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Lord Dearing: I rise for the first time in this House to take part in the discussion of a clause. In doing so I now realise how much more comfortable it was to sit with the files, as an official, as I did 30 years ago, to write notes for the Minister, rather than to stand up and without the benefit of the files try to make a contribution.

For some years I was the chairman of a body called the Polytechnics and Colleges Funding Council. Indeed the noble Lord, Lord Baker, appointed me to that office. It may be that an experience I had on one occasion, imperfect though my memory may be, will be of some relevance. It made me wonder, with respect, whether the very understandable concern to introduce safeguards, as proposed by the noble Baroness, Lady Blatch, might circumscribe the ability of the council to respond to a situation, because it is very difficult to anticipate in a safeguarding clause the kinds of circumstances which may arise.

The circumstance which I imperfectly remember was that of a college of higher education. It got into financial difficulties and then received an adverse report on its academic standards. A very real crisis had developed. The governing body responded by proposing, in effect, the closure of the college and the transfer of all the students to another institution. When the case came before the funding council, it

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seemed to us, first, that the procedures adopted by the college had been imperfect and, secondly, that the decision it had reached was not in the best interests of the students.

The governing body had taken its decision in good conscience, but we thought the decision mistaken. The council indicated that it opposed the decision and there could have been a very difficult impasse. Happily, the situation was resolved by the honourable resignation of the chairman and one or two other members. I was then able to use my good offices to suggest certain other appointments. So the problem was resolved in a way preferable to what had been originally intended and in the best interests of the students.

If there had been an impasse, I am not sure, without powers to bring in new people and thus unlock minds, that the matter could have been solved satisfactorily. Any powers of the kind proposed by the Government should be used sparingly and only after every attempt has been made to resolve matters by agreement and negotiation. However, sometimes that is not possible. I believe that it is in the interests of students for the council to be able to make two appointments and then be accountable for the action that it has taken.

Baroness Blackstone: I hope the Committee will forgive me if I respond to this amendment at some length. I believe that we are discussing an important matter. We are agreed that the LSC should have the power to intervene. There is nothing between us on that. I return to the points I made when debating amendments to Clause 11 about the need to intervene early. I understand that the concerns of the noble Baroness are about the actual circumstances in which the powers may be used. She referred to the need for triggers on the face of the Bill for determining when the power should be exercised. She has now produced an amendment which would set out the circumstances in which the LSC could exercise the power. But again I am afraid she has missed the point. We must look back at the kind of circumstances which gave rise to the need for this power in the first place.

In our earlier debate I mentioned Halton College. The report published by the Comptroller and Auditor General with the title, Investigations of alleged irregularities at Halton College, lists 14 allegations that were received and investigated by the Further Education and Funding Council. Some were found not to be substantiated. Some were found to be partly substantiated. Some were found to be fully substantiated. In the PAC's 37th report, published after its consideration of the Comptroller and Auditor General's report, the committee drew out some of the devastating consequences of what went wrong. I should like to quote from the PAC's first conclusion:

    "It is highly unsatisfactory that Halton College overclaimed almost £14 million, and that to a large extent these overclaims evaded financial controls in place at the college and in the Funding Council. One immediate impact of the need to repay this money is that 114 people will lose their jobs, and this will cost the taxpayer £1.8 million".

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The committee went on to give details of a range of other serious concerns about what had happened. As many noble Lords will know, this committee is not known for issuing plaudits, but in this case I think it is worth noting two of the committee's comments. First, in respect of the action taken by the FEFC, the committee said:

    "We welcome the steps taken by the Funding Council and the college to improve governance, internal control, management and audit arrangements at Halton College".

Incidentally, I think that what the noble Baroness said, arising, she says, from discussions she has had with the AoC about the funding council, is grossly unfair. I would wish to place on record my appreciation of the efforts that the FEFC has put into tackling problems at colleges. I wish to note also that the provisions in Clause 11 reflect points made to me by its chairman, my noble friend Lord Davies of Oldham and its chief executive, Professor David Melville. They are the practitioners in the front line and it is only right that the form of that clause is informed by their unfortunately all too considerable experience of dealing with problems in certain colleges.

Secondly, on the measures that we introduced to improve the accountability framework for further education colleges, the committee had this to say:

    "We strongly support the positive response of the Department to the problems uncovered at Halton and Bilston Community College on which the Funding Council has recently published a highly critical report".

The committee referred to Bilston College and I should like to mention a number of points about it as well. The FEFC commissioned an inquiry into the future of this college which was published in March last year. It was headed by Terry Melia, the former chief inspector of the council. The college had been the subject of the most critical inspection report on a further education college ever published by the council up to that time. The inspection report highlighted deficiencies in both the governance and the management of the college. It found serious weaknesses in many curriculum areas and cross-college services that impact directly on students.

Baroness Blatch: I thank the Minister for giving way. Can she tell the Committee what powers the FEFC lacked for picking up these points earlier and for taking action even earlier than it did?

Baroness Blackstone: I shall come to that later in my response to the noble Baroness's amendments. I shall return to the particular case of Bilston Community College. The college's financial position was "parlous". Terry Melia's report found that the management and financial systems of the college were unreliable. Indeed, his inquiry team could not with any certainty be sure of the financial position of the college. The report noted that the corporation had not been conducting its business in accordance with its instrument and articles of government. It had not fulfilled its responsibilities under its financial memorandum with the funding council. College

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budgets did not provide a sound basis for the college's continuing solvency. Financial planning and monitoring had been imprudent. There was no systematic management of the college's provision. There was no coherent management of student support. I am afraid I could go on at some length.

The sad conclusion reached by the inquiry team was:

    "We see no future for the college as an independent corporation".

Following the normal statutory processes, it was my task to consider the proposal made by the council to the Secretary of State to close the college. Regrettably, I saw no option but to agree to this last summer.

The reason why I have illustrated these issues at some length is not to restate the case for having these provisions in the Bill. We have already agreed that and there is common ground between us. Rather, it is the very wide-ranging nature of the issues that the FEFC at present, and the LSC in future, may have to tackle. I can assure the noble Baroness that since we last debated these issues we have thought long and hard about whether we could go some way towards meeting her concerns. But as soon as we begin to look at the realities on the ground--and I have only illustrated two of a number of cases in which I have had personal involvement--it immediately becomes evident that as soon as we start classifying or prescribing circumstances and situations or conditions to be met, we run into problems. I remain extremely unhappy that we should impose restrictions of this kind on the face of the Bill.

The issue is this. When we start limiting the power and ruling certain things in, we automatically rule everything else out. As I have tried to indicate through the examples that I have given, the kind of problems that have been encountered cannot always be readily categorised and pigeonholed. The LSC must be able to act flexibly and responsively if concerns arise at a college.

I turn now to the existing power. The existing power for the FEFCE to nominate two additional members to governing bodies was provided without constraints by the previous government in the Further and Higher Education Act 1992. I must repeat that if we did not include anything in this Bill, the LSC could be given a power to nominate additional governors in the same way as the funding councils do now, and it would be without constraint. However, the power is limited to nomination, not appointment, leaving the LSC open to the possibility that it could be frustrated by delaying tactics. This provision, which is designed to allow swifter intervention, would avoid that kind of delay and make the operation of the power more effective. We are making effective the use of an existing power upon which the previous government saw no case for including constraints. Therefore, I find it particularly surprising that the noble Baroness, who was a member of that government, now wants to impose such constraints on the LSC.

If the noble Baroness's amendment is accepted, it could prove less effective than the existing provision under which the FEFC has power to nominate two

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people for membership of a governing body. That power of nomination is not limited in any way by the factors which are identified in this amendment. Therefore, the noble Baroness has, I am afraid, committed herself to an amendment which, in practice, will make it more difficult for the LSC to make an early intervention. At the same time, she has gone on record as saying that there is a case for early intervention and that it is right that additional governors should be appointed. I do not feel that the noble Baroness can have it both ways.

Given the ever-present threat of judicial review, there can be little doubt that the noble Baroness's amendment will act as a disincentive to early action by the LSC. I really do not understand why the noble Baroness has persisted with the matter when she has confirmed her agreement to the principles involved. I am grateful for that agreement.

Her amendment introduces a new condition before the triggers. The councils must have "reasonable cause to believe". Of course, the councils must act reasonably, as the noble Lord, Lord Dearing, has already said. They are public bodies and we require no less. Therefore, that is quite unnecessary.

However, I shall return to that particular point concerning reasonableness a little later as I should also like to comment on a separate point, relevant to this debate, that was raised by the noble Baroness, Lady Sharp of Guildford, when she spoke to her amendment to Clause 11. I take this opportunity to address that matter more fully. She was concerned that this power,

    "seems an unreasonable interference with the autonomy of individual colleges".--[Official Report, 8/2/00; col 647.]

I am afraid that I believe that to be overstating the case. We intend to respect the autonomy of FE colleges. We are not proposing an unlimited power of appointment, which, I agree, would undermine autonomy, but simply a maximum of two additional governors. For example, all further education corporation governing bodies have a minimum of 12 governors before any additional appointments are made. Therefore, the LSC appointments would always be in a minority. But the LSC must have a seat at the table so that its voice can be heard and listened to when things go wrong.

As for the noble Baroness's concern that Clause 11 gives the LSC carte blanche to act unreasonably, that is a misguided concern. As I believe the noble Lord, Lord Dearing, said, such a power would be used sparingly. No one has suggested that the FEFC is currently abusing its power to nominate members of governing bodies, and I have never heard the AoC even suggest that. Clause 11 merely expedites the process whereby the LSC gains representation on the governing body. In the unlikely event that the LSC proposed to act wholly unreasonably and appoint governors for absolutely no good reason, not only would the ordinary process of judicial review be available, but the Secretary of State would be able to give a binding direction to the LSC under Clause 25, which we shall come to later. To the extent that Clause 25 does not

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already make that absolutely clear, we propose to bring forward an amendment in due course to put the matter beyond doubt.

The powers would be along the lines of similar powers that already exist in respect of the current FE funding councils. If a college considered that it was being treated improperly, the funding councils would enable it to ask for intervention by the Secretary of State. It would include as a matter of course the powers under Clause 11.

I must repeat that the Government cannot accept these amendments, for the reasons that I have given. However, I hope that the amendment that I propose will go part of the way to meeting the concerns of the noble Baroness, Lady Blatch. That will put directly on to the face of the Bill a way for a college--or, indeed, anyone--to approach the Secretary of State if it considers that the LSC is acting unreasonably. It would also address the concerns of the noble Baroness, Lady Sharp. Therefore, I hope that the noble Baroness, Lady Blatch, will withdraw her amendments. However, if she decides to divide the House, I hope that on this occasion she will not forget to vote.

5.30 p.m.

Lord Tope: Before the Minister responds, I thank her for explaining the Government's position so fully. I believe that, in spite of the slightly adversarial start to today's proceedings, we are not very far apart on this matter. I believe that we share the concerns expressed. The noble Baroness, Lady Blatch, of course, speaks for herself, but she has said, and I echo, that we understand and share the intentions of the Government.

On the other hand, I hope that the Minister recognises that the concerns which the noble Baroness's amendment seeks to address are shared not only by our Benches but by the FE sector generally. I am pleased that apparently she has recognised that point sufficiently to want to bring back an amendment at Report stage. Perhaps I may ask that we have early sight of that, when possible. I am sure that we can return to the matter at that stage.

I believe it is important that the Government recognise that, while their objective is shared, I am sure, by all, there is great concern, not only in this Chamber but outside, too, about the apparently open-ended nature of Clause 11. It may be that the amendment she intends to table will help to resolve some of that concern. We shall await it with interest.

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