Schools: Funding Reform

Lord Hill of Oareford Excerpts

Tuesday 19th July 2011 Lords Chamber

[The Parliamentary Under-Secretary of State for Schools (Lord Hill of Oareford)]

My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend the Secretary of State in another place:

“With your permission, Mr Speaker, I should like to make a Statement on our plans to reform school funding.

As Members from across the House will know, the current systems for funding schools—both for their revenue and capital needs—are too complex and lack transparency, which is why I want to make the way we fund all schools fairer, simpler and more efficient. I want to turn to capital spending first.

Capital investment is crucial to education reform but, at a time of economic difficulty, we need to ensure that we are getting the maximum value for every penny we spend and we must ensure that tight resources are targeted on those most in need. In order to ensure we could target money on those areas in absolutely greatest need, I had to take the difficult decision last year to stop a number of school rebuildings planned under the Building Schools for the Future programme. In areas where planning was most advanced, more than 600 projects will go ahead, but other projects were stopped, and I recognise the deep disappointment that that provoked in communities where hopes had been raised. But we had to ensure that money was spent efficiently, and the design of the old BSF scheme was not as efficient as it could have been. Specifically, it did not prioritise schools in the worst condition and it did not procure new buildings as cheaply as possible.

In order to ensure we spent money properly, I asked Sebastian James of the Dixons Store Group to review the entire DfE approach to capital funding. His report makes compelling reading and I commend it to the House. He found that the whole capital system was bedevilled by a complex allocation process with multiple funding schemes, a lack of good-quality building condition data, inefficiency in building design, a lack of expertise when it came to improving new buildings, a failure to make procurement as efficient as possible, a lack of clarity on maintenance, and overly complex regulatory and planning requirements.

I am grateful to Sebastian James for his exceptionally thorough work and I wish to accept the majority of his recommendations, subject to a thorough consultation process over coming months.

Specifically, I have accepted the recommendation to conduct a full survey of the school estate. The last Government stopped collecting any data on school condition in 2005, which has made fair distribution of funding much harder. I have also accepted the review’s recommendation significantly to revise the school premises regulations so that a single, clear set of regulations applies to all schools. I intend to consult fully on this in the autumn.

In addition, I have accepted his recommendation to move towards greater standardisation of design. One of the aspects of the BSF programme that Mr James criticised was that each school was separately designed, costing unnecessary millions in consultancy fees and often resulting in buildings which were not fit for purpose. Greater standardisation will reduce costs, improve quality and limit the opportunity for error.

However, I recognise that in the short term schools around the country are facing real and pressing problems. The most pressing problem is ensuring that every child has a school place. In some local areas, there are simply not enough school places to meet rising demand. Local authorities have told me that insufficient attention has been given to this issue in the past. That is why I have already doubled the sums available to meet this pressure, announcing £800 million of additional spending given directly to local authorities to meet the demand for school places.

Today, thanks to efficiencies and savings we have identified, including in BSF projects, I can announce an additional £500 million to fund more new school places in those areas of greatest need. Funds will be allocated this financial year to the local authorities with the greatest demographic pressures so that they can provide enough places, especially at primary schools, in September 2012. Details of those allocations will be provided over the summer and finalised in the autumn.

But that is not all. I am also aware that many of our existing school buildings across the country are in desperate need of repair. I am grateful to honourable Members from all parties who have shown me and my ministerial colleagues schools in their constituencies which need investment. The energy and skill with which so many colleagues have lobbied underlines how effectively so many honourable Members represent the most needy in their constituencies.

We have already made available £1.4 billion this year to deal with maintenance problems. Overall, we are spending more on school buildings every year of this Parliament than the last Government spent in every year of their first two Parliaments. But I want to do more, which is why today I am launching a new privately financed school building programme to address the schools in the worst condition wherever they are in the country.

This programme will be open to local authorities and schools that had been due funding via BSF but, critically, it will also be open to those which, despite real problems, had never been promised BSF funding. I believe strongly that those in genuine need should receive the funding they deserve, and no part of the country should be favoured over any other. Individual schools and local authorities will all be able to apply and I am launching the application process today.

The scheme will be rigorously policed to ensure that we do not incur the excessive costs incurred by previous privately financed schemes. The programme should cover between 100 and 300 schools, with the first of these open in September 2014, and it is expected to be worth around £2 billion in up-front construction costs.

Some of those local authority areas which had experienced the termination of their BSF projects asked for a judicial review of my department’s decisions. In February, Mr Justice Holman found in favour of the department on the substantive matters in dispute. But he found against me on procedural grounds and asked me to look again at the decision in six local authorities. He stressed that the decision to restore all, some or none of the projects was a matter for me.

Over the past few months, Ministers and officials have listened carefully to the case made by the six local authorities and I am grateful to them for the constructive way in which they have presented that case. I have today written to those authorities to let them know that I am minded to indemnify them for contractual liabilities resulting from the stage their projects had reached, but I am not minded to restore their specific BSF projects. They now have a further opportunity to make representations to me before I take a final decision.

I appreciate that the local authorities and their representatives will be disappointed. But let me also be clear that this decision, if confirmed after any representations have been made, does not mean an end to new school buildings in their areas. Those local authorities will all be eligible for support from the new programmes I am establishing to cater for population growth in the areas most in need and the new programme to cover the worst dilapidation. That is central to my reasoning on why I am minded not to restore their projects. I want to ensure absolute fairness in the distribution of the resources at my disposal.

Because the previous Government chose not to collect data on the condition of school buildings after 2005, I do not have the facts to judge how the needs of these schools compare with the needs of other schools around the country. The fairest thing that I believe I can do is to help to meet the costs which might arise from the stage these projects had reached and then to invite the affected schools to apply to the new school rebuilding programme, and be assessed on an equal footing with everyone else, on the basis of need. And, of course, should any of these local authorities have severe need pressures, they are likely to receive a portion of the £500 million fund that I have announced today.

I would now like to turn to schools revenue funding. The current funding system is, of course, extremely complex, opaque and often unfair. Most colleagues will have lived with the inconsistencies for years now, as similar schools in different parts of the country received widely differing and inequitable levels of funding. The problems with the system that we inherited have recently been underlined by concerns expressed over academies funding. Under the system set up by the last Government, academies received money in lieu of services that would previously have been provided by their local authority. But local authorities continued to receive the same funding as if they were still providing these services. That meant that local authorities were being, relatively speaking, overfunded, for duties they no longer discharged. So, at the spending review we announced that, from now on, we would deduct money from local authorities to take account of the fact they no longer provided services to academies.

The huge success of the academies programme, with 803 academies open and over 800 more in the pipeline, has meant we need to look at the issue again. A number of local authorities have asked us to reconsider the amount of money deducted. So today, I am publishing a consultation document for local authorities explaining the basis on which it is intended that this money will be deducted in this year and next. But this area is only one where the funding system we inherited is failing to meet the needs of the 21st century and much wider reform is needed. So today, we are also publishing a consultation proposing a fair and comprehensive reform of the way in which schools revenue funding is calculated overall.

At present, similar schools in different areas can receive very different amounts of funding for their pupils. This is not fair on head teachers, on teachers or on pupils. That is why I am proposing a new fairer national funding formula, with appropriate room for local discretion, in order to have a simpler, fairer and transparent system. The problems with the current system run very deep, and we will not be able to solve them overnight. We want to consult to ensure everyone’s views are heard on how much change schools can cope with. We will not introduce change until we are confident in the new approach and certainly not before 2013, and we will ensure that there are substantial transitional arrangements. But we are determined to start moving as soon as we can towards a system which ensures all children are given the right level of funding to meet their needs.

Taken together with our investment in 100 new teaching schools announced last week, our investment of an additional £300 million in the early years and an extra £2.5 billion in the pupil premium, I believe that we can now begin to ensure that our schools are funded in a way which is modern, fair and just”.

--- Later in debate ---

[Lord Hill of Oareford]

My Lords, I am grateful to the noble Baroness for her response. I welcome her offer to contribute to the consultation and to have constructive conversations about the way forward.

I will answer the questions that she asked. I am glad that she welcomed the announcement on capital that we made today. She called the decision taken by the Secretary of State last July to cancel the Building Schools for the Future programme “precipitous”. We had to stop it and act rapidly because of the economic situation that we had inherited. We could not carry on with the programme and, as a consequence of having taken that decision, we have been able to make savings on some of the programmes and projects that have gone ahead, which has contributed to the £500 million that we were able to announce today to help with basic need.

The details on private finance will need to be worked out. The Government believe that they can learn from previous schemes and find ways of doing it better. My noble friend Lord Sassoon announced today that the Treasury has identified £1.5 billion-worth of savings from running current PFI projects, but we will need to work out the details.

The noble Baroness is absolutely right that the condition survey needs to be carried out speedily. We want to start straightaway. She asked about basic need and free schools. This is a pot of money that will be allocated to local authorities on the basis of demographic need, where the need for new places, particularly primary places, is greatest.

I accept the noble Baroness's point about revenue. She said that some schools need more than others. The principle that we are striving for, which I am sure she shares, is that schools in similar circumstances, with similar conditions and similar pupils, should be funded on an equal basis. However, I accept her underlying premise that some schools will have different needs. I also agree with her that moving to a national funding formula may not be simple. The system is inherently complex. That is one reason why we will do this very cautiously—which the noble Baroness welcomed—rather than rush it; we will have a lot of consultation, make sure that there is proper transitional protection in place and not implement it before 2013-14 at the earliest. As the noble Baroness knows, one of the questions in the consultation is whether we should do this on an even longer timescale.

On the question of academies funding, I am absolutely clear that the principle to which we are working is parity of funding. We are having this consultation because of the views expressed to us by local authorities, and the concern that they expressed about the decisions that the Government reached at an earlier point about the basis on which funding would be taken from them, to stop the double-funding that had been going on.

The noble Baroness asked about special needs. It is very much our intention that everything we do should be compatible with the direction of travel set out in the Green Paper. Another proposal out for consultation is that we should have a special block of money for high-needs pupils to make sure that their needs are properly protected.

The subject of 16 to 19 funding is extremely important. We propose to look at that, too, and see whether we can simplify it, on the same lines as we are trying to simplify schools funding. We will run a review on that, which will start in the autumn.

On overall funding, I agree with the noble Baroness about the importance of maintaining funding in schools. In difficult circumstances, my right honourable friend the Secretary of State managed to protect funding for schools at flat cash levels with the pupil premium on top. In the circumstances, that was a good settlement for the Department for Education. On our announcement today about capital and about basic need, I am the first to concede that it is not the answer to everything, but it is a step in the right direction. I am glad that the noble Baroness welcomed our announcements on capital and revenue—with the caveats that she expressed —as a step in the right direction.

[The Countess of Mar]

My Lords, the noble Baroness, Lady Hughes, mentioned her concerns about funding for 16 to 19 year-olds. The Minister will be aware of my concerns about young people with ME who have been learning through the Nisai Virtual Academy. The funding continues through local authorities until they are 16, but it is now being cut off for 16 to 19 year-olds. At a vital stage when they are taking their exams, they find that they can no longer continue with their education.

I understand that Harrow College is funding existing students through their courses but will take on no new students. The Minister may agree that, as ME causes more long-term sickness absence in schools than any other illness, and about two-thirds of children on home tuition have ME, this is a very important group of children. Many of them are high achievers who are very frustrated because they cannot get on. Will the Minister give us hope that there will be funding? The virtual academy—it is virtual because it uses the internet—cannot tick the boxes for Ofsted and the Assessment and Qualifications Alliance because it has no bricks and mortar. Will the Minister help?

[Lord Hill of Oareford]

I am very sensitive to the noble Baroness's point about children with ME, for a variety of reasons. I will look into the case that she mentions. Perhaps we can talk about it and take it forward.

[Baroness Walmsley]

My Lords, I thank the Minister for repeating the Statement. I heartily welcome the fact that the Government are grasping the nettle of the complexity and unfairness of school funding, which the previous Government did not do in 13 years—indeed, they compounded the complexity problems.

First, I will say a word about capital funding. I notice from the Statement that the Secretary of State has accepted Mr Sebastian James’s recommendation to move towards greater standardisation of design of school buildings. Casting my mind back to the debate during the Localism Bill, I am sure the Government would not want a set of cloned schools all over the country. Can the Minister confirm that there will be a set of standard designs from which local communities can choose the most appropriate for their particular needs, not just one size fits all? That would not be in line with what this Government are trying to achieve. Will he also say whether energy efficiency, including microgeneration, will be included in those standard designs because, moving forward, that is going to be a very important issue?

On revenue, I welcome the consultation on moving towards a fairer national funding formula with appropriate room for local discretion—that is particularly important to those of us on these Benches—and the move towards a simpler, fairer and more transparent system. Schools need to know what to expect. From what the Minister said, I am sure he accepts that if you have a very simple system, it is likely not to be very fair, and if it is a very fair system, it is likely to have some complexity. I am sure that the Government’s consultation will allow for that. I also particularly welcome the Government’s determination to iron out the inequalities between areas and between academies and local authority schools.

On the subject of academies, I welcome the fact that the Government are publishing a consultation document for local authorities explaining the basis on which they intend that the money will be deducted this year and next. Does this mean that local authorities with no academies will have no deductions? Does it mean that there will be a standard costing for the services that academies will provide which local authorities will no longer provide? Finally, will he tell us a little more about how special schools will be treated?

[Lord Hill of Oareford]

Like my noble friend, I sat through the previous debate on design, and I thought someone would ask me about it. I was expecting the noble Baroness, Lady Whitaker, to be in her place, but my noble friend has asked the question instead. Coming to listen to another Bill going through its Committee stage and being subjected to some of the same kind of scrutiny to which I have been subjected in the Moses Room makes a nice change.

On design, the Government want to get a balance between delivering savings through a common sense approach and not reinventing the wheel every time. I agree about not having a one-size-fits-all design that can be rolled out across the country. There clearly needs to be proper discretion about the set of standardised designs—plural—that we would work up. In that context, building schools and other buildings that are energy efficient is extremely and increasingly important.

I agree with my noble friend about the importance of local discretion in thinking about revenue. She put the point about simplicity, equity and complexity very well. It is precisely those issues that we will need to tease out in the consultation to try to get to a point where there is more transparency and openness but there is still room for people to make sensible judgments on the ground. As she also said, we want to iron out some of these inequalities across the country. The points she raised about academies and academy funding are the sorts of issues that we will be discussing with local authorities and their representative bodies to try to resolve this issue.

Special schools, like all schools, will be able to apply for funding to help with their condition because we know from the work we have done that, just as with other schools, there are special schools in great need of help with dilapidation, so they will be able to apply to the same fund.

[Lord Boswell of Aynho]

My Lords, I, too, welcome the Statement. Can my noble friend help me with a couple of details on the capital side? First, possibly in parallel with, rather than in sequence with, the study that he is to undertake into the state of school conditions, will he be giving some thought to building up a matrix that will aid him in deciding which schools have the greatest need for capital work so there is a principled basis for doing it?

My second point is something of an extension of the point made by my noble friend Lady Walmsley. It is in relation to the cost of building projects. Will he make sure that the costing takes into account the whole-of-life cost so that the building projects are sustainable, rather than simply the cheapest at the time?

[Lord Hill of Oareford]

My Lords, the point of carrying out the condition survey is precisely to arrive at the point, to which my noble friend referred, where one can make a fair comparison between schools across the country to work out which of them have the greatest need and are most in need of having their condition improved. He is obviously right about that.

So far as the cost of the building projects is concerned, my noble friend makes a good point. One of the things that we will be looking at is how to try to secure the best possible value in a number of different ways, perhaps by grouping schools.

[Baroness Howe of Idlicote]

My Lords—

[Lord Davies of Stamford]

My Lords, the noble Baroness is a very distinguished Member of this House, but I think Labour Back-Benchers are the only group who have not had a turn so far. We have a certain amount of time.

On design, did not the Victorians produce some extremely distinguished school buildings that have stood the test of time on the basis of just three or four rather standardised models? I hope the Minister will look at that example and perhaps be inspired by it.

On revenue funding, at first sight, one sees that it appears very just and sensible to cut back proportionately revenue funding to LEAs where a portion of that funding is earmarked for services that are now being paid for directly by funding academies. However, is it not the case that there are very considerable economies of scale in education, including in the operation of LEAs, and that the administrative and other fixed costs of those LEAs in providing those services will now, under this new system, fall on a reduced volume of funding for the LEA schools and therefore be a higher proportion of that funding? Therefore, schools that remain within the LEA system, will lose out, simply because there are academies in that area, and they will lose out more, the more academies there are in that area. Surely that is not fair either.

[Lord Hill of Oareford]

I agree with the noble Lord about Victorian schools. I am not an expert, but I think one of the reasons why, when one goes around London, they all look quite similar is because they were procured by a board. He is absolutely right about the question of how one goes about doing that. That demonstrates that it is possible to have something that looks recognisable but is also good quality and stands the test of time. My observation, as someone who gets sent around academies quite a lot, is that they all had fantastic architects and a lot of expense, and they all pride themselves on how original they are, but they all look quite similar if you look around the country. Going back to our earlier debate, I think the point about how design is accepted at a time is well made.

I understand the noble Lord’s point about economies of scale and academies. It is obviously the case, and it is indeed happening, that many academies are choosing to carry on buying services from the local authority if they think they are good quality local services and that they are delivering what they want. It is also the case that some local authorities are embracing, if that is the right word, a different role and are thinking that they want to be in the business of becoming commissioners and selling their services to a range of schools across broader areas. A number of different approaches are developing. I accept the underlying point he makes, but there is a varied response going on across the country.

[Baroness Howe of Idlicote]

My Lords, I want to add to the design debate. First, I entirely agree with what the noble Baroness, Lady Walmsley, has said. Energy efficiency is also very important, but please let us have a design architectural competition to choose some of the best experts in that area. Secondly, the repairing of the older schools is terribly important because, again, pride in your school requires you and enables you to keep it in good order. The less well cared for a school is, the more likely it is to get kicked about and made even worse. Thirdly, and anticipating a debate we might have tomorrow but which sadly I can no longer take part in as I shall not be there, the involvement of the children themselves in the design of these schools and what is required there is crucially important. I have seen it in action with some young children advising student architects on what they should incorporate into a design. I hope that the Minister will bear that in mind when he is thinking of student governors.

--- Later in debate ---

[Lord Hill of Oareford]

I am sorry that the noble Baroness, Lady Howe, will not be joining us tomorrow but I am looking forward to our debate on school governors. I agree with all her points. I agree that involving the children or the students in what is going on in a school is jolly important. Her point about the upkeep of it and people taking pride in it is also obviously right. Getting input from architects will also be extremely important when we are trying to come up with our standardised set of designs.

[The Lord Bishop of Chester]

My Lords, the noble Lord, Lord Davies, was not entirely right to say that it was only the Labour Benches that had not yet contributed. We do not like to be overlooked too much, small though we are. I have another question for the Minister about new buildings, and about the procurement process. I speak as the chair of a new academy that has gone through the procurement process for new buildings. I have been struck by just how complex it is and how the costs of that must be built in to the end cost you have to pay when you get to the final preferred bidder. I agree that simplification in the design process should not go too far, but could that simplification also be applied to the procurement process?

[Lord Hill of Oareford]

The remarks made by the right reverend Prelate echo my almost daily plaint. I agree with him entirely. It is our hope that with the new scheme we will be able to deliver it faster, perhaps up to 12 months faster, which will obviously save money. I agree that these processes can seem extremely complex. If he has experience from the academy with which he is involved, I would be interested to talk about that because we are keen to learn and try to do it better.

[Baroness Wall of New Barnet]

My Lords, I want to highlight a couple of things in the Statement, but first I must say that I think it was quite a mean-spirited Statement in its very negative description of the approaches taken by the previous Government. Even in the paragraph on academies, there is no recognition of the success of the academies programme, which started under the previous Government and has carried on under this one. It is probably the most negative Statement that I have seen for quite some time in this House, and I just want to put on record the fact that I am very disappointed about that.

I have some questions about university technical colleges. Where do they fit into all this? What is their relationship to the academies? What is the funding for them? I am quite surprised that the Statement does not refer to them as the way forward. Noble Lords will know from the noble Lord, Lord Baker, that they are very much the future, as I know from my involvement with some of the FE colleges that are going in that direction. Where are the university technical colleges going to fit in terms of revenue and the whole process?

[Lord Hill of Oareford]

My Lords, I hope that noble Lords who have been subjected to me talking about academies would say that I have always been very quick to make clear the huge contribution that the previous Government made to academies. I have said from the beginning, although this might not always be an altogether welcome message for those on the Benches opposite, that I see my job as trying to build on what the previous Government did and what they intended to do in 2005. We are taking that forward; I am very clear about that. I am also very clear about Building Schools for the Future, having met a lot of the schools, children and heads who were involved with it. I absolutely share the previous Government’s intention to improve the building estate. I know what they were trying to do, and I understand why they did it, so I am sorry if the noble Baroness felt that the Statement was mean-spirited.

We did not mention funding for the UTCs in the Statement, but the noble Baroness will know that the Chancellor found some more money in the Budget to—I hope—double to 24 the number that we were aiming for in the lifetime of this Parliament. That is in place, and is not affected by anything that we have announced today. Given that these are new institutions, I guess that by definition the pot for dilapidation is not going to be relevant to them. As she will know from her conversations with FE colleges, there is a lot of support for them. We have had a large number of applications, which we are considering, and we will in due course make announcements on those which I will be very happy to share with her.

[Baroness Sharp of Guildford]

May I press the Minister a little further? Where does the pupil premium fit into these proposals? As I understand it, there will be an allowance for deprivation and so forth on top of the basic amount, and I assume that that is where the pupil premium will come in. However, given that the local schools forum will still play a part in allocating resources at a local level, how can schools be guaranteed that they will actually get the money that they need from the pupil premium?

[Lord Hill of Oareford]

That is an extremely good question. Our approach to the pupil premium has consistently been to put it on top of other funding that is made available so that people can see very clearly where it sits and will over time be able to calculate its effect as we build it up. Our intention is that it will continue to be identified separately and go to schools, which over time will report on and account for the purposes to which it is spent.