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Baroness Farrington of Ribbleton: My Lords, we support this amendment. All I would add to the points made comprehensively by the noble Lord, Lord Tope, is the question of whether the FAS is reasonably placed, in terms of geography and resources, to be able to look in detail at applications from individual schools; and whether it is not also important, from the point of view of those schools, for it to issue guidance directly to the schools on the sort of remit that would be given on this matter in order to help them frame applications which are likely to be approved and not to submit applications which are unlikely to be approved.

Perhaps I may reiterate and strengthen the point about the need for further consultation on this matter. We are not seeking to regulate for every detail. We are not seeking to put obstacles in the way. But we do believe it is important that everyone is clear about the circumstances in which the provisions in the Bill would be applied, were it to become an Act.

Lord Henley: My Lords, I do not think it would be necessary or desirable for me at this time to rehearse all the arguments that I went through at Report stage on the main part of the noble Lord's amendment. I believe that we are both looking in the same direction but have different ways of going about it. I think it would serve little purpose to rehearse my arguments again other than to say that I think we can agree to disagree.

However, the second effect of the amendment is something which I ought to address in that it would prevent the funding agency from consenting to classes of borrowing. As the noble Lord made clear, this is not something that we have debated before and I would like to try to explain our position and to give some

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reassurances to both the noble Lord and the noble Baroness, Lady Farrington. This will be covered in the remit letter which my right honourable friend intends to send to the funding agency.

In the first instance, the Funding Agency for Schools will give its consent to borrowing only on a case-by-case basis. This is to monitor borrowing in its early stages and to make doubly sure, while borrowing is new, that schools do not overstretch themselves and that publicly-funded assets are protected. So initially consent will not be given by particular class.

Once the arrangements are well-established, however, it should be possible to introduce more flexible arrangements whereby consent would be given by particular class. This might be consent for loans below a certain value or for particular types of loan.

I am sure that the noble Lord would not want to tie up schools in red tape by requiring them to seek consent for every loan just to reglaze the science block or to put up a bike shed. But the Government are committed to cutting red tape and we think that the proposed arrangements for borrowing provide the right balance.

To underline our position, consenting to borrowing by particular class is a very useful flexibility which will be used only where it is appropriate. And in the first instance consent, as I said, will be given only on a case-by-case basis until we have gained experience. This is in no way intended to circumvent the necessary protection for schools and their assets which the Secretary of State's consent provides.

The noble Lord also asked whether there would be further consultation. I think I made it quite clear that there has already been a great deal of consultation. I made it clear that I thought consultation was possibly coming out of our ears more generally speaking, in terms of departmental policy. I am not sure there is a case for further consultation on this issue, but I have no doubt that many interested parties will probably still seek to submit their views. They would be taken note of in drafting the remit letter.

Finally, the noble Baroness, Lady Farrington, asked us whether we were satisfied that the Funding Agency for Schools had sufficient geographical cover and sufficient resources to perform its job effectively. We are so satisfied and if the Funding Agency for Schools were not so satisfied, I am sure that it would be the first to let us know. I hope, therefore, that the noble Lord will feel able on this occasion to withdraw this amendment.

7 p.m.

Lord Tope: My Lords, I am grateful to the Minister for his reply; I am also deeply disappointed by it. I had hoped that as we come almost to the end of this process we had at last found an amendment which he might feel able to accept. It is sad that even at this late stage we shall not achieve that small amount of consensus.

On the question of further consultation, I echo the words of the noble Baroness, Lady Farrington. In requesting that further consultation we are not seeking great detail and over- regulation in the remit letter. We seek clarity. I have acknowledged on previous occasions that consultation has taken place, but it occurred before

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the passage of this Bill. Much has emerged during the passage of the Bill, in the other place and in particular here. It would be common sense to consult with interested parties, in particular the funding agency and the local authority associations, on the draft remit letter. Whether or not they agree with it is not an issue at that stage. It is to ensure simply that those bodies understand the measures that they think it is clear, and that it cannot be drafted in a way to make it clearer. I do not believe that that would be a lengthy and formal consultation process but a necessary, comparatively informal and quick process which could well avoid much greater difficulties at a later stage when it is harder to deal with them. I hope that the Minister's consideration of this point is not finally concluded and that his mind is not finally set upon it. I shall not press him further on that point, nor shall I press the amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 [Orders and regulations]:

[Amendment No. 11 not moved.]

Schedule 3 [Consequential amendments]:

Lord Morris of Castle Morris moved Amendment No. 12:

Page 11, line 36, leave out ("first") and insert ("second").

The noble Lord said: My Lords, I hope that all noble Lords will pay close attention to this highly technical amendment. I shall say this once, and once only. Schedule 3, paragraph 9 amends the local authority capping provisions to take account of local authority budgets following the removal of resources to fund the voucher scheme. Local authorities will not know at the start of a financial year what their expenditure will be because voucher income is not known. Authorities may exceed their cap if education is provided for more children than expected.

Paragraph 9(3) makes separate provision for the first financial year, and either or both of the next two financial years. I hope that is quite clear. The intention is that the first financial year should commence on 1st April 1997 when the "roll out" phase starts. The first financial year is tied to the use of Clause 1 of the Bill; that is, the grant-making powers.

It appears that the Government wish to use Clause 1 to fund inspections of private and voluntary sector providers in phase 1 authorities this financial year, 1996-97. As the Bill stands, if Clause 1 is used this financial year, then the capping provisions would also start, whereas the intention is that they should first apply in the following year. The government amendment ties the start of the capping provisions to the first financial year in which local authorities are funded, and not the first year in which Clause 1(1) is used.

There is a problem with the government amendment as it will make the Bill inconsistent in our view as between Schedule 3 and Clause 1(3), which the Government have not changed in the Lords. The Government should uphold the Bill rather than introduce

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ambiguities. The government amendment raises a doubt about the Government's view of the Lords' amendment which is new Clause 1(3).

My amendment achieves the technical objective of the Government's amendment without causing this inconsistency. It has the effect of renumbering the financial years for which the capping provisions apply and so enables inspections to continue after 1st April 1997. This, I submit, will leave the Bill in tidier shape on leaving your Lordships' House than the government amendment would, and it would not bring inspections to a halt. My amendment will make the Bill internally consistent. I hope that that is all clearly understood. I hope that the Government will accept it. I beg to move.

Lord Henley: My Lords, all I can say is that I am grateful that the complexities of local authority finance and capping arrangements did not come up at one o'clock in the morning at Committee stage; at seven o'clock it is bad enough. I intend briefly to explain why we do not feel that the noble Lord's amendment is appropriate. I ask if he would bear with me and listen to my words carefully. Then, if I may--I appreciate the amendments are not grouped--I shall speak to my amendment. That might be for the ease of the House, and we can then formally move the amendment later.

The noble Lord's amendment would delay the operation of the capping power in sub-paragraph (a) of paragraph 9 of Schedule 3 until the second year in which grants were made to providers in any sector. As I said, I shall shortly move the government amendment. I shall go into that in greater detail.

Like the government amendment, this amendment attempts to ensure that the capping power in sub-paragraph (a) of paragraph 9 will not be brought into force too early as a result of payment of grant under Clause 1 of this Bill to private and voluntary sector providers in phase 1.

However, unlike the government amendment, this amendment is not linked specifically to the changes in local authority funding which will make the capping power necessary. This means that the proper functioning of the capping power will continue to be dependent on the nature and timing of payments to providers in sectors other than the maintained sector.

The formulation of the government amendment, on the other hand, avoids all risk of the power being brought into force at a time when local authority funding should not be affected, and so allows for far greater flexibility in determining appropriate payment arrangements for providers in all sectors.

I shall now speak to my amendment. Paragraph 9 makes the necessary adjustments to existing capping legislation to reflect changes in local authority funding as a result of nursery education grants.

It is intended to provide for a reduction in local authorities' base budgets for capping purposes to reflect changes in their funding for four year-olds as it is switched from revenue support grant to grant under Clause 1 of this Bill. It is not a general widening of the existing capping regime, and will not disadvantage local authorities. The government amendment would provide

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that the changes to capping limits can take place in the first year in which nursery education grant under Clause 1 is paid to any local authority.

I know how much importance the House attaches to early inspection. In order to inspect phase 1 private and voluntary sector providers under Schedule 1 to this Bill, it will be necessary to use the grant-making powers under Clause 1 to fund those providers. But without the amendment to paragraph 9, which we propose, making grants to private and voluntary sector providers in phase 1 would bring sub-paragraph (a) of paragraph 9 into force a year too early. The amendment tabled by the noble Lord, Lord Morris, as I said, would delay the operation of the capping power in sub-paragraph (a) by one year. However, it does not link the capping power specifically to the payment of nursery education grant to local authorities and the resultant changes to their funding, as my own amendment does.

Paragraph 9 of Schedule 3 applies only to local authorities. We have already seen that the need to pay grant under Clause 1 to some private and voluntary sector providers in this financial year has made this technical amendment to the capping power necessary. For the avoidance of any future doubt or complications it is best to tie the operation of the capping power to the timing of changes in local authority funding which will make it necessary. This government amendment will ensure that the capping power refers to the first year of full implementation of the voucher scheme, as we have always intended. This will be the case irrespective of the year in which the voucher scheme is fully implemented and irrespective of any previous funding arrangements for private and voluntary sector providers. I hope that that explanation as to why we believe our amendment is better than the noble Lord's amendment is comprehensible to him. I appreciate that it is rather technical stuff at this time of night. However, I hope that the noble Lord will consider withdrawing his amendment in favour of the government amendment.

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