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Lord Joffe moved, as an amendment to Commons Amendment No. 17A, Amendment No. 17B:

The noble Lord said: I have already spoken to this amendment, but I take the opportunity to deal with some of the Minister's responses. The amendment accepts that the Government need discretion in making decisions on the export of arms. As the right reverend Prelate the Bishop of Oxford pointed out, the question is: how much discretion do the Government need? I do not believe that the degree of discretion which the words "if any" give is justified.

23 Jul 2002 : Column 218

I welcome the Minister's assurance, but while I would accept without hesitation any personal commitment that the Minister gives, as the noble Lord, Lord Judd, pointed out the Government have not always abided by their commitment. I remind the Minister that as regards their manifesto commitment to ban the traffic in arms wherever that may take place, the Government have most clearly not honoured it.

I do not accept the dangers of conflict which the European Union pose and which the Minister so vividly described. I do not believe that there is a conflict. Matrix Chambers has confirmed that there is no conflict. I remind the Minister and the House of the preamble to the European code which states clearly that these are minimum standards.

It is sad that the Government, having delivered this excellent Bill, should be so steadfast in their refusal to consider a most obvious amendment which poses no dangers at all and which is consistent with the Government's approach. There is a feeling among the NGO consortium, the NGO generally, and among government supporters, that by failing to accept this amendment and pursuing the Government's weasel words "if any", they discredit what is really an excellent and admirable Bill. With that in mind I wish to test the opinion of the House.

4.34 p.m.

On Question, Whether the said amendment (No. 17B) shall be agreed to?

Their Lordships divided: Contents, 74; Not-Contents, 142.

Division No. 1


Addington, L.
Alderdice, L.
Allenby of Megiddo, V.
Ampthill, L.
Barker, B.
Chester, Bp.
Clement-Jones, L.
Craig of Radley, L.
Craigavon, V.
Croham, L.
Darcy de Knayth, B.
Dearing, L.
Dholakia, L.
Eames, L.
Erroll, E.
Ezra, L.
Falkland, V.
Fearn, L.
Goodhart, L.
Greaves, L.
Hamwee, B.
Harris of Richmond, B.
Holme of Cheltenham, L.
Hooson, L.
Hylton, L.
Jenkins of Hillhead, L.
Joffe, L. [Teller]
Kilclooney, L.
Laird, L.
Linklater of Butterstone, B.
Ludford, B.
Mackie of Benshie, L.
Maclennan of Rogart, L.
McNally, L.
Maddock, B.
Mar and Kellie, E.
Monson, L.
Moore of Wolvercote, L.
Naseby, L.
Newby, L.
Northbourne, L.
Northover, B.
Oakeshott of Seagrove Bay, L.
Oxford, Bp.
Perry of Walton, L.
Phillips of Sudbury, L.
Portsmouth, Bp.
Razzall, L.
Redesdale, L. [Teller]
Renfrew of Kaimsthorn, L.
Rodgers of Quarry Bank, L.
Rogan, L.
Roll of Ipsden, L.
Roper, L.
Russell, E.
Russell-Johnston, L.
Sandberg, L.
Sandwich, E.
Scott of Needham Market, B.
Sharp of Guildford, B.
Shutt of Greetland, L.
Slim, V.
Smith of Clifton, L.
Stern, B.
Strange, B.
Thomas of Gresford, L.
Thomas of Walliswood, B.
Tope, L.
Walmsley, B.
Walpole, L.
Warnock, B.
Watson of Richmond, L.
Wigoder, L.
Williams of Crosby, B.


Acton, L.
Ahmed, L.
Allen of Abbeydale, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Ashley of Stoke, L.
Ashton of Upholland, B.
Barnett, L.
Bassam of Brighton, L.
Berkeley, L.
Bernstein of Craigweil, L.
Bhatia, L.
Billingham, B.
Blackstone, B.
Boothroyd, B.
Borrie, L.
Bragg, L.
Bramall, L.
Brennan, L.
Brett, L.
Bridges, L.
Brooke of Alverthorpe, L.
Brookman, L.
Brooks of Tremorfa, L.
Burlison, L.
Campbell-Savours, L.
Carter, L.
Christopher, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Cohen of Pimlico, B.
Corbett of Castle Vale, L.
Crawley, B.
David, B.
Davies of Coity, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Desai, L.
Dixon, L.
Dormand of Easington, L.
Dubs, L.
Eatwell, L.
Elder, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Evans of Watford, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Fitt, L.
Fyfe of Fairfield, L.
Gale, B.
Gavron, L.
Gibson of Market Rasen, B.
Golding, B.
Goldsmith, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Greenway, L.
Gregson, L.
Grenfell, L.
Grocott, L.
Hardy of Wath, L.
Harrison, L.
Haskel, L.
Haskins, L.
Hayman, B.
Hilton of Eggardon, B.
Hogg of Cumbernauld, L.
Hollis of Heigham, B.
Howells of St. Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Islwyn, L.
Jones, L.
Kirkhill, L.
Layard, L.
Lea of Crondall, L.
Lockwood, B.
Lofthouse of Pontefract, L.
McCarthy, L.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Marsh, L.
Mason of Barnsley, L.
Massey of Darwen, B.
Merlyn-Rees, L.
Milner of Leeds, L.
Mitchell, L.
Molyneaux of Killead, L.
Morris of Aberavon, L.
Morris of Manchester, L.
Moser, L.
Nicol, B.
Orme, L.
Ouseley, L.
Parekh, L.
Patel of Blackburn, L.
Pendry, L.
Peston, L.
Pitkeathley, B.
Plant of Highfield, L.
Puttnam, L.
Radice, L.
Ramsay of Cartvale, B.
Rendell of Babergh, B.
Richard, L.
Rooker, L.
Sainsbury of Turville, L.
Scotland of Asthal, B.
Serota, B.
Sheldon, L.
Simon, V.
Smith of Gilmorehill, B.
Smith of Leigh, L.
Stone of Blackheath, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Temple-Morris, L.
Tenby, V.
Thornton, B.
Tomlinson, L.
Turnberg, L.
Turner of Camden, B.
Uddin, B.
Walker of Doncaster, L.
Warwick of Undercliffe, B.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Elvel, L.
Williams of Mostyn, L. (Lord Privy Seal)
Williamson of Horton, L.
Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

23 Jul 2002 : Column 220

On Question, Amendment No.17A agreed to.

Bill returned to the Commons with amendments.

Education Bill

4.45 p.m.

The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, I beg to move that the Commons amendments be now considered.

Moved, That the Commons amendments be now considered.—(Baroness Ashton of Upholland.)

On Question, Motion agreed to.

[The Commons Amendments are printed as HL Bill 104.]

12Leave out Clause 10
The Commons disagreed to this amendment but proposed the following amendment, to the words so restored to the Bill—

12APage 7, line 16, leave out from second "company" to end of line 17 and insert "registered under the Companies Act 1985 (c. 6) as a company limited by shares or a company limited by guarantee"

Baroness Ashton of Upholland: My Lords, I beg to move that the House do not insist on their Amendment No. 12 to which the Commons have disagreed but do agree with the Commons in their Amendment No. 12A, to the words so restored to the Bill. In moving the Motion, I shall also speak to Amendment No. 13 and Commons Amendments Nos. 13A to 13C.

In opening this new stage of consideration of amendments to the Bill, I begin by saying that the Government have carefully considered the views expressed in your Lordships' House throughout the Bill's progress. I hope that that is evident from the careful and substantial changes that have been made in another place.

First, I shall make the positive case for allowing schools the freedom to join companies. The argument is simple and one in which another place sees considerable merit. It is that this is another way of giving schools more freedom, more opportunities for partnership and more room to share good practice.

In the course of our debates, we have established that individual schools, under their general powers in Schedule 10 to the School Standards and Framework Act 1998, can already form companies to facilitate their running. The change that the Bill introduces, therefore, is simply to allow groups of schools to join

23 Jul 2002 : Column 221

together to form companies for their mutual benefit and for the benefit of other schools. So, in permitting groups of schools to band together to form companies, we are not introducing something entirely new. We are simply extending and clarifying the purposes for which schools can form companies and their ability to join with other bodies in membership of a company.

It is difficult to understand how there could be any objection to that in principle. I would understand noble Lords' concern if we were forcing schools to form companies, but we have been absolutely clear that we will do nothing of the sort. Indeed, the clause does not provide a power for us to do so. It provides an enabling power, not a requirement. Only those schools that foresee a benefit will make use of that power.

Schools will have that freedom to form companies in two broad areas of activity: first, to purchase services and facilities jointly; and, secondly, to provide services and facilities to other schools. Schools participating in purchasing companies will benefit from economies of scale. Schools participating in service delivery companies will benefit from the opportunity to share best practice and from being able to give wider experience to their staff—of the kind that may help with staff retention. Of course, those schools in receipt of services will also benefit.

Noble Lords have said that there are other ways in which both sets of activities could be carried on. I do not dispute that. That is also true in the private and voluntary sectors. Activities can be carried out in many structures other than companies. The point—the core of the argument—is that often, the company structure is the most convenient. That applies in the private, voluntary and charitable sectors, and in this case. If schools would find it the best way of building certain forms of partnership, we should not stand in their way.

I shall set out clearly the reasons why schools may find it to be the most convenient structure. First, it allows a group to have a single legal identity. That can be important for many purposes, not least for entering into contracts and for sharing risk. Secondly, it allows for liability to be limited. That is an important consideration for people who are conducting many activities. In return for limited liability status, companies must, as noble Lords are aware, comply with a clear regulatory structure and provide greater transparency than unincorporated associations, particularly with regard to their accounts. Thirdly, of course, the company is a well understood and trusted model, precisely because it is so widespread in our society. That can provide great advantages for those transacting with the company and, hence, for those forming the company.

I want it to be clear that there is nothing mysterious about the formation or conduct of a company. There is nothing mysterious about the model of limited liability. Nor is there any mystery about why people often choose to use that model.

Having set that case out, I turn to the objections that were raised during the debate. In doing so, I shall reiterate a few general points. First, there will be

23 Jul 2002 : Column 222

nothing that a school company can do that a private sector company cannot already do. A private sector company cannot take over responsibility for the conduct of a school or somehow assume ownership of its land and buildings or take over responsibility for deciding who works at the school. Similarly, a school company will not be able to do those things. Likewise, a school company will be able to sell curriculum materials to other schools, as private sector companies already do.

Secondly, there is nothing in the creation of a limited liability company that would increase the liability for the public sector—quite the opposite. The limitation of liability is one of the main advantages for schools of forming a company to carry out an activity, rather than carrying it out as an unincorporated association. Thirdly, there is nothing about the process of a school forming a company that in any way undermines the rules governing the protection of public funds. Schools may not transfer assets to any other body or person without receiving proper consideration. That includes a school company.

I turn to some of the detailed points made during the passage of the Bill. I believe that they were answered by my noble friend Lord McIntosh of Haringey, but I will attempt to summarise those answers again. The issue on which, perhaps, we spent most time was liabilities. A particular area of concern was the liability that might fall on a local education authority. I hope that I can clarify that point in a way that noble Lords will find reassuring. The simple fact is that there is no change of substance from the current position. The LEA is ultimately liable for any purchasing decision made by a school. That will remain the case, whether schools make purchasing decisions singly or jointly through a purchasing company. The LEA will not become liable for the actions of service delivery companies.

The local education authority is already ultimately responsible for liabilities incurred by schools when purchasing goods and services. That will remain the case, whether or not a company acts as an intermediary. The LEA will not be liable for the debts of service delivery companies. Those companies will not, in the course of their normal operations, spend the schools' budget shares. Indeed, they will charge for their services and will be spending money earned from fees. If a service delivery company cannot pay its debts, it will follow the same course as any private limited company in a similar position. In those circumstances, the point about limitation of liability becomes central. If a school company fails, the liability of the company member is, in the case of a company limited by shares, limited to the unpaid amount on the shares—if any—or to the nominal amount of the guarantee, in the case of a company limited by guarantee.

During our debate, there seemed to be a sense that there was something surprising about that. There is nothing in any way unusual about it, as many noble Lords will be aware. That is the position for every limited company trading at present. That is the point of limited liability status.

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Noble Lords will know that, to minimise the likelihood of a company's getting into difficulty, we said that the LEA would have a role as supervising authority for the companies. Noble Lords asked how the LEA would know for sure whether intervention was needed. I now offer your Lordships' House a further safeguard. We have decided that, under the regulations, companies will provide an interim financial report to the supervising authority, as well as annual audited accounts. That will be required in the first year of operation and, should there be a need, in subsequent years. I hope that your Lordships' House will agree that that additional safeguard provides further assurance.

We are allowing companies to make profits and distribute them to their members because we want to encourage the most useful and most enterprising membership of companies. If we say "No" to profits, good potential members might be driven away. The profits will be shared, and school members of companies will receive their due amount.

I return to the point that a company that has a school as a member will not be able to do any more than a company that does not have a school as a member. It is normal practice for a private sector company to sell materials to schools. The clause will allow a school company to do the same. A good school will have lots of expertise in it. As noble Lords are aware, many of our best schools contain wonderful teachers who have, for example, worked together to develop and refine course materials. A school could form a company with a local printer to market such materials to other schools. If the materials were better than those already available on the market, the company would, no doubt, be rightly successful. In that scenario, the school would gain because it would share in the profit. Other schools would gain because they would be able to purchase excellent materials. There would be no loss to the public sector.

The school would take its share of the profit. It would be required to use the money for the purposes of the school. That is not in question. The printer, if it were a joint venture, would also be entitled to a share, having carried the risk of publishing the materials. That is appropriate. The crucial point is that the only difference between that scenario and the present position is not that the printer can profit but that the school can get its share. At present, any private sector business can profit in that way. The only body that cannot is the school. The clauses will put that right.

School companies with a membership of educational institutions, but with no private sector members, will distribute their profits for the use of the educational institutions concerned. No individual or institution could run off with the profits, any more than any individual could abscond with the school's budget share. If companies have private sector members, all members will take a share of the profits commensurate with their involvement. We expect that the educational institutions will take a leading role in such companies, with the private sector members contributing their expertise as necessary.

23 Jul 2002 : Column 224

I believe that I have addressed the central objections, so I shall turn to the Government's amendments, Amendments Nos. 12A and 13A to 13C. We presented amendments relating to school companies to the House on 3rd July; I put them forward again today, with some words of explanation.

Amendment 12A stipulates that school companies will be limited by shares or by guarantee under the Companies Act 1985. Currently, the Bill states that regulations may provide for school companies to be limited by guarantee. When we decided to offer a choice of type of limited company, we thought to deal with it in regulations. Following the debate in the House, we have agreed that it makes matters clearer to say in primary legislation that schools will have the choice.

Amendments Nos. 13A and 13B tighten up the wording of the Bill and are therefore purely technical. Amendment No. 13C places in the Bill a provision that only those specified in regulations may join companies. We thought that it would give greater protection against making mistakes if that provision were in the Bill. We intend to state in regulations that the following persons may join school companies: governing bodies, local authorities, independent schools, private companies, further and higher education institutions and individuals not excluded by the regulations. Individuals who will not be able to join companies will be those not currently permitted to be school governors or to teach.

Moved, That the House do not insist on their Amendment No. 12 to which the Commons have disagreed but do agree with the Commons in their Amendment No. 12A to the words so restored to the Bill.—(Baroness Ashton of Upholland.)

5 p.m.

12B Lord Kingsland rose to move, as an amendment to the Motion that this House do not insist on their Amendment No. 12 to which the Commons have disagreed and do agree to Amendment No. 12A to the words so restored to the Bill, leave out from "House" to end and insert "do insist on their Amendment No. 12".

The noble Lord said: My Lords, we oppose the reinsertion of Clauses 10 and 11. The noble Baroness referred to the opportunities that the clauses would give for enhanced freedom and partnership for schools; but the text of those clauses is so far-reaching, ill-thought-out and imprecise that it is impossible to discern the intended scope of the legislation.

Clause 10(1) states that the

    "governing body of a maintained school may form, or participate in forming, companies".

Those companies are to be formed under ordinary private company law, either as companies limited by guarantee or as companies limited by shares. There are three purposes for those companies. First, they will, under subsection (1)(a),

    "provide services or facilities for any schools".

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The definition in subsection (8) states that,

    "'facilities' includes the provision of . . . premises, goods, materials, plant or apparatus".

A company that is established either uniquely by the governing body of a maintained school or together with another party within the framework of the company can be set up to provide those facilities to any school, whether that other school is a maintained or private school.

Secondly, such a company can provide education services to any other school, whether it is a maintained or private school. Those services will doubtless be provided by schoolteachers. Clause 10(1)(b) refers to companies being formed,

    "to exercise relevant local education functions".

I assume that a maintained school which sets up a company on its own, or together with others—either other maintained schools or other private parties—can supply to other schools classroom teaching and all other educational activities in addition to providing administrative or ancillary services. One can foresee one school setting up a company to take over the entire activities of another school, including educational functions and facilities.

Thirdly, subsection (1)(c) provides that such companies may,

    "make, or facilitate the making of, arrangements under which facilities or services are provided for any schools by other persons".

Therefore, such a company can acquire land or buildings to provide facilities for the functions set out in subsection (1)(a) and (b).

Clause 10(2) states:

    "The governing body of a maintained school may . . . invest in the company".

In other words, it can take its own budgetary resources raised by taxpayers and transfer them to one of those schools performing the functions laid down in subsection (1).

There was an interesting exchange on 15th July in another place between the honourable Members Mr Willis and Mr Miliband. Mr Willis asked Mr Miliband whether he was saying that a school could use its budget share, or part of it, to set up a company, and that if it failed the LEA would be subject to liabilities under the new arrangements. Mr Miliband replied, "Yes", and said that that was why there was a safeguard that LEAs would have to approve the setting up of the companies.

It is clear that the venture capital for those companies will be provided by the taxpayer. What is more, how good is Mr Miliband's safeguard? As the noble Baroness said, Clause 11(1) provides that

    "the governing body of a maintained school may not exercise any power conferred by any of subsections (1) to (4) of section 10 except ... with the consent of the local education authority".

That suggests that the capital transfer will be made to the company only if the LEA gives permission. However, subsection (7) states that

    "Regulations may restrict the circumstances in which a local education authority may refuse to give any consent applied for under subsection (1)".

23 Jul 2002 : Column 226

When the Bill is enacted, the Government can pass regulations that will effectively strip away the controlling power of the local authority under Clause 11(1).

Clause 10(5) states:

    "The governing body of a maintained school may provide staff to any company in relation to which they have exercised a power conferred by any of subsections (1) to (4)".

That does not limit it to the staff currently employed by the maintained school. There is nothing to suggest that the maintained school, participating with other members of the company, cannot go to the market-place to hire staff to provide educational services to another school.

It may be that the intention that I have extracted is the Government's real intention. Schools that are either financially powerful or educationally successful may attract capital into companies that will then provide a complete education package to other maintained schools. If that is the Government's intention, they ought to say so. That is certainly derivable from the text of the Bill.

One of the most worrying consequences concerns the deployment of education resources. It is well known that there is a serious scarcity of able teachers. To the extent that the local authority, which is responsible for providing top-class education to schools, is delegating its powers to companies, and to the extent that those companies may move education resources into areas that are profitable rather than rational, current problems will be exacerbated, not alleviated.

The wide scope of Clause 10 is likely to lead directly to a serious misallocation of education resources. If companies make profits that are enjoyed by private participants in the company, what is to stop them allocating such profits in ways that are not acceptable to the governing body?

I could make further criticisms of those two clauses. There are complex matters about what happens if a company goes into liquidation. My honourable friend Mr Cash dealt ably with such matters in another place, so I shall not repeat them here. I hope that I have said enough to sketch out why we on these Benches continue to be seriously concerned by these clauses.

Moved, as an amendment to the Motion that the House do not insist on their Amendment No. 12 to which the Commons have disagreed and do agree to Amendment No. 12A to the words so restored to the Bill, leave out from "House" to end and insert "do insist on their Amendment No. 12"—(Lord Kingsland.)

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