Technical and Further Education Bill (Second sitting)

Kelvin Hopkins Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 22nd November 2016 Public Bill Committees

[Mr Jayawardena]

Thank you.

[Kelvin Hopkins (Luton North) (Lab)]

Q I will give a bit of background first. For 23 of the past 25 years I have been a governor of a sixth-form college and, before incorporation, I was chair of governors of a larger college of higher education, which was largely FE. In the sixth-form college we had internal expertise of the highest order. The previous experience was less good. I have said many times now that one of the important things for a governing body is for it to have accountancy expertise, with at least two independent qualified accountants and at least two independent legally qualified people. That makes a difference. In the college I am at now, the vice-principal in charge of finances is a chartered accountant and does a superb job.

Do you take an interest in the internal financial controls of colleges or do you just say, “Well, if they get into difficulty, we’ve got the security of the college assets and we’ll just take some of that”? Do you take an active interest or stipulate any kind of requirement about how finances are managed internally in the colleges?

Richard Robinson: Absolutely, yes. The quality of management and governance is one of the key criteria we look at when we are assessing the risk. We do not just lend the money and then disappear; this is a relationship for us. We go and see our college clients several times a year to talk about what is happening in their business and the challenges to the sector.

One thing we do is help management with their skill sets. For example, what has happened in the sector over the past couple of years, with the challenges it has faced, is new to a lot of managers. It has been quite difficult to manage through that process. We bring to bear the experience we have of dealing with lots of businesses to help them with that process.

We have often pointed out that maybe they do need some different experience on the board—people with different skill sets. I agree that there should be governors with a diverse set of experiences. That should definitely include accountants, as having people with financial literacy is very important.

Gareth Jones: Our approach is very much the same as Barclays, in the sense that the governance structure of the college, the key management team and our appraisals make us consider our overall lender proposal and whether we are willing to advance funds to that college. Fundamentally, it is the management who are in control of the college and their strength is strategically important to our lending decision.

[Kelvin Hopkins]

Q All that being said, I know of one college in recent times that came to the brink of disaster, until the principal was effectively chased out of town. It has now been picked up and restored but it was in a parlous situation with internal financial abuses—I can speak freely because we are private in Parliament; that is what was going on. Clearly someone was lending money to the college, presumably, but it was effectively out of control. Is that a concern to you, that such a thing can still happen?

Richard Robinson: We work very closely with the management teams and with the SFA and the EFA. If we were in a situation where we thought that the management was doing inappropriate things or had been run out of town—

[Kelvin Hopkins]

Q Even illegal things, I may say.

Richard Robinson: Even illegal. That is the sort of thing that would cause us quite a lot of concern. We have a close working relationship with the agencies and that is the sort of thing we would discuss with them. We do not have powers as a lender to remove people. We do have the ability to go and talk to governors, so if there were an issue with the principal, another of the things that we would do is speak to governors about that. We would also have conversations with the agencies. I do not know the college in question, but that does sound like an extreme position.

[Kelvin Hopkins]

Q Do you think Government ought to take much more of an active interest in what is going on in their colleges? Do you think an appropriate clause in the Bill might be helpful, to ensure that internal procedures are appropriate and disciplined?

Richard Robinson: Governors or Government?

[Kelvin Hopkins]

Q Both really: management and Government. Do you think there should be something specific in the Bill saying the sort of things I have said about having qualifications among governors and an inspection regime that works—as it did not in that case—to ensure that financial arrangements are not being abused?

Richard Robinson: I am not a governance expert, so I do not know if there is a clause that can be put in to help that. I do agree that the sector can always improve management and governance. No business can say it has perfect management and governance, so constant improvement in those is a good thing.

Richard Meddelton: I think the insertion of a clause in the Bill along the lines you have suggested would certainly help and be welcome, although, like the other Richard, I am no legal expert.

I would answer your first question in terms of how we look at the governance and management of a college. From a Lloyds banking perspective, we take a great deal of interest in the make-up of the management of the college. That would include the expertise of the board of governors. That is an ongoing practice in what we do. We have not got down to stipulating how many accountants or lawyers need to be there, but we would certainly look for a good mix, so that they are professionally managed and so that we have a fruitful long-term relationship over many years.

[David Rutley (Macclesfield) (Con)]

Q It is interesting to hear your views. It seems as if there is broad support, at least at the right end of the table, for the direction of travel here. One of the proposals in the legal framework is the role of education administrator, ensuring that the quality of educational provision is continued. Could each of the panel members describe whether they are comfortable with this role as being a helpful addition and whether it should be changed or enhanced in any way?

Richard Robinson: Obviously we know what a normal administrator does, in a normal administration situation with companies. We do not know what the education administrator is going to do, beyond what is written in here—the legal, written thing versus the practical reality. For us, the role seems to be broadly balanced between making sure that the interests of learners are put at the front, which is the right thing to do, and making sure that creditors are not forgotten. There are probably two other things that would certainly help, and both have been touched on by other people. The first is some clarity about who funds the administration—who funds the insolvent college during insolvency—because that could be for a number of years. It is very important for us to know that when making lending decisions. The second point is the legal position of secured creditors, which Richard has mentioned. Again, further clarity about that would be helpful. Other than that, I think it is pretty clear in the draft Bill.

Gareth Jones: From Santander’s perspective, overall we were supportive of the draft Bill and of that role as well.

Richard Meddelton: I have got nothing further to add.

Stephen Harris: If I can just clarify, your question was about the role of the insolvency office holder as an education administrator—

--- Later in debate ---

[The Chair]

I have to hurry you, Mr Harris. We have another panel of witnesses and a question to go yet.

Stephen Harris: I cannot answer for my respected colleagues from the banks. It is an environment in which people generally try to work together to do good things for the community as a whole. We are looking here at a minority of situations—I hope it is a minority—where there will be tensions. Ultimately, lenders, taxpayers and the appropriate national authorities are all in the same country together, but I do not speak on behalf of the banks.

Richard Robinson: I think your question was about what we would like to see. All the various options that are in here are helpful; it is one of the strongest parts of the Bill. Mr Harris is right that we, as a lender, would want to work with the college and the authorities in that situation to find the most appropriate path. The issue is that it does not specify where that ranking lies. That, for us, is very important. Although it could rank at the back, it could also rank ahead of us. Obviously, being bankers, we have got to think about the worst-case scenario, and the worst-case scenario is that it is ahead of us. We are making lending decisions today for a long time in the future, and therefore we need to work on the assumption that the worst-case scenario will come to fruition.

The other point was about security. Security is important to us to ensure that we know what our rights are as a secured creditor. If the loan and the security are going to be transferred to another provider, having that option is really helpful. We would want to explore ensuring that it was in the best interests of everybody that we did that. We would also want to ensure that it was not transferred to someone we were less comfortable with. So having that legal certainty about our rights at the outset is very important to us.

Stephen Harris: I can possibly add a little more colour to this question. I was mulling this over and trying to identify in my own mind a situation in which, for totally understandable reasons, somebody might say, “I really, really want to be at the front of this queue,” in a particular situation. In some organisations you really do not know what all the liabilities are when you first approach a situation. Sometimes, when you have travelled a little way on your journey through the insolvency, you discover that there are some very unusual liabilities, which you had not really bargained for, attached to a certain site or situation.

I have some empathy with the idea that, in structuring a funding loan for an administrator early on, and not having total visibility over the level of liabilities that might rank in a particular situation, somebody might want to proceed with caution initially and perhaps take a view on things when the assignment has progressed. At moment zero you do not always know who your liabilities and your contingent creditors are. I do not know whether that is helpful context for these clauses.

[Kelvin Hopkins]

Q You are talking about lending to bodies that are in theory independent incorporated bodies but are actually largely funded by Government. Sixth-form colleges are funded entirely by the Government. That must make you feel a little more comfortable; the Government do not want these colleges to go under, so your money is relatively safer than if you were investing in a burger bar—if that went under, the nation’s health might actually improve and you would just take the assets and sell them off or whatever. How much are your lending policies influenced by the fact that these are quasi-public bodies?

Richard Robinson: It is an important factor. The income they receive comes from the Government and they are doing something that is of strategic importance to UK plc, and all of those are factors. We need to put this in context. Although it is harder for us to support them in the way we used to, that does not mean that we are not supporting them or that they cannot get money; it is just on different terms from how they used to get it in the past. The relative position is an important one and it is well recognised by us, as I am sure it is by Lloyds and Santander. That relationship with Government is one of the key strengths, and that does bear out in our risk analysis of the sector.

Richard Meddelton: I would echo the fact that they are, as you put it, quasi-Government bodies. We do take great comfort from that, as is obviously evidenced by the fact that we are a major lender in the sector.

[Kelvin Hopkins]

Q This is a bit of a mischievous supplementary question: does that mean you are less concerned about how the college behaves internally, in terms of its funding and spending, compared with a private body that might go under, where you would lose all your money?

Richard Meddelton: That is a fair question. Obviously I can speak only for my own bank on that. The answer is no, we are not less concerned. The reality is that we are lending very much on a relationship banking perspective. We are looking for longevity; we are not looking for any funding out from that. We certainly carry out the same rigorous credit and risk assessment and ongoing assessment as we would for a corporate.

Gareth Jones: The level of due diligence we apply for a further education college is exactly the same as the level we would apply to the burger bar—to return to your reference. Further education colleges might sit at the better end of the risk profile of Santander’s book as a whole, but actually the diligence we apply internally is exactly the same.

[The Chair]

If there are no further questions from Members, I will thank the witnesses. Thank you very much, gentlemen. Your agony is now over and we will move on to the next panel.



Examination of Witnesses

Shakira Martin, Shane Chowen and Bev Robinson gave evidence.

--- Later in debate ---

[David Rutley]

Q Do you believe that businesses are currently engaged enough in helping to define those categories or routes, and are the mechanisms in place to ensure that will happen?

Bev Robinson: I believe it is. The panels are not there to represent a particular business. Shane alluded earlier to the fact that the panels can sometimes be too narrow, as we have seen with the early trailblazers. Lessons learned from that would suggest that you are on that panel because of your engineering expertise, not because you happen to work for AA Engineering Ltd. It is about keeping that currency and making sure that you are representing not your company but the engineering field. Also, because it is co-creation, having educationalists there as well to make sure that pedagogy is also at the heart of the design of these products.

Shane Chowen: I have nothing to add on that.

[Kelvin Hopkins]

Q A very important question: what measures should be put in place to protect the quality of education received in a college that is struggling financially?

Shakira Martin: As I said, I welcome the fact that learners are being considered in the insolvency regime. The NUS did put forward some recommendations in the consultation—I think that maybe some of that has not been considered before but, within this process, that is vitally important—of an independent FE ombudsman. When students do go through this process, if they are not satisfied with the end result, what steps do they take in appealing that decision to ensure that they get the best? At the moment there is nothing out there to represent students in that way. I am not really familiar with the HE sector and whether there is the equivalent there, but I am sure that there is probably something in place. After the process has happened and a student has been placed in a college and is not happy with that position—what next? How do they challenge that? I would strongly recommend an independent ombudsman.

Shane Chowen: For me, if it has got to the stage where there are crisis meetings looking at how to recover teachers and get students to a place to learn, at some point along the way the system has already failed. The whole idea behind the commissioner’s office, for example, is to ensure that learners are protected long before a college even starts looking at insolvency as an option. The flags that are highlighted within the Department and the Skills Funding Agency at the moment to trigger a visit from the commissioner, should offer those protections long before an insolvency process.

Bev Robinson: I agree with that; it is about early intervention, not waiting for a failure—it is seeing the signs and making appropriate interventions.

[Kelvin Hopkins]

Q Pushing that argument further, you quite rightly said that colleges are now businesses after the incorporation in 1993. They have to perform like businesses, even though they are largely publicly funded. We may have a debate about whether that was a good idea or not, but nevertheless that is the situation we are now in. If a principal wants to make money, one way of making money is to squeeze more students in per class, to reduce the quality of the teaching by having less qualified teachers, to put people on courses and not worry about whether they turn up or not—to do all sorts of things that get the money in, but do not actually do the job particularly well.

I speak from some knowledge of a case exactly like that, where a college got into a terrible crisis. The principal disappeared and is now being picked up; I will not mention any names, but you may have been aware of it—it was a notorious national scandal. What is to prevent principals, especially with weak governing bodies, from behaving like this? Many students are not in a position to challenge and staff feel nervous about challenging, because if there is a wilful principal they might choose to get rid of staff, who cannot afford to lose their jobs, and so on. There are those possibilities, unless there are some controls. What would you suggest?

Bev Robinson: What you are citing there is an extreme example.

[Kelvin Hopkins]

But a real extreme example.

Bev Robinson: I appreciate that it was not fantasy—I appreciate that it was real—but such cases are an absolute minority. There are two golden threads in further education corporations—quality and finance—and it is about the balance of the two. In terms of what measures one could put in place, you have highlighted something: governing bodies—making sure that governing bodies are looking at the two golden threads of quality and money. It is about making sure that there are enough checks and balances within an organisation to allow for challenge; any good organisation would have that. I guess, ultimately, as we mentioned about the FE commissioner before, you would say the FE commissioner again, alongside Ofsted. Remember that with the desk research they do, they would spot within 12 months—if it was a dramatic example, as you cited—that quality suddenly went down very rapidly. That would be a red flag and a trigger. I would like to think that that would not happen, but obviously it does happen in a minority of cases.

[Kelvin Hopkins]

Q Earlier today I was talking about governing bodies, having had 25 years’ experience on a sixth-form college governing body and some years before that on a college of higher education—which was really a high-powered FE college, with some HE and some FE. With that experience, I know that having the right governing body with the right kind of membership is absolutely crucial so that principals cannot get into that situation.

At the beginning of incorporation, all those years ago, the Government wanted small, tightly knit governing bodies made up of local businesspeople, thinking that that would make it work—the businesspeople would somehow guide the college into producing the right students. It did not actually work, and in the end the Government changed their mind and wanted broader based governing bodies including, of course, students— certainly, at the college I am at, the student council elect their own students on to the governing body—plus some accountants, some lawyers, and some headteachers from local high schools and primary schools. There was a whole range of different skills, so that the college is properly accountable— without having an elected body, but they do appoint their own governors. That approach is a way forward. Can we put that sort of thing into the Bill, to ensure the legislation is improved? I know that you and Gordon know each other very well. I am interested to know what your governing body is like.

Bev Robinson: I am thinking of the unintended consequences. It is very easy to say that we can dictate exactly the constitution of a governing body, but if we are looking at further education corporations across the country, some of them are very different. My own, for example, is an outstanding college. We are very strong financially and so on, and we benefit from the mix and balance that we have on the board: we benefit from our business community and from two very able students on the board. I am hesitant about mandating exactly what that board would look like, because it varies by college. If, for example, I were a land-based college, I might want a slightly different mix, so I am hesitant about fully supporting that.

Shane Chowen: There is an interesting overlap in what you are saying, in terms of what the new accountability and regulatory landscape would look like after the Bill, with the various new bodies. How does Ofsted interact with the institute? How does the OFS interact with the institute, which interacts with Ofsted? Who inspects HE, given that Ofsted does not have a role within that? There is definitely something in cleaning up that landscape and giving the roles and responsibilities within the sector some very clear and defined lines.

We have not spoken much today about the devolution elements within the Bill—I have been here all day, by the way; I’m a superfan. If you are devolving significant sums of money to combined authorities, the Government are absolutely right, on behalf of the taxpayer, to expect some level of accountability and assurance about that. That should be not only raw numbers of how many people are doing qualifications and at what level, but also the extent to which those funds are being managed and accounted for. There might well be another layer of accountability under devolution.

Having said that, combined authorities and LEPs often have representatives on college corporations, so they should be responsible, as governors, for noticing when something is awry—for example, a spike in student complaints when they get their spreadsheets. I am not sure the Bill currently delivers that, so it could be looked at in future.

Shakira Martin: Can I remind everybody that FE has been cut to the core for a long time now? There might be some mismanagement, but when you are cut to the core and trying to change people’s lives on a budget, this is the kind of situation we get into. There is a big call for investment at the moment. I am going to flip this and talk about money and why we need it. Something I picked up from David Hughes this morning is the point about stability and certainty. We are often known as a Cinderella sector. It was welcome to hear the new Secretary for Education put FE at the heart and say that it is a priority. However, investment is needed in that area.

[Kelvin Hopkins]

Q There were some striking figures this morning about the enormous difference between the spending per student in FE, post-16 and A-level students and in universities. I made the point that at university, you often have a small number of lectures with a couple of tutorials, whereas in FE, and particularly in A-levels and BTECs, you have constant contact with teachers. The level of engagement is much greater between teacher and student.

Shakira Martin: Definitely. There is another thing that is quite frustrating. I welcome the money being put into the adults skills budget, but that is not an investment directly into further education, so I would like the Committee to consider direct investment in FE institutions.

[Kelvin Hopkins]

In my case, you are preaching to the converted.

Shane Chowen: It might be worth pointing out, just on that point, that there were also figures out last week showing participation in FE and skills, and in the last 12 months we have had the biggest drop in adults participating in basic English and maths training that we have had in six or seven years. That comes at a time when—I think Professor Fuller mentioned this earlier—the UK is ranked bottom of the OECD league tables for literacy and second bottom for numeracy. At a time when we have to send out negotiators and a Secretary of State for International Trade to fly the flag for the UK, those figures look really bad.

[The Chair]

Order. May I just interrupt here? The questions have to pertain strictly to the provisions in the Bill, as Mr Hopkins well knows. I know it is slightly difficult, but could you keep this answer as short as possible, so that we can move on to questions that do pertain to the Bill?

[Kelvin Hopkins]

Apologies, Ms Dorries. I have finished now; thank you.

Shane Chowen: I would argue that there would be opportunities in the Bill to place extra emphasis on those kinds of issues that the country faces in international trade negotiations, such as basic literacy and numeracy.

[Gordon Marsden]

Q I would like to ask this, while remaining within the scope of the Bill. There has been some interesting discussion about priorities, adult skills, training and so on. I want to return us to discussing the institute. If you had been here earlier, Shane, you would have heard a number of questions put to Peter Lauener about the nature of the institute, what its capacity might be and so on. I want to talk about one thing that strikes me about what the Bill is trying to do.

The institute had an interesting genesis, because it did not start out as an institute at all; it started out as a wish list in the Enterprise Bill by the previous Government as to who could actually look after apprenticeships. At one stage, it was going to be trading standards. Obviously, that subsequently was decided not to be the way forward, so the Government brought through, in the Enterprise Bill, the first genesis of the Institute for Apprenticeships, and like Topsy, it has just growed—very beneficially, I think, but that does raise some interesting questions that go to the heart of skills policy and of the new structure that will be set up, so I would like to ask the three of you, from your different perspectives, to answer this. We have heard a lot about apprenticeships. Obviously, that was discussed this morning with Peter Lauener. The technical qualifications are coming into this institute anew, but they bring with them the issue of how many people—actually, adults—need to be retrained and reskilled, the issue of what technical means for them. What should the balance be between the new institute focusing, obviously, on apprenticeships because that is a key Government target—