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Baroness Sharp of Guildford: My Lords, I intervene briefly to thank the Minister. Amendment No. 6 answers queries I raised on Report concerning the identity of companies and in particular whether they would be limited by shares or guarantee. I am grateful to the Minister for tabling the amendment.

4.15 p.m.

Lord McIntosh of Haringey: My Lords, the noble Baroness, Lady Blatch, raised two points. First, she asked whether "voluntary" covers both "voluntary maintained" and "voluntary aided"; it does. Secondly, she raised the question of how to keep out undesirable characters. The noble Baroness gave examples of that at an earlier stage. There are two lines of protection here. First, there is the good sense of the schools concerned. We are talking about people from more than one school, so such a person could not be the friend of one of the governors or a friend of the head teacher of one of the schools unless the other schools involved in the company were convinced of the integrity of that friend. I do not know whether the noble Baroness reads the High Principals column in Private Eye. Some of the things which have occurred in our further education colleges would lend support to what she says.

However, we have the protection that more than one school will be involved and there will be an independent eye cast over any invitation to join. It is for the reason put forward by the noble Baroness that we are leaving the definition of "acceptable members of a company" to regulations. Clearly, that will improve with experience. We can state in regulations that the person who becomes a member of a company shall have educational objectives; or that such a person has something to contribute to the company educationally which cannot otherwise be found. We can say all sorts of things of that kind but there will always be crooks.

Regulations will not be able to identify individuals who should be excluded. In the end, it is for us to indicate the type of person who might be included to the benefit of the operations of the company. It will be for the members of the company, the schools, to exercise their judgment, with the help of the local education authority as initial approver and supervisory authority, to ensure that undesirables do not come into the companies. That should accord with the experience of the noble Baroness, which she described on Report, of a company being formed by an individual school.

On Question, amendment agreed to.

Baroness Blatch moved Amendment No. 7:

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The noble Baroness said: My Lords, in moving Amendment No. 7, I shall speak also to Amendments Nos. 11 and 12. The Minister will be aware that I have serious reservations about schools becoming companies. I do not refer to schools being given the freedom to be more commercial but to the way in which the Government have set about this and the way that the provisions for such commercial activity are set out in the Bill and supporting policy papers.

In his helpful and detailed letter to me, the noble Lord offered a number of explanations. However, perhaps I may refer to a comment made by him in responding to the previous amendment. He referred to some of the incredible things which have occurred in further education colleges. I have to add that the Government took a long time to shine a light on such matters. In many cases, action was taken late in the day. The Government's own record is less than perfect when we consider their dealings with Capita. That company made a mess of Individual Learning Accounts and is still being investigated, yet has been given more work by the Government. It is even involved in the work of the Criminal Records Bureau, dealing with highly sensitive information and large sums of money. The Government's own record in that respect is not good.

In response to Amendment No. 10, which is relevant, the noble Lord said—not happily but glibly—that there will always be crooks. We know that there will always be crooks. However, we should be in the business of protecting our governors of schools. They are there not to be company chairmen, company members, or board members, but to ensure that good education takes place in schools and that schools are managed well in the interests of the education of the children within them.

When it comes to deciding who is a desirable or an undesirable person—or, indeed, a suitable or an unsuitable person—to become involved with the running of a company, the noble Lord said that help would always be available from the LEA, which is the supervisory body. However, we have been told that the latter will be very "light touch". It will be possible to carry out such duties under the law relating to these clauses—and, indeed, company law—only if the supervisory body actually knows what is going on. You cannot know what is going on without having a good deal of day-to-day information. The notion that this will not be extra-burdensome to LEAs simply is not true.

Moreover, should any of these companies go belly up, the LEA will have to pick up the tab. Thus LEAs would be well advised not to be too light a touch when complying with their duties and putting matters right. However, they should not do so when something goes wrong, as set out in the noble Lord's letter: well before something goes wrong, they should ensure that such matters are being properly managed. The letter says that the LEA,

    "will only step in when it is clear that the company is running into trouble".

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That is too late, especially when there have been visible signs that the company was running into trouble.

I shall leave the question of Clause 13 to one side for the moment. I believe that the costs of establishing all the measures outlined in Clauses 11 and 12 will outweigh the benefits that the noble Lord has claimed will be there for the purposes of "acting jointly", "purchasing jointly", and so on. We have argued on a number of occasions that joint purchasing is a longstanding practice of both LEAs and of schools. The notion that contractors cannot deal with a single body that represents a number of schools is simply not true. For example, one school says, "We'll put the order in", while the other schools will decide between them what they require. The order will be delivered, and the payments made to the company. If it were a problem, contractors would not be touting for business around the schools and saying, "If you order in reasonable quantities, we can give you discounted prices". It is an age-old practice, which still continues; and, indeed, it will continue to do so. I believe that the problems outlined by the noble Lord are exaggerated.

On the question of company members, the noble Lord agreed with the points that we raised regarding protection for schools as regards allowing undesirable people to become involved. We now know that there is an amendment to that effect which goes some way to protecting company members. However, describing "unsuitable people" ahead of them turning out to be so, is something that I regard as being a real challenge. The noble Lord says in his letter that the Government will consult upon those who will be allowed to join companies. But who will be consulted? Further, in what way will it be possible to do so?

In his letter, the noble Lord refers to the exercise of LEA functions,

    "to make arrangements for the provision of services for schools for other persons".

Can the noble Lord explain what is meant by the words,

    "times;for schools for other persons"?

I believe that they can provide services for other schools and for other persons. If there are to be "other persons", can the Minister say who are these third bodies who are not other schools? For example, would schools provide catering for the local playgroup, or would they provide cleaning services for a local private company down the road? What is the definition of "other persons", if they are not to be other educational establishments?

The noble Lord continued in his letter to cover the distribution of profit. I have to tell the noble Lord that not only Members of this House but also his colleagues in another place will be most interested in his response on the distribution of profit:

    "Our regulations will prescribe that school companies may pay company profit back to the members, or retain it to invest in developing the capacity of the company. We do not propose that profit must be spent solely in the interests of education".

If it is not to be spent solely in the interests of education, are we to assume that governors can indulge in forming a company and making profits and

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that those profits are not expected—indeed, not just expected but required under this Bill—to be spent in the interests of education?

I know that the noble Lord will say that there will be third party members of these companies—joint members of the companies—who will not be educationists: they will be purely third-party commercial interests. Therefore, do we expect that there will be a constraint on those who are members of governing bodies in an expectation that their profits will go back into schools? I do not refer to a "requirement", because the Bill does not specify that; there is no requirement in the legislation to spend this money on education. However, do we expect that to happen, while the profit made by the wholly-independent commercial member of the company can be used for rewarding shareholders, or spent on whatever the chairman chooses?

There are a number of questions to be answered. I have in mind private companies making a profit in a safe haven. Some commercial people will regard a school as a safe haven within which to do business, in the full knowledge that if the company fails the LEA will pick up the tab. Alternatively, if the company succeeds, it will go away with a pocket full of money.

I turn to Clause 13. I shall not press my opposition to Clause 13. I want to take in good faith the fact that a great deal of work has been carried out by the Church and by the Government. I have enormous reservations about whether or not this will work. However, I should like to give this the benefit of the doubt because I believe that the work that has been carried out at national level between the Government and the joint venture members of the company to date is such that I should not wish to stand in its way. Nevertheless, I have some very real reservations that I should like to put on the record because there may well be difficulties in the future.

The right reverend Prelate, who has also very kindly written to me, as promised, with a very detailed letter, referred to the PFI not working. I have to point out that PFI projects have been as small as building small fire stations and setting up small Probation Service projects. Therefore, the notion that such initiatives do not work at a local level and on small projects is simply not true; indeed, such initiatives have worked and, in some cases, they have worked very well. There have also been examples of more than one project being dealt with at any given time so that, taken together, they have formed a much bigger project.

The noble Lord prayed in aid of his case the fact that for the year 2003–04 the department allocated 940 million PFI credit to 21 projects. However, only 10 to 20 million went to voluntary aided schools. If I were in the place of the right reverend Prelate, I should want to challenge those figures. As the right reverend Prelate knows, 10 per cent of the schools are voluntary aided schools. Therefore, in my book, 10 per cent of 940 million is 94 million, which is a good deal more than the 10 to 20 million that has been allocated. I am not sure that I can accept the idea that, because it is an unfair allocation, we have an argument for going down this road.

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In his letter, the right reverend Prelate says:

    "All three bodies"—

that is, the three bodies that are part of the joint venture company—

    "will provide the funding".

I thought that this was being introduced because the Church, the LEA and the Government did not have the funding. If the funding is to be provided under the new arrangements, what is wrong with such funding being provided now? The letter continues:

    "The JVCo [the joint venture company] will engage the necessary legal and technical advisers to carry out the procurement on behalf of the schools and dioceses and, with their inputs, appoint a Private Sector Partner (or Partners) who will provide the design, building, [and] finance".

So we have finance being provided by the private sector partners, and we have funding being provided by the Government, the Church and any other party to the joint venture company; but at what cost? Where will that money come from? What pot of money will it come from?

The letter continues:

    "Furthermore as new tranches are ready to come on-line, there are potentially no bidding costs for the Private Sector Partner".

Am I to take it that competitive tendering has gone out of the window for these purposes? Some preferred bidder—some lucky chap out there who is running a company—is about to get the business for something like 40 million worth of work, which, we have been told, is the likely first tranche of spending. We are told that future contracts will simply keep going for that one contractor. Is there to be no process of competitive tendering for the business? For example, will other companies that provide such services be allowed to bid? If there is to be no bidding costs, I assume that there will be no bidding. The right reverend Prelate goes on to say that that would be a great saving to the public sector.

The next point concerns profits. It is not intended at this stage that the schools would be members of the joint venture company. If I was successful in removing Clauses 11 and 12, that would be the case; the joint venture company, at least in the initial stages, would be at one at national level with the Churches involved. As I say, I intend to leave that in the Bill.

The letter goes on to say that schools would be party to the procurement and would also gain a small share of the profits. Am I to understand that money will come from government, Church and other partners; schools will be repaired, refurbished and even newly built; that the company will make a profit (out of what, I ask); and when it makes a profit there is nothing in the Bill to say what will happen to those profits? Will the Church take them? Will the Government take them? Will the commercial partner take them? I thought the profits would go to the company doing the refurbishment work and building the schools.

My final point is on the final paragraph:

    "The details of the joint venture companies are still in development, but it is thought likely that individual schools will pay the Private Sector Partner directly over the years of the

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    contract with the benefit of DfES grant over the period and the proper level of local education authority contribution (for their liabilities), the governing body being responsible for the 10%".

So it is not a free option. The LEA will have to pay; the Government are going to have to pay; the Church will have to pay. But they all pay now for projects. So what is the beneficial factor in this option? I do not know.

As I said, despite my reservations which are now on the record, I want to give the right reverend Prelate and his colleagues who are making this case the benefit of the doubt and therefore I shall not oppose Clause 13. However, I intend to oppose Clauses 11 and 12. I beg to move.

4.30 p.m.

Lord Carter: My Lords, the Companion clearly states:

    "The principal purposes of amendments on Third Reading are: to clarify any remaining uncertainties; to improve the drafting; and to enable the government to fulfil undertakings given at earlier stages of the bill".

Can the noble Baroness explain how amendments which remove a whole chapter from the Bill—in effect, wrecking amendments—fit the guidance in the Companion? I am sure that the noble Baroness will say that since she tabled the amendments and they were not rejected by the Public Bill Office they must be in order. But if the Opposition Front Bench and the Liberal Democrat Front Bench combine to table amendments which are completely outwith the guidance in the Companion, how are we supposed to take any notice at all of the Companion?

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