also been a teacher.

Jeff Ennis: Thank you, Chairman. Secretary of State, I have in front of me a resolution that I, along with my two Barnsley colleagues, was recently sent by the Labour group on Barnsley Council. I would like to preface my remarks about ----

Chairman: That is the majority group.

Q145  Jeff Ennis: That is the majority group, yes. I am sure you will agree with me, Secretary of State, that Barnsley Council is a well run authority and it does respond very positively to many, if not all, Government initiatives, but I would say that, would I not, being ex-leader of Barnsley Council. That is the case and I know you have been up to Barnsley and I am sure you will agree with me, and yet they have had to pass the following resolution, which has got five main points. I would just like to run them past you first of all. Firstly, "the group welcomes the increased Government investment in education since 1997", secondly, "notes that local councils have exceeded government spending estimates on education by £4.3 billion in the last ten years and by £180 million this year at the expense of council tax increases and/or other services", thirdly, "rejects attempts to blame councils for their current difficulties in school budgets", fourthly, "endorses joint working between Government and the Local Government Association to examine the problem and quantify fully the cost pressures on school and council education budgets", and, lastly, "calls for greater flexibility for councils to direct resources to schools which need them most and opposes any suggestion of establishing a national funding mechanism as impractical, destructive of local accountability and damaging to relations between central and local government". Are there any parts of that five-pronged resolution that you would dispute or disagree with, Secretary of State?

Mr Clarke: Can I comment on each of them, would that be possible? Firstly, I welcome further investment. Secondly, in fact, our figure is not 180 million. I know the LGA figure was 180 million extra that was put in by schools on education and spending, we think it is rather lower than that, but that is a minor quibble and it does not deal with the substance of the point. The truth is what Barnsley Council's Labour group figures indicate is going down from 4.3 billion as the total over ten years to 180 million on their figures for the last year indicates what a declining amount has actually been going from the council tax payer into schools over that period and it has declined significantly over that period. Even if it were 180 million, you have to put that into context against the 2.7 billion which Government put in even as an excess that came through in this period. Although the 180 million is important and real, and I know that in particular authorities, and Barnsley is an excellent example, that extra money made a significant difference, in the overall amount that is going into schools as a whole the extent to which local education authorities, through council tax, are putting in increases is not fantastically large in the overall round if you look at the comparisons that you are talking about. In terms of rejecting attempts to blame the councils, I too reject attempts to blame the councils. I know I am widely thought to have blamed the councils and therefore this may seem either dishonest or disingenuous. What I said from the time this was first put to me by my local paper to what I have said at all times is that the funding of schools is a shared responsibility between national government and local government. What I then went on to say in the detailed information that we put out on 1 May was to indicate what each local education authority was doing in terms of the money that it sent out, based entirely on the return from each local authority, not manufactured by my officials. Some local education authorities -- I do not include Barnsley in this -- complained at this. They thought it was wrong that their own section 52 return to government should be given any publicity, let alone be looked at comparatively with other areas. I do not accept that view. I think if national government is accountable for the decisions it takes it is reasonable for local government to be accountable for the decisions it takes on the basis of information given by the local education authority which is why I dealt with it. I made no attempt to blame councils. What I did say, which is the case, is that there was a significant amount of money -- the original figure we cited was £533 million -- which was allocated to local education authorities for passing on to schools. At that point, it had not been passed on to schools. Most of that has now been passed on to schools, I am glad to say. That is a very good thing, but at the time when I made that statement that was not the case. Many schools did not know how much money they were going to get from their local education authority and were making their comments on perceptions about the upcoming year's budgets without knowing how much they were going to get. Some of that, I would acknowledge, is down to the time factor that I mentioned to Mr Sheerman in terms of the relative lateness of information that was coming out and that was in some cases our fault as well as the local education authorities' fault. That is what I was seeking to do. I was not seeking to blame local councils. I do not blame local councils. What I do think is that we have to work together to try to resolve it. On the fourth point, joint working between the government and the LGA, I agree. I have had a significant number of meetings with the LGA leadership. My officials have met LGA officials to try to get to a situation so that we can work forward in the future and that, in my opinion, is the right way to go. On a national funding mechanism, we do not have any proposals for a national funding mechanism. I think there is a case for it, actually. The two basic options we have been looking at for the future are either putting a tighter regime into the amounts of money which are now given to local education authorities -- i.e., a tighter regime on passporting and things like that -- a minimum level of fee per pupil funding for every school, so that every school goes up at least by the average level of per pupil inflation; or looking at some kind of national fund whereby that could be passed through in that way. We have been discussing those issues as I think it is perfectly reasonable for us to do. Neither of those proposals is a national funding formula or a recreation of the Funding Agency for Schools or any device of that kind. I will take the opportunity today to say that it seems to me critically important that local government and national government do work together in these arrangements to ensure that every school gets a reasonable funding settlement next year and the year after. If we fail to achieve that, for whatever reason, I think that will be bad news for education and bad news all round. Whatever solution we come to -- I am hoping to make a statement on that to the House later this week -- we can get a situation where schools are guaranteed a real terms per pupil increase in their funding because I think that is what they need.

Q146  Jeff Ennis: Do you not feel personally disappointed that loyal Labour groups, such as the ones we have in Barnsley, have had to pass a resolution like this? Does that not reflect badly on the department?

Mr Clarke: I do feel that but I also feel that there were elements in local government -- again, I am not making a point about Barnsley, because I know your colleagues in Barnsley and I respect them very much indeed -- which were implying that there was not really a problem this time around. I have even heard it argued recently that there was not a school funding issue. That is not how it seemed to me. It seemed to me there were real issues about school funding which needed to be addressed.

Q147  Jeff Ennis: Do you think the situation that we face this year has damaged the reputation of the department with any of the stakeholders involved with schools like the LEAs or the parents of children or the individual schools, for example?

Mr Clarke: I am sure it has. I have no doubt about that whatsoever. If you look at opinion polling and so on, I am sure that is the case. I regret that, as I said right at the very beginning in my statement to Mr Sheerman. It is extremely unfortunate, to put it mildly, that this set of events has happened, precisely because it has caused demoralisation, where it would have been far better if there was not any, and it has damaged the reputation of myself and my department which I very much wish obviously had not been the case. Of course I ask myself, as this Committee does, whether we could have behaved differently to try and get to a better state of affairs. I think it is an important debate to have. Yes, I do regret if Barnsley Labour Group or anybody else passes a resolution of that type but I also think, to be quite blunt, that not only must I ask myself the questions which I am asking myself but the other joint funders --- in this case, local government -- need to ask themselves those same questions in the way that they have operated. From the conversations I have had with local government, very many in local government have asked themselves those questions and though there have been serious negatives out of what has happened many people have told me, including senior local government representatives, that one of the positive things that has happened out of this year is a much closer relationship between local education authorities and the schools that they fund in terms of understanding what is going on, knowing how to intervene and to do better. Obviously, I would have very much desired that that had not happened via this route, but that nevertheless is an element of silver lining to this particular grey cloud.

Q148  Jonathan Shaw: We are seeing a consensual Secretary of State now, are we not, in terms of local authorities, because as the teacher might ask two scrapping children: who started it? You started it, did you not?

Mr Clarke: I do not think it is quite as you describe. I started it in the sense that any financial allocation at any time to any part of government in Britain ultimately comes from the decision of the government about the tax spending division it makes and how it allocates the money. Equally, the decisions of local education authorities about how much council tax to levy, how to distribute their money and so on are another factor. I simply put these two side by side.

Q149  Jonathan Shaw: You got tough with the local education authorities and it is quite clear that the money being passported in, the vast majority, if it had not been, was going to be. The money is not passported all at one point in the financial year. It is passported at different times in the year. You either knew that or you did not.

Mr Clarke: With regard to passporting into education as a whole, at the end of the year I think we are in a position where about 11 LEAs out of the 150 or so are still not passporting 100 per cent of their expenditure. Earlier in the year in May, we were talking about 19 or 20 that had not passported. Some decided that they would and that is fine. It is a fact that some of those which have not passported were amongst those which were most concerned about the state of affairs. I take it amiss, for example, when an authority like Westminster which passported a very small proportion of the money it should have spent, when schools in that borough are all blaming central government for the lack of funding for those schools at a time, when that particular local education authority had decided not to passport and not to give money to its schools in the way that it should because it did not passport. I think the question of passporting is a legitimate question for me to raise. You then have the question of did schools know they were going to get money that was in the local education authority budget and was en route to them at some point in the year. I can tell you for a fact that there were a number of schools that had no idea either how much money, if any, they were going to get from the beginning of the year when they saw the figures at that point. There were some LEAs who were telling their schools that there would not be any more money and it was all down to the government and all the rest of it. In those circumstances, I thought it was perfectly reasonable to say the LEAs should make clear to schools in their LEA how much money was going to come to that school in the course of the year as soon as possible so that they had a proper basis upon which to fund.

Q150  Jonathan Shaw: You say that funding is a responsibility for local and central government and you have quoted Westminster saying that they have not passported all their money to the schools, but we know that many local education authorities passport far more than the government give schools. What is the case for central funding?

Mr Clarke: You are right. A significant number of authorities, of all political colours by the way, have passported more than 100 per cent in schools in their area. I welcome that. I think it was a good thing. The case for central funding, if there were one, would be that you had some consistency across the country. For what it is worth, I think a national funding formula, if we were to go down that route, would have a significant number of negatives to set against that. In particular, the negative that any degree of local discretion to deal with particular problems in different schools would not exist. The question I have to ask myself is if local government describes itself as only a transmission belt to schools of what the national government sends -- and that was the rhetoric of much of local government during the course of this; "Nothing to do with us, guv"; it was all how much money we were given by the DfES -- they undermine their own argument to be an effective, accountable and democratic body in their locality to deal with what they have to do. My argument is to say stand up and take responsibility for what you do.

Q151  Jonathan Shaw: It is a bit disingenuous really, is it not? One minute you are being very consensual to local authorities; the next minute you are saying they are just saying that they are a passporting authority. In terms of the overall budget though, the overall amount of money that goes from central government to schools compared to that which local authorities raise themselves is pretty titchy, is it not?

Mr Clarke: Yes, it is. That is the point I was making earlier on the figures that were given in the Barnsley Council resolution. I do not think I am being disingenuous in the slightest. I think there is a real choice for local government, whether it seeks to share responsibility for funding schools or not. If it does seek to share responsibility for funding schools, I think it has to stand up and defend what it does and explain the decisions it has taken in whatever way. If, on the other hand, it simply purports to be only a passporting body saying, "Nothing to do with us really; it is a matter for whatever central government for us just to pass on in some way" it is reasonable for me to say that.

Q152  Jonathan Shaw: In answer to the Chairman, you said earlier on that there were not going to be any more resources for schools this year. What about the resources that you have already allocated? How much have you underspent this year?

Mr Clarke: The figures will finally be announced by the Treasury for our department and for other departments later this week in the House, as I understand it. We have already indicated in our departmental annual report which was published in May that, in terms of dealing with a significant part of it, we committed an extra 450 million for education and skills and an extra 436 for Sure Start activity. That which was announced in the departmental report dealt with £886 million of the underspend which was the case at that time. We also manage our budgets on a multi-year basis and the resource is committed. For example, the Learning and Skills Council is carrying forward 100 million end of year funding into 2003/4 to cover previous commitments given to the employer training pilots. That takes us up towards £1 billion altogether. There are other areas where slippage has been experienced in the past and I have agreed for resource to be carried forward, such as the University for Industry, the Connection Service, the Teacher Training Agency and so on. We have also deployed extra resource, for example, on the London Challenge and on teachers' pay in London and support for schools. London Challenge, 25 million and teachers' pay in London, 40 million; the union learning fund, an extra six million. I have indicated decisions we have already taken to deal with about £1.1 billion of what was underspend. The total figure will be announced later this year. Obviously, we strive all the time to avoid underspend and we are going into end of year flexibility for the reasons I have given, but we have been monitoring it very closely and taking decisions to deal with it as best we can.

Q153  Jonathan Shaw: £1 billion? That is very worrying, is it not, when you look at the picture overall? You are telling us on the one hand that, yes, you acknowledge the crisis in schools' funding and, on the other hand, you have underspent a billion so you have had to scrabble round trying to find areas to spend the money. Are you in control?

Mr Clarke: We are in control and it is precisely because we are controlling the money that I was able to make the decisions which I announced earlier, which were made much earlier when we appreciated what the situation was. I think the whole question of the way public spending is managed in these areas, including by my department, needs substantial reform because unfortunately what I have just described is not limited only to my department. It also extends to other departments. You will know that underspend in previous years has been very substantial as well. I think we have identified it early and taken decisions already early to indicate how we can deal with some of these factors. I believe that by setting it out and taking decisions as early as we have we are minimising the negative impacts of the underspend that there has been.

Q154  Jonathan Shaw: What would you give yourself for this year's report, as a grading? C minus?

Mr Clarke: The whole principle of the assessment system which my department runs is not based entirely on self-assessment for the reason that we do not want to place people in the dilemma that you have just mentioned.

Q155  Jonathan Shaw: Where would you put yourself? Certainly could do better?

Mr Clarke: I would give myself, over these nine months, a B.

Q156  Jonathan Shaw: A B minus or just a straight B?

Mr Clarke: A straight B.

Q157  Mr Chaytor: On the question of passporting, is it not the case that for some authorities, had they passported 100 per cent of their FSS, the crisis would have simply shifted from education to social services because the passported amount was greater than the total increase in grant for all those services?

Mr Clarke: There are a couple of authorities in the country where the relationship between the education amount that was allocated and the RSG amount generally could give rise to that kind of concern. That was not a general situation but there was a very small number of authorities where there were genuine dilemmas of that type, always able to be resolved by council tax where they arise.

Q158  Mr Chaytor: It would apply to other authorities, would it not, even though there may be a smaller number where 100 per cent passporting would have caused difficulties elsewhere? The same principle applies to a much greater group.

Mr Clarke: It does. In each case, it is a question of scale but I agree with you. It is the relationship between those things. One of the attractions for some kind of national educational schools fund where the money went to LEAs to be passed on is that it would create a greater insulation between the amount of money that is allocated to schools and the amount of money allocated for other services, which I as Education Secretary would welcome.

Q159  Mr Chaytor: If we look at the memorandum that the department submitted on this funding question for the session today, there is a section headed "Reasons for problems in 2003/4." There seem to be eight reasons identified, two of which are national, four of which are local and two of which are at the school level. In none of those reasons is any criticism made of the department's processes itself. In the final section, with reference to schools, it says, "Financial management in some schools needs to be strengthened with less willingness to take an incremental approach to school budget setting." Is that not exactly the criticism that most people looking at this affair this year would make of the department's own processes?

Mr Clarke: I do not think most people would make that criticism. I did not use this bit of evidence in answering Mr Sheerman's question earlier but my response reflected what is said here in terms of the two national reasons, a number of local reasons and some references to schools.

Q160  Mr Chaytor: Are you saying there is nothing wrong with the financial planning of the department?

Mr Clarke: On the contrary. I think there is a great deal wrong with the system. The problem with the system is because we are so tied up with the local government finance system as a whole, with its very late settlement of amounts of resource. Firstly, we have a system which has very late settlement of amount of resource with very late set council tax and therefore, by definition, a very late position of budget for any school in our current regime. If council tax is set in April and the school budget starts at the same time -- and the two are related, obviously -- that means things come through very late indeed. Secondly, you have a problem where it is very obscure to the average board of governors of a school or head teacher of a school where the money is coming from or how it is coming. The linkage between the amount of council tax that is levied and the amount that comes into the school is so obscure in the local government finance system that people cannot see a relationship. Thirdly, we had a situation where school teachers' pay was set on a year by year basis. My department submitted evidence last year to the STRB that we should go for a three year settlement but the review body did not agree with that and there was evidence from many others against our position. The fact that pay was only set by the STRB publishing its report in January and my accepting the STRB recommendations also in January meant that it was very late. The consequence of all of those is, in my opinion, a thoroughly unsatisfactory state of affairs. It is precisely that which we have to try and change. Within all of that, how does the DfES stack up? That is part of your question. My answer would be I think the DfES does reasonably well within a very complicated and difficult process of decisions being taken late. I would not accept that the DfES failed to model this in the way that has been described. Do I think the system as a whole stacks up well for schools? No, I do not. I think it needs significant reform.

Q161  Mr Chaytor: Can I draw a distinction between the system which has been there for a number of years, the short deadlines and the annual process of budget setting, and the processes within the department because the system was nothing new. What was new was the change to the funding formula which had more variable outcomes in terms of winners and losers. This also had been anticipated in that from 1997 the government had made it clear that it was going to conduct a review of the old SSA system. A mini review was conducted in the first Parliament. The major review was in this Parliament so it was not as if it was suddenly sprung upon the department. My question is: are you satisfied that the department's financial planning processes adequately took account of all the changes that were going to be made this year and what advance planning had been done to anticipate the bigger swings in winners and losers this year?

Mr Clarke: The short answer is I am satisfied, yes. I know it is not an answer you are wanting to hear from me but that is my answer. Let us take the two changes we have talked about, the change in the SSA system and the different weightings. Our department had positions in the government discussions on those things, some of which we were successful in winning arguments about, others not, as with other government departments. The final way in which the balances worked out and the way that they impacted on the education settlement as a whole was a matter where the figures only came through, as a result of the local government settlement and the new formula, very late indeed in mid-November. If you come to the standards fund, it is no secret to say that there are many of those in education who believe that stopping the ring fencing of the education standards fund was a mistake. I certainly think that the events of this year bear that out to some extent. Modelling how that would then operate was very difficult because it depended entirely on any individual LEA's decision about how much it was then going to allocate the standards fund and then allocated it to schools. We could not lay down that if the standards fund had gone in these amounts to those schools, when the new standards fund allocation had come, it would do it in the same way. There was no means of modelling it because we could not say to Bury, for example, "How are you going to allocate your standards fund?" They would not have known. There was not a means of modelling it until we got to that state of affairs.

Q162  Mr Chaytor: As of November last year, the department knew broadly the kind of increases that would be applied to different authorities. There was a period, November to February, when at least the officials in the department could have flagged up the scale of the problems that were about to occur. I think it seems to many people there was a long run in to this problem (a) from 1997 in terms of the general change to the formula and (b) from the announcement in November as to the exact nature of the changes to the percentage increases or decreases to individual authorities.

Mr Clarke: I understand the point that you are making and I think it is a fair point but, firstly, on the period 1997 to November 2002, I do not think it is at all clear that there was any degree of certainty up to November 2002 what the amounts of money would be. If you take the period November 2002 to February 2003, where I agree that we had a far clearer picture of the national government allocation of money than was the case in November 2002, what we did not know was how local authorities were going to respond to that allocation of money to them because local authorities too were dealing with a new regime and had to make their dispositions accordingly. There appears to be a view that says somehow my officials could have done a modelling of all of this which would somehow change the state of affairs in a way that would have made it work better. That is why I was rebutting Mr Sheerman's point earlier on that it was simply a question of transition. I do not think it was. Transition was a problem; timetabling was a problem, but there were real issues there too in terms of the allocations that were made. If you take Norfolk, Bury, Kent or whatever and say, "What are each of you going to do with this chunk of money you have now been allocated in mid-November for education as between all your schools?" they would answer, "We do not know." We could not model that because we did not know either.

Q163  Mr Chaytor: They might have said, "Given the cost pressures on us this year and the integration of the standards fund and the contribution to teachers' pensions, the amount we are getting is not going to be enough because of the huge variation."

Mr Clarke: They might have said that but across the board the extra 250 million was enough. If they had said that at that point, the CSR having been set, the Chancellor having made his statement and his dispositions on the CSR, it would certainly not have been easy to have changed those dispositions. There are two questions: firstly, could we have changed the mid-November allocation for each LEA in, say, February. Retrospectively, I think that is doubtful. Secondly and more seriously, even if we could have increased particular allocations by X amount of money, could we have had any confidence that the money would have gone to schools where there were difficulties? I will give you an example. In the case of my own local education authority, Norfolk, there was an additional allocation. About 30 authorities got an allocation to get everybody to the floor position and Norfolk was allocated 1.6 million. The authority itself raised another 0.5 million, so a total of 2.1 million to help schools in Norfolk. They then took a policy decision not to give that money to the particular schools where there were difficulties but to distribute it equally according to their formula across all schools, a reasonable decision but one which meant that relatively small amounts of money went to LEA schools in those circumstances and they could have decided differently.

Q164  Mr Chaytor: In assessing what happened this year, do you have a figure for the total number of teachers made redundant?

Mr Clarke: No. We will not know the figure until 1 January when we get the returns on unemployment.

Q165  Mr Chaytor: Have you a best estimate to date?

Mr Clarke: No. We have gone round all the LEAs and asked for their assessment as we have been going through the process. As I have said in the House on a number of occasions, the overall level of redundancies is broadly comparable with previous years. The truth is that the number of compulsory redundancies is relatively low, but there is an issue about the number of teachers who have left employment but have not been made compulsorily redundant, whether through early retirement or natural wastage in some other form.

Q166  Mr Chaytor: Is it compulsory redundancies that are similar to previous years or is it the total number of teachers leaving that is similar?

Mr Clarke: I did not say that either. In the case of Norfolk which produced detailed figures on this, what is clear is the very large turnover every year. We will not know the overall picture until later. I wish we could give more information but what has happened in all of this is there has been a series of photographs that have been taken of a moving picture. Each photograph, in whatever survey it has been, has given a picture that is not accurate for what the final picture is going to be, as it could not be.

Q167  Mr Chaytor: In terms of the pattern of difficulties, do you detect any particular kinds of authorities or any particular regions in the country where the problems have been greater?

Mr Clarke: I do. I would identify first the authorities which did not passport 100 per cent, for whatever reason. I would identify second some of the shire counties which broadly speaking were losers on the revenue funding formula. I would identify outer London boroughs rather than inner London as areas which did rather worse than other parts of the country.

Q168  Mr Chaytor: Which were also areas that did well under the previous situation.

Mr Clarke: Almost by definition.

Q169  Mr Chaytor: In terms of the statement you are going to make to the House later this week in establishing a basic per pupil increase for each school next year, what impact will that have on the phasing out of floors and ceilings to all authorities?

Mr Clarke: It will have some but not a great impact. I think a greater impact than that particular decision would be a decision to make sure that passporting took place at 100 per cent. That would have more of an impact on the floors and ceilings position than simply putting in a basic minimum position.

Q170  Chairman: When I asked my question originally about whether there were specific problems in terms of the transition, you said it was not a question of transition. There were specific things that went on. Perhaps I should have said was there a systemic failure. As we have listened to you answering my two colleagues, if you add up your replies to them, it does seem that there is a systemic failure here that is something to do with you but that leans more towards the Deputy Prime Minister and his department. There does seem to be something that is very wrong at the heart of this whole allocation procedure because it gives no one any certainty of what the outcomes will be. We all know that if you are sitting in an aeroplane that will not take off or is circling London and you want to land the great thing about stress is that the pilot does not communicate with you what is going on. We have visited many schools in the past few weeks and it seems to me there is that feeling that you are sitting on the tarmac and the captain is not telling you what is going on. It is the randomness of outcomes that seems to be upsetting people out there. Is this not systemic? If it was a specific cause, you could very clearly say, "This is the problem. Steps one, two and three are happening. One, two and three will be sorted out next year and it will all be all right", but you are not saying that, are you?

Mr Clarke: I agree with you. I think it is a systemic failure. I do not share your analysis of the intergovernmental point that you made earlier but if you have an amount of money being allocated to local authorities, to schools, with different formulae at each stage from the Treasury to the ODPM to the DfES to local government on to schools, it becomes a very obscure process. What teachers and governing bodies feel is that they are the recipient of a residual amount which comes through of which it is very difficult for them to have any clear understanding, which does not give them any certainty for the future to plan in a proper way. I think that is a serious systemic problem in the system. It is a serious problem for schools in the system. It is very important to try and sort that out. I think what happened this year was that whole systemic problem coming to a crisis, pushed by the changes which we have been talking about as they move through. No doubt we bear as the DfES our responsibility for failing to push for change appropriately in that way, but that is a big issue. What I am about is trying to create some more certainty in the system so that people know where they stand and see how it operates. I do not need to tell you, Mr Sheerman --- you are more experienced and a greater philosopher than I -- that the issues here about the role of local government vis a vis the role of schools, the role of local government vis a vis the role of central government, the role of local taxation vis a vis the role of national taxation are big, big questions that operate in this way. I can tell you as Secretary of State for Education and Skills that my preference would be to achieve a system where schools know what their funding is going to be year on year, can predict it reasonably well and, to the best extent they can, can manage it reasonably well rather than simply being the recipients of an amount of money that comes out at the end.

Q171  Chairman: With respect, we are facing a situation where you cannot really firmly say to this Committee, and you have not so far, that there is going to be a firm delivery of an assured percentage of increase to schools this next year. Indeed, the figures we have seen suggested we had 6.3 per cent average for schools this year and it will be down to 5.7 per cent next year, so you will be in more difficulty, will you not?

Mr Clarke: I cannot comment on those particular figures but assuming they are right -- I am speaking from memory now -- we had about 3.0 per cent of the cost pressures this year as the teacher pension element which will not arise at all next year. We also have the NI, at about one per cent, which was in this year which will not arise next year. The cost pressure side of it should be of the order of, say, four per cent less, just on those two criteria, compared with those income figures that you are talking about. Please do not hold me to the figures; I cannot give you a detailed figure. Though it is true that the income may be different in the way you describe, it is also true that the cost pressures will be different.

Q172  Chairman: When a Permanent Secretary perhaps or one of your senior officials put in front of you the example of what had happened in Essex and Barnet, what was your reaction?

Mr Clarke: I did not react particularly to those authorities because I do not think those particular authorities were in a dramatically different situation from other places. Essex was raised by the honourable Lord who is the leader of Essex Council in the other place, so there was substantial debate around the issue, if I may say so, from a very sharply political position. When I visited a number of schools in Essex to see what was going on, because by chance my railway line from Norwich to London every Monday travels through Essex, the situation was not quite as described in some of the debates that took place. Barnet was a different case. The LEA in Barnet got caught in precisely the way that Mr Chaytor described earlier on, as being one of those authorities that was caught between a poor revenue support grant settlement and a reasonably good education settlement. They were caught in a difficult situation and a number of schools made that point publicly very strongly. If you look at neighbouring boroughs to Barnet, it is also true that their overall financial position was not significantly different to that of Barnet but there was a lot less media flurry around them.

Q173  Chairman: There are some anomalies, are there not? The figures given to this Committee show that if you take three authorities, Somerset, Westminster and Norfolk, the percentage increase in SSAFSS for Somerset was 5.1 per cent. It passported 100 per cent and school spending rises by 5.1 per cent. In Westminster, that has been castigated by some, the increase in SSAFSS is 9.5 per cent. They only passport 73.8 per cent but the schools get a 6.5 per cent rise in spending. In Norfolk, the increase in SSAFSS is 5.3; they passport 103.1 and they get a school spending rise of 5.5. The figures are quite bizarre if you take three authorities like that and indeed the one that has been castigated, Westminster, ends up with 6.5, a higher percentage flowing to schools than the others.

Mr Clarke: I think you will find in Westminster there are also higher costs than either Norfolk or Somerset, but nevertheless I take your point. Let me be quite candid. I am not going to defend the current system of allocating money to schools. I think you are right. There are systemic weaknesses in it. That was the case when I came into this office; it is the case now. How do I interpret my role in those circumstances? I interpret my role as to try and create a system which is rational, which is transparent, and which does allow schools to know where they stand. The device that I have chosen to try and address this following what has happened this year is to set three ambitions for the next year. Ambition one, to get a real terms per pupil increase in funding for every school so there is at least a floor for schools which no school falls beneath. Ambition two, to get a two year settlement in all the various elements so schools can begin to plan their funding in a coherent way. Ambition three, to get an announcement for next year, 2004/5, at the earliest possible time so that schools can make their dispositions relatively early. If I could achieve even part of all those, that would be a significant step forward from where we are at the moment. Do I believe that even then we would have a system which did not suffer from the systemic failure you have described? No, I do not. I think we need a more rational system altogether but there are very serious political/philosophical questions which need to be resolved in this. Can I, as Secretary of State, permit a position where in theory a local education authority could decide to reduce the funding of a particular school per pupil by half compared to what it is now? That has been the situation thus far. I do not think I could or should tolerate that but some might see that as an over-centralising engagement against the rights of a local education authority. I know I am taking an extreme case but the reason I raise it is it is exactly these kinds of questions which cause very sharp debate.

Q174  Paul Holmes: I want to look at some of the implications for next year and the year after but can I go back to pick up on something David Chaytor said about the passporting issue? We were told when all this started to blow up earlier on this year that one of the big problems was the LEAs that had not passported all the money across. We had your Permanent Secretary and other members of your department in front of us on 25 June. I asked David Normington how many LEAs had not passported their money across in full. He said it was just 11 out of 150 authorities. I then asked him was there a strong correlation between the 11 who had not passported the money and the areas who were having the most problems in issuing redundancy notices. He said, "I do not think it is a very strong correlation." That seems to contradict things that I have heard you and indeed the Prime Minister say.

Mr Clarke: I think our comments are entirely consistent. I do not have the text in front of me but I think I am right that he said it was not a very strong correlation. I did not say it was. What I did say was that it was a significant factor. Mr Chaytor asked me for a number of factors which I thought were there and I cited that as one. There were three or four factors which were there in putting people under pressure. I think Mr Normington was right in saying it is not a very strong correlation but I do think it is a factor. One thing I regret about the whole process is that the word "passporting" came to mean entirely how much money central government passed to the LEA and not how much money the LEA passed to individual schools, which is what I think is a more interesting use of the word "passporting" in this context.

Q175  Paul Holmes: Comparing this year's problems and looking ahead to next year and future years, in the 2002 spending review, it said that the increase in spending on LEA schools for the 2003/4 financial year would be 6.3 per cent. Given that, we have had all these problems that have bubbled up about lack of money, redundancy and so forth. The 2002 spending review says that for the next financial year, 2004/5, the increase is going to be smaller at 5.7 per cent. If, with a 6.3 per cent increase, we have had lots of problems this year, does that mean that a smaller increase in the next financial year will mean there will be even more problems?

Mr Clarke: I do not think so. It depends on the cost answers and there are at least two significant cost factors in this year's expenditures which were a pressure for schools, one being the teachers' pension situation which was a one-off and the other being the NI increase which was also a one-off, as far as I know. The Chancellor has not revealed to me that there is another NI increase coming round the corner. The pressure situation is different for at least those reasons.

Q176  Paul Holmes: One of the imponderables still this year on how bad the problem is going to be, as certainly the head teachers for the secondary and junior school associations who were giving evidence to us on teacher recruitment and retention said, was that they are still not very clear themselves whether, come this September, they have the money in their budgets to deliver the workload agreement. The junior school heads in particular were saying they could see a situation arising this September where their teachers would say, "We have read the papers. There are 25 tasks we no longer have to carry out so what is going to happen?" The junior school heads would end up picking up all the slack themselves because they could not see the money being in the budget to pay for that.

Mr Clarke: I think the workforce agreement is a really positive step and it is possessed by all the signatories to it, including ourselves. Secondly, if you look at the years 2003/4, 2004/5 and 2005/6, according to all the assessments, the biggest financial cost of the workforce remodelling comes in the third of those three years. There is a financial implication for the second of those three years but nothing like as great as in the third year. The way I think it should be approached is by saying that we go down this path -- there are some schools that are already well ahead -- and move ahead as fast as we can to implement what has to happen. There is one state of mind point which I do not accept, which is important. I do not think, although we do intend to put more money into the process for workforce remodelling as there are costs involved, it is all about putting extra money in. Part of it is also about looking at the resources which are there now and seeing how best they are used to achieve the ambitions of the workforce agreement. If there is a particular school where they feel their financial situation is so tight that they cannot proceed on that scale, my answer is they would need to proceed somewhat slower than would otherwise be the case. I think that is a very small number of schools. The overwhelming majority of schools are proceeding and will proceed at a pace which was set out in the overall agreement and I think that is a good thing.

Q177  Paul Holmes: Looking ahead, the raising standards and tackling workload document said in January that there would be a 1.1 billion amount of financial headroom that could be used for implementing the workload agreement. Six months later it seems to be generally agreed that that amount has fallen to 250 million when all the upsets to do with pensions, national insurance and all the rest of it were taken into account. It has fallen by three-quarters, the amount for this current financial year. Are you revising the figures in the raising standards and tackling workload document for 2004/5, for 2005/6, or does your previous answer answer that one?

Mr Clarke: I think my previous answer does answer it with two important addenda. Important addendum one is that the workforce group which just passed its six monthly anniversary is discussing this in detail and both the teacher trade unions and the head teachers' organisations, the NHG and SHA, are perfectly reasonably pressing the point you are making to me. I am acknowledging to them and I acknowledge to you publicly that it is our obligation to find a solution to this problem in a way that makes it move forward. Addendum two is that, when we come to make a statement about the financial regime for next year and the year after, workforce remodelling is a major part of the way in which we intend to approach budgets. That will be reflected in the statements I make on that in due course.

Q178  Paul Holmes: I was pleased to hear you say that you would not defend the current system of allocating money and that you wanted to ensure that there was a real terms increase for everybody, that the figures would be produced earlier and that there would be more clarity in the system. What hope can you offer to an LEA like Derbyshire which I worked for for 20 odd years, where my constituency is and where my children are all at school at the moment? In government figures, they are boasting quite rightly in one sense that the average amount per secondary school pupil being spent across the country has gone up to £3,700; yet in Derbyshire in the last full financial year it was £2,800. That is a huge differential. Some of us were active in the F40 group campaigning for authorities like Derbyshire and yet there does not seem to have been that much of a difference this year.

Mr Clarke: At the end of the day, there is a balance that government has to make between the funding needs in particular areas for particular courses. I think we are all familiar with the argument that the funding for our particular type of authority, whatever it is, is not enough to deal with our particular needs, whatever they are. As a Member of Parliament for Norfolk, which is relatively low funded even compared to Derbyshire, this is an argument which will continue going. I defend the government's overall changes because I think it is right to acknowledge there are higher costs involved with areas where there are higher needs, whether the higher needs are deriving from poverty or from larger numbers of people from minority ethnic communities or for whatever reason. I think it is reasonable that the funding regime reflects that. That would lead to an "inequity" because there will be some authorities which are getting more funding per head than others because their needs are greater. You will get others that get more funding per head because their costs are higher. For example, the salary costs in London and the south-east will be high. That will lead to different figures when you make the comparison you have just made, Mr Holmes, but I do not think the fact that they are different figures is necessarily unjust. I have not been to a public or even a private meeting in the last ten years when people were not making exactly the point you have just made about the inadequate funding for where we are but what is to be said for the change which the government put into place this year is that it is fairer and more equitable than what had gone on in the past.

Q179  Paul Holmes: I will pursue at another time and by other means the question of Derbyshire's funding in general. With schools in the budget last year, we had lots of emphasis on the fact that there was going to be a record amount of extra spending on secondary and junior schools, the biggest increase ever seen arguably, and yet six, seven or eight months later we have hit the problems that we have spent the last hour and a half discussing and it has started to unravel a little bit. Is there a danger that this is what is going to happen with FE colleges? We are being told now that for 2003-6 there is going to be a real terms increase of about 19 per cent for FE colleges, about £1.2 billion. Analysis of the figures suggests that 11 per cent of that 19 per cent increase is going to be related to standing still as the number of students grows. Three per cent of the increases will go in the knock-on effect from the national insurance increase, the pensions and the TPR. That will leave just a five per cent real terms unit cost per student increase for colleges rather than the headline 19 per cent figure.

Mr Clarke: Most forces within FE, both the colleges and the trade unions concerned, have said to me that they feel the settlement we made -- I announced it last November at the Association of Colleges Conference -- was a very positive announcement. You could also argue it was not positive enough in the sense that there will always be a case for more resources but compared with the previous years it was seen as a significant change. I believe that is what is happening, combined with the Success for All strategy, which is about focusing FE more sharply on producing more relevant and effective education. I think it will make a major difference. I would add one other point which is perhaps controversial. I am speaking from memory but I think I am right that something like 93 per cent of FE spending comes from the state and about seven per cent of FE spending comes from employers. The seven per cent is very significantly lower than happens in many other countries. I would argue that there is a good case for seeing whether FE colleges can produce courses which are more desired by local employers, both public and private sector employers, and therefore more desired by potential students and could therefore generate more income. FE has an option which schools do not have of trying to see what the possibilities are of generating resource from other areas. I think that is one of the potential benefits out of our Skills White Paper that we published last week which I hope and believe could make a difference to the overall financial buoyancy of further education generally.

Q180  Paul Holmes: Is there not a tension between the fact that FE colleges, in wanting to design courses and offer them to local businesses that you say they could use as a fund raiser, also have the problem that they have to tie into national qualifications, recognised nationally. I seem to recall a statement some time in the last few days where there was an emphasis that they would still have to tie into the national qualifications. They could not go off and do their own thing but local employers often, from what you have just said, do want them to do something that is suitable locally rather than putting a national straitjacket on them.

Mr Clarke: The national qualifications need to be dramatically simplified. We have a tremendous morass and web of qualifications, particularly in the 14 to 19 age range, which is very difficult. That is one of the purposes of the Secondary Schools Councils that we have described. Secondly, it is entirely possible for a college, if it wishes to, to provide education in partnership with particular employers for people in that locality and generate income from that source.

Q181  Valerie Davey: One of the factors which will change over the next two or three years is the demographic change and we are anticipating, I understand, 50,000 young people fewer in our primary sector over the next few years. Has that been taken into account and in what way has it been taken into account in your funding formula?

Mr Clarke: There were 50,000 fewer this year and we anticipate again 50,000 fewer next year. Yes, it has been taken into account and that is why we use the phrase "per pupil" funding increase. One of the confusions over this summer has been, as the trade union surveys acknowledge, at least half of the teacher redundancies and so on that have arisen have arisen because of falling roles in particular schools, most of the falling roles being due to precisely what you have just described.

Chairman: It is 10,000 teachers fewer, is it not, over the three years? Over three years it is 65,000 pupils fewer and 10,000 teachers.

Q182  Valerie Davey: I was not aware that it was 50,000 this year but if it is that is a significant number and it is not spread evenly over the country. That is another differential factor and I am wondering if it was taken into account in that way.

Mr Clarke: Yes, it was. Perhaps to avoid any confusion the best thing would be if I wrote to you to set out the detailed figures on demographics.

Q183  Chairman: A very well informed source has given me a piece of paper which says that there will be 65,000 fewer pupils in primary schools in each of the next three years and that is going to mean a loss of 3,000 teachers a year, 10,000 in total.

Mr Clarke: I hear what you say. What I think I need to do is to write to you. I do not want to commit absolutely to the figures. Do those figures come from my Department?

Q184  Chairman: There is an enigmatic smile from our specialist adviser.

Mr Clarke: It is your job to ask the questions, Chairman, not mine. If I could avoid the enigmatic smile by saying perhaps it would be best if I wrote to the Committee with my assessment of the pupil numbers over the coming years.

Q185  Valerie Davey: I appreciate that. My question is how will it be taken into account? I can remember too many years ago, unfortunately, as a councillor when this last appeared and we decided then as a county council that we would introduce four-year-olds into primary education, which was a brilliant way, we thought, of keeping employment high and of giving more advantages to children. It did not work out because we did not provide all the support staff we ought to have done. The Government has a choice, it is either going to cut the funding or it is going to say, "We will move the smaller class ratio up through the primary sector," which is clearly what parents would love to see. What is the policy on this particular issue?

Mr Clarke: We are currently preparing guidance on the particular point. Let me say two or three things. Firstly, we are considering at the moment what bid we make in the next Comprehensive Spending Review on how to deal with the situation you have just described, and it is one of the considerations we are taking into account in deciding what bid we put in. Secondly, we need a far more creative approach to particular facilities or particular schools by acknowledging that the decision on children's social services allows us a real possibility by developing the extended school approach and getting proper pre-school provision to be able to bring different funding streams together to make sure, for example, in isolated rural areas that you have an educational resource that continues rather than not. At the end of the day the bottom line answer is the one, Ms Davey, that I think you implied in the question - that it is a matter for the local education authority to decide how it makes a disposition of its resources. We could go down a different line but we are not going down that line. They will decide how they make their dispositions in precisely the way you said Avon County Council did some years ago.

Q186  Valerie Davey: You cannot have it both ways, Secretary of State. Either you want national levels of funding which are irrespective of all the problems we have got with how much the transport costs are or the special needs costs and you want that local decision taking or you have to say those are the responsibilities of the LEA and they must be funded accordingly. You cannot have it both ways.

Mr Clarke: I am not trying to have it both ways, with respect, and if I appear to have been I apologise because I am not. The reason I said earlier that I did not think a national funding formula for schools would work - and I can see a stronger case for secondary than primary in any case - is that I believe local variations are so different, Norfolk is so different from Newham, if I can put it like that, that to try to have some national formula which allocates to every school in the country on some kind of equal basis, you could imagine an immensely long transition period but it is very difficult to see how it would actually operate. On the other hand, if you had a system in which you allocated money to LEAs directly rather than through rate support grants, I think it would be possible to imagine a system that worked better but would retain what you are describing as the local discretion to decide what is the best way to provide education in each particular locality.

Q187  Valerie Davey: Could I suggest you look at Northern Ireland because this Committee went to Northern Ireland and found to our surprise that there is no local rate for education. The local authorities do not raise money for education, all the money comes centrally from central government in London, and it left a complete disassociation from many councillors with this whole process and was an ineffective way of sharing and discussing and changing the way in which education goes forward in Northern Ireland. I think colleagues will perhaps agree that that is an interesting parallel form of funding to look at if you are contemplating further change in this country. Do you know of that situation and have you any comment on it?

Mr Clarke: I certainly know of it. I have no particular comment on it but I will look at it in more detail. To be quite blunt, whichever course of action you go down, you are faced with very difficult choices about what to do. At the end of the day if you are deciding in a particular village what is the provision that is going to be made that is not a decision that can sensibly taken from London. I was at a school in Norfolk the other day where there were 21 pupils from the five to 11 age range, which is the smallest primary school I have ever been in, and they had a partnership with another school six miles up the road which had 59 pupils, so there were 80 altogether in these two schools that worked together in a federal way. I cannot imagine a process where some official here in London would take a decision as to what was the right way to do it in that locality. I acknowledge the important local role but the question is how that local role is exercised and how it is formed and that was what I was trying to address in my answers to Mr Sheerman and others earlier.

Q188  Valerie Davey: Can I return to the initial situation we face of the demographic change. You are saying that the Government has not decided on a policy issue in answer to that situation at this point in time?

Mr Clarke: I am saying yes that is true, we have not decided. There are two vehicles by which we intend to take a decision. One is the submission we make to the Comprehensive Spending Review when it starts next year, and the second is the guidance we give in the current circumstances, which we are also discussing, which we think can be tackled more widely than simply via the question of school numbers.

Q189  Valerie Davey: I think that reflects part of what you were saying about the creativity of the new ministerial role in your Department for children and I recognise that entirely, but I hope you would recognise that leaves local authorities again and schools themselves with the element of uncertainty which the chair posed earlier?

Mr Clarke: Yes, that is true.

Q190  Valerie Davey: Just before we finish on this because we want to have a few minutes on PFIs, you referred to a real terms increase for everybody, inflation at least, three per cent cash for 2004-05. Let us clear this up because this is what causes unhappiness out there. Are you really guaranteeing at least three per cent extra money for every single school or is it per pupil because, as you know, if it is per pupil some schools with falling rolls will lose out.

Mr Clarke: I have not used a figure of three per cent and I will not. I do not think we will come to a figure until much later this year when the teachers' pay situation is resolved. It would be ridiculous to talk about a figure without knowing what the teachers' pay decision is going to be. I do not use the figure three per cent and I do not think the figure of three per cent should be used.

Q191  Valerie Davey: If you use a percentage is it per pupil or is it per school?

Mr Clarke: I was going to say whatever figure it finally is (and I did not want in any way to say I thought three per cent was correct because I do not think that is a correct figure to use) we are talking about a figure per pupil and not a figure per school, which therefore means that the points Ms Davey raises about the implications of falling pupil numbers and how you organise schools locally are very real points. She is raising absolutely correct points in this. We are not saying that we are going to somehow pretend that pupil numbers are not an important aspect; they are an important aspect in the funding of school and will remain so.

Q192  Chairman: Just a point of information. You asked me whether that figure of 65,000 pupils in primary and the knock-on redundancies came from the Department of Education. We think it did because it came from Mr Miliband.

Mr Clarke: As I have discovered in my brief tenure in this office, Mr Miliband is always right!

Chairman: We want to move on briefly to private finance initiatives and public-private partnerships. Jonathan?

Q193  Jonathan Shaw: We have seen the Audit Commission's report that told us that some of the first PFI projects have been disastrous and other later ones quite successful. There are complaints about procurement problems and indeed in your memorandum you say there are procurement problems arising from a lack of clarity about what is and what is not included in the contract. That is one of the problems. Is not the definition of what is and what is not included in the contract the absolute first requirement of a PFI contract more so than in any other contract?

Mr Clarke: Absolutely, I agree yes to your question without any qualification, and I think the big difference between PFI and former general public sector procurement has been that in many other previous public sector procurements lots of issues arose during the process of the discussion which then led to changes in the contract which it was necessary to think through right at the beginning in the way that a PFI contract requires and has led to the problems as you describe but in my opinion they are problems which would otherwise have taken place at some later point in the contract process.

Q194  Chairman: So how do we move from getting design to be educationally based rather than architecturally based?

Mr Clarke: I have been to a number of new schools. I went to one the other day as part of our education of the future approach where the design of the new school was entirely educationally based. It was also a very nice design but it was educationally based in the way that it operated, and I think that is happening. The short answer is we have to get better and better and better at specifying the contract beforehand. By "specifying" I mean specifying in terms of educational requirements rather than design requirements. I agree with the implication of your question completely. I would say that the way we are moving is right. The Audit Commission Report was on a series of projects in the early period, as you say, 1996-98, and since this Government was elected in 1997 we have tried very hard to get a better form of specification than existed in the past and I think in my Department we have definitely tried to do that from an educational point of view.

Q195  Jonathan Shaw: Is it not the case that this is the biggest building programme in decades for education so there are problems, are there not, with infrastructure, ie the expertise both in local education authorities, which act as the client, and also among headteachers, who are not architects and who are not financial accountants in terms of the level of detail that is required, and trying to move all of those people forward in order that successful projects are completed rather than the ones that we read about in the early part of PFI; what are you going to do about that?

Mr Clarke: I think your first weakness is the biggest weakness, which we have already taken steps to address, which is the weakness of people who really had expertise to manage a PFI contract. We have already done stuff about that by simply encouraging more people with the relevant expertise to come into the market place to offer their skills when it moves forward. On the second part, taking on board the skills of headteachers and governors and the local community and so on I am struck when I go and visit new schools, which I do quite a lot, whoever I talk to - the headteachers, parents and governors, whoever - they talk very positively of the way in which they have been involved in the design of the school in a way they did not experience beforehand. I think the most important thing is to have a group of people who are involved in working out the PFI professionally and a key part of their professional practice has to be the full engagement and involvement of the local community and the teachers and so on. I think that is actually happening.

Q196  Jonathan Shaw: There are very few players now left who are completing PFI projects. There are only a couple, two or three.

Mr Clarke: I thought it was more than that but I am open to correction on that. Perhaps, Chairman, this is something I could write to the Committee on with our assessment of how many players there are in this particular field at the moment. We have sought to encourage more players to come in and one of the factors of delay was the fact that we have a relatively small number of players, but we have begun to change that. What I will do, if I may, is to write to you on this particular point.

Q197  Jonathan Shaw: Two final questions. Let me preface my remarks, we want schools to be all-encompassing and schools that are community schools where you have adult education and training alongside schools, but at the moment the PFI is not flexible enough to allow adult education to be run at the same time or to be part of that PFI credit.

Mr Clarke: I do not see why that need be the case.

Q198  Jonathan Shaw: That is the case, Secretary of State. I wonder if you could look at that.

Mr Clarke: I certainly will look at this.

Q199  Jonathan Shaw: This is a golden opportunity to look at these projects and that is certainly the case of a project that I know very, very well.

Mr Clarke: I accept that completely in terms of the one you know but I would say in terms of policy in the Department our ambition is to develop schools which are more and more community school, 24/7 schools, extended schools, educational resources for the whole of the community.

Q200  Jonathan Shaw: If PFI credits are not allowed to include adult education to run alongside that then your ambition, your vision will not be realised.

Mr Clarke: I will look into that point directly. I am glad you have raised it. I do not think there is any reason intrinsically why that cannot be the case. I accept that as pure schools PFI credit could not be used for what I have described entirely. I do not see any reason whatsoever why other credits cannot be brought together in that way, but I will look at the point you have made, Mr Shaw, and take it up very carefully.

Q201  Jonathan Shaw: The final issue is value for money. The Audit Commission were critical of the public sector comparator. The NUT for example in its memorandum to us say that the Haringey PFI project was £12.9 million less than the anticipated PFI cost so the PSC was inflated in order to justify that the policy did provide value for money. What is your reply to those criticisms?

Mr Clarke: There were problems in the report of the Audit Commission about the public sector comparator. What we did was to review our processes in the way that I described earlier on after this Government was elected and I think the value for money criterion has to be at the centre of the whole proposition. What I believe is actually happening, for the reasons you said at the beginning of your first question, is that we are gradually (but only gradually) making progress towards a situation where all the specifications are set out right at the beginning of a particular contract in the way that is necessary, and so that is where the problems go wrong if that does not happen.

Jonathan Shaw: If I can do a Chaytor and say very finally ---

Chairman: Unfair.

Q202  Jonathan Shaw: Completely fair.

Mr Clarke: I thought Mr Shaw was always fair, I thought that was what he did.

Q203  Jonathan Shaw: What is the Department doing to monitor different local education authority areas of PFI experience to ensure that the outcome of those experiences, for example where schools are churning around the countryside looking at best projects, are shared? For example, if you have got four schools that are all having a similar project where are the lessons learnt from one to the other?

Mr Clarke: Well, we have a very substantial monitoring process through our capital division which both assesses the way in which LEAs have been procuring PFIs and also analyses the problems that have occurred, whether at design or the kinds of things you have been mentioning across different levels of PFI, in general more widely across government.

Q204  Jonathan Shaw: Is that shared?

Mr Clarke: It is shared, yes, we make it a condition of support to LEAs, for example, that they are prepared to share non-confidential information with other LEAs in order to avoid reinventing the wheel. That is why we have issued extensive guidance, developed standard contracts and developed standard LEA schools agreements. We think that the standard contracts and agreements have resolved many of the difficulties encountered with early projects as well as leading to time and cost savings. We think that the asset management plans that we have introduced are now leading LEAs to analyse much better how they are deciding to use their asset and what to do. I do not claim it is absolutely excellent in every respect but I think we can put our hands up and say we are making progress in the kinds of analysis and understanding that you describe.

Q205  Jonathan Shaw: You agree that education has to be absolutely central to design?

Mr Clarke: Absolutely.

Q206  Jonathan Shaw: Rather than fancy staircases ---

Mr Clarke: It is not a question of a building looking pretty; it is a question of the quality of the educational facility within it. I would say that people should come to the new school or college and feel this is a building to be proud of, it has been attractively done and it should be well designed and so on, but education has to be absolutely at the core.

Chairman: Those of us interested in design would agree with you, Secretary of State, that good design and good education go hand in hand. My own experience in Kirklees is we have got a lot of schools rebuilt and refurbished now rather than waiting many years to get them. There are some teething problems, the Kirklees initiative was an early PFI and we have given it, like you gave yourself, a B at the moment, but it was an early one. I want to finish on targets and performance. We are particularly interested in this because we looked, as you know, at the specialist schools programme, and we put a question mark over whether that particular delivery of policy or that particular policy was evidence based but let David continue the exchange.

Q207  Mr Chaytor: Just a few weeks ago in your document on primary schools you make the statement that you would now like to devolve responsibility for target setting to primary schools. What kind of response has that had and what are you going to do about implementing that?

Mr Clarke: In general the response has been positive from primary schools. It does not surprise me because the reason we did it was in response to the comments of all headteachers at primary school conferences that we had. People see that as positive and as a better way of approaching a targeting regime. Although some people argue against it, most people acknowledge that we need a targeting regime but say if there is going to be a targeting regime it needs to be more securely founded.

Q208  Mr Chaytor: The second part of that question is how are we going to implement that? When does the new regime start?

Mr Clarke: On KS1 we are going in the next year to a very substantially enlarged pilot in a number of LEAs to see where we are going with that. We want to give teacher assessment a greater role. As far as KS2 is concerned, good question, I think we are talking about the targets for next year being set by schools I am slightly concerned I may be misleading you. We are certainly not talking about any delay; we are talking about doing it as soon as we can and I think the answer to "as soon as we can" is next year.

Q209  Mr Chaytor: Given the positive response to that and the speed with which you are moving to implement it, does it follow that the same approach will be used in secondary and post-16?

Mr Clarke: We have had both exams and targeting in KS2 for a longer period than KS3 and I think it is important to give KS3 a bit more of a crack to see how it goes. We will analyse the KS3 results from this year as soon as we can and we will then come to a view about where we proceed. That is all I want to say on that. Let me put it like this: I acknowledge that intellectually and philosophically there can be a comparison between what we do at KS2 and KS3 but I think the history of KS2 targeting and testing has been much more profound over a longer period of time and so the data that we got from headteachers of primary schools about what they thought about it was based on substantially more experience than would be the case in KS3. I do not want to say we take what we do in KS2 and simply take it to KS3 because I think we need to be more strongly based in the experience of what the KS3 experience was like before coming to a view to change it.

Q210  Mr Chaytor: And in respect of the Department's whole range of targets, some of them are very, very precise, others are really quite vague and generalised. Is that deliberate or is it just ---

Mr Clarke: Perhaps I can make an invitation to the Select Committee through you, Mr Chaytor. We are of the view that when we come to the next Comprehensive Spending Review we should have a very clear set of views in education about what are the appropriate targets for us to set and we shall be very clear about what we think we ought to do for discussion with the rest of government. We think in general there should be fewer targets than there are at the moment and they should be precise in the way that they are moved forward. We are considering --- I say we are considering, that is slightly previous --- we are about to consider in my Department how we should address this and if this is something the Select Committee wants to reflect on I would be very interested in the way in which you approached it. I believe targeting is important so do not misunderstand me, I am not coming at this from the point of view that says, as some political parties suggest, "bonfire the targets", that is not my view, but we want to ensure that the targets that we set ourselves through the next CSR process are ones which are well understood in the educational world and can be achieved. If the Select Committee were to consider that, I would be very interested in seeing your findings.

Q211  Mr Chaytor: So we are likely to see fewer and more specific targets?

Mr Clarke: Yes.

Q212  Mr Chaytor: From that remark then do we conclude that in respect of the existing targets you do not think there has necessarily been an evidence base to justify them? It is more of a scatter gun approach to get things in place rather than that?

Mr Clarke: I do not think it is quite that. We came into office in 1997 feeling it was very important to try and make a difference in the delivery of our public services so we went through policy area by policy area by policy area to try to establish what were the best targets to go for intellectually, and I not resile from that policy at all, I think it was a perfectly intelligent way of going about things. I think the experience of recent years suggests that there is sometimes an over complexity of targets which do not necessarily work in the same direction and that therefore it might be better to have a smaller number of targets, and that is what we are reflecting on at the moment.

Q213  Mr Chaytor: Later this week we are going to see the report of the Public Administration Committee on target setting across government and the press leaks suggest that they will give a more relaxed view of the importance of absolutely hitting the target. Under your new regime of fewer and more specific targets, do you believe it will be crucial for your success to be judged by hitting those targets exactly or simply to demonstrate that you are moving in the right direction?

Mr Clarke: I do not really think it is necessary to hit them exactly. I will tell you where I think we are in difficulty and it is quite direct. If we set an ambitious target and fail then we get criticised for failing to reach the target, so the natural response is to say, "Okay, let us set less ambitious targets that we are more likely to meet," and I think that is a bad way of going about things. I think we should set ambitious targets, we should assess where we are going to on those targets, and if we do not quite meet them then we should hold up our hands and say, "We did not quite meet them", but not regard that as a terminal disaster either politically or for the education system or whatever. I personally think it is right to set ambitious targets. Personally I am ready to say as Secretary of State I want to go for more ambitious targets. Do I then say my whole political future and everybody else's should depend on fulfilling a particular target? No,. I think I should be judged - and maybe I can get better than a B next time - on a whole range of targets that we set. I think it would be a bad course if we ended up not setting ambitious targets. I think that ambitious targets are right. The danger of saying you have total accountability and you have to achieve 100 per cent of every target is that you set undemanding targets, which I do not think is a good thing.

Q214  Paul Holmes: Just backtracking slightly to the PFI question, can you clarify for me what happens when you have got your brand new school built and the private company who built it are then getting their mortgage or HP payments effectively being paid to them, who pays for that? Does it come from the LEA budgets or does it come from the individual school budget?

Mr Clarke: It depends on the particular contract whether it is with the LEA or the individual school. The arrangement - and it is a very disciplined arrangement - is that a payment has to be made and it depends who has made the agreement. Whether it is a group of schools, the LEA, the individual school depends entirely on the particular contract. The tightness of it (which is a cause of concern) is that we are actually saying that that will continue to be paid. What has happened in the past is when an investment has been made, it has been quite possible for the public authority - it does not arise just in education but also in health and other areas - to say, "We will not pay this year, we will not do any maintenance this year, we will not keep up the building", and that leads to a situation of steady decline in the stock which, as we look around, is what has happened in so many of our public sector buildings. One of the implications of the PFI, which is tighter and more difficult, is to say that maintenance will continue, the work will still be done, it will be kept up, it will move forward, but you have to pay for it. So the real costs are being met rather than a group of people one year saying, "Let's leave it this year and not do it." As to whether it is the school or LEA that depends on the particular contract.

Q215  Paul Holmes: If it were a contract with a school and it was coming out of school budgets, what happens five years down the line if falling rolls from junior schools have come through to the secondary stage and a secondary school can no longer afford to meet those payments other than by sacking teachers or massively increasing class sizes?

Mr Clarke: That is why in most cases the agreements are with the LEA rather than the schools. If you take my county, we have got a major PFI project involving about 60 schools and that is precisely in order to deal with those kinds of fluctuations and you have got an LEA contract rather than an individual school contract. In answer to your particular concern, to deal with that particular matter ought to be a matter for the initial project discussions and that is what should be part of the initial contract.

Chairman: Secretary of State, we have kept you here quite a considerable length of time. We have learned a great deal. I would remind you that your grading was self-inflicted and not from the Committee. We shall be considering our grading later. Thank you very much for your attendance.