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The Minister wrote to us on Friday that academies funded through grant funding would have the conditions of their grant outlined in a grant letter, and that it is for the Secretary of State to decide the terms of conditions. I understand the point about flexibility. Indeed, how I would have wished for that type of flexibility in the 20 or so Bills that I have taken through your Lordships' House. Understandably, however, your Lordships have been reluctant to give so much authority to Ministers without effective parliamentary oversight, and I remind the Minister that the theme of yesterday's Budget was the need for rigorous control of cost in the public sector. I would have thought that that would have involved a rigorous process when deciding the merits or otherwise of a free-school application. I question why the Government lack so much faith in the process that they are establishing that they need a get-out clause on funding in case their judgment is wrong, and I suggest to Minister that one way in which to ensure more rigour in the application process is to have proper consultation and a significant role for local authorities.

Both the Bill and the Explanatory Memorandum are remarkably lacking in detail on the financial assistance funding mechanism in Clause 1(2)(b). That is unacceptable, which brings me to my Amendment 14, which seeks to deal with this by proposing that any such financial assistance that is to be given under Section 14 of the Education Act 2002 should be set out in regulations and subject to the affirmative procedure. Noble Lords around the House have consistently called for greater parliamentary scrutiny of the Executive, which, in the case of free schools and the scanty provisions in this Bill, is certainly justified.

My Amendment 79 is in a similar vein. It would provide for the Secretary of State to make regulations on academy arrangements, and would give some measure of parliamentary scrutiny.

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My Amendments 124 and 125 continue this theme. The Bill at Clause 4(6) removes the sensible requirement for the Secretary of State to exercise his powers to make academy orders by statutory instrument. Amendment 124 would delete subsection (6), thereby reinstating that requirement. Of course, if the Bill is passed and thousands of independent state schools are created, there will be the practical issue of processing those orders through Parliament, so we have come up with one option to deal with this; Amendment 125 would require the first two orders in each local authority area to be subject to the affirmative procedure. That would not be unreasonable. It would allow each local authority area to be examined, and the impact of academies and free schools on the school system as a whole to be assessed by Parliament.

There may be other approaches, but the substantive point is that the appropriate parliamentary scrutiny must be established, and I hope that the Minister will be able to be positive about this. I should say to him that I find it richly ironic that the coalition agreement promises a radical devolution of power to local government. The reality is somewhat different, as this Bill shows. In essence, Ministers are aggrandising huge powers to themselves and, in the case of free schools, on the basis of rather ambiguous evidence provided today by the Institute of Education. We therefore believe that it is vital that Parliament must be able to scrutinise properly the process of approving the academies and free schools.

Amendment 74 is another probing amendment. Adequate insurance cover will of course be important. I am sure that this point is covered in legislation, but it would be good to have confirmation from the Minister.

On Amendment 96, I declare an interest in that my wife is an assistant principal at Joseph Chamberlain Sixth Form College, Birmingham. Our amendment would place a duty on the Young People's Learning Agency to ensure fair funding between schools at sixth-form level. Colleges educate and train more than 700,000 young people aged 16 to 18 compared with about 487,000 in schools' sixth forms. They provide high-quality opportunities for 16 year-olds from all backgrounds to stay in learning. Their contribution will be critical at the current time. Fair public investment in all young people will further enable colleges to carry out their role effectively.

The previous Government took action to reduce the funding gap from 13 per cent between schools and colleges to 9 per cent. It is also worth bearing in mind that colleges face additional costs related to VAT and capital projects, for which schools receive 100 per cent state funding. The additional funding for schools is given despite evidence that colleges are more successful in helping students to achieve and that they recruit a more disadvantaged cohort of students. Colleges have a more rigorous system of outcome measurements because retention rates are also taken into account.

Of those young people who receive the education maintenance allowance 69 per cent are in college, while official data show that 7.4 per cent of school sixth-form pupils were on free school meals at the age of 15 compared with 10.1 per cent in sixth-form colleges and 15.9 per cent in FE colleges.

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In debates on the Apprenticeships, Skills, Children and Learning Bill in the previous Parliament, the then Minister, my noble friend Lord Young, said that the YPLA will set out progress in reducing the funding gap in its annual report. Further research would be carried out and a report placed in the House Library once the year 2011-12 has been completed. The coalition agreement states that public funding for colleges should be fair and follow the choices of students. I would welcome confirmation that the Government would still expect the YPLA to report on the funding gap in its annual report. That being so, I hope that the Government could state what action they might consider taking to ensure that all 16 to 18 year-olds are funded fairly. I beg to move.

The Lord Speaker (Baroness Hayman): I have to inform the Committee that if Amendment 6A is agreed, I cannot call Amendments 7 or 8 by reason of pre-emption.

Baroness Garden of Frognal: My Lords, I shall speak to Amendments 7, 11, 15, 16 and 80 in this group. While not agreeing with everything that the noble Lord, Lord Hunt, has said, we share his admiration for the work that is done by further education colleges. Amendments 7 and 11 innocently seek to change "or" to "and" and "and" to "or", but they in fact raise one of central issues in the Bill; that is, the difference between an academy agreement and academy financial assistance. At present the only route to becoming an academy is by negotiating a detailed funding agreement which sets out the terms and conditions under which the academy is to operate. This Bill introduces a new route; namely, academy financial assistance granted under Section 14 of the Education Act 2002, which I think is the one that the noble Lord seeks to delete.

In the guidance issued by the Department for Education to schools thinking about applying for academy status in response to the Secretary of State's recent letter, it is clear that there are two distinct stages in the application. The first stage is submitting an application for approval to convert to an academy, having it checked over by the department and, if approved, receiving an academy order. Only after receiving an academy order can the school begin detailed negotiation over the funding agreement which becomes the academy agreement. This includes such things as negotiating the TUPE arrangements with the unions and leasing land transfer agreements with the LEA. There will be annexes dealing with such things as admissions, exclusions and SEN.

Although the Minister has made it clear in the discussions we have already had that there is now a standard form of the funding agreement on which most funding agreements would be based, it is and will be an individually negotiated contract between the Secretary of State and the academy trust. In his letter of 18 June, the Minister made it clear that academies funded by the financial assistance route would not have a contract as such but would receive their funding through a grant letter from the Secretary of State. The provisions of that letter would be in line with those in the funding agreement, including commitments on admissions et cetera.

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There are however a number of questions still unanswered on which I would like to probe the Minister further. First, how far are the two routes exclusive? Is the second route under subsection (2)(b) essentially that by which the new free schools will be set up, whereas subsection (2)(a) is the route for the conversion of existing schools? Alternatively, is it envisaged that the new fast-track procedures for outstanding schools should use the financial assistance route because the flexibility this gives the Secretary of State means that negotiations can be concluded more quickly?

Secondly, I turn to the issue addressed in Amendment 11. Might a school be partially funded by one method and topped up by another? The use of the word "and" in subsection (3)(a) is ambiguous and could imply that funding will be both by agreement and by grant, or does this deal exclusively with academy agreements? Where is the accountability in the financial assistance route when funding is given under Section 14 of the Education Act 2002? Does that not give the Secretary of State remarkably wide powers. A letter dated last Friday, 18 June to the Times from Peter Newsam, for example, suggested that whereas the academy agreements give schools the security of a seven-year agreement against arbitrary changes, Sections 14 and 16 of the 2002 Act give the Secretary of State almost unlimited powers to vary the terms of payment. What recourse, if any, would a school have against such arbitrary actions?

4 pm

I turn now to Amendments 15 and 16, the first of which is a probing amendment. The Government have committed themselves to ensuring that schools that become academies will get roughly the same level of funding as they would have got had they remained with their local authority, and in addition, because they are taking on additional levels of responsibility, they will receive their share of the money no longer required by local authorities to fulfil those responsibilities -but how much more, and is the additional amount of money reasonable and commensurate with the additional level of responsibility?

When the grant-maintained schools were set up, little was known about school funding nationally; there was no experience of local management of schools to assess the amount of funding that grant-maintained schools should reasonably have. The then Department of Education veered on the side of generosity to grant-maintained schools which later, when more was known about the local managements of schools, seemed unreasonably generous. In addition, there are fears that when "outstanding" schools convert to academies, local authority moneys, a good part of which goes to fund SEN obligations, will be divided up on a per pupil basis. Because many of these schools have a relatively low proportion of SEN pupils, such an allocation would give them a disproportionate share of that money and leave a lesser amount in the local authority kitty to fund SEN needs.

As the noble Lord said, we all share the Government's wish that schools will not be excessively advantaged or disadvantaged if they choose the academy option. And in a time of limited resources, an advantage for academies will be a disadvantage for maintained schools,

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and vice versa. Requiring the Secretary of State through legislation to ensure equality of funding between maintained schools and academies is difficult.

The purpose of these amendments, particularly through Amendment 15, is to make sure that the Secretary of State is advised publicly by a trusted independent body-the National Audit Office-on what is a reasonable level of funding for academies, taking account of what they do in comparison with local authority maintained schools. Amendment 16 requires that the NAO in turn consults the local schools forum, which is the mechanism by which currently such moneys are allocated. The Secretary of State is not handcuffed to follow NAO advice, nor is the NAO obliged to take the advice of the schools forum. Almost like an educational equivalent of the Office for Budget Responsibility, there will be advice from a respected body on what is a reasonable level of funding in comparison with other schools and that advice will take account of local circumstances.

I turn finally to Amendment 80, which states:

"The Secretary of State shall by order specify the mandatory contents of an Academy arrangement".

This is a probing amendment aimed at clarifying those areas of academy arrangements that are mandatory rather than discretionary. Since the main aim of granting academy status is to give schools greater flexibility and therefore discretion over decisions which affect them, it is important to know where the red lines are drawn. Many of the other amendments in this group are seeking to limit that flexibility and ensure that academies fulfil their obligations in relation, for example, to SEN or on admissions. The purpose of this amendment is to ensure that, at the end of the day, the general public know precisely where an academy's obligations begin and end.

Lord Phillips of Sudbury: I rise to speak to three amendments tabled in my name: Amendments 10, 95 and 120A. I am hopeful that the first two at least may improve the drafting of the Bill, though it could be that the Minister will in response say that what I think is set out in the Bill is not as I think it is.

A grouping of this size, which deals with many different, technical and difficult points, is not a way to legislate. I do not know how Members of the Committee can possibly follow a grouping of this scope and technicality. I hope that in future stages of the Bill the groupings will enable Peers who are not experts in education law-and even those who are-to follow more reasonably.

Amendment 10 seeks to insert in Clause 1(3) the phrase,

This is an attempt to make clear that the academy agreement between the Secretary of State and the other party should be defined not only as the initial agreement but as an agreement which may be amended by them consensually from time to time. I hope that that is helpful, because without those words we might run into trouble.

Amendment 95 seeks to amend Clause 2(4), which entitles the Secretary of State to indemnify those running an academy if the agreement is terminated. The amendment simply adds the word "reasonable"

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before "expenditure" so that the indemnity would be in respect of reasonable expenditure. Paragraphs (a) and (b) then refer to what the indemnity may relate to. It is a prudent provision because without it lavish and unnecessary expenditure would be indemnified, and that cannot be right.

Amendment 120A seeks to amend Clause 4, which deals with academy orders. I have tabled the amendment for clarification because I do not understand what the words at the end of subsection (3)-

mean, or are intended to mean. Are they intended to cover new free schools? I do not think they are because the whole of Clause 4 is confined to existing secondary schools converting into academies.

Lord Lucas: I shall speak to my Amendments 31 and 34 in this very diverse group. Amendment 31 proposes that,

When I am going round schools I notice how hidebound they are by the restrictions that are placed on them in trying new things. Although the previous Government introduced an ability to innovate, it was subject to applications in triplicate to the Secretary of State and an extraordinarily cumbersome procedure. I hope we will now see a pronouncement in favour of innovation. I suggest that where a school does innovate it is merely necessary to inform the Secretary of State that this has happened-this becomes a risk factor for Ofsted in its decision on when and where to inspect-and that there is a requirement on the school to keep proper records so that the benefits or otherwise of the innovation can be judged in subsequent years. The whole tenor should be in favour of innovation. There are many good and experienced teachers out there who are capable of doing a great deal of good for the system if we let them have a go.

On Amendment 34, one of the good things to come out of the past 13 years of government was an increasing interest in schools co-operating with each other. Neighbouring schools will always be a little at loggerheads, but there are good examples-both those induced by the Government and those that have occurred privately-of schools forming networks to share problems and good practice and generally to get together and get beyond the confines of what is possible within a school, particularly a primary school. I am thinking particularly of the transition from primary to secondary and how schools can work together. There have been some excellent examples of that and I would not like the process of becoming an academy to be seen as an excuse to be isolated and a star on your own. It ought to be a process of becoming more co-operative and more linked into schools generally.

Baroness Williams of Crosby: My Lords, I shall speak to the amendments tabled by my noble friends Lady Garden and Lord Phillips of Sudbury and explain what is troubling me about academy orders.

Section 14 of the Education Act 2002 is incorporated into Clause 1(4), therefore enabling academies to be dealt with by what might be called the fast-track process of essentially calling into aid the powers given

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to the Secretary of State in that Act. The difference is that only very specific use was made of the power in Section 14; I do not think that it was intended to embrace a whole category of school in the way that will be possible under the Bill. My straightforward concern is that, where we are looking at the possibility of removing many statutory forms of consultation, virtually no restraint will be placed on the Secretary of State, as the noble Lord, Lord Hunt of Kings Heath, said, and that he will be accountable to no one but himself. The combination of Section 14-the powers of the Secretary of State-being incorporated into the Bill with the fast-tracking of the academy orders means that an academy could be approved, or for that matter rejected, with the involvement of virtually no one but the Secretary of State. Within a democratic structure, that is not an acceptable way to go.

We must therefore look very closely at the amendments that have been tabled. They would bring academies back into the structure of the academy agreement-my noble friend Lady Garden referred to this-which would enable us to set conditions and requirements for the schools that have to be met under the academy agreement but that do not have to be met in the same way under an academy order.

I, too, would be very grateful for greater enlightenment from the Minister on what accountability there is in mind. For example, it might be possible to look at the report from the education department on the experience of academies, their standards, their meeting of the admissions orders and other requirements under the academy agreements. That would enable Parliament to debate how far those requirements and conditions had been met and to distinguish between the effects of academy orders and academy agreements.

Perhaps even more significant than the proposals that my noble friends and the noble Lord, Lord Hunt of Kings Heath, have put forward is the need for this Committee to look closely at the level of accountability for academies and at academy orders under the Bill.

The Earl of Listowel: I rise to support Amendment 96 and Amendment 31, which is in the name of the noble Lord, Lord Lucas. I support the former because, as the noble Lord, Lord Hunt of Kings Heath, rightly said, further education colleges can be particularly beneficial to disadvantaged cohorts of pupil. Children in public care may find themselves in a further education college earlier than their peers, meaning that they can carry on with an education that they might otherwise have been denied. The noble Baroness, Lady Sharp of Guildford, has been a strong advocate of equal treatment. I am very pleased to hear that there will be no threat to progress in that area.

The noble Lord, Lord Lucas, asks in Amendment 31 that substantial freedom be given to schools to innovate. He reminds me of the eminent American philosopher and educationalist, John Dewey, who died in the middle of the last century and was very much admired by Bertrand Russell. He moved our thinking on with regard to the gaining of knowledge. He said that we were not simply spectators: we learnt because we had a reason to learn and because there was some impulse to our learning. That is particularly relevant to children

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who are disillusioned with the mainstream system. Schools need to innovate and find ways of working that engage such children. For example, Lent Rise Combined School in Slough, which has a large Traveller population, works each year to enable young people to work with local businesses to design products and then attempt to sell them at an open day. Those sorts of innovative approaches where Traveller people can see the application of their learning are very helpful. That may be some of what was meant by the noble Lord, Lord Lucas. I look forward to the Minister's reply.

4.15 pm

Lord Adonis: My Lords, I have two points about the funding of academies. I will speak particularly to Amendments 15 and 16, which were tabled by the noble Baroness, Lady Garden.

Reflecting on the experience of grant-maintained schools, the Minister will accept that the perception of unfair funding, as much as the debated reality of the funding position, did a huge amount to undermine the reputation of those schools in the wider education system. To be fair, they did a large amount to discredit the reform. If the extension of academy status more widely, which I support, is to carry public confidence and confidence in the education world, it is vital not only that the funding arrangements for schools transferring to academy status are fair but that they are seen to be fair. The only way they are likely to be seen to be fair is if there is an independent validation process of the overall financial scheme by which the academies are to be funded.

The amendments in the name of the noble Baroness, Lady Garden, are very interesting in that respect, in that she seeks to inject the National Audit Office into the validation of the arrangements for the funding of academies. I have considered very carefully her amendments. To require the National Audit Office to advise on each individual academy, given that we will be talking about a very large number, would be an extremely bureaucratic process that is not conducive to the public interest. However, it would be worth the Committee reflecting on-and the Minister giving us an initial reaction to considering further-whether the National Audit Office might play a role in validating the overall academy scheme in respect of funding. It could concern the principles of action by which the Government are allocating funds to academies, particularly when it comes to a number of the areas that the noble Baroness mentioned in respect of special educational needs funding, which, to be frank, will be contested by local authorities.

That view is given added force by the letter of 15 June 2010 which the noble Lord, Lord Hill, sent to Members of the Committee. He sets out in the annexe the arrangements for the allocation to academies of funding that otherwise, in respect of other schools, goes to local authorities for children with special educational needs. He states:

"Academies do receive a share of funding which is for: funding retained from the Schools Budget for centrally provided SEN support services; behaviour support services; licences and subscriptions ...; therapies and other health related services; and education and welfare services".

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