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17 Dec 2003 : Column 281WH—continued

School Funding

2 pm

Mr. Adrian Flook (Taunton) (Con): I commence by thanking Mr. Speaker for granting this most important debate. I know that that is much appreciated by many people involved with education and schooling and by communities as a whole.

As hon. Members will know, the Government announced their provisional settlement for local education authorities, and therefore for schools, at the end of October. They then added to what they had to say in the middle of November and added to that after the pre-Budget report. I am sure that the Government hope that they have learned the lessons from last year, after which most local education authorities, teachers and schools were left frantic with worry about how they were to balance their budgets.

I am sorry to disappoint the Minister, but in the south-west—England's most rural region—the LEAs still appear to be hard done by. There are two reasons for that. Traditionally, little account is taken of rurality in allocating the funding. I accept that some account is taken of rurality, but ministerial answers that I have examined about how the figure is arrived refer to a "sparsity factor" in the

whatever that means. I would appreciate it if the Minister could shed some light on that.

The other reason that the south-west appears to be badly served by this year's and previous years' funding is that, as the National Association of Schoolmasters Union of Women Teachers informed me, the south-west area attracts many experienced teachers who, by definition, are more expensive than younger teachers working in inner-city areas outside the south-west.

My county, Somerset, has particular problems. I shall examine in detail the settlement for Somerset in respect to education, which was very poor relative to other counties and LEAs. The county council referred to its funding level from the Government as being "on the floor", with overall funding per pupil at £2,832, compared with an English average of £3,097. There is no denying that, on Government calculations, Somerset was meant to spend £250 less per pupil than the national average in England and—believe it or not—this year it is expected to spend £265 less than the national average.

Last year, all moneys in Somerset LEA were passported, as they were meant to be, and I am pleased to tell the Minister that it has been decided that that will also be the case for the forthcoming year. He may be aware that there is a debate raging in our county about how well or efficiently the LEA spends the meagre money that it is given by the county. It is fair to say, however, that historically the county has spent more on education than it needs to. I hasten to add that that is at the cost of the quality of the roads, and it is to the tune of £20 million a year. However, that matter can be debated another time.

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Some of us, particularly my hon. Friend the Member for Bridgwater (Mr. Liddell-Grainger), question how efficient the administration of central resources are in Somerset's LEA. However, I believe that that is also a debate for another time.

Mr. Ian Liddell-Grainger (Bridgwater) (Con): My hon. Friend is being very kind in his words—I shall certainly not be. Does he agree that the Liberal Democrat-controlled county council has put up the cost of running county hall from £433 million two years ago to £549 million now? There are 500 extra employees. Those controlling the council are passporting the money because we have said that if they do not, we will make their lives hell.

Mr. Flook : My hon. Friend makes a good point about the fact that the Liberal Democrat-controlled council has seemed to be rather free with council tax payers' money. That said, there is all-party agreement on a number of aspects of funding in Somerset. Indeed, the Minister's party has joined my party and the Liberal Democrats in combating what they regard as a meagre funding settlement.

Apart from the low base level of funding that Somerset has had, there are severe pressure points, on which there is universal agreement in the county. Let us first consider transport, which is £8 million over budget. It looks as if inflation in the demand-led school transport budget will go up again next year, as new contracts negotiated between the county and the bus companies look as if they will rise by 16 per cent. Pressures elsewhere in transport also impact on the education budget.

Much work also needs to be done on special educational needs. As a hospitable county, Somerset seems to attract more and more youngsters with learning difficulties and severe learning needs. I am informed that the fact that the formula on which the Government rely includes information about children with low birth weight partly contributes to the gap between what the county is given and what the Government expect us to provide for. I point that out because a significant number of families move to Somerset from elsewhere and some have children with extreme levels of need. That means that the budget is estimated to have to rise by some 10 per cent. for next year.

With regard to the severe pressure points, Somerset has a problem with early-years funding. The Government are looking towards funding for three and four-year-olds. They are considering increasing the funding that they provide to some LEAs that have a large increase in the number of three-year-olds who are expected to be funded. Somerset has a large increase, but it is not quite large enough to qualify for the grant that some LEAs are receiving.

Lembit Öpik (Montgomeryshire) (LD): I apologise to the Minister because I may have to leave the debate early as a result of unbreakable commitments later today, but I shall make a fairly non-controversial point. Does the hon. Member for Taunton (Mr. Flook) agree that one problem is that rural areas have to cope with the existence of small schools? They are very important to local communities and perhaps contribute to their

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economic regeneration. Nevertheless, all the economic regeneration benefit comes from the education budget. It sounds as if his constituency might be experiencing the same sort of pressures as in Powys.

Mr. Flook : One could add that there is a fourth pressure point, although it is only on the horizon in Somerset; it might already be there in Powys. Two small schools in my constituency—Langford Budville and Nynehead—which are on the edge of a smallish town, Wellington, are being asked to consider whether they can justify having 26, 27 or 30-odd pupils. The hon. Gentleman makes an excellent point about rurality. Both schools provide a focal point for their community. He is right to say that the community receives that benefit from the education budget.

One way of making education part of the community is through the use of computers. I am told that although one of those schools has an excellent computer suite, something is missing. Initially, the villagers were keen to get involved and to go to the school and learn about computers. As time goes on, more and more families have computers, but they treat them purely as typing machines or use them only for internet surfing, although much more can be done with them. Local authorities could consider how to provide intermediate and advanced courses and enhance the skills of people in rural areas. That would be very important.

There is a further point on the rurality angle, and the hon. Gentleman's constituency may also suffer from this problem. Both the villages I mentioned are close to a town. They are lovely villages, but young families cannot afford to live in them even though their parents still live there. The children of those families use those schools, however, not because the schools in Wellington are poor, but because they get an extra element of child care by being in the same village as their grandparents. A large social element would be destroyed if those schools were closed down. The hon. Gentleman's main point is a good one.

Mr. Roger Williams (Brecon and Radnorshire) (LD): I too apologise for the fact that I may have to leave the debate. On the issue of rural schools, does the hon. Gentleman agree that much of the cost of educating children in small schools is enlarged because of the overheads of bureaucracy? Innovative schemes could be put in place to cut the overheads and the cost of education in small schools.

Mr. Flook : That is true. I am sure that there are many innovative schemes whereby a number of small schools could club together. They could put in an administration level for all the schools involved and therefore justify a top-quality professional management. I am sorry to say that, with the large amount of paperwork that the Department for Education and Skills hands out, it is difficult for heads to process that paperwork and find time to teach. I know that that happens in Somerset and, I am sure, in the hon. Gentleman's local education authority as well. I am aware that the Government are making money available, but it would be helpful if the Minister could explain—perhaps not in this debate, but in writing to me—how initiatives are working in the south-west. I should appreciate that.

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As I said earlier, we all welcome the fact that the funding announcement was made earlier in the financial year than was the case last year. The very late funding announcements last year meant that schools up and down the country suffered problems. Schools were unable to deal efficiently with the budget problems that arose. I appreciate that the Government have said that they do not want to re-run those problems, and I do not blame them. Judging by the amount of humble pie that the Secretary of State has had to eat in recent months—his Ministers too, I assume—when apologising for the problems of earlier this calendar year, I can understand why the Government do not want a re-run of the funding fiasco. They trumpeted an 11.6 per cent. increase last year; on anyone's terms, that looked generous. However, according to the independent study conducted for the National Union of Teachers, half of all primary schools and two thirds of secondary schools lost staff. That is 9,000 teachers and 12,000 support staff—21,000 trained individuals taken off of the total school staff roll.

This year, the Government estimate inflationary costs of 3.4 per cent. Last year, they estimated a similarly low figure, but it came out at 8 per cent. All hon. Members want to know how that level of miscalculation will be avoided this year. Schools had to prune expenditure on books, equipment, extra-curricular activities, special needs, training and maintenance. They used up their reserves and had to set budget deficits and use creative accounting. They launched fund-raising appeals among parents. That is a voluntary, localised stealth tax, as schools demanded more and more from parents, who thought that their children's education had already been paid for in their taxation.

Despite such fund-raising, according to the NUT, class sizes rose in half of secondary schools, numbers of lessons were cut, vocational courses were abandoned, and teachers taught subjects for which they were not best qualified. Senior teachers were replaced by junior teachers, purely for financial reasons. As someone who was never very good at any of these subjects—I preferred to concentrate on history—I am sorry to say that science, modern languages and maths were the losers. I should hate to see someone with my lack of capability at those three subjects failing because, sadly, no effort in schools was put into those three main subjects. I think that we all accept that they are vital to this country's future economy.

This year's rescue package, as somebody unkindly called it, is a shuffling of the same pack of cards. Teachers that have left schools—certainly those in Somerset—will not return under the settlement, nor will classroom assistants suddenly return to the classroom. I am sure that the Government will protest that they have been generous with taxpayers' money, and have given what they could to LEAs and schools. However, the flat-rate funding in place will have a perverse impact. The more pupils that a decent, growing school attracts, the smaller funding increase it will receive.

Will the Minister explain what the letters sent to LEAs mean, and whether some of what has appeared in the press is scaremongering or fact? The Guardian, which is no friend of my party, has said that the way in which the Government have put together the formula is a return to old Labour, because it removes the incentive

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for schools to build up their numbers and excel. One of the letters sent to LEAs on the 10 December acknowledges:

The letter, which is on the website of the Department for Education and Skills, continues:

That is most definitely a return to the old Labour style of running a Department. I am further intrigued by another letter from the DFES, which says:

In the light of that, what is Somerset's position?

The impact on Somerset of the past few years' funding has been interesting and I have asked several questions of Ministers in the Department for Education and Skills. In 1997, 67 per cent. of pupils in Somerset achieved level 4 or above in English key stage 2. That figure is now 74 per cent. Even taking into account grade inflation, that appears to be good. However, the national average has risen from 63 to 75 per cent. In mathematics, the figures in Somerset have risen from 63 per cent. attaining level 4 or more, to 72 per cent. However, the national average has risen from 62 to 73 per cent. Therefore, we have gone from outperforming to underperforming.

I know that the relative decline is not due to the excellent teaching staff in Somerset—comparing LEA to LEA on a teacher-for-teacher basis, we have many more excellent, experienced teachers. It is certainly not due to the pupils or parents. It can be due only to the fact that Somerset receives below-average funding, which discriminates against it. That is also the case in many LEAs in the south-west.

The Somerset schools forum feels strongly that the problem is inadequate funding rather than poor budget management in schools. After six years, the institutionalised manipulation of funding levels is beginning adversely to affect Somerset. Calculations made by Somerset's LEA show that, although it will receive £10.2 million next year, the cost pressures on Somerset will leave it more than £2 million short. Only two other LEAs are in such a poor position. The Minister's settlement, which he has trumpeted as fair, has provided many LEAs with headroom. Unfortunately, Somerset has negative headroom. That cannot be allowed to continue.

Several hon. Members rose—

Mr. John McWilliam (in the Chair): Order. I have no power to limit the length of speeches, but hon. Members should remember that the object of the exercise is to give the Minister sufficient time to reply to the Member who began the debate.

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2.19 pm

Mr. David Kidney (Stafford) (Lab): I congratulate the hon. Member for Taunton (Mr. Flook) on securing a debate on what is an important subject for our constituents. A debate on school funding should start with the "thank yous". I visit schools in my constituency frequently, and in every school I see hard-working and dedicated members of staff doing tremendous work. I refer to the teachers, the growing numbers of teaching assistants, those who work in the schools' offices, which are still dreadfully under-resourced, caretaker staff and, if the school has kitchens, the kitchen staff. They all contribute to the quality of the education. I would also add a "thank you" to the pupils, who apply themselves and work hard, and their parents, who support them in their learning.

Sue Doughty (Guildford) (LD): The hon. Gentleman mentioned classroom assistants, who do such a valuable job, so does he agree that the difficulties over funding have limited schools' opportunities to develop the careers of classroom and teaching assistants, some of whom want to go on to teaching? There is no money to promote them, pay them extra or even encourage them to stay in the job.

Mr. Kidney : I thought that the hon. Lady was going to ask me to thank Members of Parliament for their support for education too, which I am glad to do. Just a month ago, I asked a parliamentary question about the pay and training for teaching assistants, so she can see that I share her concern and endorse what she says. It is important that there is proper support in their training, pay—which is vital—and career path for the future.

I must not overlook the governors, who manage schools and wrestle with the difficult problems—which the hon. Member for Taunton mentioned—of balancing their budgets. I also add a "thank you" to the Government, and not only because I am a supporter. The capital increases in our schools are indisputably noticeable. Every school that I visit has received investment for new developments, and even teachers who give me a hard time about school funding give credit for that capital investment. A lot of that is traditional public sector spending on capital investment, but it is accompanied by innovative schemes for private finance initiatives. In my constituency, the brand new Sir Graham Balfour high school and the modernised Cooper Perry primary school are prime examples of delightful developments resulting from the additional funding provided by PFI.

Those are my "thank yous". I should like to add a "thank you" for the increase in the revenue budget for education, but that is where the wheel falls off and I join the other hon. Members who are going to complain about funding. Much of the problem is with the distribution mechanism that the Government use to send funding to local education authorities. I want to concentrate on that aspect on behalf of both Staffordshire LEA and all the local authorities that are at the bottom of the funding pile year after year, in particular the 40 worst funded authorities, which collectively call themselves the F40 campaign group for fairer funding.

Although we are disappointed with the distribution process, the change in formula this year represented some success for the F40 campaign. We asked for a

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minimum funding for each pupil wherever he or she is educated, and we have that now. In next year's budget, wherever a pupil goes to school in England, the basic funding will be £2,111.59 per primary pupil and £2,826.23 per secondary pupil, unless the pre-Budget report takes those figures slightly higher. Those figures can be found in a written answer from the Secretary of State on 11 December at column 609W.

The written answer also refers to some figures that the Secretary of State put in the Library, which helpfully give a breakdown of the average per pupil that each LEA has received on top of the basic amount for additional education need and in additional cost allowances and sparsity payments. That provides valuable source material for those who want to argue about the relative weights given to the additional factors.

That brings me to a second point on which the F40 campaign has already been successful. We argued for fewer add-ons to the basic amount and less of the complexity of the old calculation and, in that sense, we were successful. Many of the old add-ons were scrapped, and we now have only the three that I just mentioned: additional educational need, additional cost allowance and sparsity. What has gone wrong this year with the new formula, leaving aside other cost pressures, such as additional pension fund and national insurance contributions, is that, as there is a transition from an old system to a new system, the Government have slipped in some transitional measures, such as budget support grants, which have confused the situation. I believe that many such measures will fall out over time. The big debate for the future is whether the system of having floors and ceilings, so that no one gets below a minimum increase or above the maximum increase, will continue indefinitely or, again, fall out over time.

I would like to talk about Staffordshire and the complaint about how the formula is affecting us. On the overall settlement for the country, I still see, as is traditional, Staffordshire down near the foot of the table showing the richest and poorest authorities. However, the gap between the bottom and top is wider this year under the new formula than it was last year. That is a disappointing development. In the last year of the standard spending assessment, the bottom authority got 73 per cent. of what the top authority got; this year, under the new system, the bottom authority got only 66 per cent. of the formula spending share of the highest.

Of course, the complaint of hon. Members in the south-east is different to the complaint raised in Staffordshire. I would say that the south-east has had an advantageous funding system for 10 years; its complaint is that this year, under the new formula, it has lost that. The benefit went completely over the heads of those in Staffordshire, and went in the main to metropolitan authorities. Certainly, shire counties missed out on it.

In Staffordshire, I recently met all secondary head teachers in one group. Under the new system, they repeated the disappointment that they had expressed in previous years about poor funding, the difficulty that that causes them in managing their budgets, and the effect that that has on the morale of those who work in their schools. I give the Minister a couple of examples of what they are up against as a result of the new formula. We should bear in mind the fact that Staffordshire is next door to Stoke-on-Trent in the north and

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Wolverhampton in the south, both of which benefit from excellence in cities funding, education action zones and specific grants. Stafford gets none of those.

I was told the following story by the head teacher of Walton high school, which, according to academic league tables, is the best public school—[Interruption.] Sorry, best public sector school in Stafford. Is not the terminology confusing? That school lost two young teachers this year, one to a Wolverhampton school, and one to a Stoke school, both of which offered additional responsibility allowances that the head teacher of Walton could not justify paying the new teachers on grounds of experience—they were brand new, although good, teachers. Equally, she could not match from her budget the figures offered and pay the extra. So the school lost two promising young teachers because of the additional funds that the next-door neighbours had.

I was told a shockingly worse tale—although I realise that it is just an anecdote—in which a head teacher went to see a neighbouring school in Stoke-on-Trent to look at its facilities. The head teacher was very impressed with the extra funding that the school had been given to develop its information and communications technology programmes. The other head teacher said, "Yes, we bought absolutely everything that we needed for our school's ICT requirements, and we still had some money left over from the Government grant, so we bought billiard tables for year 11." That shocking story was told to a head teacher who is struggling from one year to the next.

It is no surprise that, when schools were given the short-term ability to use money from capital funds in their current account to tide them over difficulties this year, 59 schools in Staffordshire took advantage of it, to the tune of nearly £1 million. The upper pay scale is encouraging for teachers' career development, but there are schools in Staffordshire that just cannot find the money for their contribution to the extra pay for teachers who get through the threshold and on to the upper pay scale. The national work load agreement is worrying schools that cannot make ends meet because they will now have to find more money soon.

The Minister should take back to his Department the complaints made in Staffordshire. That situation is replicated across the local authorities involved in the F40 campaign. The F40 group met at Lutterworth on 11 October to review the new formula and to decide whether it could announce that its campaign was complete and that all its members could retire from campaigning work. I am afraid that its members decided unanimously that the new arrangements were not good enough, so the campaign goes on, as my hon. Friend the Minister for School Standards well knows from the correspondence that he has received since then.

F40 would like not just a minimum funding increase—that, effectively, is the floor at the moment—but minimum funding, with a reduced, and not expanded, gap between the highest and lowest-funded authorities. F40 will now work on a model to try to achieve that, so that when the Government are next willing to look at changes to their formula, the arguments of F40 can be fully taken into account. I hope that the Minister finds that constructive approach appealing. In the meantime, I ask him to look at the

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examples of unfairness that I have given him, and see what can be done this year, and for each of the next three years, to try to stamp them out.

2.30 pm

Mr. Peter Luff (Mid-Worcestershire) (Con): May I begin by expressing my appreciation of my hon. Friend the Member for Taunton (Mr. Flook) for securing this important debate and for opening it so skilfully? I thank also the hon. Member for Stafford (Mr. Kidney) for his remarks.

I will need to read the record carefully, but I think that I agree with almost everything that the hon. Member for Stafford said. I certainly agree that there has been a significant increase in capital expenditure in Worcestershire—which is appreciated. The Minister knows that I am a fair man, and that I do not want to score party points where there are none to be scored. Where the Government deserve congratulation, I shall offer it. I appreciate the increase in capital expenditure, which has borne significant fruit in my constituency. I say "thank you" for that.

I should also like to thank the Government for this year's settlement for schools, which removes the appalling pressure that schools were under last year. Budgets this year will be a great deal easier to manage.

It was a little galling to sit through Prime Minister's questions today, however, and hear a Warwickshire Member pay tribute to his schools' achievements. If we in Worcestershire were given the extra money that Warwickshire gets, there would be similar improvements in Worcestershire schools. I entirely agree with what the hon. Member for Stafford has just said: the distribution of resources simply is not fair and does not work.

Last year, there were particular difficulties—there are party points to be scored here. The Government's problem was that although they gave a generous cash increase to school funding, their own changes put up costs even further. Instead of saying that it was a generous settlement, Ministers should have said, "We've given you quite a lot of money—all that we can afford—but we know that your costs have gone up too. It is going to be tough this year, but bear with us." They did not say that, but tried to pretend, as Ministers have done under different Governments, that their settlement was frightfully generous. It was not generous given the extra costs that schools had to bear.

I freely acknowledge that this year is a bit different. This year, there is real-terms growth in funding in my county. I shall not make unfair points, but the basic problem remains—as the hon. Member for Stafford said so clearly during his very fine speech—that a number of counties, particularly shire counties, are being left behind.

A few weeks ago, I was at a meeting of head teachers in my constituency, and we heard a story of a teacher who had moved from Birmingham to a local first school. On the first day, the teacher asked, "Where are the laptops for every member of my class?" The head teacher said, "We can't afford laptops for every member of the class." On the second day, the teacher asked, "Where is my laptop?" The head teacher said, "I'm

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afraid you'll have to buy it out of your salary." The third day, the teacher asked, "Where's my classroom assistant?" The head teacher said, "There isn't one; we can't afford one."

Worcestershire is surrounded by better-funded authorities. Many of the teachers who teach in those better-funded authorities live in Worcestershire, and they write to me to say how much better funded are the authorities where they work. Teachers who teach in Birmingham tell me that they do not know what to do with the money that they have got for their schools. I see a look of disbelief on the Minister's face, but it is true and I can show him the letters. I could show him the article from The Birmingham Post a couple of weeks ago, which talked about the huge cash balances that many Birmingham schools have. Worcestershire schools, however, do not have huge cash balances; they have run them down over the past couple of years because of the severe financial pressure from which they suffer.

We find it difficult to understand why we are so uniquely disadvantaged in Worcestershire. There are national pay scales, except of course for London where there is a particular issue about weighting, which I fully accept. It is quite right that London schools should get significantly more money than schools elsewhere in the country—I have no argument with that. Employment costs are higher in London; teachers get London weighting and that is reasonable. However, teachers elsewhere get the same salary wherever they are because national pay scales apply. The ancillary costs related to education for things such as textbooks, heating, lighting and the building are broadly the same. The national curriculum also had a big impact on levelling authorities' expenditure on education over their historical levels. I accept the case for London weighting—I do not challenge it for a minute—but there are some interesting questions for the Minister to answer about area cost adjustment.

Sue Doughty : I apologise to you, Mr. McWilliam, because I am not able to stay until the end of the debate.

There are also problems in the high-cost areas. For example, in Surrey housing costs are as much as, if not more, than in some parts of London. We are losing 25 per cent. of our staff every year. Surrey is a training county without a training budget. Additional costs accrue to such cliff-edge areas. We are spending some £50 a year on training alone—and yet we have to do all those things.

Mr. Luff : I am interested in what the hon. Lady said. I half agree with it. I acknowledge that the Audit Commission said recently in its review of local government finance that the Government had shifted resources from the south-east to elsewhere in the country. I agree with that finding, I have read that report, I am interested in it, and it is true. Counties like Surrey have suffered. They have, however, received an area cost adjustment for a long time. Teachers' salaries are modestly higher in my constituency than in the hon. Lady's—although I should not make too much of that. Nevertheless, they are certainly in line with the salaries paid in Surrey. I accept that in the hon. Lady's constituency higher salaries still are, perhaps, needed to

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retain teachers. The actual costs incurred by schools are marginally higher in Worcestershire and Staffordshire than in counties in the south-east.

My theory is that the area cost adjustment is a device used by civil servants to favour their own schools. This is not and should not be a party political debate. Civil servants live in the south-east of England and they want their schools to be well funded for a long time. Ministers of both Conservative and Labour Administrations have gone along with that for too long. It is time to recognise that schools outside the south-east deserve a fairer deal than they have had so far.

Ministers in debates like this often respond by saying that similar children in similar circumstances get the same level of funding—I suspect that that is in the Minister's script today—but that is not true or right. It is, perhaps, true of the basic funding formula, but school funding does not stop there. Funding is also affected by the area cost adjustment and the other top-up sources of funds from central Government, which the hon. Member for Stafford enumerated during his speech, which was good. The problem in Worcestershire is that historically, before the days of the national curriculum, the Conservative-controlled Administration were able to spend relatively low sums on education, compared with elsewhere in the country, and deliver an adequate outcome. However, with the national curriculum, the pressures on education have changed all that. If the Conservative Administration of the 1980s had faced the problems of the 21st century, they would have spent a great deal more money.

The old funding formula reflected historic patterns of expenditure. A history of low spending would be used as the base on which the percentage increases were built. A new funding formula was introduced last year. I was delighted about that. Sadly, however, that has enshrined the old status quo. I am not normally cynical, and I apologise to the Minister for being so, but my cynical judgment is that the per pupil entitlement and the deprivation-sparsity top-ups were rigged to deliver roughly the same outcomes as the old formula. Therefore, Worcestershire did not benefit from the new formula as it should have. The gap between our neighbours and us has grown in cash and relative terms since 1997. Although I chose that date quite arbitrarily, the Minister probably appreciates its significance. The gap has grown because the formula has not been amended as I had hoped it would be, because top-ups—which we do not get—have been paid from central funds to neighbouring authorities, and because of the area cost adjustment.

It is important to recognise that the rules of compound interest apply to school funding formulae. In other words, if a school starts from a low base and gets 6 or 7 per cent., that is welcome because it eases the budgets. However, if the neighbouring authority—let us say Birmingham or Warwickshire—gets the same percentage from a higher base, they get more and the gap grows. Worcestershire is grateful for this year's settlement; it would not be bad if the county were an island. However, it is not. It is joined on every side by other local education authorities that are fishing in the same pool for teachers—and often, at the boundaries, for pupils. The LEAs around Worcestershire can offer a better deal on equipment and facilities for pupils and teachers alike. That is getting worse, and I am concerned about it.

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I am delighted that the Minister for School Standards will meet a group of nine members of the Worcestershire head teachers forum on 27 January to examine the issues. The Minister listened to Worcestershire's case in a marvellous way, and I am grateful to him beyond words. He answered at length questions that were often bad-tempered—because we feel strongly about this matter in Worcestershire—and he responded with his usual intellectual honesty. I am grateful to him for that. However, we are getting to crunch time in Worcestershire. The gap between our neighbours and us grows and grows, making it increasingly difficult for Worcestershire to offer the quality of education that it should, compared with Warwickshire, Gloucestershire, Birmingham and the black country.

This is not the Minister's job, but the matter is made worse by the view of the Office of the Deputy Prime Minister on resource equalisation: not only do we lose area cost adjustment because our salaries are apparently not high enough to merit that but, miraculously, our house prices are too high and therefore it is judged that we could raise more in council tax. To have an area of the country where house prices are high and labour costs are low is challenging to say the least. I read economics at university and although my knowledge of it is now a bit ropy I know that it is difficult to sustain high house prices on the basis of low wage costs. That suggests that what I have been saying to Ministers for some time is true: people live in Worcestershire but work in Birmingham—or Warwickshire or Gloucestershire. Many teachers do that.

House prices are high and labour costs are low, so we lose both ways. We lose about £10 million on area cost adjustment and £13.4 million on resource equalisation—a total of nearly £24 million a year. If the county were to get its hands on even some of that, it would make a big difference. The rules are not joined up; they are not delivering the right outcome for schools in my constituency and throughout the county.

I have expressed my reservations about the formula, which gives the wrong balance of weights—it gives too much to deprivation. That should be reformed. I have also expressed my views about area cost adjustment. The hon. Member for Worcester (Mr. Foster) is interested in that, and it is a shame that he is not present because he has criticised Conservative Members for not attending past debates, but that is another matter. The Government have two choices: either area cost adjustment goes—which there is now a case for—and every LEA outside London, where there is London weighting, gets a similar level of resource and similar children in similar circumstances are truly valued equally, or Worcestershire gets it, because it is surrounded by counties that get it, and that is putting us at a huge disadvantage.

The other issue is top-up funds—excellence clusters, excellence in cities, leadership incentive grant, education action zones and pathfinder projects. I have tried to find out what these bring to the county. I have had two sets of answers from the Department for Education and Skills. One of them was about pathfinder projects, which promised that a table was enclosed but it was not. I have yet to see it so I do not know what the situation on pathfinder projects is. I am sure that that table will be produced. I raised the matter with the Department in a

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question—reference No. 141463—asked on 8 December. I would love to know the situation with regard to pathfinder projects, but I do not.

I have asked questions on education action zones, excellence clusters, excellence in cities and the leadership incentive grant. The hon. Member for Worcester has taken me to task for not asking about specialist schools. I will be asking about them now. As for other direct sources of funding, I shall ask about early years, excellence challenge, behaviour and attendance, and standards funds moneys too, because I want to debate the facts.

Let us consider the answers that I received to questions on several issues—reference Nos. 141460, 141424, 141425 and 141426. I congratulate the officials who deal with the leadership incentive grant because they answered my question about it. The officials whose attention was drawn to the other three issues did not. The Minister should have looked before he signed the answer to the question. The information that I received was complete gibberish. The Table Office has allowed me to re-ask the question. I have asked the hon. Gentleman to respond to the points in the questions with reference Nos. 141460, 141424 and 141425, in the manner that was used to answer the one with reference No. 141426. I look forward to receiving that answer. Frankly, the answers had been stuck on a word processor without captions, titles or explanations and were not in the requested form. I received a scandalously inadequate response.

I am not a conspiracy theorist, but there are those of us in Worcestershire who believe that the answer was given in such a form to deny us information. That worries me. The matter is subject to revision when I receive the answers to the other questions, but the Worcester head teachers forum has considered the answers that I have received so far and about £300,824,000 is paid in top-up moneys, of which Worcestershire receives £375,000 under the leadership incentive grant moneys, which is 0.1 per cent. of the total. That destroys the Minister's argument that similar pupils in similar circumstances are funded similarly; they are not. Area cost adjustment of top-up funds makes a big difference.

In press releases, members of the governing party in Worcestershire say, "Funding gap closes again". I do not know how they reach that conclusion. The funding gap has not closed again; it has widened again. I have challenged the hon. Member who wrote the press release to withdraw it from his website, because his statement is not true. I have given the game away as there is only one male Labour Member in Worcestershire. The funding gap has widened. Yes, I am pleased about the extra money. Yes, I am pleased that school budgets will not be pressurised, but Warwickshire and Birmingham, in particular, have again done better than us. We cannot continue in such a way. Head teachers, parents, governors and pupils in Worcestershire are paying a heavy price for the steady erosion of Worcestershire's relative position in the funding table.

It is also true that the Labour party is trying to make such matters a party political issue in Worcestershire. I have tried to avoid doing so. Legitimate arguments can be advanced about how education is funded nationally.

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I am willing to stand up and defend my position on the funding of public services, especially the health service. I had real worries about the Government's strategy of pouring in money without first reforming the service. Pouring money into Worcestershire's education service is a thoroughly good action to take. It needs more money to bring us up to the levels of the neighbouring authorities.

Party politics should not be involved. Yes, here in Westminster we should argue about the total quantum and how it is raised. We should argue about public-private structures, organisation and so on. As local Members of Parliament in Worcestershire, we should be determined and clear about the fact that our county deserves a fair share of whatever a Conservative, a Labour or—God knows—a Liberal Democrat Administration might offer. I say to the Minister that the situation is deteriorating day by day, year by year. Worcestershire demands and deserves a fairer deal.

2.49 pm

Dr. John Pugh (Southport) (LD): I congratulate the hon. Member for Taunton (Mr. Flook) on initiating the debate, which will surely not be the last such debate. It is certainly not the first debate that we have had on school funding. The Government's reaction to the issue passed through three distinct phases. First, they were surprised that there was a problem. Secondly, they confessed that they had some part in the problem and had not expected it, and they currently want amendment of life and an intention to do better hence forward. There was a degree of repentance on their part. That is all very welcome. I will not rehearse the reasons why the problem arose in the first place, because all hon. Members present are fairly familiar with them. In a nutshell, they were a combination of unexpected school costs and a rejigging of the local authority formula.

As the hon. Member for Mid-Worcestershire (Mr. Luff) mentioned, rejigging the local authority formula was a highly contentious act. It was an attempt to arrive at a more equitable and fair formula, but it clearly has not satisfied many hon. Members or their constituents. None the less, it was planned and its effects could have been anticipated, and the Government are remiss for not having done so.

Recently, however, the Government have given a great deal of reassurance in various ways over fixed periods. First, reassurance was given that the formula spending share was going to increase by between 5 per cent. and 6.8 per cent. per pupil, and a vigorous announcement was made that the local authorities would have to passport fully the schools' funds. The Minister made it clear that if that did not happen, he would ensure that it would. Subsequently, a ministerial announcement guaranteed broadly 4 per cent. per pupil. There are variations, depending on whether the school roll goes up or down, but the increase was good so far as most schools were concerned. The general figure seemed to exceed the headline figure that the Government gave for increased school costs.

There was also the reversal of the previous policy on standards funds and the restoration of standards funds to schools. There was the offer of transitional support—a limited, possibly insufficient amount—to areas that had especially difficult problems, and the opportunity

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for local authorities to knock on the open door of the Secretary of State to ask for money if they really needed it and could not cope without it. I understand, however, that that was in the form of a loan rather than a direct grant. There was the promising development of an early settlement of all these finances so that schools could anticipate their financial situation, however good or bad it might be, and of an early, and fairly extensive, settlement of teachers' pay.

The Government have done much to give schools some of the reassurance that they did not have last year. However, fundamental uncertainties remain about the implementation of the workload agreement, and about exactly how schools will use their balances and how they used them last time. There are new rules about balances, which will affect how schools dispose of their funds. There is also the continuing and contentious nature of what we used to call the rate support grant, which has a greater adverse effect on county areas than on, say, metropolitan areas, which must be recognised. It must be recognised that county areas have a particular problem with that grant. None the less, the Government attempted to smooth things over with the local government settlement—more reassurance. They offered £300 million to authorities that would have specific problems in funding education in full without damaging other services. That was followed by the December pre-Budget statement, which promised extra money yet again.

On the face of it, it is hard to tell whether the Government have done the job that they intended to do. They have made certain moves, but the $64,000 question is, "Are they out of the woods and have they resolved their problems?" I suspect that the Government team will ask themselves that question over Christmas, and will continue to ask it until the school budgets pan out later in 2004. This is a nail-biting time for the Department for Education and Skills, which has taken steps to ensure that there is no repetition of 2003 but is not entirely sure that that will happen.

Mr. Kidney : The jury is still out on several matters. We can say with certainty that the Government have made all these announcements very early to help schools and LEAs this year and have done their best to indicate figures for two years, not one. Does the hon. Gentleman welcome those factors unequivocally?

Dr. Pugh : It is certainly preferable for schools to have an early statement about what their future financial affairs might be like. Bursars and head teachers throughout the country will be happier with the situation in 2004 than the one at the start of 2003. That can only be good, and the Government are to be applauded. However, it is fair to summarise what the Government have done as a series of ad-hoc adjustments. It has been a scissors-and-paste job. Schools, and everyone else, would like a permanent fix. I do not see how the Government can arrange such a permanent fix, although it may be broadening the scope of the debate to say that they are on the horns of a dilemma.

One solution, which would to some extent avoid a repetition of the same events in 2003, 2004, 2005 and 2006, is to move rapidly in the direction of new localism. The Government could roll things back, fix a generally

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fair level of support for local authorities and let them get on with it. In other words, they could simply set standards and back out. I am sure that they have absolutely no intention of doing that because, like the previous Government, they seem to have decided that education, and certainly schooling, are far too important to be left to local authorities, and so they want more levers to direct and control the process.

Clearly, the Government could go in the reverse direction. They could go the whole hog and adopt a command-and-control version of education similar to that adopted in France. They do not want to go down that road either, and so they are left with a somewhat awkward system that is difficult to manage and which will never guarantee schools the financial stability that they would hope for and that would be the best possible scenario.

The system involves resources being channelled into education via local authorities—with disputes over whether that is done fairly—through various versions of school formulae, and could involve disagreement about whether the arrangements are as adequate as they could be. There is also a range of special schemes, as the hon. Member for Mid-Worcestershire mentioned. The effects of those schemes are difficult to assess and they can give rise to grievances in schools that do not benefit from them.

A high degree of central prescription underlies the distribution of resources, and a necessary consequence is that there will always be local anomalies and unjustifiable differences that people cannot defend intellectually—they simply observe that they occur. What the Government have done means that if a school had a windfall funding increase to deal with the circumstances of this financial year, that would be incorporated into its budget. If a school had an unfortunate variation this year that was not systematic, but occurred because of a temporary adjustment that it had to make, that would be bolted into its budget. That has been acknowledged and, in a sense, tolerated by Ministers.

Issues related to fairness, equity and the way in which the system pans out on the ground in areas such as Somerset and Worcestershire will always be around and will be almost unavoidable until the Government choose to empower local authorities as before and to introduce greater local discretion, or go in the other direction and divest local authorities of their residual powers.

Mr. Luff : Is the hon. Gentleman aware that in Worcestershire the local education authority has already decided to spend more than the Government recommend? It is already spending above the formula spending share reckoned by the Government, and still the shortfall exists. There is some empowerment already, but at a heavy cost to the council tax payer.

Dr. Pugh : I quite agree. I have a lot of sympathy for what has been said about Worcestershire because I used to serve on a local authority that, unlike Worcester, traditionally and habitually, over decades, spent above what Governments recommended, and we found it extraordinarily difficult to maintain educational expenditure at the required level given the nature of the

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rate support grant each year. Often other services had to be cut and reduced to maintain the funds for a school, and in some cases add to them.

I suggest that the Minister should seriously review the possibility of adopting a solution for the funding of schools that is something more than the scissors-and-paste job that we experienced this year, because, sure as eggs are eggs, the same details, data and offers from the Chancellor of the Exchequer and other sources will not be around in subsequent years. Schools genuinely want stability, continuity and a good level of funding for decades to come.

2.59 pm

Mr. Mark Hoban (Fareham) (Con): I congratulate my hon. Friend the Member for Taunton (Mr. Flook) on securing the debate and introducing it so eloquently. He spoke with real passion about the problems that affect his community in Somerset, the way in which the funding formula may have penalised that area and the impact that that has had on the local education authority. I was particularly interested in his comments about some of the central costs of LEAs, such as school transport costs, which are a real burden in many rural communities.

The hon. Member for Stafford (Mr. Kidney) made a characteristically "yes, but" speech. He thanked everyone lavishly in the style of an Oscar winner, and then expressed his qualifications. I have a lot of sympathy with what he said. Representing a constituency in south-east England, I am perhaps a beneficiary of the delay in fully implementing the changes to the funding mechanism announced last year.

As a beneficiary, the question arises of when the transitional process will restart. This year it would appear that, given the narrowness of the gap between the floor and the ceiling, the process has stalled. When do Ministers expect the transition to be completed? If we are to plan staff numbers and the development of schools in the long term, we need a clear timetable for the completion of the transition. The hon. Gentleman also made a point about work load to which I will return later. He hit on an issue that affects many schools to which I have spoken over the past few weeks.

I turn to the remarks made with typical passion by my hon. Friend the Member for Mid-Worcestershire (Mr. Luff), in which he expressed the concerns of Worcestershire and made some very telling points. His point about area cost adjustment is interesting because we should see whether the Chancellor extends his commitment to introduce regional pay bargaining in a national formula to greater issues arising on that front in the future. The distribution of funding causes many people concern because it is difficult to understand the disparity in allocation between neighbouring LEAs. It is a concern that we have heard expressed by Members up and down the country over the past year.

I was also taken by the numbers mentioned in the Department's allocation of direct funding to local schools to which my hon. Friend referred. I think that 0.1 per cent. of direct funding went to Worcestershire. There is a lot of concern that that money has been targeted away from shire counties and at inner-city

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areas. There is also concern over whether schools in shire counties are receiving an adequate level of resources to improve educational standards.

Mr. Luff : I am sure that my hon. Friend would wish to confirm that we have no argument about schools in deprived areas receiving additional funding; it is the extent of the discrepancy that concerns us.

Mr. Hoban : My hon. Friend makes a fair point. We also need to remember that schools in those areas have had more funding, but that the gap between the best and the worst schools has continued to widen rather than narrow under this Government. I know that all too well, having looked at the numbers for the north-east of England—the area that I come from—and seen the increasing disparity between the best and worst schools and how even people in deprived areas are losing out.

The hon. Member for Southport (Dr. Pugh) made a very good summary of why we are currently where we are. He envisioned that as long as the system is in existence we would be trapped in debates about school funding for years to come. The Government know that next year they must have no repeat of the problems that have bedevilled the 2003–04 financial year.

I am the first to acknowledge that the Government have taken great steps to try to remedy some of the problems that we saw in 2003–04. The transitional funding of £121 million to help schools that are in deficit is an important aspect of that. The relatively high increase in the schools formula spending share per pupil is much higher than that envisaged by the Secretary of State when he made his announcement in October. The narrowness of the gap between the floor and the ceiling has greatly helped those LEAs that would lose out if the redistribution of funding were to happen again this year. My concern is whether that is enough.

One reason why we had so many problems in the 2003–04 financial year was that the Government underestimated the cost pressures facing schools. The Secretary of State referred to cost pressures of 3.4 per cent in his statement on 29 October. Some of the correspondence that I have had from schools across the country states that they believe that number to be optimistic. One primary school in Dorset said that it needed an increase of 6 to 7 per cent. but the formula spending share per pupil went up by only 5 per cent. in that county.

A high school in Norfolk—not in the constituency of the Secretary of State for Education and Skills, I am pleased to say —needs an increase of 7 per cent., yet the county's LEA increase this year is 6 per cent. In Northamptonshire, a senior school needs an increase of some 6.5 per cent., but the county's increase is only 5.8 per cent. Schools are uncertain whether the money that has been promised by the Government will be sufficient to cope with the cost pressures that they predict for the 2004–05 financial year.

Let me return to transitional funding, which is an important tool in the Government's armoury for trying to improve the deficit situation faced by so many schools. The hon. Member for Southport expressed concern that the transitional scheme will actually reward schools that have not managed their books properly. That is prompted by a comment that came out

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of the questions and answers produced by the Department for Education and Skills at the time that transitional funding was announced. Schools that have taken steps to manage their way out of the problem need more support, but we are in danger of rewarding the poor performance of those schools that have not done that. I am not sure that any of us would like that to take place.

Transitional funding does not tackle the problems of schools that managed their way out of the current financial year's situation by using reserves or devolved capital expenditure. Let me give some examples: a school in Northamptonshire used £46,000 of its reserves to balance its books, but it will not benefit from the targeted transitional funding, which is meant to go to schools that had a deficit, and a community college in Northamptonshire has used £90,000 of reserves to tackle its problem. The list goes on and on. Many other schools have been identified. I am sorry that the hon. Member for Guildford (Sue Doughty) is no longer in her place, because schools in her constituency are affected as well. One primary school in Guildford had to use its reserves, as well as the capital expenditure that was earmarked for that year, to balance its books.

Surrey county council estimates that schools have used some £10 million of their reserves to balance their books, but they will not get any transitional target grants for 2004–05. It appears that there is no way in the forthcoming financial year to protect schools that have taken such action. Teachers in my constituency express to me their concern that, although they avoided redundancies and staff losses in 2003–04, the pain will hit in 2004–05 if the spending increase is not sufficient. That is a real concern for many schools that managed to tide their schools over this financial year because of prudent financial management in earlier years.

Let me raise a matter that is important to schools, although it may appear to be a point of detail. The Secretary of State announced that KPMG were to provide hands-on support to schools with budgetary problems. Will the Minister confirm that that will be limited to half a day per school? I believe that schools had originally been given the impression that there would be two days per school. Having worked for a firm of chartered accountants myself, I suspect that half a day will not be enough to get to grips with some of the complex issues affecting our schools.

The issue raised by the hon. Member for Stafford, to which I wish to return, is the work load initiative. There is a real concern that the money in the 2004–05 settlement will not be sufficient to implement some of the much-needed work load reforms that are so fundamental to retaining good teachers in our system. I shall repeat some remarks that schools have made to me. A school in Guildford said:

What a perverse world we live in where, in order to make the work load reforms work, we must reduce the number of teachers in a school. I think that many people would scratch their heads and wonder whether the work load reform initiative has been properly funded.

A school in Northampton, which was a pilot for some of the reforms, pointed out that when its pilot money runs out on 31 March 2004, it will have to make

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redundant some of the teaching assistants employed as part of the pilot project. I am sure that that is not the Government's intention, but it is the unintended consequence of the way in which funding works. It echoes the point made by my hon. Friend the Member for Mid-Worcestershire about the amount of money that is funded directly to schools from the DFES. Quite often, that money is for a finite period, but the expectation is that those schools will continue to provide that service once the initial pilot money has gone. In its submission to the next spending review, the Local Government Association said that it is difficult for LEAs that are on the floor of their settlement to envisage how they will meet the costs related to some of the work load reform initiatives proposed by the Government.

I want finally to touch on the implications of the formula for spending share per pupil—a methodology that the Government have set out. It is becoming more and more difficult for LEAs to devote additional resources to schools that have particular needs. Money cannot be transferred between schools as easily, if the expectation is that schools will get, in the example of Barking and Dagenham, some 5 per cent. extra per pupil. There are limits to schools' discretion. Perhaps we are witnessing a move by the Government to introduce national funding of schools. The fair funding formula, showing the average amount per pupil plus various allowances, would indicate that that may be where the Government are heading. Will the Minister comment on that? He has, perhaps, more time than he initially imagined to respond to hon. Members' queries.

As the hon. Member for Southport said, the Government are watching and waiting, having heard loud voices of complaint arising from the inequities of the 2003–04 spending review. It is clearly important for the Minister, as well as for schools, teachers, heads, governors and LEAs, that the spending formula is right. I am concerned whether the Government have understood, after last year's debacle, the problems of cost pressures facing schools. Have they properly appreciated that, if such pressures are not properly addressed, what might appear to be a minor shortfall of, for example, £20,000 on a school budget, means two thirds of a teacher? Have they tackled the issue facing so many schools of how to bail themselves out using their reserves or capital expenditure? Those problems might bite in 2004–05, not in the current financial year. It is a question that we cannot answer today, but we shall watch how schools respond to the financial settlement.

3.13 pm

The Parliamentary Under-Secretary of State for Education and Skills (Mr. Stephen Twigg) : We have had a very good debate in a constructive spirit. Colleagues on both sides of the Chamber have sought, quite properly, to represent their constituency concerns and to raise some of the broader issues that we undoubtedly face on school funding. I should like to echo the comments of hon. Members who have spoken during the debate in thanking all those who work so hard in our schools: the teachers and head teachers, other school staff, and parents, pupils and governors. Regardless of party politics, there is much for us all to celebrate in the achievements that we see in our schools.

I shall seek to respond to some of the specific concerns that have been raised in the debate. I apologise to hon. Members if I do not address every concern, but I shall

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endeavour to write to all those to whom I am not able to respond fully today. I shall then conclude by making some general remarks.

I join in congratulating the hon. Member for Taunton (Mr. Flook) on securing this debate. He raised several important and challenging issues related to schools funding, with particular reference to the situation in his county of Somerset. My starting point in addressing what he said is that I do not underestimate some of the difficulties that have occurred this year.

Schools and LEAs in all parts of the country are confronted with a number of issues. Some of the cost pressures about which hon. Members spoke apply to both rural and urban areas, and to the north, the south and the midlands. However, the combined changes that were made last year have had a different impact in different parts of the country.

The hon. Member for Taunton spoke, in particular, about rurality, and about how to address the needs of rural schools. He was right to do so, although that goes some way beyond the specific focus of today's debate. He also mentioned the question of school transport. I am acutely aware of the cost pressure that that issue incurs, and of the frequent inequity for children and their parents in the system for getting access to school transport. That is why we announced in the Queen's Speech that we intend to publish a draft Bill to examine and address that specific issue.

I have responsibility in the Department for work with rural schools. We now have a rural schools group, which brings together head teachers from secondary, primary and special schools to examine particular issues, such as transport, and access to information and communications technology, to which the hon. Member for Mid-Worcestershire (Mr. Luff) referred when making the contrast between the situation in his constituency and that in a city such as Birmingham.

The hon. Member for Taunton, in responding to an intervention, made a point about small schools. It is important that we have sufficient flexibility to recognise the particular circumstances of small schools, especially those in rural areas. That is why we introduced the important presumption against closure of rural schools. Earlier this year, I visited a school in Cornwall, which had only 17 pupils in the entire school. I was struck by the excellence in that school, and how that was achieved. I would prefer that we only closed schools in extreme circumstances, and accept the his point that one implication of that is that we need to examine the funding arrangements.

We said this year that we want to have a minimum per pupil increase in every school. Part of the reason for that is that we want to give a guarantee of stability. However, we also recognise that in many schools, and particularly in primary schools, pupil numbers are falling significantly. We want to ensure that sufficient flexibility is given to those schools for them not to suffer as a result of their decreasing pupil numbers. I endorse the point made by the hon. Member for Taunton about the importance of some of our initiatives, for example the relevance of specialist schools to rural as well as to urban areas.

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The hon. Gentleman mentioned the undertaking that we have given that authorities can apply to bring forward future years' grant into this year, and asked whether Somerset would be eligible to do that. I understand that no approach has been made to the Department by the authorities in Somerset, but that there is still sufficient time for them to do so if they wish to make use of that provision.

In Somerset, there has recently been a significant increase in the numbers of teachers and of other staff working in schools. I want to strive for that position to be sustained in the future rather than being reversed. I understand that Somerset has an excellent record on education, which has been recognised in many ways by Ofsted and the comprehensive performance assessment process.

The hon. Gentleman referred to the fact that progress made in primary schools at key stage 2 is slightly behind national progress. However, at secondary level, good progress has been made in recent years. The figures for the five A* to C GCSE measure are above the national average. Somerset does particularly well in the value added measure between key stage 2 and key stage 3. I would be happy to examine that further, but I understand that the Department has a positive view of the progress that Somerset is making and we want that to continue.

Several hon. Members referred to the increases in capital investment in schools in recent years, and I appreciate the non-partisan way in which the issue was addressed. There has been significant improvement. Capital investment in 1997–98 in Somerset was just below £4 million, whereas this year it is just below £20 million. I do not underestimate the scale of the challenge that we face in ensuring that school buildings and equipment are fit for the 21st century. We must accept that all Governments over the decades have failed to address that sufficiently, but I am pleased that we are now seeking to do so.

My hon. Friend the Member for Stafford (Mr. Kidney) raised several issues, including the ongoing F40 campaign. I understand his concern, which overlapped with the subsequent speech by the hon. Member for Mid-Worcestershire. It is clear that it is a difficult issue to get right. It would be difficult to address the problem with a national formula, but it would be equally challenging to leave it to local authorities and communities to determine for themselves. My hon. Friend rightly said that we have sought to identify a basic amount of money that everyone should receive, while recognising that further factors must be considered.

I acknowledge what my hon. Friend said about the contrasts between neighbouring authorities, such as Stoke and Wolverhampton, and he raised two specific issues, one of which was raised by other hon. Members. The first point was about the upper pay spine. We are acutely aware that head teachers are concerned about the affordability of the next stage of the pay reform. Following the School Teachers Review Body's announcement, we have been involved in discussions with head teachers associations and the Local Government Association on ensuring an outcome that is affordable, has clear criteria for schools, and rewards good performance by teachers so that they can make the desired progress.

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My hon. Friend the Member for Stafford and the hon. Member for Fareham (Mr. Hoban) raised the issue of work load, and it is critical to get that right. There has been a fundamental change in recent years with an increase in the number of additional adults, such as classroom assistants or learning mentors, working in schools. Central Government must ensure that that trend can be sustained and afforded. Indeed, we hope that it can be increased, so that the terms of the national work load agreement can be implemented in schools and communities across the country. We are working with all signatories of the national work load agreement, including the majority of unions, head teachers associations and the Local Government Association, to see how to proceed most reasonably.

My hon. Friend the Member for Stafford and the hon. Member for Mid-Worcestershire passionately raised the position of their counties and drew contrasts with the positions of neighbouring authorities. I know that a delegation from Worcestershire is going to discuss its position with my hon. Friend the Minister for School Standards in January. I particularly appreciate that the hon. Gentleman acknowledged that there are additional costs in London that merit an uplift within the system. He also acknowledged that it is right to have a factor for deprivation, and he said that there should be a debate on how far that is weighted against others.

As hon. Members will know, the formula introduced this year is the product of detailed work that has attempted to get the combination of factors right. We have listened to the concerns of rural schools, hence the introduction of the sparsity element in the primary, central LEA part of the formula. We have listened to the concerns of urban schools about the impact of factors such as deprivation, pupil mobility, and pupils speaking English as an additional language, and incorporated that into the formula. I accept that it continues to leave gaps. I believe that we all accept that there will always be gaps in per pupil funding, for the reasons that hon. Members have acknowledged throughout the debate, but we need to continue to examine the implementation of that funding in future years. I very much appreciate the serious point made by the hon. Member for Mid-Worcestershire that the rules of compound interest apply. That aspect of the debate will continue.

I will ensure that the hon. Member for Mid-Worcestershire gets a proper and clear reply to his parliamentary questions. I understand that there are 15 specialist schools in Worcestershire, which clearly benefit from additional funding, in addition to the leadership incentive grant moneys to which he referred. In the past 12 months, my right hon. Friend the Secretary of State has said that we want every secondary school in the country that qualifies under the criteria to be able to be a specialist school. That will bring great benefit to Worcestershire, as it will to other parts of the country.

We are also considering how some of the projects that have been funded through schemes such as excellence in cities and behaviour support—the hon. Gentleman listed some of them—can be drawn out and applied to other parts of the country. Last week, I announced that the primary programme for excellence in cities is being extended to other primary schools with

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a high level of deprivation. That will include some rural schools and schools outside the traditional excellence in cities areas. I appreciate the concern that a focus on areas of high deprivation can have several impacts, one of which is to ignore small pockets of deprivation in otherwise fairly wealthy areas. Again, we must debate that further.

The hon. Member for Southport (Dr. Pugh) said that this would be a nail-biting time for the DFES. Certainly, we are determined to get these things right. He described the future debate as being between new localism and command and control. I am tempted to use my remaining three minutes to respond to that, but that is a broader debate, which we will need to conduct elsewhere if I am to do justice to other points raised this afternoon.

The Opposition spokesman, the hon. Member for Fareham, talked about the importance of the Government recognising some of the serious differences between areas and the discretion that local authorities may or may not have. In all honesty, we have done a mixture of things. On the one hand, we have been more prescriptive by saying that there should be a minimum increase for each school, which obviously reduces some of the discretion that LEAs used to have. On the other hand, we have told LEAs that the remaining money gives them the headroom, as we describe it, to apply it, and more flexibility about how they do so. They need not necessarily apply it through the traditional local formula. They have that ability, and we strongly encourage them to use it, as we believe that it is important that such support is given.

The hon. Member for Fareham also made a very important point about the transitional support, which is the additional money that we have identified for the LEAs that received a relatively small increase this year and to whom we plan to give a similarly small increase next year. That will ensure that everyone receives a minimum increase of 12 per cent. across the two years. He asked whether that might reward mismanagement. We do not want to do that. We want to ensure that schools that have had to exercise certain short-term measures are given the support that they need for long-term stability. He is right to say that, in some cases, that will include schools whose budgets have gone into deficit this year. However, the money is not meant exclusively for those schools. It can be used to assist schools that have had to raid their reserves in the way that he described, if the LEA and the Government agree. It can also be used for schools that have had to divert money from capital into revenue. We do not want a school to have to make a permanent shift from capital into revenue because of the obvious damage that that could do to its ability to maintain its school buildings and to do other work required to provide capital support for the school.

I assure hon. Members that the Government recognise that we have a shared responsibility to learn the lessons from this year. We have found additional funds, including funds that the Chancellor announced last week for local government, which we believe will make a difference. We have reversed the cuts that were to be made to the standards funds for the coming year and the year after, and we believe that that will be beneficial. We have sought to give a basic guarantee to schools in all communities that they will receive an

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increase that will enable them to plan for this year and the following year. Crucially, we have a two-year pay deal on the table which will make budgets far more predictable for all schools in the country.

We have had a good, constructive debate—I am sure that it will not be the last debate on schools funding in this Chamber—and I have been pleased to take part in it.

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