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Baroness Hogg: My Lords, I am most grateful to the Minister for allowing me to intervene. Does he recognise that in those areas where the level of unemployment is higher, there is a false calculation; that is, if he were to measure output across the entire workforce in countries with higher rates of unemployment than the UK, the so-called productivity gap would disappear?

Lord McIntosh of Haringey: My Lords, I am not sure whether it is true to say that productivity is measured across the entire workforce rather than across the actual or potential workforce. I shall have to think about it. The point made by the noble Baroness sounds reasonable, but I am not convinced that that is how the statistics are produced.

Lord King of Bridgwater: My Lords, if the noble Lord is adducing in support of his argument the question posed by the noble Lord, Lord Haskel, why is it the case that the Prime Minister has been trying to persuade the governments of Europe to adopt a more flexible and less regulatory approach? The noble Lord's arguments appear to be totally contrary to his own Government's policy.

Lord McIntosh of Haringey: My Lords, my noble friend Lord Haskel sought to point out that there are

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many different ways of running one's own economy and that, within the European Union, there is room for diversity of social and economic policies. My right honourable friend the Prime Minister certainly would not dissent from that.

I should have thought that some reference would have been made to the way in which the Government have encouraged competition. I am grateful for the passing reference made by the noble Baroness, Lady Hogg, but surely the Government's support for competition—it is an outstanding feature of this administration—ought to be a relevant subject for debate.

I listened to all that was said about small and medium enterprises and I agree with the noble Baroness, Lady Noakes, that the old phrase, "They are the engine room of growth"—we must coin a new cliché—still rings true. However, when the noble Lord, Lord Freeman, quoted the Director-General of the CBI, Digby Jones, on the effect of regulation on small businesses, he cited a remark made in February 2001. In January of this year Digby Jones was quoted in the Sunday Express as saying,

    "Britain is definitely the best place to do business compared with the rest of Europe. We also have a more entrepreneurial legislative and fiscal framework than the United States".

I suggest that we look to comments made in 2003 rather than those made in 2001.

The noble Lord, Lord Saatchi, said that DTI help for small businesses was too complex and bureaucratic. He was entirely right to make that point. That is why in December of last year the Secretary of State announced a "bonfire of support services". The department has cut the number of different support services from well over 100 to approximately 25. We are now allowing a 12-week period between the passing of regulations and their implementation so that the Small Business Service has sufficient time to ensure that small businesses can comply with and benefit from the newly organised services.

The Anderson and Growth Plus study entitled Not Just Peanuts awarded the United Kingdom first place in a study of business environments, saying that we are the country providing the most "entrepreneur-friendly environment". The other countries studied were nine European nations and the United States.

I had hoped to hear reference made to companies legislation or the draft Bill, while no reference at all— except in an attack on the climate change levy by the noble Lord, Lord Saatchi—was made to environmental legislation, landfill tax or packaging regulations, all of which are enormously helpful to business as well as to consumers. Furthermore, no reference was made to science and innovation and to the Government's science policy. Noble Lords did not mention the fact that while we comprise 1 per cent of the world's population, we have 5 per cent of global science budgets, while our R&D tax credits have already amounted to over 400 million per year and are continuing to increase.

I believe that I have dealt with practically all the points, but I refer now to the regulatory aspect of the debate. We have gathered sufficient evidence to say

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that, of the approximately 4,000 statutory instruments referred to, some 95 per cent of them have no effect whatsoever on business. In February 2002 we put in place the Regulatory Reform Action Plan. Some 500 measures were identified and already over one-quarter have been implemented. Certainly the Better Regulation Task Force, under the competent leadership of Mr David Arculus, is more effective not only as regards consultation but also at going into action, above all in persuading departments to put forward deregulation proposals. Although the task force may be only advisory, as the noble Lord, Lord Freeman, pointed out, it is finally having an effect.

I turn to the EU regulatory burden. Both the noble Lord, Lord Razzall, and the noble Baroness, Lady Hogg, referred to this issue. Because we are a part of the European Union, consumers enjoy lower prices, employees have better jobs with higher minimum standards and business has access to one of the largest and richest markets in the world. Surely that is worth while.

I listened to what was said about an annual regulatory budget, but as my right honourable friend the Chancellor announced in the Budget this year, departments are now to be accountable in their departmental reports for reporting progress on deregulation. Furthermore, on the issue of sunset clauses raised by the noble Lord, Lord Razzall, the guide to regulatory impact assessments produced in January of this year cites examples of good practice in sunset clauses. It is something to which we are not at all antagonistic.

We have had a debate introduced with great skill and clarity, for which I thank the noble Baroness, Lady Hogg. We heard a series of speeches to which I have listened with interest, although sometimes with a degree of incredulity. However, I hope that we have reached a conclusion which is worthy of your Lordships' House. I am grateful to all noble Lords who have taken part.

Lord Freeman: My Lords, the Minister has dealt with many points set out in his brief, even if they were not raised in the debate, but he has not responded to the point I put to him in my remarks. If he cannot answer the point I made about the Government's approach to a Joint Select Committee to deal with the merits of secondary legislation, will he undertake to write to me?

Lord McIntosh of Haringey: My Lords, I understand that a form of tacit agreement has been reached between the House of Commons and the House of Lords to the effect that we would try it out first. The Commons will then look at our experience before reaching a decision on whether to take up the proposal.

Lord King of Bridgwater: My Lords, I, too, wish to draw attention to a point I mentioned in my brief intervention, but which was not covered by the Minister in his remarks. I do not expect an answer

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today, but I should like to think that the point has been registered. It is not a party political matter; rather it derives from my experience on both sides of the problem. One of the considerations that must be taken into account is this: can the system, the organisation or the department actually handle what has been legislated for and is then to be regulated? That can add to the regulatory burden, one which can prove to be an impossible burden for the department itself.

Lord McIntosh of Haringey: My Lords, I agree entirely with the noble Lord, Lord King, although I do not believe he will be satisfied if I say that that is exactly what my noble friend Lord Macdonald is doing with the Regulatory Impact Unit in the Cabinet Office, because it is clear that setting up a structure is not the same as ensuring that it is implemented. However, I can certainly give the noble Lord an assurance that the Government are keenly aware of the problem he has raised.

4.59 p.m.

Baroness Hogg: My Lords, I am most grateful to all noble Lords who have taken part in what has been an excellent debate. It was brief and to the point, and I do not propose to spoil our timekeeping. I thank the Minister for his remarks. Personally, I thought that I had heard rather more points mentioned in the debate than he appeared to think were raised. Nonetheless it was clear that he had done his homework and his recital on the issues that are of concern to business was extremely helpful. I know he will have listened to the views that have been expressed and I hope that we will be able to move forward on some of the issues. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.

School Funding

5 p.m.

Lord Hanningfield rose to call attention to the funding of schools; and to move for Papers.

The noble Lord said: My Lords, I am pleased to be able to introduce this debate on the funding of schools. I declare an interest as leader of Essex County Council, but more of that later.

Education is a mammoth service—more than 25,000 schools; more than 8 million schoolchildren—and if the Government get wrong the delivery of education we are all in serious trouble. The debate today will probe whether the Government have done just that.

Over the past few months we have seen a steady stream of reports suggesting a dangerous black hole in the funding of schools. That culminated on Friday with the National Association of Head Teachers describing the funding situation this year as "catastrophic".

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The National Association of Head Teachers blames the Government for this disastrous funding situation. It states:

    "It is very clear to us that although there are local authorities who are guilty of not passing on as much money as they should, the problem lies not with LEAs but with the Government. It has simply not put enough money into the new funding system this year".

So we have a catastrophic situation. A government flagship policy; unions talking about strike action; schools handing back their budgets. By any definition it demands to be taken seriously.

But what is the Government's reaction? According to The Times Educational Supplement the Secretary of State for Education told chief education officers that requests for more money,

    "just flood straight over my head".

He went on to say,

    "I don't listen to what you say quite frankly".

In the run-up to this year's NUT conference, Doug McAvoy said,

    "We've not had the relationship we've got now with the Government during my time as general secretary and deputy general secretary. It's worse than anything that happened through the Thatcher years".

Rather than partnership, we have confrontation and a break-down of communications. In their flagship policy area, the Government have succeeded in alienating teachers, head teachers, chief education officers, unions, local authorities and the Local Government Association.

There is absolutely no doubt that the problems schools are facing this year are a direct result of changes that the Government have made to the funding formula. Enormous turbulence was introduced into the system as a result of the changes. The Government are absolutely responsible for the effect of this review and for its conduct and timing.

The ODPM Select Committee noted in its report on the new funding formula that, although there had been three years to work on the review,

    "most of the substantive work . . . was carried out in the last year . . . The result is that many of the new formulae do not appear to be evidence-based and can be criticised for being insufficiently robust and more open to judgement than was previously the case".

In the end, the formula review had the appearance of being rushed. Local authorities had to set budgets on the basis of a settlement that was finalised only at the eleventh hour. That obviously makes budgetary planning difficult for local authorities and, as a consequence, for schools.

What of the levels of funding themselves? The first point to make is that, rather than taking money out of schools, local authorities actually put additional money in. In 2003–04, the Local Government Association estimates that local authorities will put 100 million more into schools than has been provided by the Government. This continues a trend that has seen additional investment of 4.3 billion by local authorities in schools since 1993. If the Secretary of

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State wants to take powers to pass money to schools directly, he should be aware that this additional investment will be taken out of the system.

But let us return to the head teachers' contention that the Government have simply not put enough into the system this year. According to the Local Government Association the Government's funding settlement did not take into account a number of significant pressures. For example, teachers' employers' pension increases of between 13.1 and 13.5 per cent will cost schools 50 million this year; additional national insurance contributions will take another 115 million out of the system; teachers' pay increases will account for the loss of a further 548 million; schools' inflationary pressures are worth 200 million; and the withdrawal of the Standards Fund grants will cut a further 335 million from the available funding. When one takes all of these pressures into account it is no wonder that some schools are finding themselves in difficulties. The Government have simply got their sums wrong.

On Friday, the Government published tables purporting to show that rather than a lack of central funding the problem was that money was being held up in the system by local authorities. That is quite outrageous and totally wrong. It is typical of the Government that while there is a crisis in our schools that teachers and local authorities are working hard to address, they are focused on passing the buck and spin.

My own education authority, Essex County Council, is one of the authorities identified in the Department for Education and Skills' release as withholding money from schools. That is an accusation I absolutely refute. Indeed, I find it risible, as will others who understand the funding system. Essex has an excellent track record on devolving budgets to schools. According to the DfES's own data, we delegated more cash per pupil than any other shire authority in 1999, 2000 and 2001. In 2002–03, we were the third best performers on this measure. At the same time we are the lowest spenders of any education authority in the country on central administration. I stress that we are the lowest spenders in the whole country on central administration.

The Government and not the LEA are to blame for the difficulties now being faced by schools in Essex and their hundreds of thousands of pupils. After all, the Government have imposed on Essex the worst grant settlement of any authority in the country. We lost 30 million this year. The formula changes mean that we will retain only a further 45 million as a consequence of the floor mechanism.

Turbulence and uncertainty are the future for Essex schools because our funding levels will depend on where the Secretary of State chooses to set the floor. If the floor were to be removed we would lose 45 million, which is equivalent to 11.5 per cent on the council tax. Even with the floor, we are running just to stand still and losing out in relation to all other authorities.

Three times I have mentioned in the Chamber—I still have not had an answer as to whether the Government accept this—that the increase in the total

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grant to the county council was 7 million less than the increase in our education formula funding share alone. I repeat: the money we received from the Government to pay not only for our schools but for community care, child protection, roads, the environment, waste management, libraries and so on, was 7 million less than the Government expected us to passport to schools. Our predicament was so severe that even the Government recognised it and granted an additional 1.2 million to Essex schools, about 6 per pupil.

The effect of the Government's changes to the funding mechanism and the turbulence created in the system was that some authorities—such as Birmingham—received an excess of grant over formula share approaching 40 million, whereas Essex received minus 7 million. Where is the equity in that?

Despite these difficulties we went ahead and passported. We held back 1 million because there was not enough early years demand to justify the expenditure—another government Minister told us to do so—although we still spent 1 million on early years in excess of funding from the Government. We were able to do that only by ratcheting up the council tax. It is the people of Essex, not the Government, who are paying to maintain the quality of education in our schools.

Finding that extra 7 million by itself added more than half of a percentage point to our budget and, because of the gearing effect, it added 2 percentage points to the council tax alone. Government underfunding is responsible for the crisis in our schools and government underfunding is responsible for the steep rises in council tax throughout the South East this year.

For the sake of completeness I must comment on the Government's publication of the numbers relating to allocated spend. Associating this figure with the financial crisis in schools is absurd. It is a policy agreed with our head teachers—all authorities have this underspending and most of them discuss it with their head teachers—and much of the unallocated money is due to restrictions that the Government place on the funding that we can distribute to schools. For example, a third of the unallocated money, more than 7 million, is the ICT component of the Standards Fund. It is the Government who require schools to jump through hoops before this money can be allocated to them through the LEA. It is not the LEA's fault but the Government's regulations. Ministers do not seem to understand their own regulations.

We also hold money centrally to fund in-year pupil number increases and to support the education of pupils out of school. Under the old system, we would delegate the pupil retention budget to schools and then claw back the funding where pupils had to be taken out of schools. The Government told us that we could not do that and that we should hold the money centrally.

The point is that we do this in discussion with our schools and our head teachers. Our funding system is quite transparent: we sit down with our head teachers and discuss how to delegate the money. They know that the 21 million is theirs and will be allocated to

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them as the year goes on. They do not need the money upfront, of course. That is not what the underfunding crisis is about. Schools do not pay all their bills at the start of the financial year. Let us be clear that schools are underfunded because the Government have not put in enough money. It is nothing whatever to do with the profiling of payments.

Some press releases indicate that local authorities are sitting on pots of money. That is not the case. Our finances come in, as the Minister will know, over the year. Revenue support grant and council tax income are basically paid to us monthly, not as a lump sum at the beginning of the year. We receive income from government and council tax payers over the year. We passport it and give it to schools monthly, over the year. It is not a funding problem at this moment but over the year. As I said, press releases have indicated that local authorities are sitting on money. I am afraid that that is simply one more red herring thrown up by the Government to try and avoid shouldering the responsibility for this mess.

The final irony, so far as I am concerned, is that within the figure of 21 million of unallocated funding for Essex, the Government have counted in the 1.2 million they have just given us because they recognised we were underfunded. Needless to say, the money will be passed directly to the schools as soon as we receive it from the Government.

The Office of the Deputy Prime Minister is committed to freeing up local authorities. Let us accept that proposition in good faith. The Department for Education and Skills, however, is obsessed with centralisation. It wants to micromanage inputs as well as specify outputs. In attempting to do so, it has got itself into one almighty mess.

Instead of focusing on raising standards in schools, the Secretary of State for Education and Skills has become obsessed with LEA spending profiles. It is irrelevant. The plain fact is that the Government have got their sums wrong and have not invested enough money in schools. They should stop digging now, own up to their mistakes and work with LEAs and schools to seek ways out of this situation.

If the Department for Education and Skills wants to continue down the road of centralisation, it can expect more of the same. The more it insists on taking the reins, the more it will have to be prepared to accept accountability for its failure to deliver. The Secretary of State for Health wants to do the opposite for the health service—he wants to delegate more downwards.

While the Government pay lip service to the principle of devolution, the actions of departments such as the DfES make it clear that there is only one game in town—centralisation, centralisation, centralisation.

I am grateful for the opportunity to have opened this debate. I am very concerned about the situation; I live with it in Essex every day. If we had more money to give the schools, we would love to give it to them, but a council tax increase of 16.7 per cent was high

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enough. Anything I can do to help the people of Essex I will do. I hope the Minister will say the same when she responds.

I look forward to hearing the contributions of your Lordships to this debate. I beg to move for Papers.

5.14 p.m.

Baroness Warnock: My Lords, I am extremely grateful to the noble Lord, Lord Hanningfield, for giving your Lordships' House the opportunity to debate what has manifestly become a crisis in the funding of schools. No one can open a newspaper without realising that there is a crisis. However, it is a very complex matter, and I cannot claim to understand the funding formula that is now in place.

There are conflicting stories about what has happened to the extra funding that was promised and seems to have got lost. I look forward to hearing some clarification from the Minister on this point.

I want to confine my remarks to the funding of secondary schools, where there is no doubt that teachers are to be made redundant or not be replaced, and thus the staff-student ratio will be badly affected. Who exactly is responsible for the current chaos seems to me less important than the probable consequences. How is it possible to expect more pupils to stay on at secondary school and more to go on to higher education if educational standards are allowed to drop through lack of resources? That is the real issue in this debate.

In some ways, an under-resourced secondary school system is even more disastrous than lack of funding for undergraduate teaching, because everyone has to go to school and everyone deserves proper teaching at this stage.

It has been suggested, according to accounts in the press, that a revival of the grant-maintained system is being considered. This, I suppose, is simply because the Government seem to be laying the blame for the crisis on the local education authorities—as we have heard—from whom the grant-maintained schools were virtually freed. But without a further outlay by the Treasury, this would not make matters any better. What is needed is plainly more resources, and these resources must come from somewhere. I do not believe in the least that the local education authorities are sitting on vast sums of money. It is impossible that they should be.

I would like to think that, at this moment of crisis, the Government might take a rather longer look at some of the systems for putting more resources into the secondary school system than simply shuffling more money between the local education authorities and the Treasury. I would like to think that they might at least consider mixed public and private funding, not unlike—although not exactly the same as—the direct grant system, which was abolished, as everyone knows, by the Labour Party in the 1960s. The abolition of the direct grant nearly 40 years ago was largely the work of Anthony Crosland, who was determined—I think very properly—to give the new

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comprehensive system every possible chance by stemming what he thought of as the flood of talented children into a form of the private sector. I respect his arguments and I respected him enormously as a Secretary of State for Education.

I suppose that here I must declare an interest, though not a current interest. I was headmistress for six years of a direct grant school in Oxford, and for much longer I was part of the council of the Girls' Day School Trust, all 24 of whose schools were once direct grant schools. Later, when they became independent schools, they took up as many assisted places as they could.

The great fault, in my view, of the direct grant schools was that free places were offered to children from maintained primary schools if they did well in the entrance examination, without parental means tests. In a place such as Oxford, the parents of the brightest children from maintained schools could very well have afforded fees which, in any case, could not be raised from their relatively modest level without consultation with the government department. That was the fault of the system.

The glory of the system, however, was that in addition to the free places there was a sliding scale of fees. The parents of all children who wanted to, who had been admitted to school, could apply for a means test. There were children who paid no fees—as well as the scholarship or free place children—on a sliding scale going up to children who paid the full fees. No one except the administrators at the school and in the department knew what fees other children paid. That seemed to me an enormous advantage. Of course, there were some extremely good schools in the direct grant sector. One has only to think of Bristol Grammar School, Manchester Grammar School and so on.

Crosland was right in that the principle of the direct grant schools was incompatible with the comprehensive principle on which he set so much store. As a matter of fact, the comprehensive schools were never given a full chance to show what they could do—which some of them continue to do. However, the comprehensive principle has been long abandoned.

It is hard to reconcile the theory of specialist schools with that principle, for example, although I have never really understood that theory. I have a granddaughter at a sports specialist school, which is the only accessible school in the rural area where she lives. She is keen on tennis and girls' football, but she has played neither of them in the two years that she has been in the school. I am a bit baffled by the theory of specialist schools, especially in rural areas.

It is hard to reconcile the theory of specialist schools, technical colleges and city academies with the comprehensive theory. The crucial advantage of reinventing something like the old direct grant schools is that it is a living example of public and private funding being mixed and harmonising in potential centres of excellence. As far as I know, there is only one example of such a school at present, although there

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may be others, and I may be misinformed. That is the Belvedere School in Liverpool, which has some very good as well as very bad comprehensive schools.

That school belongs to the Girls' Day School Trust and is supported by the generosity of Mr Peter Lampl's trust, which funds children who apply from maintained primary schools all over Liverpool and whose parents are means tested. That is a crucial difference between Mr Lampl's system and the old direct grant schools. The rest of the children's parents pay full fees, although they may also ask to be means tested and their children receive bursaries as appropriate rather than free place scholarship. The experiment seems to be working very well.

I suggest that parents who wish to pay for their children's education should be encouraged to do so. However, their children and the educational standards at such newly invented direct grant schools as I have described would greatly benefit from a proper social mix at the schools as well as their high academic ambitions.

It was the previous Conservative government's hope, as it has been the hope of this government, that industry would be a source for mixing private and public financing in secondary schools—hence the technical colleges. However, industry has not proved willing to help out in the necessary business of finding new resources for education, and it may not be in a position to do so. The Government cannot rely on that source, nor have they successfully relied on it in the past. They are far more likely to succeed in attracting more resources into secondary education by enlisting parents with moderate—not necessarily enormous—incomes, who are ambitious for their own children and for children who are less well off.

It is sometimes assumed that parents will always resent paying for children other than their own children at school. The principle of the direct grant showed that that was not so. No parents, in my experience, ever objected to the fact that they paid full fees when they knew that a large number of children paid no fees at all or paid fees on a sliding scale. The only thing that they objected to was that some children who happened to have been at maintained primary schools and whose parents were equally as well off as them—in exactly their income position—had free education. In a university town in those old days, people were reasonably well off, although they are not now. But that was the system of scholarships to which people were accustomed.

It is interesting to note that many of the big boys' public schools, starting with Eton but led by Mr Graham Able at Dulwich, are now saying that in future there will not be non-means-tested scholarships. All scholarship money will go to children who cannot afford the fees. That is a worthy and prudent move.

Parents who are academically ambitious for their children, or musically ambitious or ambitious in sports, will like the idea of schools such as I describe. They have the chance of being both socially mixed and, undoubtedly, centres of excellence. I hope that the Minister will undertake to consider not necessarily the

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scheme that I have outlined but some such way in which to mix private and public finance for secondary education.

5.27 p.m.

Lord Henley: My Lords, I start by offering my thanks to my noble friend Lord Hanningfield for introducing this debate. As we all agree, the subject is highly topical and crucially important. We know how much importance the Prime Minister himself attaches to education—"education, education, education", as he put it some years ago. As a result, we know how much importance his party attaches to it.

For that reason, I offer my commiserations to the noble Baroness, Lady Ashton, who does not seem to have attracted as much support as one would have expected on this occasion. The Benches behind her were pretty empty earlier on, although they seem to be filling up a bit, if not much. One would expect on an occasion such as this that she would have brought in a few more speakers to support the Government's case, which no doubt she will make very effectively at the end of the debate. She may make it so effectively that she finds herself transferred to the equally hot spot—the vacant spot in this House—of health spokesman. But that is a matter for other people and another day.

As my noble friend Lord Hanningfield made clear, this is a very complicated subject and it has become much more so in recent years, especially with changes to the formula. I suppose that I ought to know something of what I am talking about. I served in the 1980s as a member of a local education authority in Cumbria. In the mid-1990s I was a Minister in the Department for Education and Employment, as it was known. I continued briefly as spokesman in opposition after the 1997 election before relinquishing that honour to my noble friend Lady Blatch, who will speak for us at the end of the debate. I ought to know a little about education funding, although I never had responsibility for it in the department. However, as Lord Palmerston famously said about the Schleswig-Holstein question, he had forgotten what it was about. I have certainly forgotten what little I did know about the complexities of funding. I also imagine that—just as Lord Palmerston commented on those who went mad—the funding formula is perhaps driving Ministers and others who have to deal with it mad at this very moment. I leave that for the noble Baroness to answer in due course.

What I do know is that, last December, the School Standards Minister announced that, in 2003–04, there was, I believe, an extra 1.4 billion for local education authorities. He went on to make it pretty clear that every LEA would receive an increase of at least 3.2 per cent per pupil and that no one would lose out in real terms. The Government made quite a thing of that announcement—but they always make quite a thing of such announcements. We seem to have new announcements daily. We have heard new boasts about spending on this and spending on that. What we have slightly less of are improvements as a result of those spending increases. What we have even less of is talk about the extra burden on individuals and

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businesses as a result of those spending increases which I believe now amount to a sum roughly equivalent to 5,500 per household in extra taxation since 1996–97. All of that spending has gone on worthy causes such as health and education but we see relatively few improvements.

I return to education itself. We were told that there was to be the increase mentioned by my noble friend Lord Hanningfield of 1.4 billion for the LEAs. Since then—and my noble friend has put the case very strongly for Essex—we have heard not only from LEAs but from the schools themselves on what is really happening. Again and again we have heard examples of schools that have lost out and seen dramatic funding cuts. A survey of the Sunday Times top-performing 25 schools carried out by the shadow schools Minister, my colleague Graham Brady, showed that, of the 20 schools that responded, 17 face certain cuts, five of at least 100,000 and two of at least 250,000; that the anticipated range of cuts is 60,000 to 300,000; and that the average shortfall for schools able to give a figure is 155,000. We all know just how many people can be employed in a school for 155,000. Such cuts really do make quite a difference.

We have even heard from one Fiona Millar, personal assistant to the Prime Minister's wife and partner of Alastair Campbell. She could not restrain herself in her role as chairman of the governors of a north London primary school in complaining about the cuts to her school. She said:

    "Although we will do our best to maintain standards, we cannot guarantee that the quality of education will not suffer. In particular, it is our most needy children who stand to lose most because we will not have the staff to provide the same level of extra support. We believe the Government has not thought through the implications of all its changes for some of the neediest schools. Parents can protest in many ways. For example, letters of protest need to be written".

That school was facing a shortfall of 127,000.

As we know, the Government responded to all the criticism by saying that the money had been held back by the local education authorities. Last Friday, I believe, a letter was sent to all LEAs and directors of education seeking detailed answers. I have seen a copy of what I presume is a fairly standard letter, with various additions for local areas, which was sent on 2nd May to the director of education of Cumbria County Council. No doubt there are similar letters, and no doubt my noble friend Lord Hanningfield has seen the one sent to the director of education in Essex County Council. My noble friend spoke about the micro-management that the Government are seeking in education and this letter seems a pretty good example of it. It presents that local authority, and no doubt other local authorities, with a whole raft of extraordinarily detailed questions.

I can assure the noble Baroness that Cumbria's local education authority is not holding back any of the money and has passed more than 100 per cent of the schools' budget on to schools. In fact, the figure is 100.6 per cent. It is the burden on the LEAs which has been increased. For example, the pay increases to which my noble friend referred amount to 445 million

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in total. Pension contributions also have been increased, amounting, I believe, to 635 million. Gordon Brown's famous increases in national insurance contributions amount to another 115 million. All of that adds up, I understand, to 1.195 billion—which goes quite a long way into the 1.4 billion that the Government have boasted about.

I think we can say that the Government's handling of the education budgets and allocations has been unsatisfactory for a number of reasons. There has been, as my noble friend put it, a great deal of tampering with and changes to the funding mechanisms which have left schools and probably some LEAs struggling to get to grips with the absurd and unnecessary complexities of the system. That has been exacerbated by the separate but unrelated funding for the Learning and Skills Council, which now, I understand, funds post-16 education. There has also been the failure of the Secretary of State and his department to warn schools well in advance of the increases which I just mentioned in national insurance contributions, pensions and teachers' pay.

I should give other examples, such as the problem with the teachers' pay progression. There has also been the Government's failure this year to fund adequately the threshold payments for teachers. As I understand it, two years ago funding was provided and about 90 per cent of teachers passed through the threshold. This year, however, the Government incorrectly calculated—I should be grateful for the noble Baroness's comments—that 60 per cent of teachers will pass through the threshold, whereas schools calculate that the figure is nearer to 100 per cent. The Government have awarded funding sufficient only for their original 60 per cent.

I turn to specific grants. There was, I believe, a grant to reduce infant class sizes to less than 30 this year. This year that grant has been subsumed into overall funding and is therefore not targeted as it should be. Some schools must therefore receive less than in previous years. If those schools have taken on classroom assistants or additional teachers to service the commensurate increases in the number of classes, they will inevitably be faced with higher staffing costs. Therefore, there must be redundancies or economies elsewhere if the financial books are to be balanced.

Finally, there is the question of whether the extra money even reached the schools. Yesterday we saw the publication of the Public Expenditure Statistical Analyses 2003, a very complicated and weighty document with which greater experts than me will perhaps eventually get to grips and make interesting discoveries. I am grateful to The Times, which has already done some of that work, for pointing out that although the Government boasted about their 1.4 billion spending increase—when in reality we have seen thousands of schools complaining about cuts—that money might not even have got through to the local authorities. According to The Times, the statistical analysis for 2003 published only yesterday shows that the DfES underspent by 1 billion. The Government are complaining that 590 million is missing from education and blaming it on local

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authorities. Perhaps it is the Department for Education that has the money and not the LEAs. Perhaps the noble Baroness will comment on what The Times business section says about the underspend in the Department for Education where spending fell more than 1 billion short of its target.

5.40 p.m.

Baroness Byford: My Lords, my main responsibilities in this House are agriculture, the environment and rural affairs. However, education is an important if not vital part of all three.

As education is not my main interest my knowledge is limited compared with that of some other noble Lords. However, I listen to the radio, watch TV, read the newspapers and my husband is chairman of governors at an inner-city primary school and a governor at a county middle school. Between them all I am subjected to a constant background hum of discontent, concern and occasional despair.

I am aware that education funds come from the Government to county and metropolitan councils. I understand that the means of calculating the amount each council receives is very complicated and that they all get different amounts according to their circumstances. That means that in 2003–04, Tower Hamlets has 5,337 per pupil whereas there is 3,354 for Milton Keynes, 3,162 for Southend, 2,990 for Poole and, at the bottom of the heap, 2,930 for Leicestershire.

I know that Tower Hamlets has enormous problems of poverty, social inadequacy and ill health but I do wonder what its education offers that, in a climate of national curriculum and national pay scales, costs 2,407 per pupil per year more than Leicestershire. I note, moreover, that in the years since 1997–98, Tower Hamlets has had a real terms increase of 1,160 per pupil compared with Leicestershire's 500. If I were a cynic, I would say that that is beginning to look like favouritism.

The consequences of those disparities will vary from place to place, from school to school and will be affected by the calibre, or lack of it, of LEA officers, head teachers, governors and other staff. In Leicester in the inner-city primary there is no funding crisis as such but there is only one parent governor out of a complement of four. The school has some 270 pupils; 17 mother tongues are spoken; 120 pupils have special educational needs; approximately 35 are children of asylum seekers and 65 per cent receive free lunches. I appreciate and understand the extra demands made in those circumstances. The school also runs a breakfast club. The children need a lot of love, care and support in addition to their educational needs.

In Leicestershire in the 11 to 14 middle school there is a deficit of over 150,000. That will mean that some teachers will not be replaced. The school has approximately 940 children. It expected 30 more and budgeted for that number. As I say, there is a huge finance problem. The LEA and the school have got together and produced a three-year plan but because there is no additional funding there is a need to

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rationalise resources—for example, staffing—and to review contracts and budget allocations. The school and the local education authority are confident that over the next three years the deficit will be cleared but the school should not have been put in that situation in the first place.

There are problems today but there are even bigger problems looming in the years ahead if funding is not sorted out. Many schools are rotting away from within. The landlords look after the structure and the externals but schools are having to make choices between resources for teaching and learning and building maintenance. Can the Minister tell us how many councils have served hygiene warnings on local schools, especially in relation to the state of repair and decorative order of kitchens and washrooms?

One of the costs of running a school is resources and nowadays they are expensive. The National Grid for Learning has helped equip most schools with computers, interactive white boards, access to the Internet and administrative and curriculum software. My worry—I believe that I am not alone—is what will happen in two or three years' time when all of this comes up for renewal? Software and service packages are not likely to fall in price. Indeed, some software manufacturers sell licences which involve schools in updating at the behest of the maker and being required to upgrade the computers needed to run the upgraded programmes.

Some noble Lords will know of my interest in broadband, particularly in rural areas. Depending on how it is installed it may be capital expensive with low running costs or capital acceptable but with high running costs.

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