Technical and Further Education Bill

Lord Storey Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 1st March 2017 Grand Committee

[Lord Stevenson of Balmacara (Lab)]

My Lords, it is a pleasure to appear in the Committee. I have been present on various occasions during the first two sittings, but I have not been able to find an issue on which I wanted to speak; therefore I come with my powder dry.

We have no argument of substance on this part of the Bill, because we understand what is happening. It is essentially a good housekeeping measure, rather than a threat to any existing or future institutions. It arises from two sources. First, there is a proper and appropriate sense of wanting to ensure that in any default situation, such as liquidation or insolvency, a process is in place and all the major players know what happens and how. It also comes from a wider consideration of how public services are procured and delivered.

In the good old days, as some might say—I say it in heavy quotes—public provision of such services as further education, but including utilities more generally, would always have the underlying assumption that the Government of the day would carry any debts incurred. Of course, that does not happen under privatisation—there is no particular reason why it should—but the responsibility for continuing work that is in the public interest still has to be resolved. That is why, over the past 25 to 30 years, there has been a growth in special regimes for insolvency. They are not unusual. They are broadly all of the same pattern. That is unsurprising as they come from one cutting shop: the Insolvency Service. They carry a common approach: they are instituted to ensure that, where it is appropriate and necessary, it is possible to intervene in the ordinary processes of insolvency or voluntary liquidation to the extent to which it is thought proper that the purposes for which the service exists are maintained, to ensure that those who are relying on it or have made it part of their lives in good faith are not let down by any cost-cutting arrangement.

Having said all that, we have tabled some probing amendments, to which I hope that we will get good responses on the record. Nothing will be unexpected—much of it came up in the other place—but we have learned a bit more about how the system operates, so there may be a slightly sharper focus.

I move Amendment 37 and speak to Amendments 38 and 39. This first group focuses on the education administrator, who is the person to be appointed by the court—the courts can act only on the request of the Secretary of State in England or Wales, depending on which territory they are in—and, if appointed, has responsibilities which will be set out both in the Bill and the broader range of insolvency legislation alluded to in the primary legislation; I expect that regulations to follow will fill in any gaps. We are not at variance with the Government in proposing that the system applies, although there will be things that we want to probe later.

The purpose of these three amendments, taken together, is on the question of whether we have got the right person to do this work. We have not seen many colleges go into liquidation or insolvency, which is a good thing. We were reassured in another place—so we do not expect it—that nothing in the Bill should be read as taken to imply that the Government have in mind a raft of closures. On the other hand it is fair to ask the Minister, when he comes to respond, to help us a little about what the context is for this.

The figures provided by the Minister for Apprenticeships and Skills in the other place were slightly obscure. He said that,

“80% of colleges are either good or outstanding”,


and that some,

“59% of institutions are in good financial health and 52% are operating with a surplus”.—[Official Report, Commons, 14/11/16; col. 80.]

One can of course read that the other way round: you could say that 48% are not operating with a surplus and that a situation may therefore arise which we are not fully apprised of. The Minister might wish to comment on that. I do not necessarily see that as an issue and, if he wishes to take time to write to us, we would be happy with that.

The context is also a little more complex, in the sense that we are well aware that there is a more general decline in further education. The ongoing work of the area reviews may or may not lead to closure as a result of mergers. Mergers cannot be imposed on the system but if the system wanted to do that and if a particular college was weaker, we may find this issue in front of us in a relatively short time. The procedures therefore obviously need to be right but, if the Minister could say a little more in that context about his perception from the centre of whether a number of closures will arise from the area reviews, that would obviously be interesting. We do not know of any and are aware that work is going on but some sense of that, if not the actual detailed numbers, would be helpful.

In the other place, the Minister was pressed a little about the context of what I have been saying. He came out with a nice rubric when he said that Part 2 of the Bill was,

“about protection, insurance, prudence and caution”.—[Official Report, Commons, Technical and Further Education Bill Committee, 29/11/16; col. 166.]

He was not picked up about that list of words. It does not quite have the ring of an aphorism about it but it is an interesting list. Would the Minister like to reflect on whether that is his reading of the situation? I take it slightly differently: I think this is a prudent, sensible and cautionary approach, as I do not see any red lights arising from it and gleaming in the dark that would cause us to have difficulty, and that the issues are appropriate. Those are the general questions.

On the questions raised by the amendments, Amendment 37 questions whether we are right in assuming that, at present, the Bill tends to focus the attention in relation to colleges and their continuation on a systemic approach. That was slightly picked up by the area reviews as well, in looking at the holistic approach to an area, although from the bottom up—in other words, from the locality—FE colleges are often seen as important bulwarks of local community activity. Particularly in rural areas and areas of lower density, they can provide a centre not just of education and training but for other activities, so there is a wider context for this. Amendment 37 asks that the education administration system, particularly the education administrator, should, in addition to the list in the Bill, take in the need to,

“minimise the risk to a local community of a long-term loss of technical and further education provision”.

That will be an important issue for many areas and I will be interested to see the response.

Amendment 38 would give more detail than is currently in the Bill about the consultations, discussions and debates that must take place before the education administrator takes forward the proposals that may come to it. We will obviously come to a wider view about this in the next group. This would include the “quality of education provided”, the capacity of other bodies or institutions and,

“the infrastructure of the local area”—

again, the reference is to local rather than national issues. An issue that came up strongly in discussions in the other place was of how students, many of whom will be relatively young, will function if they have to add a significant transport arrangement to their other education requirements. How exactly does that fit in with some of the overarching issues we will come on to, in relation to the balance between maintaining a provision in a place and the need to provide local services and community support in that area, as opposed to the needs of the students in terms of the qualifications they are trying to obtain, which might be better dealt with in another college, perhaps a couple of hours’ travel away? One can see the impact that would have in terms of community, and on the individual. A slightly more detailed list, as in Amendment 38, may be overprescriptive but the intention is to make sure that wider consideration than a simple binary question—open or shut—should face the education administrator.

Thirdly, on Amendment 39, the question is of who should be consulted. There is obviously an expectation, and comforting words were given in the other place when this issue was discussed. However, we have tabled an amendment that specifies that the students in particular—they are often omitted in these considerations —should be consulted, and that staff and recognised unions at the body concerned should also be included.

[Lord Storey (LD)]

Given that insolvency is a major part of the Bill, many of us were concerned that there might be something hidden that we did not appreciate or understand, which is perhaps unusual. I thank the civil servants. I hate that term. They are civil; they should not be servants. My noble friend Lady Garden and I met them yesterday to talk about insolvency, and I came away very reassured. Actually, I almost did an about-turn and felt that further education was protected in many respects.

The amendments are right. I do not foresee FE colleges becoming insolvent, because the new measures protect them in a more robust way than currently. During the area reviews, there has been a safety blanket. When they are finished and the new regime comes into place, it will be a much better landscape for FE to operate in. Having said that, in the 0.001% where something happens, it is right to point out that students need to be considered, as do the community and the staff. That is particularly so in rural areas. If a college goes in a rural area, the loss of it and its courses can be devastating to its students.

I will go along with it but I am never quite sure about “consultation”. Of course one can consult. If in the new landscape a college is on the road to insolvency, presumably we would pick that up pretty early on. It would not be a case of its suddenly being insolvent—“By the way, we’re closing down and we’d better consult students and staff”. We would see the process happening gradually. Any well-managed system would of course consult those bodies. When I see “consultation”, I always ask how we will consult. Is it a tick-box exercise, or a letter to everybody? When we have done the consultation what do we do with that information, or is it just, “It looks good so we’ll say it”? I understand the thought behind the amendment, however.

These amendments are okay. I am just beginning to understand the Government’s desire—I am pleased about it—that, under the new combined authorities regime, combined authorities will be involved in the adult education part of further education. I do not yet understand how that happens in practice as well as principle. I have been involved in a couple of emails about that, but I would like to understand it before Report. Having said that, I am happy with the amendments and I guess we will support them.

--- Later in debate ---

[Lord Stevenson of Balmacara]

My Lords, I was hoping to have a short breather while we discussed other important matters, but unfortunately that has not happened. We move on to Amendment 47, which refers back to some of the issues that we have been dealing with regarding process, particularly what happens to assets. Clearly much of the work of the special administration scheme will be the ability to bring forward and, if necessary, sell—in other words, dispose of—assets that would otherwise not be there that could be used to repay the creditors, and I suppose might in part be used to maintain the operation of the college that is under liquidation.

To stand back a little from the issue, the interesting thing is that much of what we are trying to achieve in this special educational administration is more akin to the Chapter 11 processes in American bankruptcy law than to those here. We have the same basic elements: a court-driven procedure, the protection measure in place in order to make sure that the institution is kept as a going concern, and a commitment that is well expressed in terms of the special purposes of the education administrator to take it through. The question is whether or not that follows through all the way.

The amendment is probing, but it builds on one or two issues regarding which we want to get responses from the Minister on the record. In the first place, it would be helpful if we clarified that, as has been explained by the Ministers in their responses, this is unlikely to be a regular occurrence and will not be precipitated by the Bill, but it might happen and therefore we should walk through it and understand it. If we have a situation where a college is going insolvent, either the system can then operate on existing measures or the Secretary of State can apply for and obtain an order to establish the special administration, and then we are into the process that we have talked about at length and do not need to go back to.

However, it may arise that funds coming into the college to maintain it as a going concern are difficult to sustain. There may be changes in government policy or other changes in external funding that mean that it will not remain a going concern. So we are talking about maintaining the services and facilities for the students for as long as possible but in the certain knowledge that the institution is going to close down. At that point, I am sure it will be in the mind of the special administrator that some assets could be sold so that money could be obtained. Depending on the rules laid down for them, it would probably be rather difficult for that person not to engage with that possibility. However much we may wish to have the assets and the buildings maintained in case there is an uplift and the funds come back, the cruel reality of the situation will probably kick in and mean that the assets will be sold.

If the institution were a charity, as many of these bodies are, the question would not arise because, under charity law, charitable bodies holding assets are not allowed to dispose of them to third parties—in fact there is a prohibition that they must dispose of them to charities of similar nature and purpose so that the charitable purpose under which they were originally established may be maintained. I would be grateful if the Minister could confirm that that is the Government’s understanding of the issue. Where special systems or incorporation arrangements are in place, I assume that that will also apply, but charitable status is the main area here, so we are talking about a relatively small group of places where the natural process would be perhaps to squeeze the college down to a smaller area and get rid of buildings, equipment and so on.

The problem then arises that funding was almost certainly originally provided from local authorities but, since then, certainly from central government, so there is an investment issue about whether the funding that has been provided should not be better retained in the sector, even if it cannot be retained within the existing body as a going concern. So the amendment poses this question: in the relatively unlikely event of this happening where the college is not a charity, what happens to freeheld assets that could be disposed of where those assets were originally funded from the public purse? Is there not at least a moral obligation to ensure that they are retained within the sector? I beg to move.

[Lord Storey]

I have always been concerned when public money has been used to purchase a facility—let us say that it has been used to purchase an FE college and that FE college then sells off land, for example a playing field. That playing field may often have a dual use: perhaps the local community uses it for activities, for example, which is good for the FE college and for the local community. So when it sells it off, public money is being lost to that community.

As we said under the first group of amendments, the likelihood of insolvency is remote. With this amendment, I get the point that public money bought the facilities but, presumably, you could have local authorities—I have seen it quite often—saying, “We’ll have the facilities”, but then selling them off to the private sector to get that money in for other things for the community. Is that the point that the noble Lord is making?

[Lord Stevenson of Balmacara]

No, it is not actually—although that is a scary prospect. In my scenario, we are in a liquidation situation in which decisions have been reached that the college is going to decline, because it cannot be made secure. It has been superseded by the court order now in the hands of the special administrator, and a decision has to be made about what happens to the residue. That may take time, but at the end of the day there will be a blank wall and the car will hit it. At that point, what happens to those assets? It is not that they could not be sold for benefit—the noble Lord’s point about land is absolutely right. I think it is pretty unlikely, but there could be land associated with FE colleges that, if sold, could realise development potential which could pay off all the creditors, and that could be seen to be a good thing. But if that money was originally provided for the education—not for a charity, because that is protected—what is the right way to go forward?

[Lord Storey]

In that case, there is merit in considering 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?

--- Later in debate ---

I appreciate that the Minister cannot give a detailed response to these issues today—I do not expect that—but I trust that he will acknowledge that the problem exists and that the Bill is impacting in advance of Royal Assent. I invite him to write to me with his understanding of the issues, setting out what, if anything, he feels able to do to assist colleges caught up in them through no fault of their own. On the basis of what he says, we shall consider whether to revisit this topic at Report. I beg to move.

[Lord Storey]

My Lords, I support this important amendment. As we said at the beginning and keep underlining, the insolvency regime is highly unlikely to happen, but that does not mean that we cannot give comfort to staff working in further education, particularly at a time when all the changes, area reviews and, indeed, the Bill have created uncertainty when they need certainty. As we have heard, often through no fault of their own, they could be in a poorer financial place. When we have just heard that BHS staff are to get their full pension entitlements, would it not be nice if the Minister would agree the amendment?

[Baroness Cohen of Pimlico]

I raise another worry that has come to me, which is the reverse. If a public or private company is in danger of takeover, one very good way to prevent that is to introduce a poison pill. The quick way to do it is usually through a very generous pension scheme, or a pay-off scheme for your senior staff. If I were a threatened institution, I might be tempted to consider either of those. It is a hard life, but do we have any means of dealing with threatened institutions which introduce financial measures which will make it much more difficult if they need to be closed or otherwise dealt with?

--- Later in debate ---

Of course, this is a way in which to discuss governance. The Minister made sympathetic comments on initiatives that are being taken. It particularly relates back to ensuring that good quality governors are appointed, and I applaud the Government’s efforts in this. But somehow a stronger governance structure has to be built to make sure that these institutions are well governed in what has become a very difficult climate. None of us should underestimate the difficult climate in which FE colleges have to operate. I want to make sure that they have the strongest possible governance. I beg to move.

[Lord Storey]

My Lords, I support the amendment. The noble Lord, Lord Hunt, has spoken wise words. In local government, the quality of officers advising elected members is hugely important—the independence of those officers and their ability to challenge and scrutinise with neither fear nor favour. In further education, we are talking about multimillion pound budgets. You have only to flick through the pages of the further education press to see some of the horrendous accounts of what has gone on in the past. I do not want to go into those lurid details; I shall leave it to people to have a look at them if they so desire.

What that suggests to me is that the governing body of those institutes has to be of the best possible calibre; it cannot be a friend of a friend, not wanting to offend the principal. It is often difficult to attract calibre governors, so the role of the clerk cannot be some sort of part-time lesser role; they have to be people who are confident in themselves. Those three words—“scrutiny, challenge, transparency”—are really important. This is the tail-end of Committee, but to get the Bill right is important. The points that the noble Lord, Lord Hunt, has made are also important. I hope that between now and Report we can look at this in a little more detail, because it is crucial.

[Baroness Cohen of Pimlico]

I support the amendment. I am new to the business of voluntary governorship in state-funded institutions. I have been fortunate for most of my working life to have been in organisations that had admirable company secretaries, who had the equally difficult task of standing up to chairmen and chief executives—but these were well-trained, qualified and well-paid people. The problem in all education is, of course, that anything that is not a teacher reads like an unmerited overhead.

I am not quite certain what I should propose as a remedy, but this point is key. Many of the messes that schools and further education institutions get into have to do with governance, and that has to do with a clerk who is not actually qualified and probably not properly paid.