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Baroness Ashton of Upholland: When amendments are withdrawn on the spot, I have to adjust my speaking notes. I hope that I have got this correct. I shall speak to Amendment No. 161 and then respond to the debate on Amendment No. 160.

As drafted, the new subsection (4)(c) has the side-effect of conferring an additional power on the Secretary of State. As well as enabling her to empower the forum to decide certain matters, it also enables her to lay down rules that need not appear in the regulations and so would not be subject to parliamentary scrutiny or approval. Government Amendment No. 161 corrects that position. While it may in some contexts be appropriate for a Minister to make rules in the way in which paragraph (c) would authorise, we have managed satisfactorily under the present legislation without that facility. We therefore think it right to table the amendment, which means that any rules on top-slicing that the Secretary of State wishes to make will need to be set out expressly in the regulations and laid before Parliament, as at present. I am sure that the Committee will welcome the amendment.

No doubt we shall discuss schools forums in great detail when we reach Clause 41, but they form an important part of the debate on Amendment No. 160, so it might be helpful if I say a little about our general intentions. Clause 39 provides for the establishment of a schools budget, to contain proposed expenditure on provision for pupils, and an LEA budget, which covers the LEA's essential core functions and various services—such as special educational needs statementing and transport—which are most sensibly provided by LEAs.

As the noble Baroness, Lady Sharp, has said, the schools forums to be established under Clause 41 are essentially advisory and consultative bodies. The functions that we intend to give them will reflect that role. However, we think that there is some limited scope for giving them a small decision-making role in respect of decisions on whether to delegate to schools certain items of expenditure within the schools budget. In reaching that decision, we have of course talked at length with the Local Government Association.

We have in mind here meals for primary and special school pupils; museum services and library services for primary and special schools; and copyright and similar licence fees. However, we shall be consulting to see whether that list is right. Whether delegation of those items of expenditure is more desirable than LEA central funding will often depend on local

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circumstances. We think that schools forums can usefully reach a collective view for schools on that issue.

For most items in which expenditure is centrally retainable, a decision to delegate will rest with the LEA, as is right and proper in the light of the authority's overall responsibility for the budget and—as the noble Baronesses, Lady Sharp and Lady Blatch, said—accountability to the electorate. This is particularly so with special educational needs because of the LEA's responsibility for ensuring that SEN requirements are fulfilled and the often volatile nature of budgets for that responsibility. We therefore do not at this stage intend any significant extension of the list that I have set out. I hope that that reassurance, and the Government's willingness to introduce Amendment No. 161, will enable the noble Baroness, Lady Sharp, to withdraw Amendment No. 160.

As noble Lords are aware, Clause 39 modifies the framework within which LEAs fund their schools. The "Fair Funding" framework, based on a broadly defined local schools budget, has worked well. It has improved the school funding system's transparency, and the level of financial delegation to schools has risen sharply. On average, LEAs delegated more than 86 per cent of their budget last year, compared with 79 per cent in 1998. What "Fair Funding" has not addressed is the way in which LEAs themselves are funded.

The present arrangements for funding LEAs through the education spending assessment have attracted widespread criticism. Under existing local government finance legislation, we shall replace the education standard spending assessment with two separate spending needs assessments—a "school" assessment and an "LEA" assessment. I shall not go into more detail on that now as the noble Baroness, Lady Sharp, has explained the point extremely well.

Clause 39 brings the school funding system into line with the new LEA funding system by establishing a "schools budget" and an "LEA budget" instead of the current "local schools budget". Broadly, the schools budget will cover all expenditure for which funding is generally delegated to schools at present, along with most other expenditure on actual provision for pupils, including schools meals and out-of-school education. The LEA budget will cover functions which cannot sensibly be carried out except at the level of the LEA. These are likely to include most functions which are currently funded centrally by LEAs under the heads of strategic management, school improvement and access, which include home-to-school transport. The LEA budget will also cover LEA functions which do not relate to primary and secondary education. By aligning the scope of the two budgets with that of the two needs assessments, we shall clear away the "funding fog" that results from the mismatch between the local schools budget and the education SSA. Most of the schools budget will have to be delegated to schools, although LEAs will need to retain funding for certain purposes, as I have outlined.

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Clause 40 gives the Secretary of State for Education and Skills a power—to be used in exceptional circumstances—to set a minimum level for an authority's schools budget, as defined by Clause 39, where she considers the budget is seriously inadequate. The level may apply to the next financial year or to the financial year after that. We are introducing the measure to help to ensure that funding increases for schools made available by central government are passed on to schools by local authorities. We expect that the proposals we have made to require local authorities to provide a transparent account of school funding will put pressure on authorities to pass on funding increases. But where that does not achieve sufficient progress, we need a reserve power. As I said, in practice, we do not expect to use it except on exceptionally rare occasions.

In setting the minimum level, the Secretary of State must have regard to all the relevant circumstances. We have set out in the explanatory notes some of those circumstances: how the authority's proposed budget compares with its school funding assessment; the performance of an LEA's schools; pressures—as the noble Baroness, Lady Sharp, said—from other services, recognising the joined-up nature of those services; and the degree to which the authority has failed to pass on the increase in funding to its schools. That is not an exhaustive list and there may be other criteria that we would wish to consider. We do not want to try to list all the criteria in the Bill only to discover later that we have missed something important which we would not then be allowed to consider. Such an omission could of course weaken the position of an LEA as much as strengthen it if the Secretary of State were not able to take on board very particular criteria which would mitigate the exercise of that power.

The clause sets out the timetable for use of this power. We shall be asking local authorities to let us know their proposed budgets by the end of January—no earlier than we did this year, and a little later than in previous years, when we have approached authorities early in January to ask them to indicate whether they intend to pass on increases in education SSA. The timetable also allows authorities to make representations if they object to the level of budget set for their schools. They will, for example, be able to explain the impact that the proposed minimum budget would have on other services run by the council. Where there is an objection, the clause allows the Secretary of State to make an order setting the level of budget, to be subject to affirmative resolution, so Parliament would be able to debate it.

This clause is important for our plans on school and LEA funding, it allows for a dialogue between central government and local government on the minimum level of the schools budget, and it recognises the real importance of education to our children. It should therefore stand part of the Bill.

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5.45 p.m.

Lord Smith of Leigh: I should first declare my interest as leader of a local authority. Will my noble friend clarify the position on the timing of budgeting, which the noble Baroness, Lady Sharp, mentioned and is dealt with in subsection (5) of Clause 39? As the noble Baroness said, there are both local authority budgets and school budgets and we should not get the two out of synch. Another important factor is the announcement of central government support for local authorities. Although that usually occurs by the end of the calendar year, it does not always happen by then. The budgeting process itself occurs in the early part of the year. We have to ensure that we do not tie ourselves to a specific date which we cannot practically meet.

Baroness Blatch: I support that point. I know from my experience in local authorities the frustration of awaiting information from national government before being able to make local arrangements. I think that the purpose of Amendment No. 160 itself is to seek more time. There is an argument against establishing any time limits as they make it very difficult for local authorities.

I intervene, however, to ask the Minister to clarify a point she made at the start of her reply. In speaking to government Amendment No. 161, to remove "the Secretary of State" from subsection (4)(c), she seemed to say not only that any intention to top-slice from the education budget would be removed, but that further constraints would be imposed on other attempts to top-slice that budget. Does that apply generally to top-slicing by the Secretary of State in relation to central initiatives, or only to specific matters not mentioned in the Minister's notes?

In referring to the determinations that could be made by the schools forums, the Minister listed various services such as museums, libraries and catering. As that is to be a moveable feast, will we be given the list of services to be covered as currently envisaged by the Government? The provision gives a fairly open-ended power to the schools forums to determine the expenditure limits which will pass to schools.

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