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It is a laudable aim to ensure that money allocated for children's education is used for that purpose, and it would run completely counter to that aim if schools were allowed to retain excessive balances and avoid action to reclaim them simply by taking on academy status. This approach would provide for the transfer of only those balances that fall outside the category of excessive. The definition of what would constitute "excessive" appears in current government guidelines to local authorities. This approach would ensure that academies were treated consistently with local authority maintained schools with regard to balances, as they are with regard to other aspects of funding. Like local authority maintained schools, they would be permitted to retain balances set aside for identified purposes and non-excessive balances. Amendment 142, tabled by my noble friend Lord Whitty, would ensure that a surplus held by a local authority could be transferred to an academy on conversion only with the permission of the local authority concerned. We support that amendment.

Baroness Garden of Frognal: My Lords, in this group I shall speak to Amendments 154, 155 and 156, which would alter the subsection that provides for a review by the Secretary of State of a school's surpluses. Of course, we would also seek clarification on any school deficits that might be involved. These amendments provide for review by the Secretary of State. He or she may be predisposed to the establishment of an academy, and this would give the academy proprietor leave to appeal to a local commissioner or local government ombudsman-again getting a third party who might bring more transparency to the discussion. They would secure a degree of independence in the determination of the surplus to be made available to the academy, and would avoid any suggestion of political interference and bias with that determination. The amendments would give equal status in the appeal to both the academy proprietor and the local authority. Replacing "review" with "appeal" would follow on from those changes.

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Baroness Morgan of Huyton: I wish to speak against the amendments proposed by my noble friend Lord Whitty, as they would take us completely in the wrong direction. It is in everybody's interests that schools should be encouraged to run and manage healthy budgets and to build up sensible surpluses if they are planning for developments perhaps two or three years ahead. I have always felt strongly that head teachers of whatever school-an academy or a normal community school-have to be able to manage their own budgets for several years ahead. If you are moving towards the provision of single sciences when you have been doing a joint science course, for example, it will inevitably take real investment, particularly in teaching but probably in facilities too. The amendments would be a retrograde step. My concern about the package in general is that in some way I would like the freedoms that are being talked about regarding budgets to go across the piece for all schools, whether they are academies or not. I should declare an interest as normal as working for ARK and city academies.

Lord Adonis: I support what my noble friend Lady Morgan has just said, with particular reference to Amendment 11A. We need to distinguish sharply between deficits and surpluses. At the moment, unless the policy has changed in the past 18 months since I was in the department, schools with deficits are not allowed to transfer to academy status. The deficit must be written off before the school can transfer. I remember many long and very difficult negotiations with local authorities about how deficits would be dealt with.

The issue of deficits then becomes very important if not clarified. Schools with deficits, particularly those with difficult relationships with their local authority because it quite rightly is seeking to get to grips with the deficit, might regard the opportunity to transfer to academy status as a way of evading their responsibilities to deal with the deficit. It can be in no one's interests that that should happen. If a school is being poorly managed, its budget may be suspended under Section 66 of the Education and Inspections Act 2006. It is not clear under the current Bill what will happen to schools whose budgets are suspended. I should welcome clarification from the Minister on that point, perhaps in writing. There is a statutory procedure for a school's budget to be suspended, which has to do with very poor management, so will such a school be allowed to transfer to academy status? I imagine that it would be allowed to apply but would not be allowed to transfer. I think that the general principle should be that schools with appreciable, non-trivial deficits should not be enabled to transfer to academy status until the deficit is dealt with. In the early phases of the expansion of academies I find it inconceivable that a school with a large deficit would be able to transfer in any event, as I cannot see how it could be rated as outstanding if it has a non-trivial deficit. That is an important point in terms of taking the policy forward. Will the Minister confirm that it is not the Government's policy to allow schools to transfer to academy status as a way of evading responsibility to manage their budgets properly if they are currently in deficit?

On the issue of surpluses I take the view entirely of my noble friend Lady Morgan. I do not believe it right that schools should be penalised for being well managed

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and accumulating surpluses. I can see no reason whatever for a school that has a surplus to have that surplus seized by the local authority if the school chooses to become an academy.

That raises the issue of excessive surpluses. As I know only too well, an excessive surplus is a much debated concept. It may seem excessive to the local authority but, generally, it does not seem excessive to the school, which regards the fact of the surplus as a testament to its excellent management of its own affairs. I am sure that if you ask a school about the purpose for which it has maintained that surplus, it will give you 100 good reasons why it needs the surplus and 100 good reasons why it should not be seized by the local authority.

Therefore, I do not have much sympathy with the notion that schools with surpluses should not be able to transfer to academy status, but I believe that there is an issue about deficits which the Government need to address.

Lord Hill of Oareford: My Lords, before I respond to the detailed points on the amendments and pick up directly on deficits, perhaps I may draw noble Lords' attention to the published policy statement setting out our intention regarding deficits. In a nutshell, it makes clear that no school with a substantial deficit, which is defined at around £100,000, will be able to convert. However, I will go on to explain what we will do about deficits, because the purpose of the policy is absolutely to prevent any school evading its financial responsibility by converting to academy status and thereby writing off any kind of deficit.

Basically, it would work as follows. If a school had a deficit of less than £100,000 and the Secretary of State therefore decided it was able to convert, the Department for Education would compensate the local authority for the sum of the deficit. The academy would not get a financial advantage out of it as it would have to pay the amount of the deficit back through reduced levels of grant. That is how we would deal with the deficit problem.

Overall, the aim of all these arrangements is to try to ensure that they are fair and reasonable to both the converting school and the local authority. Amendment 11A would mean that the Secretary of State would not be able to enter into academy arrangements with a person with an excessive surplus or deficit. We do not believe that that is necessary because we would put in place arrangements for dealing with surpluses and deficits.

As regards schools applying to convert to academy status-particularly the first wave of outstanding schools, which tend to be pretty good at running their financial affairs, as the noble Lord, Lord Adonis, said-they are retaining their same leadership and management. It is not like the original model for academy conversion whereby one is starting a new school. Therefore, we think it only fair that what is essentially the same school keeps the same money it has put aside as part of its long-term financial planning, the point made by the noble Lord, Lord Adonis, and the noble Baroness, Lady Morgan. However, to underline the point, we think it also right that if a school converts when it has a deficit, it should deal with that deficit.

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Amendments 140 and 141 would require the local authority to determine whether a school had a deficit, as well as whether it had a surplus. In our view, those amendments are not necessary because if the local authority is making a calculation to determine whether a school has a surplus, by definition it will have determined whether it has a deficit.

Amendment 142 seeks to maintain the current position when a school closes and becomes an academy. That approach had considerable logic when original academies replaced predecessor schools and gained new management and governance. In effect, in that case an institution was closing and a new one was opening. But in this case, the school is continuing, and if it has put money aside as part of its long-term financial planning it should be able to keep it.

Amendment 143 would prevent the academy from retaining a surplus, and the same argument applies. The local authority will not be losing out from the approach as the money is already accounted for in current surpluses. Therefore, it is not an additional charge on local authorities from which other schools will suffer.

Amendments 144 to 149 would treat a converting school's surplus as a loan from the local authority which the academy would have to pay back over time. Again, we do not want schools to be disadvantaged financially. Maintained schools can carry forward their surpluses from year to year; we think that the same principle should apply to academies. To pay back a loan over a long period would set up a whole new bureaucratic process, which we do not think would help.

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Amendments 150, 158 and 159 are all to do with deficits. I explained, and hope that I made clear, our approach to deficits. Amendments 151 to 153 would prevent regulations being used to define the arrangements for payments of surpluses to academies or to outline the process for determining and paying a surplus to a school converting to an academy. We think it appropriate to set out in regulations additional administrative detail about the process for the determination of payment of surpluses, and we have provided draft regulations to show how we intend to do that. They also set out how the academy will be informed by the local authority of the determination, the process by which any appeal can be made and the time limits for payments.

Amendments 154 to 156 would change the process whereby an academy can ask the Secretary of State for a review of the local authority's determination, so that the academy can appeal to the local government ombudsman rather than to the Secretary of State. As I said, we have set up the draft regulations to demonstrate the Government's intentions. We think that those decisions should rest with the Secretary of State and that it would not make sense for there to be a new extension of the role of the local government ombudsman.

Amendment 157 would limit the surplus which transfers to the level set out in the guidance on clawback of excess surplus balances issued to local authorities. Again, we are not convinced that that is necessary,

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because local authorities will still have power to claw back excess surplus balances until the date of conversion, in accordance with locally agreed arrangements.

I hope that that provides greater clarity about the government's intentions, particularly on the important matter of deficits, in the light of which I urge the noble Baroness to withdraw her amendment.

Baroness Perry of Southwark: Before the noble Baroness speaks to my noble friend's response, might the Government consider the arbitrary nature of the £100,000 cut-off for the deficit? For a very small primary school, £100,000 is a very high proportion of its total budget, whereas for a large secondary school it is a very small proportion. Would not a percentage of the budget be a better benchmark for an acceptable deficit than an arbitrary sum?

Lord Hill of Oareford: I will reflect on that. The point of the figure is to provide some benchmark. My noble friend Lady Perry is quite right to say that individual circumstances vary greatly from school to school, and each of those circumstances would need to be taken into account in forming a view as to what is a sensible sum. That figure has been included as a rule of thumb, but I take the point that one may need to exercise discretion.

Baroness Royall of Blaisdon: My Lords, I am very grateful for the clear response from the Minister. It is extremely helpful to have clarification on deficits and surpluses. The point raised by the noble Baroness, Lady Perry, is extremely important. That would not have come out if she had not raised it, so I am very grateful to her. With that, I beg leave to withdraw the amendment, but before I do that, I should inform the House that we won 1-0.

Amendment 11A withdrawn.

Amendment 12

Moved by The Lord Bishop of Lincoln

12: Clause 1, page 1, line 12, at end insert-

"and will ensure in respect of Academies with a religious designation that existing legislative provisions for maintained schools designated with a religious character, as they relate to admissions, the employment of staff and the curriculum, shall apply"

The Lord Bishop of Lincoln: The amendments in this group standing in my name are Amendments 12, 60, 107, 121,122 and 166.

One of the themes running through this debate is the powers that will be undertaken by the Secretary of State and the way that reassurances need to be very clear, perhaps even need to be in the Bill, to enable those who feel a little anxious about accountability issues to feel much more confident about the way forward. My amendments are in that spirit.

I speak as chair of the Church of England's board of education and therefore declare an interest. As I have said in your Lordships' House before, the Church of England is the leading provider of academies. It has

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34,000 students in its academies, virtually all of which are in areas of social deprivation. That is why the Church of England is involved in academies and wishes to go on supporting them. It has good will towards the philosophy of academies and what they stand for, but does not want to compromise its commitment to improving standards in deprived areas or the fact that its academies are denominational academies with a faith character.

These amendments try to ensure that the Church of England feels confident in encouraging the many denominational schools in which it has a care to explore this possibility. They are sympathetic amendments and seek to be friendly. We are grateful for the reassurances that have already been given by the Minister. If the way that he has dealt with those of us who have raised concerns with him in personal interviews or in letters is indicative of the way that the business of this Government will proceed in this House in future, we are extremely glad. However, I think it was Bismarck who said that laws are like sausages: you really do not want to be there when they are being made. I have a sneaking feeling that the Minister is beginning to understand what he meant.

Certain clauses need to be clear for the avoidance of doubt. We do not doubt the intentions-many of them are good intentions-but we need to have clarity. I am reminded of the interesting exchange on Monday between the noble Lords, Lord Adonis and Lord Phillips, about how much clarity terms need in order to justify their place in the Bill. One of those phrases could be a "school of religious character". What does that mean? Quite clearly, it means its ethos and values, and we cannot legislate for them, but it means other things too, the things to which Amendment 12 refers: religious character or designation-whichever term we use-admissions, terms of employment of staff, curriculum and governance, which has appeared elsewhere in this Committee. Those dimensions can be secured by legislation.

Admissions have been debated on other amendments, and one of my other amendments addresses the curriculum and collective worship. We could do with some clarity on terms of employment. Are we proceeding on the basis of the School Standards and Framework Act 1998 in relation to Sections 58 and 60, which apply to voluntary aided schools and voluntary controlled schools, or are we subject to the provisions in that Act that relate to independent schools? Academies are declared to be independent schools and are presumably subject to those sections, but we need some clarity. What do the Government intend to secure their commitment, articulated in the gracious Speech, to maintain the religious character of schools that convert to academies?

I shall be briefer on my other amendments. Amendment 60 refers to the curriculum and the provision for religious worship that define a school as being of a religious character. We need more than assurances; we need clarity on those matters.

My remaining amendments in the group, Amendments 107, 121, 122 and 166, all contain the same phrase, "relevant religious authority". For the Church of England, that is a diocesan board of education, and I do not think that anyone who has any real

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acquaintance with these matters would dispute that the family of church schools is maintained by the diocesan boards of education. I believe the same to be true of Roman Catholic schools and of Jewish schools. There are authorities operating within the denominational organisations that have a relationship with schools that is precious, treasured and to some extent essential if those schools are to deliver to the high standards with which we have become familiar. I therefore want to ensure that the Bill secures the interests of the "relevant religious authority"-in our case, diocesan boards of education-in any consultation and commission. I have to say to the Minister that Roman Catholic authorities, as well as Anglican ones, are expressing a good deal of anxiety at the moment that we may well not encourage schools to take this step without the assurances that these amendments seek. I beg to move.

Baroness Massey of Darwen: My Lords, I will speak to my Amendment 61 on participation in collective worship and religious education, and in doing so declare an interest as a humanist and a vegetarian-so I do not do sausages.

I shall comment in passing on the concerns of the noble Lord, Lord Lucas, and will also speak to my Amendment 133 on the status of state-maintained schools if they become academies. I recognise that Amendments 134 and 135, which were tabled by Members on the Benches opposite, relate to the same matter, so I will not spend too long on them. I also wish to comment on Amendment 12, which was moved by the right reverend Prelate the Bishop of Lincoln.

On Amendment 61, the noble Lord, Lord Lucas, wants the precepts of all major religions in the UK to be taught. I agree that collective worship and RE should be balanced and broad. This education should also include the precepts of humanism and secularism. Sixty-five per cent of 12 to 19 year-olds, according to surveys, are not religious. All children need to learn about non-religious as well as religious beliefs, as we live in a diverse society.

As I said, I am a humanist, and I know that humanism has moral and ethical precepts and a compassionate culture. I respect those from other cultures and other religions, and I hope that they will respect mine. Will the Minister confirm that it is the Government's view that schools, including academies, should teach non-religious world views as well as religious ones? Will he also confirm that the recent spiritual, moral and cultural non-statutory guidance for independent schools, which was worked on by a wide range of stakeholders, will also apply to independent religious academies? Will previous government guidance that creationism and intelligent design should not be taught in science lessons apply to academies? I realise that I am asking a lot of questions, and I will be happy to receive more detailed answers in writing, but perhaps the Minister has some quick responses.

All state-maintained schools are required to hold a daily act of collective worship and provide religious education. We all know, of course, that many schools approach this with a broad perspective and provide a forum for moral perspectives that are not necessarily religious. At maintained schools, parents are legally

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entitled to withdraw their children from collective worship and religious education, while sixth-form students can withdraw themselves from collective worship. It is not clear whether these rights of withdrawal will extend to the new academies. Will these current rights be retained?

I will say a brief word on my Amendment 133 to leave out subsections (7) and (8) on page 4, lines 14 to 19. This amendment would remove from the Bill a new provision that automatically converts state-maintained schools with a religious character into an independent school with the same religious character once an academy order has taken effect. However, there is no guarantee that community schools becoming academies will automatically become secular and inclusive.

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This new provision would remove choice and freedom from schools and their governing bodies. It would permanently remove the possibility for state-funded religious schools to become inclusive academies and they would not be permitted to return to maintained school status. That would have a profound effect on primary schools. Around one-third of all state-funded schools are faith schools and the majority are primary schools. This Bill will permit high-performing primary schools to become state-funded religious academies. In my view, that would be a disastrous move, placing many state-funded schools into a largely unregulated sector with no public consultation and no entitlement for children to the national curriculum.

Amendment 12 is tabled by the right reverend Prelate the Bishop of Lincoln. During the course of this Bill, the right reverend Prelate has talked a lot of sense, but I cannot agree with him on a number of the amendments that he has proposed. They simply seek to increase the power and control of religious groups running the new academies, which I do not think is in the best interests of children or parents. There is no guaranteed protection against unsound principles being taught. The amount of money paid by the public purse to religious schools will be increased, even though the majority of the public do not support the idea of state-funded faith schools. Do we really want-

Lord Phillips of Sudbury: Perhaps the noble Baroness will explain. Under existing arrangements for a current secondary school with a religious identity, surely, the principle that she wishes to apply to academies is present in existing maintained schools.

Baroness Massey of Darwen: Which principle does the noble Lord mean?

Lord Phillips of Sudbury: I thought that the noble Baroness was anxious about the principles by which one of these religious schools when converted to an academy would continue on its path. Have I misunderstood?

Baroness Massey of Darwen: Perhaps I could come on to that in what I am about to say, but if the noble Lord still wishes to ask questions perhaps I or someone else can respond to them.

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