Wednesday 1st March 2017
(7 years, 9 months ago)
Grand CommitteeTechnical and Further Education Act 2017 View all Technical and Further Education Act 2017 Debates Read Hansard Text Amendment Paper: HL Bill 88-III(a) Amendment for Grand Committee, supplementary to the third marshalled list (PDF, 54KB) - (28 Feb 2017)
The Parliamentary Under-Secretary of State, Department for Education (Lord Nash) (Con)
My Lords, I am grateful to the noble Lords, Lord Watson and Lord Hunt, for these three amendments, to the noble Lord, Lord Stevenson, for his remarks supporting them and to the noble Lord, Lord Storey, for his comments.
These amendments relate to assessing the impact of the proposed insolvency regime on further education colleges. Before I deal with individual amendments, I shall respond to some of the general points made by the noble Lord, Lord Stevenson, and if I do not cover them all I will certainly write to him. Following the area reviews, all colleges should be on a sound financial footing for the longer term. That is part of the reason behind the area reviews. These measures will not come into force until after the recommendations of the area reviews have been implemented. There will be no closures as a result of the reviews. Colleges are working together to remove overcapacity in their area and to better align their offer to local employers’ needs. Some colleges may merge as a result, but there will be no insolvencies as a direct result of the reviews.
I believe that Amendment 37 is intended to ensure that the special objective offers protection not only to existing students of an insolvent college but to those of the future. In that regard, noble Lords and I share common ground. Indeed, that is the purpose of our programme of area reviews. We are working with colleges, local authorities and other local stakeholders to ensure that FE bodies are put on a strong and resilient footing. This is the best way to safeguard the interests of all students. Delivering strong, sustainable colleges that can provide young people now and in the future with the opportunity to pursue courses right for them will offer them the opportunity to achieve their full potential.
In the unlikely event that an FE body were to become insolvent, our first priority would, rightly, be to the existing students, whose studies are likely to be directly affected. That is the purpose of the special objective. While we cannot know how the education administrator will propose to achieve the special objective in every insolvency, as that will clearly depend on the circumstances of each case, it seems likely that the preferred solution would be to find an alternative provider to take over provision at the insolvent body’s campus. That would almost certainly prove least disruptive for the students involved. However, that may not be possible or the right outcome. It might ultimately be better for existing and future students to attend other colleges where they may have access to a greater choice of course, better facilities and the like.
I recognise noble Lords’ concern that moving to a different provider might mean travelling greater distances, with a consequent increase in travel costs. While many students would be willing to travel to access the right provision—a point the FE commissioner made when he gave evidence to the Committee in the other place—there will be those for whom this would be a challenge. Colleges are already able to provide financial support to help eligible students with their travel costs, and this will extend to students transferring in from an insolvent college. In addition, the education administrator may be able to make provision for such costs where it is for the purpose of pursuing the special objective.
There is the possibility that a college that is the only FE provider in the wider area may become insolvent; for example, in a rural area such as Devon or Cornwall. Were that to happen, I assure noble Lords that the Government could not and would not ignore their wider responsibility to students in the area. No Government would leave an area without any FE provision. However, this is a matter for the Government of the day to consider, not the education administrator.
I shall now respond to Amendment 38. Clause 14 sets out the fundamental principle underpinning the special administration regime we are introducing in the Bill. In the unlikely—I must emphasise “unlikely”—event that an FE body becomes insolvent, we are acting to ensure that disruption to students’ studies is avoided or minimised as far as possible. That is the purpose of the special objective set out in subsection (1). Pursuit of that objective will govern all the actions of the education administrator. It will be for the education administrator to decide how the special objective can best be achieved. Whether it is one of the solutions suggested in subsection (2), a combination of them or something different will depend on the special circumstances of the college or FE body. Only by considering these issues will the education administrator be in a position to come to a view on the most appropriate approach. As we all know, something that might be right in one situation will not necessarily be right in another, so, in a way, I agree with Amendment 38. Noble Lords are right that there are a number of assessments that the education administrator should carry out before taking any action to achieve the special objective, including assessments of the capacity of other bodies or institutions to undertake any additional functions or provide education to additional students.
Noble Lords are right, too, that there should be discussion with those most directly affected by the decisions to be taken—the students, the staff and their unions. Where I think we differ is that I do not believe such assessments or discussions need to be prescribed in legislation. As my colleague the Minister for Apprenticeships and Skills said when this matter was debated in the other place:
“It is inconceivable that they,”
by which he meant the education administrator,
“would draw up proposals for achieving the special objective without having had discussions with a wide range of stakeholders, such as the Further Education Commissioner, student bodies and others, and without considering a wide range of pertinent issues”.—[Official Report, Commons, 9/1/17; col. 113.]
I wholeheartedly share this view. As the Minister made clear in the other place—and I do here today—it is our clear expectation that the education administrator will engage fully with those who have the knowledge and experience to aid them in developing their proposals: the commissioner, staff and students, local authorities and other providers.
When we refer to avoiding or minimising disruption to student studies, this is not just about keeping students’ timetables unchanged or ensuring that they remain at the same campus—although, in reality, this might well be the case. It is also about ensuring that where it is necessary to transfer students, factors such as those identified by noble Lords are taken into consideration. In developing their proposals, the education administrator will be expected to consider the quality of the alternative provision, as well as the impact of travel distances if students need to complete their studies at another location.
Of course, some trade-off or compromise between the different factors might be necessary, but this will be for the education administrator to address in the particular circumstances. If students find themselves having to travel to another location, I recognise that they may incur additional travel costs. Where this is the case they may be eligible, as I have said, for the 16-to-19 bursary fund, or the education administrator may consider setting up a specific scheme for them paid for by from any funding provided by the Secretary of State or Welsh Ministers.
I turn now to Amendment 39. In developing the special administration regime we have been concerned to ensure that the process should take no longer than necessary. Concerns have previously been expressed, including during debate in the other place, about the time a special administration might take. I share these concerns. However speedily the special administration is concluded, it will be too long for those involved. Staff, students and creditors will want certainty about what will happen to them at the earliest opportunity. Amendment 39, which seeks to require the education administrator to consult students, staff and the trade unions of the FE body before making any decisions on how to achieve the special objective, would inevitably lengthen the process but would be unlikely in reality to have any real benefit to the education administrator. Indeed, it may fetter his or her discretion to find the best way of achieving the special objective to the disadvantage of all concerned.
We are not disputing that the issues raised by noble Lords are important. They are. But, as I hope I have made clear, they cannot help but constitute a major element of the education administrator’s considerations in developing his or her proposals and there is therefore no need to legislate in this case. I hope the noble Lord will feel reassured enough by my explanations to withdraw the amendment.
Lord Stevenson of Balmacara
My Lords, I thank the noble Lord, Lord Storey, for his support for these amendments and his comments about what we are trying to achieve with them. I think that those were picked up by the Minister, and I thank him too for taking the time to go through some of the issues and recognise that they had a bearing on this, should insolvency happen. The fact that these words are now on the record is a very good thing.
We particularly recognise that where provision has to be provided at a distance under special measures, travel will become a material issue. Confirmation again that costs could be considered within that is very important. We accept that it would be wrong to tie the hands of the education administrator if, by having a list in the Bill, damage was done to how he or she approaches his or her work. I do not think that that was the intention, but I recognise the danger. The issues were engaged with by the Minister and were recorded in Hansard, which will be sufficient to ensure that these points are not ignored at the appropriate time.
We might want to come back to the question of how and on what basis the comparison between the provision made in one institution that might have to close and another will be done in practice, but that comes under the next group of amendments. For the moment, I beg leave to withdraw the amendment.
Lord Nash
My Lords, we have seen from our recent scrutiny of the Higher Education and Research Bill that it includes provisions to ensure that those undertaking higher education courses are able to continue their learning and are protected if their provider is unable to deliver their course—perhaps, but not solely as a result of it exiting the market; the noble Lord, Lord Stevenson, referred to that. Under these proposals the Office for Students will have the flexibility to require any provider on the register to have a student protection plan in place through conditions attached to its registration. We expect that the OfS will require all approved fee-capped providers, including FE colleges, if they are higher education providers, to have plans in place. In those FE colleges with students studying HE courses, the FE students will have the benefit of being protected by the special objective in the event of the college becoming insolvent and the body being placed in education administration. Measures within the provider’s student protection plan may also be relevant and could be brought into play.
I understand that noble Lords are concerned that FE colleges offering such provision will be subject to both regimes and that this will add to the cost of running HE provision. Whether to require FE bodies to have student protection plans in place will be a matter for the Office for Students to decide. However, I agree that where an FE body is insolvent and in special administration, it would make little sense for the education administrator to be required to implement the SPP at the same time as implementing the proposals to achieve the special objective, if possible, as those proposals will extend to the very students covered by the student protection plan.
Where the Secretary of State or Welsh Ministers have decided to place an FE college in special administration, the special objective should take precedence over SPPs. In seeking to achieve the special objective, the education administrator must avoid or minimise disruption to the studies of students of the FE body as a whole, regardless of the course they are studying. There may be circumstances in which the education administrator may find it helpful to refer to the measures within the plan to inform the proposals for a particular student or groups of students, but a student protection plan might impede the education administrator’s discretion about the best way to achieve the special objective. Where this is the case, the provisions of the Bill already allow the court to make an interim order that would suspend existing student protection plans where it considers that necessary or appropriate. I hope that I have been able to reassure the noble Lord that the proposed amendment is unnecessary and that he will withdraw it.
Lord Stevenson of Balmacara
I thank the Minister for his response. I am glad we agree on this. I thought for a moment he was going to give me a concession, which would have been unexpected for a very broad probing amendment. He did not, but he did say that there is a power in Bill. I have been unable to find it, so if he could write to me about that, I would be grateful. I beg leave to withdraw the amendment.
Baroness Cohen of Pimlico
I support what I think the amendment is about. There is a worrying set of complications, in my mind. Someone has provided the money to keep the FE college going while the special administrator decides that actually it cannot be kept going. Where does the person who provided the money rank among the creditors? We are talking about selling assets at the end of this. For a start, the bank might have a charge on those assets, in which case I guess that is the answer, but somebody has put money in to keep the business going. I have done this on behalf of the Department of Industry—we took back the money that we had put in to keep it going. What is the order of batting in relation to the local authority, or whoever it is, who put the money in to keep the institution going, and the rest of the creditors?
Lord Nash
My Lords, I start by saying that I recognise that the amendment is driven by noble Lords’ good intentions. They are concerned that assets that have been paid for largely by money from the taxpayer should not then find their way into the private sector at an undervalue, when they can then be sold and used to make a profit at the taxpayer’s expense. I recognise and share those concerns. FE colleges are statutory corporations with significant freedoms to deal with their own assets, but the key check on those freedoms is that any such dealing must be in the interests of the colleges’ charitable education—as the noble Lord, Lord Stevenson, said, the basis on which they have their charitable status.
“( ) to the director of children’s services at the local authority or combined authority in whose area the relevant institution is based, and to any other director of children’s services that the education administrator thinks appropriate,”
Lord Nash
My Lords, I want to explain Amendments 48 to 55, which we have tabled to Schedules 3 and 4. These reflect the commitment that my colleague, the Minister of State for Apprenticeships and Skills, gave in the other place to ensure that the needs of care leavers are provided for in the event that the FE body they attend enters educational administration. We agree that students who are care leavers and have already experienced uncertainty and disruption in their lives may well need additional support to help and reassure them during what may feel like uncertain times. Of course, it is entirely possible that, in the event of insolvency, the insolvent college will be taken over by another provider and students will be able to remain on the same campus, studying many of the same subjects. If this is not possible and students need to be transferred to other providers and possibly other courses, we want to ensure that care leavers can get the advice and guidance that they need, particularly if this encourages them to remain in further education. Having got care leavers into education—which is sometimes not easy—it is important to make sure that we retain them there.
There was debate in the other place as to whether there should be a requirement placed on the education administrator to take particular account of the needs of care leavers in much the same way as Clause 22(3) requires them to take account of the needs of students with special educational needs. As the Minister for Apprenticeships and Skills explained, the needs of care leavers are more pastoral and would, therefore, be better met by the personal advisor appointed by the local authority to support them. He committed the Government to ensuring that guidance to local authorities on their corporate parenting responsibilities would include advice to personal advisers in the event of a college insolvency affecting a young person for whom they were responsible. This amendment supports the delivery of this commitment. It ensures that support and advice is available to those who need it, by adding the director of children’s services in local authorities—or in combined authorities where relevant—to the list of those to whom the education administrator is required to send a copy of the proposals for dealing with the insolvent college. In this way, the local authority will receive formal notification of what is happening and can trigger the necessary action by personal advisers. I hope that noble Lords will agree to accept these amendments. I beg to move.
Baroness Garden of Frognal
My Lords, I warmly welcome these amendments. I am sure that if the noble Earl, Lord Listowel, were in his place, he would be particularly pleased to see that these were included. It is reassuring to find the director of children’s services being included in the Bill.
“( ) to any director of children’s services to whom the statement of proposals was sent under paragraph 49,”
Lord Stevenson of Balmacara
I shall, rather sensibly, be brief because I am trying to amend a clause that I think will be deleted in the next group, so there is not much point in me trying to argue persuasively the merit of my case, although I certainly could. Since the point arises again in relation to the new Clause 37, if it is approved by the Committee, we may as well just cover it.
I do not think we are far apart on this. The question is more one of being clear about what is asked for and how it will be made available. The issue raised by the amendment is that where people are disqualified from holding office in the further education sector, there is a risk if their names are not made available because they could pop up in other colleges and might be subject to the same concerns. A list, which is quite common in other areas of insolvency, should be made available. It is not mentioned in the Bill or the new clause. When the Minister speaks, I may be advised that this will be dealt with in regulations. If so, I would be very happy at that stage to concede that this point is not required. I beg to move.
Lord Nash
I intend to go into the detail, which the noble Lord, Lord Stevenson, referred to, of the application of the Company Directors Disqualification Act 1986 to FE bodies when I speak to the amendment that I have tabled to amend Clause 37 by replacing it with a revised version. As we continue to refer to that Act, in this and the subsequent amendment, I propose that we use its acronym, the CDDA.
For consideration now is Amendment 57, which was tabled by the noble Lords, Lord Watson and Lord Hunt, which specifically provides that the Secretary of State must ensure that the list of disqualified officers is made publicly available. This amendment refers explicitly to disqualified officers, which we take to mean members—that is, governors—of an FE body who have been disqualified by the court having been found liable of wrongful or fraudulent trading under the Insolvency Act 1986, as applied to FE bodies that are statutory corporations by Clause 5, or of similar offences. Under Clause 5, the provisions in the Insolvency Act 1986 relating to wrongful and fraudulent trading will apply to governors and other individuals who run FE bodies in the same way as those provisions apply to directors of, and others involved in the running of, companies.
I understand noble Lords’ concerns and recognise the intent behind this amendment that a publicly searchable list of disqualified individuals should be maintained, so that it is apparent who should not be appointed as a governor of other FE bodies. However, there is already provision in the CDDA for a register of disqualification orders, which is to be open to inspection, to be kept by the Secretary of State. Therefore Clause 37, both as currently drafted and as we intend to amend it, already provides for the well-intended purpose that noble Lords are seeking to achieve. On this basis, I hope that the noble Lord will withdraw the amendment.
Lord Stevenson of Balmacara
I thank the Minister for his comments, which I fully accept. I beg leave to withdraw the amendment.
Lord Nash
My Lords, the amendments we have tabled are to replace the original Clause 37 with a new version, with the intention of fully applying, rather than replicating, the CDDA to FE bodies in England and Wales. Amendment 65 to Clause 43 adds an additional clause—Clause 5, in so far as it relates to Section 426 of the Insolvency Act—to the parts of the Bill which extend to all parts of the UK.
The amendment to Clause 37 removes the delegated power to replicate the CDDA and instead applies that Act in full to FE bodies in England and Wales. This allows the court to disqualify any governors whom it finds liable to wrongdoing, not only from being governors but also from being company directors. In so doing, it fully prevents them from being able to repeat, in a different way, the mistakes they have made potentially at the expense of another FE body. This was not possible with the original drafting of the clause, which allowed us to replicate the CDDA but not fully apply it. The amendment closes a potential loophole in the legislation and more fully protects learners at FE bodies from the actions of any governor who chose to act recklessly.
Wrongful and fraudulent trading are important elements of the corporate insolvency regime, which protects creditors against wrongful conduct by directors. We are looking to achieve the same protection in our own regime for creditors of FE bodies. The responsibilities we propose for those bodies’ governors are very similar to their existing responsibilities as charity trustees. Part of that protection is the deterrent effect enshrined in and created by the CDDA regime, which goes hand in hand with the corporate insolvency regime and has done so for the past 30 years. The Charity Commission is wholly supportive of the approach we are taking and sees it as in line with the approach taken for the trustees of charitable companies and charitable incorporated organisations.
The amendment to Clause 43 provides that the provisions of the Bill which extend in their application to all the different parts of the UK include Clause 5, in so far as it relates to Section 426 of the Insolvency Act. Let me be clear: this does not mean that the FE insolvency regime would apply to FE bodies incorporated in Scotland and Northern Ireland. It would apply, as set out in Clauses 5 and 6 when read together with the definitions in Clause 3, only to those FE bodies in England and Wales established under the Further and Higher Education Act 1992.
The amendment would provide that Section 426 of the Insolvency Act extends to the whole of the UK, which would ensure co-operation between the courts of the different parts of the UK. This means that courts in different jurisdictions might be asked to co-operate on a particular case, for example over the enforcement of a charge where assets are located in a different part of the UK to the location of the insolvent FE body; or, in the case of governor disqualification, preventing a governor disqualified in England or Wales becoming a governor in another part of the UK. In view of what I have said, I hope noble Lords will agree to accept the amendments to Clauses 37 and 43.
Lord Stevenson of Balmacara
My Lords, I support the amendment; it is a probing amendment in a complex area. Of course the matter is not in the hands of the Minister who is due to respond to it, because it is a matter that is jealously guarded by the Chancellor of the Exchequer, who after all is responsible for tax receipts. In my experience, the issue is very complicated, not least because of history and practice. There may be a strand of European ideology built into this as well, which may reach a conclusion in a couple of years’ time—or not, as the case may be.
The basic principles of the VAT system are very straightforward: a trading operation has to trade with the full weight of VAT on it, and expenditure on it is recouped against subsequent users and from those who purchase the goods and services provided. Those things that are not deemed to be trading do not attract VAT, but equally they cannot be redeemed against the VAT that has been incurred in the purchase and preparation of them.
As the noble Baroness, Lady Garden, said, those bodies exposed to the full weight of VAT on their non-trading activities suffer a 20% penalty for the work that they are doing, and that is money that could be properly reinvested. That is a sound case and I am sure it has exercised Ministers before. I look forward to hearing the response.
Lord Nash
I thank noble Lords for this amendment, which calls for a change in tax policy. It seeks to allow FE colleges to claim refunds of VAT incurred on their non-business expenditure. As noble Lords have acknowledged, tax policy is a matter for the Chancellor and the Treasury. Any tax changes are considered by the Chancellor in the normal way and announced in the context of his Budget judgment, as he will be doing next week.
I understand this call for additional funds from the Treasury for FE, but there are clear implications when thinking about such a change. It is estimated that it would cost the Exchequer about £145 million per year. That cost would have to be covered somewhere in the economy—for example, reducing public expenditure on other government priorities. In addition, the VAT treatment of FE colleges is no different from many other public bodies.
However, in view of all that the noble Baroness said about the previous Prime Minister’s comments about looking carefully at the matter, I will go back to see what further I can say by way of explanation for the status quo. I hope that in view of my comments, she will feel able to withdraw her amendment.
Baroness Garden of Frognal
I am grateful to the Minister for his careful looking and I thank the noble Lord, Lord Stevenson, for his support for the amendment. I beg leave to withdraw the amendment.
Lord Stevenson of Balmacara
I hesitate to speak because I can see that a Division is pending and it would be nice for us to be able to finish at just the right point, but I realised when my noble friend was speaking that I was that clerk. In an earlier career, I was the clerk of an FE college. The spectre of the buccaneering principals who were around in FE at that time came crowding back, and I felt I ought to share that with the Committee. The problem was that these institutions were very often the creatures of the local authority that owned and fronted them, and there were pressures at play. The principal wanted to be the person who was the main conduit to the local authority and would not brook any interference. Absent the principal, the company secretary, who was indeed a demon of great skill and ability to maintain her position in the structure, took over and ran the place very adequately. But with the growth of corporate structures and, now, the whole question of how that must be used to mature and operate organisations of some scale and scope, I would have thought there must be a way of ensuring that, when corporate structures such as companies are established, there has to be a company secretary, and that company secretary must fulfil at least the minimum standards required of those who operate in the private sector. So there may be a way forward.
I agree entirely with what my noble friend said: the pressure to keep those who are academics—and who should be academics—away from trying to do things that they are patently unable to do, just because they happen to occupy the position of principal or vice-principal, has been an enduring theme with those who have worked in the education sector at FE and HE level. It is only recently that appropriately qualified and suitably remunerated members of that profession have been operating in the way that they should. I support the amendment.
Lord Nash
My Lords, I recognise the very important role played by clerks as expert advisers to governing bodies of further education institutions, and I pay tribute to the contribution by clerks and governing bodies up and down the country. As the responsibilities of those bodies increase, we must also support the development of the capability and professionalism among clerks. As the Minister responsible for governors in schools, I can completely see the importance of this matter. That is why we support the Education and Training Foundation in the delivery of a new professional development programme for clerks to be rolled out this year. Sector representative bodies also deliver a range of activities to support clerks, including a very active clerks’ network and best-practice materials. The ETF is also supporting the increased professionalism of clerks through the improving clerk to company secretary programme to take account in changing college structures and clerks’ responsibilities, whereby clerks can attain company secretary qualifications. We are supporting chairs of boards of governors through the national leaders of governance programme, where experienced chairs mentor others who need support.
There is a well-established statutory requirement for the instrument of an FE institution to make provision for there to be a clerk, and for provision for the responsibilities of that role to be set out in the instrument. That is set out in Schedule 4 to the Further and Higher Education Act 1992. This means that the importance of the clerk’s role, which I know is recognised by members of this House, is also reflected in law.
While further statutory prescription in relation to duties and responsibilities of the clerk may appear attractive, I do not believe that it is the right approach in this case. I will elaborate. The amendment proposes a few high-level matters relating to advice that clerks should provide and, as proposed, overlooks certain features that would reasonably be expected to be an important part of any clerk’s role. These include, for example, independence from the senior management team at the institution and a duty to take appropriate action if the board, the chair or one of the committees appears to be at risk of acting outside their powers or to be proposing actions that may be unlawful.
The 1992 Act sets up high-level requirements for the instrument and articles, including a requirement for there to be a clerk and for the clerk’s responsibilities to be set out in the instrument. Since 2011, colleges have not required the consent of the Secretary of State to amend their instruments. The detailed content of the instrument, including the details of the responsibilities of the clerk, now largely rests with the governing body of the FE corporation rather than with Ministers.
In my view, the existing balance between the requirements set out in legislation and the responsibilities of the governing body is the right one. We should be very careful about removing from colleges the necessary flexibility that enables governing bodies to adapt and tailor their governance arrangements to fit the circumstances of their institution. That is particularly important in a sector as varied as further education. It is obviously important to guard against the possibility that greater prescription has the unintended effect of undermining the responsibility and thus the accountability of governing bodies. The careful balance set out in the current legislation in relation to matters of governance, including in respect of the role of the clerk, remains important going forward.
Principals do not appoint board members. Governors are appointed to the board by the board itself. A good principal will have a strong interest in having a capable body. When there is a material pre-existing relationship between the principal and a member of the board, it should be declared as part of the appointment process. The Association of Colleges’ model job description states that the clerk should be independent of the senior management team and should provide unbiased advice.
We do not think this amendment would add materially to the conduct of clerking or to governing bodies of FE colleges. We believe clerking is generally working well, and the quality of clerking has undoubtedly improved significantly in recent years. However, as I have spent part of the last four years attempting, I think with some success, to raise the importance and effectiveness of governance in schools, and in view of what noble Lords have said, I will go back and investigate their concerns and see what more we might be able to do in this regard, because it is important. Legislation may be a very blunt instrument, but I will go back to look at it further.
Lord Hunt of Kings Heath
I am very grateful to the Minister. I beg leave to withdraw the amendment.