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Lord Ouseley: I thank the Minister for the opportunity to clarify. I was saying that I could not see the evidence of educational benefit from the proposal in Clause 98. It is important that we consider that at this stage. That matter has not been clarified, and I am still not convinced. I readily accept the proposition that the Minister put to me, but that is not what I was saying. I was talking about the educational benefits.

I do not think that ring-fencing, which is helpful in the context in which it is proposed, will provide educational benefits. We know about the way in which greater autonomy has helped certain schools to perform well, and we have seen the benefits for some children. Equally, however, we have seen how other children, particularly those from vulnerable communities, have not done so well. It is therefore important that we understand the discretion that is available with the autonomy to ensure that local authorities, which have responsibility for meeting the needs of children across the range of services for which they are responsible, can be effective and will not be hindered by the proposal.

Lord Filkin: I thank the noble Lord, Lord Ouseley, for his helpful interjection. Perhaps we should not protract that debate at this point.

I sought to give three specific reasons why there would be direct benefits for children in schools. One is that more teachers would be employed, rather than the money being kept in budgets. Secondly, the management of the school would have much greater clarity about its resources into the future and would spend less effort second-guessing what those resources might be. Thirdly, the staff would have less anxiety about whether they were going to be sacked as a consequence. I must move on.

I was asked some difficult questions by the noble Lord, Lord Hanningfield. I shall try to answer most of those, at least to partial satisfaction. The noble Lord asked about the Select Committee on Education and Skills and about whether there was evidence for the changes. My noble friend Lord Hunt of Kings Heath, in part, made the argument about that. We believe, as, I think, do many others, that organisations in the public or private sector are more likely to deliver good results if they know what their resources are, if they have control over their inputs, if they are not burdened by excessive bureaucracy and regulation, and if they are judged by the outcomes that they produce, than if they are second-guessed through input controls. That is the central performance analysis that sits under the new relationship with schools and under what we are doing with three-year budgets.

Lord Hanningfield: I hope that the Minister will go on to answer more of the questions that I posed. He mentioned the security of budgets several times.
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Everyone would like to know what they are going to get for three years; that is fine. However, all budgets are based on pupil numbers. The Minister referred several times to the security of staff. With numbers changing, if we are not going to take money away from schools that lose pupils and give it to schools that gain pupils, we are going to have to pump in extra money. They will not be three-year budgets, because numbers will be changing all the time.

In my authority, for example, we go by the numbers in January. We prepare the budgets, but the schools get them on the basis of the number enrolled in September, which could be different from the suggested number in January. They get their full top-up money in September, on actual numbers, but numbers in some schools change dramatically. If numbers in some schools are falling dramatically, we will have to find extra money for the pupils who are now in the other schools, unless we reduce the money that the schools with falling numbers get. If we do not do that, more money will have to be pumped into the system every year. Also, there will be no security for staff in a school with a falling roll. I do not understand.

The Minister referred to security for staff several times. I do not know how we will get that security in schools with falling rolls. I cannot understand the Minister's point on that issue.

Lord Filkin: There is no such thing as a job for life, in the public or private sector, as we all know now. However, a school that is in the situation that the noble Lord described, with the head and the governors conceding that their rolls are falling, will have a reasonably good feel for likely future losses. It will make high and low assumptions.

With the direct school funding process, schools will know the revenue consequences and will be able to judge whether it is prudent to retain staff or take on more. That is different from the current situation, in which they have two variables to deal with. They know neither what will drive the funding nor what will happen to their volume of pupils.

Lord Smith of Leigh: School numbers can change dramatically in a short time. Often, if a school is losing pupils and parents suspect that the school may be closed, they will often vote early with their feet to get their children into a different school. A school that starts in September with a particular number of pupils may end the year with a substantially smaller number. Whatever system we have, we cannot legislate for that uncertainty.

Lord Filkin: It is a fact that, in this House, we cannot make the world stand still. However, through these measures, we can substantially reduce the uncertainty.

With regard to the forecasting methodology, we are carrying out a study of the methods used by LEAs to forecast pupil numbers. The early results from that work suggest that there is unlikely to be one method that fits all schools. We will make the results of that work available to all authorities to inform their work on forecasting pupil numbers at school level.
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I was asked about the level at which the new ring-fenced grant would be set—current spending or school FSS. The underlying formula will be the existing SFSS, subject to any minor change. However, the allocation of DSG will be based initially on actual spend by LEAs, to ensure that there is not a sudden redistribution.

Will the Government give full assurances to local government that no authority will lose grant due to spending differences? We will ensure that there are no adverse effects for the rest of local government and that transitional protection is put in place to ensure that no authority sees an unacceptable change in the central government resources available for non-school services.

Will school funding expenditure remain part of local authorities' accounts? Yes, it will. At what date will budget shares be issued to schools? We intend that they will be issued at much the same time as now—February or March, not August—following the local government settlement in November.

Lord Peston: I interrupt my noble friend for a word of clarification, following on from what the noble Lord, Lord Ouseley, said.

I support my noble friend in everything that he has said, except for one matter that looks a bit obscure. It seems to me that schools will want certainty—that is right—and I am certain that what is allocated to education should go to education. However, if, in a local authority area, one school needs more money for special reasons—perhaps it has a more difficult group of pupils—where is the decision taken, so that the school that needs more funding gets that funding? It is not clear. Are we to believe that it is a central government decision, or will the local authority at least be able to say, "We will certainly allocate all the education money to education, but our judgment is that we take the decision that this school should get it rather than that one"? That is the bit that I got lost on. I am sure that there is a good answer, but I would like to know what it is.

Lord Filkin: My noble friend is right to ask that question, as I skated over it in my response. There will be no change from the current situation, in which local authorities distribute the funding to schools according to a formula that they determine in a manner consistent with central government guidance. It is essentially a continuation of a local authority decision on how to distribute; that is, the "principles" that should drive the distribution—not whether the local authority likes school A or school B. That is consistent with government guidance and will continue unchanged.

As regards the question about LEA powers, there is no intention to remove LEA powers and give them to schools forums, a point that I have already covered. On under-spending or overspending the new ring fence grant in terms of budgets retained centrally to manage LEA activity, our proposals will not affect the position in relation to central spending by LEAs.
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In 2004-05, we introduced a limit on the annual increase in authorities' central spending that is not delegated to individual schools, such as PRUs and some SEN expenditure, to ensure that funding increases reach schools. We envisage that that will continue under the new system. Where an LEA can make an exceptional case for exceeding the limit—which is germane to the question asked by the noble Earl, Lord Listowel—it can currently apply to the Secretary of State for approval for a dispensation. In future, we propose that such proposals can be agreed locally with the school forums. If there is no agreement, as now, they can be referred to the Secretary of State. So there is the potential for flexibility.

I was also asked about the funding implications for schools in deficit. At present, schools are able to carry forward unspent balances. If they overspend, they can also carry forward a deficit. The introduction of DSG will not change that situation. I was asked whether this would limit extended schools development. That is a good question because I think that throughout the House we support that. The answer is, "No, it will not", in terms of the specifics for support for implementation. If memory serves me right, central government funded £50 million to the early pathfinders on extended schools development. Again, from recollection, we will be putting more than £100 million in the next phase to support the early development of that process. Schools, as the noble Lord knows, are strong supporters of extended school in general because they see the benefit. The noble Lord, Lord Hanningfield, spoke strongly and clearly about what a good thing it is. We agree with him on that.

On the statutory S52 budget and outturn statements, the official closure of accounts will remain at 31 March. So there will be no change in that respect. As regards different systems in England Wales, yes, there will be different systems. That is a consequence of devolution, which we believe in, as the House well knows. On the question that paragraph 6 of Schedule 16 makes amendments to Section 47, I do not have an answer, so I shall have to write to the noble Lord.

In conclusion, I think that we have covered most of the issues. If it is not to full satisfaction, I have no doubt that we will come back to them later. In the House and in wider society, at heart there is a strong consensus for this measure, which is the logical consequence of the way in which policy has been moving for years. But it retains the important role of local authorities, which are massively important in terms of educational leadership in their communities, as my noble friend Lord Hunt so powerfully put across.

The Secondary Heads Association and the National Association of Head Teachers have said:

They are absolutely clear.
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We have not spoken about that accountability, but it also is good in terms of democratic health. People will know the amount of money that has gone into schools and the responsibility for that. So both SHA and NAHT feel that all the provisions in the Bill work together to provide schools with a more coherent and stable funding system. They state:

I am glad that largely the House supports them in that view.

I hope that my responses to the probing amendments put forward by the noble Lord, Lord Hanningfield, have been helpful and that I have persuaded my noble friend Lord Smith not to press his amendments.

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