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Baroness Sharp of Guildford: My Lords, we support the noble Lord, Lord Kingsland, in his amendment. We have consistently opposed the inclusion of those clauses on schools companies. After our lengthy debates, we recognise that the companies have limited purposes. They enable schools jointly with other schools and/or persons and organisations to set up companies for the purchasing of school supplies and the provision of services. Secondly, a company can be

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set up in order to sell goods or services to other schools. Without the legislation, schools will be unable to do that. Schools will be able to set up a company but only in order to provide services or to sell goods to their own schools, not to others. That is the main reason for the proposal to set up such companies.

There are four main reasons why we on these Benches have consistently opposed the proposals. First, we see the act of a school setting up and running a company as a diversion from its main purpose. When heads, teachers and school governors are so pushed for time, the last thing they will want to do is to run companies. They do not need to have the worry and angst of doing so.

The Minister assured us that as regards accountability the Government will keep a close watch on the companies. They will be asked to submit not only annual reports to the LEA—that is in addition to the reports they must submit to Companies House, auditors and so forth—but interim reports. That will increase the burden of running the companies. We strongly feel that the job of heads, teachers and governors is to run schools and not companies. We believe that they should "stick to the knitting".

Our second reason for opposing the proposal is that we do not see the necessity for these companies. In the debate in the other place on 15th July, the Minister, Mr Miliband, stated:

    "These proposals are about encouraging co-operation between schools to help them to perform their roles effectively, serving their own pupils and other pupils in the locality . . . The hon. Gentleman [Mr Willis] asked whether that has not been done already".

The Minister then said:

    "A certain amount of co-operation does already take place, but the power will provide clarity that the school's governing body can form a company to do more than it is able to do at the moment".—[Official Report, Commons, 15/7/02; col. 68.]

However, I emphasise the fact that in purchasing goods and services and reaping economies of scale, schools have been co-operating with each other for many years. Local education authorities were set up to perform that function and in some cases, they still do. However, with the development of grant-maintained, foundation and voluntary-aided schools, often groups of schools band together to undertake those tasks.

The question is whether they need the additional powers. If the main purpose of the proposal is to encourage co-operation between schools in order to help them perform their roles effectively, do they need powers to form companies? For the past 150 years, they have got on perfectly well without them and I cannot see that they need the new powers. We therefore believe that the powers are unnecessary and complicate life for schools.

Thirdly, we oppose the proposal because we are concerned about what will happen if the company fails and losses are made. It is clear from statements made today by the Minister and by Ministers in the other place that purchasing companies would be spending member schools' delegated budgets and would therefore be deemed to be acting as agents of the LEA.

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The LEA would then be liable for the company's debts in the event of company failure, in the same way as the LEA would be liable for an individual school's debt when the school was acting as the LEA's agent.

I suggest that there is a difference. If the purpose of a company is to make a large profit for the school, it might be thought a good idea to print lots of T-shirts showing the town logo in the expectation of selling them to other schools and making a profit to put back into the school. But if, say, too many T-shirts were printed and the school was landed in debt, the LEA would be liable for that company debt.

Forming a company may encourage schools to take more risks than they would if they were spending their own budgets. It is not necessary to form companies in order to make joint purchases. The formation might encourage schools or particular members of governing bodies to enter into ventures more risky than schools would otherwise entertain. That is worrying because ultimately the LEAs will pick up the tab.

I recognise that the LEA does so if the debt is related to purchasing. If the debt is related to the provision of services, the company will, under the Companies Act, go into liquidation. Those who have invested money will lose their shares and the creditors will lose out. But there is another difficulty. If a school company has bad debts, that will leave a nasty taste—and do we want schools to be landed with such nasty tastes?

Finally, we on these Benches have always suspected that there may be a subtext. We have debated the matter many times, having said that we distrust the companies and did not want to see their formation. We have asked why they are necessary and we have been told that they are not important but merely a minor detail in the Bill. If they are a minor detail, why are the Government so insistent that they remain?

The noble Lord, Lord Kingsland, explained what may happen. It may be that companies will be set up to run other schools. During the past few weeks Ministers have done a great deal to try to reassure us that there is no such subtext. One likes to believe one's own Ministers, but constantly events take place. Many noble Lords will have seen in last week's Observer a splendid article announcing:

    "Blairite blueprint to turn schools into companies".

The first paragraph reads:

    "Top schools could be turned into companies and allowed to generate extra cash for pupils under radical plans for not-for-profit firms to run public services".

I am sure that the Minister will say that that has nothing to do with Patricia Hewitt and the ideas she is floating around or with what is before us today.

We had exactly the same debate on federations, but after the Secretary of State's recent Statement newspapers carried the headline, "Failing schools will be forced into federations". We had received assurances from the Minister that that would not be the case and were told that it was an unfortunate use of the word "federation". That may be right, but when I put that together with the other doubts we have

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about the proposed companies, I ask: why have them? We want nothing to do with them and we therefore persist in opposing the two clauses in the Bill.

Baroness Blatch: My Lords, I too wish to refer to the article in the Observer and I hope that the noble Baroness who is to respond will be able to comment on it. We have reached an extraordinarily late stage in our deliberations on the Bill without hearing any mention whatever of the fact that at least four Cabinet Ministers have discussed the possibility that certain top schools could be turned into companies, allowing them to generate extra cash for pupils under the plans to introduce non profit-making firms to run public services. It is important to point out that the clauses under discussion do not concern not-for-profit companies. Is this another policy on its way or is it likely that regulations will bring forward such companies? It would be most helpful if the Minister could comment on this.

In case anything is said to the contrary, noble Lords on these Benches have always supported commercial freedom for schools. Indeed, the noble Baroness, Lady Sharp, outlined the considerable freedoms already enjoyed by schools as regards working together, corporate purchasing and developing software materials so that other schools can benefit from them. I am not against those efforts and nor do I believe that the noble Baroness and her colleagues on the Liberal Democrat Benches oppose them.

However, where is the legal advice required for contracts to be drawn up to establish school companies to come from? Where will the company secretaries come from? Where would they get accountancy advice—or even accountants? Schools do not have such expertise; it will have to be bought in. If school funds have to be used to pay for such services, then schools have a right to know now how the funding is to work.

When the Minister commented on the amendments, she said that the clauses advocate a very well known and trusted model of a company. I know of no company that has to seek the equivalent of local education authority approval to be set up in the first place. I know of no company that has the equivalent of a local education authority as a supervisory body with powers of intervention. Similarly, I know of no company that has the equivalent of a Secretary of State also with powers of intervention. In addition to those layers involved in so-called "free-standing" companies, they would be subject to the full panoply of supervision and regulation under company law.

At no stage of our deliberations have we been given explanations of what would happen to head teachers, teachers and governors who move around between different schools. These are peripatetic groups of people. If an incoming head teacher, teacher or governor does not wish to pick up the mantle of being a member of a company, how would that situation be dealt with? It is important to put the details on the record.

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On 13th December 2001 in Standing Committee G, my honourable friend in another place, Chris Grayling, asked:

    "While the Minister is clarifying these points, will he tell us the degree to which the provision of the companies involves the delivery of educational services?"

He went on to say,

    "could a governing body sub-contract out the entire management and educational management of its school to a more successful school?"—[Official Report Commons Standing Committee G, 13/12/01; col. 157.]

The Minister at the time, Stephen Timms, replied at cols. 157 and 158:

    "The scenario is possible—subsection (1)(a) makes this clear—because we are considering services provided to schools by other schools".

And yet on 15th July 2002, when the House of Commons considered the Lords amendments to the Bill, the Schools Minister, David Miliband, said that,

    "these companies would not be able to take over the running of a school".—[Official Report, Commons, 15/702; col. 67.]

I am going to ask the Minister to tell me today which of those statements is correct. Can schools be run by other schools, or can they not?

I have the utmost respect for the Minister. She has been diligent, courteous and responsive at every stage of the Bill. But how are we to take the word of this Minister as opposed to the word of Stephen Timms, as opposed to the word of David Miliband? All are highly respected Ministers of the Crown, but they are all saying something different. It is important to be clear about the Government's intentions.

I turn to what was said at the beginning of our discussion: this is a dog's breakfast set of proposals. They are ill thought through. Key questions have not been answered and the interests of schools, teachers and our governing bodies—whether or not this is a voluntary activity—have not been considered. Schools should be free to use their resources to run their institutions. They should not be seduced into running companies—the Government use tempting language to describe their policy—that could go wrong. If that were to happen, at this stage we are in no position to appreciate what kind of impact that could have on the education of our children.

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