Skip to main content

General Committees

Debated on Tuesday 14 June 2016

Delegated Legislation Committee

Draft Building Societies (Floating Charges and Other Provisions) order 2016

The Committee consisted of the following Members:

Chair: Ms Karen Buck

† Argar, Edward (Charnwood) (Con)

† Baldwin, Harriett (Economic Secretary to the Treasury)

† Burns, Conor (Bournemouth West) (Con)

† Campbell, Mr Alan (Tynemouth) (Lab)

Cooper, Julie (Burnley) (Lab)

† Cruddas, Jon (Dagenham and Rainham) (Lab)

Fysh, Marcus (Yeovil) (Con)

† Jayawardena, Mr Ranil (North East Hampshire) (Con)

Jones, Mr Kevan (North Durham) (Lab)

† Kennedy, Seema (South Ribble) (Con)

† Kirby, Simon (Brighton, Kemptown) (Con)

† Long Bailey, Rebecca (Salford and Eccles) (Lab)

Lucas, Ian C. (Wrexham) (Lab)

† Malthouse, Kit (North West Hampshire) (Con)

† Mann, Scott (North Cornwall) (Con)

† Mullin, Roger (Kirkcaldy and Cowdenbeath) (SNP)

† Thomas, Derek (St Ives) (Con)

Marek Kubala, Committee Clerk

† attended the Committee

Fourth Delegated Legislation Committee

Tuesday 14 June 2016

[Ms Karen Buck in the Chair]

Draft Building Societies (Floating Charges and Other Provisions) Order 2016

I beg to move,

That the Committee has considered the draft Building Societies (Floating Charges and Other Provisions) Order 2016.

It is a pleasure to serve under your chairmanship, Ms Buck. We all want to see a healthy and competitive banking sector that delivers for consumers. For many years now, building societies have been strong competitors to the major banks, particularly in the mortgage market, and we want to see that kind of competition not only continue but grow further. In 2012, the Government launched a consultation to look at how we could level the playing field between banks and building societies. We wanted to maintain the distinctiveness of the building society sector but remove any unnecessary barriers that were getting in the way of their success. One key thing that building societies told us was that they found it difficult to compete because, unlike banks, they could only create fixed charges over their assets and not floating charges.

It may be helpful at this point if I explain briefly what floating charges are and how they are used. In short, they are securities over an undefined set of assets—for example, a building society’s mortgage book—that fluctuates in the course of business. That is in contrast with a fixed charge, which is over a fixed, defined asset such as a building or a specified set of loans. Floating charges allow financial institutions to borrow money and use their mortgage book as collateral, while still being able to exchange and dispose of any individual mortgages during normal trading activity. However, the Building Societies Act 1986 created a restriction that building societies could not use such charges. Banks therefore denied building societies access to certain transactions, because of the risk that a court could ultimately reclassify a fixed charge on a building society’s assets to a floating charge and make the security void.

Secured funding is an accepted and flexible funding tool that is far more commonplace and necessary now than when the restriction was introduced. That is why the Government made an order last year under the Financial Services (Banking Reform) Act 2013 that repealed the restriction and allowed building societies to create floating charges. Initial estimates indicate that the change will save the sector around £2 million a year by allowing building societies to enter into such transactions with banks.

The draft order will make further provisions in relation to the repeal of the floating charges restriction. It will amend the Building Societies Act to apply companies insolvency legislation if the building society were to go into receivership. Therefore, in the unlikely event that it becomes necessary to enforce the security, a floating charge holder can appoint a receiver to enforce the terms of a floating charge. The draft order is uncontroversial, and it will help to provide legal certainty and ensure the effectiveness of the repeal of the restriction made last year.

The draft order proposes a technical change that will allow us to continue our work to support building societies by allowing them to compete with banks on a level playing field. That will be not only good for the market by helping to boost competition, but help to create better products and services for the people who use them. I therefore commend the draft order to the Committee.

It is a pleasure to serve under your chairmanship, Ms Buck, and to debate with the Minister for the first time, especially on such an important issue. I share her sentiment that the draft order is technical and uncontroversial. I understand that our counterparts in the Lords spent only 13 minutes discussing it. She will be pleased to hear that I do not propose to take much longer.

As the Minister eloquently stated, the draft order is simply required as a result of the Financial Services (Banking Reform) Act 2013, which repealed the restriction on building societies to create floating charges. That came directly as a result of changes in insolvency law by virtue of the Enterprise Act 2002, which removed the ability of a creditor to appoint an administrative receiver pursuant to a floating charge. There were exceptions, of course—for example, certain large financial transactions and holders of floating charges created before the relevant sections of the 2002 Act came into effect.

The previous position for building societies was, as the Building Societies Association has stated,

“contrary to the mutual model of ownership”,

as it would allow an administrative receiver to be appointed over the whole or a substantial part of a company’s property should a floating charge be enforced. A receiver is usually appointed to enforce the terms of a floating charge only, and as such has limited access to any other assets held by the relevant company. The draft order will therefore allow the appointment of a receiver in relation to a floating charge if enforcement becomes necessary, so ensuring, as we have heard, uniform provision about receivers for banks, building societies and other companies.

The Building Societies Association informs us that the changes we are discussing recognise the landscape and reality that building societies are operating in and that secured funding is an accepted and flexible funding tool that is far more commonplace and necessary now than when the Building Societies Act 1986 was passed. However, it has confirmed that it is interested in seeing further changes to the 1986 Act. First, it suggests an increase, reflecting inflation, in the payment amount a society can make from a deceased person’s savings account, subject to evidence and a statutory declaration that the person claiming funds is entitled to do so. Secondly, it suggests an amendment in the requirement for mutuals to produce a strategic report as part of their annual report, so that those are exempt from Financial Conduct Authority promotion rules. It has raised those matters with the Treasury directly, and I would therefore be grateful if the Minister updated the Committee.

To conclude, as the Minister has illustrated, the changes proposed in the draft order complement the Government’s commitment to ensuring that mutual bodies are enabled to compete on a level playing field with banks. That is something the Opposition certainly support and that my hon. Friend the Member for Wolverhampton South West (Rob Marris) raised when we discussed the appropriate clause on diversity in financial services during the consideration of the Bank of England and Financial Services Act 2016. We look forward to returning to such matters in the near future, particularly upon final publication of the Competition and Markets Authority’s report into retail banking this summer. However, for the moment, we will contain our excitement and support the draft order.

It is a pleasure to serve under your chairmanship for the first time, Ms Buck. At one time in my life, I was an athlete and always keen to set records. I have never set one before; I think that I will try this time by saying that I support the draft order.

I congratulate the hon. Member for Salford and Eccles on the expertise with which she addressed the draft order. I do not know whether hers is a permanent or temporary substitution on the Opposition Front Bench, but she has acquitted herself with great excellence, and I am glad that her colleague from the Whips Office, the right hon. Member for Tynemouth, is here to observe her. I welcome her support for the measure and her enthusiasm for potential further deregulation in the building society sector.

The hon. Lady is absolutely right that we put competition in the banking sector right at the heart of what we are trying to do. I welcome the fact that eight new banking licences were awarded in the UK in the last Parliament and that five have been awarded so far in this Parliament. The Prudential Regulation Authority has set up a new bank unit, which might welcome—although this is unlikely—new building societies to the fold. Competition is something that we think is helpful and beneficial for consumers, and something that we back wholeheartedly. We, too, are looking forward to the final report from the CMA later this year and its recommendations.

One thing I will share with the hon. Lady is that, when bringing such measures to a Committee of the House, I try to bunch them together as much as possible, so it is perhaps unfortunate that we have such a short discussion today. She asked about deceased investors in building societies. She is right that representations have been made and are being considered by the Treasury on that matter. She is also right that further representations have been made about some of the reporting requirements. It is incumbent on us, as we have done in this instance, always to look for opportunities to simplify or clarify regulations on behalf of the sector.

In the interests of potentially beating the record for the length of consideration of such a technical change, I commend the draft order to the Committee and hope that it will be widely welcomed and accepted.

Question put and agreed to.

Committee rose.

School Governance (Constitution and Federations) (England) (Amendment) Regulations 2016

The Committee consisted of the following Members:

Chair: Mr Adrian Bailey

† Dakin, Nic (Scunthorpe) (Lab)

† Gibb, Mr Nick (Minister for Schools)

† Hall, Luke (Thornbury and Yate) (Con)

† Heald, Sir Oliver (North East Hertfordshire) (Con)

† Heappey, James (Wells) (Con)

Hodge, Dame Margaret (Barking) (Lab)

† James, Margot (Stourbridge) (Con)

† Mak, Mr Alan (Havant) (Con)

† Merriman, Huw (Bexhill and Battle) (Con)

† Metcalfe, Stephen (South Basildon and East Thurrock) (Con)

Phillips, Jess (Birmingham, Yardley) (Lab)

† Prisk, Mr Mark (Hertford and Stortford) (Con)

Rimmer, Marie (St Helens South and Whiston) (Lab)

† Sherriff, Paula (Dewsbury) (Lab)

† Smith, Jeff (Manchester, Withington) (Lab)

† Sturdy, Julian (York Outer) (Con)

Glenn McKee, Committee Clerk

† attended the Committee

Third Delegated Legislation Committee

Tuesday 14 June 2016

[Mr Adrian Bailey in the Chair]

School Governance (Constitution and Federations) (England) (Amendment) Regulations 2016

I beg to move,

That the Committee has considered the School Governance (Constitution and Federations) (England) (Amendment) Regulations 2016 (S.I. 2016, No. 204).

As always, it is a pleasure to serve under your chairmanship, Mr Bailey.

I welcome the fact that we are able to debate the regulations. It is positive that the Government are taking the opportunity to amend the constitution of the governing bodies of maintained schools in England to require them to apply for an enhanced criminal records certificate in respect of any of their governors who do not hold one. That is the right and proper thing to do. Will the Minister clarify whether all educational institutions educating under 18-year-olds are now covered by the same requirement that all their governors have enhanced criminal records clearance?

The regulations amend the requirements in the constitutions of federations by requiring governing bodies to have two parent governors. I welcome the focus on federations, because it provides an opportunity to underline the advantage of the model. Federations have all the advantages of multi-academy trusts, without requiring the legal costs or business changes of academisation—changes that do not always add to educational improvement. There has been much good work in highlighting the value of federations through Federation First, a national campaign developed this year by the National Governors Association to raise awareness of the advantages of federations to school improvement.

An example of a positive federation that I know well is the federation of Westcliffe Primary School and Priory Lane Community School, which came about when the search for an academy sponsor for Priory Lane ran into difficulties due to the dearth of capacity in academy sponsors. Through the initiative and support of the local authority, the successful Westcliffe Primary entered into a federation with Priory Lane. Although it is still in its early days, that federation appears to be delivering well for the children and parents of both school communities.

Currently, the parents in each school in a federation can elect one parent governor. In a federation of five schools, for example, there will be five parent governors. From September, if the motion is agreed to today, the number of governors who come through the elected parent route will be limited to just two. There is no maximum number of governors, but there must be at least seven, and each headteacher can be a governor, meaning that the proposed changes strengthen the professional voice on governing bodies at the expense of the parent voice.

For all other local authority maintained school governing bodies, there must be at least two elected parent governors. A school governing body is not restricted to that number of parent governors and, for example, a large secondary school can continue to have five parent governors. Therefore, to limit the number to just two elected parents seems unnecessarily prescriptive. If we must go down this route, it might be better to make the new composition voluntary, rather than making all federations reconstitute, which is unnecessarily bureaucratic. Why must federations have only two parent governors, while other maintained school governing bodies must have at least two elected parent governors? Why is the change compulsory, rather than voluntary?

The move raises a number of important issues about the voice of parents in their school communities. The proposal would break the direct link between each school’s parent community and the federation’s governing body, raising questions about how inclusive the parent governor voice will be. It raises the question of how each individual school community will ensure that the parent voice is effectively and appropriately empowered.

It would be helpful if the Minister shared the Government’s thoughts. After all, this Government have a track record of not really trusting parents. The Education and Adoption Act 2016 removed the right of parents to have a say in the choice of academy sponsor for their children’s school when the school is being forcibly academised.

The Government’s instinct to remove parents from having a say in the running of schools is the clear direction of travel set out in the recent White Paper, which states that

“we will no longer require academy trusts to reserve places for elected parents on governing boards.”

It goes on to say:

“Parents often have these skills and many parents already play a valuable role in governance—and will always be encouraged to serve on governing boards. We will also expect every academy to put in place arrangements for meaningful engagement with all parents, to listen to their views and feedback.”

That sounds a little patronising towards parents. After all, there is a world of difference between parents having an entitlement to be on their child’s governing body and being elected by their peers to serve in that capacity, to then being encouraged to serve on the governing body by the governing body itself. Election confers a unique independence that co-option does not. That is the view of the National Governors Association in its St George’s day letter to the Secretary of State. It makes the case very well when it says:

“Elected parents are an important part of sound governance… They have knowledge that others governing from outside the school do not have and through election, they ensure that boards do not become small groups of like-minded people who appoint their friends, colleagues and in some cases even relations. Those disposed to governance by clique must not have that option.”

The NGA’s words echo those of Sir Keith Joseph, who, when arguing for elected parent governors, said to this House,

“We mean to give parents an increased role within it. Parents, too, are partners in education. They bring to this task unique responsibilities, a close knowledge of the children and a personal dedication to the full development of their qualities and talents.”—[Official Report, 25 May 1984; Vol. 60, c. 1381.]

How right he was. He fully understood the unique viewpoint of parents, and how that could strengthen the governance of our schools. However, more than 30 years later, I fear that his successors no longer value parents in the same way. Parent governors’ very independence is a bulwark against a governing body losing its focus on children—a loss of focus that can lead to things going seriously wrong for the whole school community. To use Sir Keith Joseph’s phrase, if parents are true “partners”, they should have a right to places on governing bodies and not be there only through the grace and favour of the rest of the governing body.

The proposals in the White Paper led Professor Sally Tomlinson to observe despairingly:

“Elected parents obviously don’t have the right skills! What parents will get instead of any formal influence…is a website displaying school performance tables. There will also be something called a Parent Portal.”

Indeed, the White Paper makes a commitment to:

“Help parents to support their child’s education and navigate the schools system, through a new Parent Portal”.

It all sounds rather patronising, and a far cry from the great British confidence in parents shown by Sir Keith Joseph. That confidence has been richly rewarded: parent governors have been an excellent way of growing governor and community capacity. Emma Knights, the chief executive of the NGA, puts it well:

“There are a lot of us about—former elected parents who get the governing bug—and go on to govern with different hats on. It may be over egging it…but elected parents are certainly an important source of governors who most probably otherwise would not have become involved.”

I certainly found that to be true on my recent visit to Haydn Primary School in Nottingham, where both the chair and vice-chair of governors had begun their governance role many moons ago as parent governors.

The noble Lord Nash, the Minister who leads on governance in the other place, used the ConservativeHome website to insist—without any awareness of the heavy irony in his argument—that, despite wanting to take away the right of parents to be elected on to governing bodies, the Government want parents to be

“more involved in their children’s education—not less.”

He said that there will be an expectation that academies set up arrangements for “meaningful engagement with parents”, including parent councils, and that such councils will ensure that schools “not only listen” to parents,

“but also act on their views and feedback.”

Using ConservativeHome to float Government policy may be seen as innovative, but it is certainly not authoritative. Will the Minister, who is authoritative, take the opportunity to say whether he thinks the noble Lord’s pronouncements represent a way forward? If they do, how do the Government intend to consult parents, governors, schools and other stakeholders on the ideas?

The consideration of these regulations gives the Minister the opportunity to indicate the direction of travel on the role of parents in school governance. Is it to be at the optional whim of a governing body or academy trust, or will it remain an entitlement, with parent governors elected by their peers? If the proposal to break the link between school parent communities and their federated governing body is agreed to, what does he propose to put in its place to ensure that each school parent community has a direct voice in the running of its children’s school?

It is a pleasure to serve under your chairmanship, Mr Bailey. I have listened with great pleasure to the opening comments of the hon. Member for Scunthorpe, although it would surprise many who are listening to know that we are debating the School Governance (Constitution and Federations) (England) (Amendment) Regulations 2016, not the excellent education White Paper, “Educational Excellence Everywhere”. We are debating S.I. 2016, No. 204.

The regulations, which were laid before both Houses on 25 February, amend the School Governance (Constitution) (England) Regulations 2012 so that all governors in maintained schools in England are required to have an enhanced criminal records certificate from the Disclosure and Barring Service, if they do not already have one. The hon. Gentleman should welcome that, as I hope will all Committee members. He asked specifically whether all educational institutions will be bound by the same rules, and I can confirm that they will be. The rules apply to academies and maintained schools, and proprietors of independent schools are governed by the Education (Independent School Standards) Regulations 2014, which contain the same requirement.

While the Minister is being comprehensive, can he mention sixth-form colleges and further education colleges?

Yes. I will write to the hon. Gentleman about sixth-form colleges after the Committee, if I may.

The regulations also amend the School Governance (Federations) (England) Regulations 2012 to provide that the governing body of every federation of two or more maintained schools includes two parent governors.

The regulations bring maintained schools into line with current practice in the academies sector, where DBS checks are already compulsory for every person involved in governance. Similarly, academy trusts, however many schools they contain, have never been required to have more than two parents on the board. That allows governing bodies to remain at a workable size, enabling them to make sound and strategic decisions for their group of schools. We have consulted the Department’s advisory group on governance, which includes all organisations with a key interest in governance, and I emphasise that the National Governors Association supports both the measures.

Governors hold an important public office, and it is essential that we know that they are not unsuitable for their role. We have taken a number of measures to increase transparency in that area, including expecting governing bodies to publish their arrangements on their websites. Individuals should be disqualified from governance roles in maintained schools on a number of grounds, including if they have a criminal conviction involving certain sentences and imprisonment. Until now, the arrangements have relied on governors voluntarily disclosing such information or the clerk to the governing body requesting it, in contrast with the position in academies, where all members and trustees, and those on local governing bodies in multi-academy trusts, must be DBS checked.

On the number of parent governors, if there are two village schools and one is a bit bigger than the other, I can see that there would be an advantage in having a parent governor from each of the villages. Is that something that should happen under this system, or is it entirely in the lap of the gods, in the sense that it depends on how many parents vote for a particular parent governor? If one school were quite a bit bigger than the other, the governing body might end up with two governors from one school.

We do not want to be too prescriptive. My hon. and learned Friend makes a good point and that would be an ideal way forward. We do not want to be over-prescriptive because, although he has set out one example, there is an infinite number of such examples out there. If we were to be prescriptive for every type of example, we would have a very long piece of regulation. Do not forget that those parents are not meant to be representative of the individual schools; they are meant to serve in the interests of the federation as a whole. We are trying to get away from the notion that they are there in a representative capacity and will only speak in the interests of the small school, and not be interested in what is happening in the larger school, such as in his example.

The current position contrasts with the position in academies, where all members have to be DBS checked if they are involved in a multi-academy trust. This more rigorous approach, we believe, should apply in the maintained sector, so that every governing body can be confident that none of its members is disqualified from holding office.

The amendment to the School Governance (Federations) (England) Regulations 2012, to which my hon. and learned Friend referred, was requested by the National Governors Association and the Churches. It was prompted by concerns that requiring the governing body of a federation of multiple maintained schools to have a parent governor from every school may result in a membership that is larger than they need or want. That can be a particular issue in larger federations or those that involve voluntary aided schools, where they need to maintain a majority of two foundation governors over all the other categories of governor.

The hon. Member for Scunthorpe cited an example of a federation of five schools. If those five schools were all voluntary aided, in addition to the five elected parent governors, they would have to have five headteachers, which would bring the governing body up to 10, a staff governor, which would bring it up to 11, and a local authority governor, making it 12. That means that the foundation itself would have to find another 14 foundation governors to maintain their majority of two, bringing the size of the governing body to 26. That would make it very unwieldy and could impact on its ability to operate effectively.

The amendment reinforces the principle that, as I said to my hon. and learned Friend, a parent governor’s role, like that of every other category of governor, is to govern in the interests of all the children in federated schools, not just in the interests of the pupils from their child’s school. In reducing the number of parent governors to two, federations have the freedom to retain or recruit any particularly skilled and effective individuals, for example, by appointing them under a different category of co-opted governor. There is nothing to stop a federation or a foundation asking parents to be a foundation governor of a foundation school, or indeed to fit in to any of the other categories of governor that make up the governing body, to a minimum of seven.

High-quality governance is vital to the success of all schools in an autonomous school-led system. Governing boards are responsible for some demanding strategic functions and their membership needs to be focused on the skills to do that well. Many parents do have skills that make them very effective governors. We expect that boards will continue to want to appoint parents for that reason. Parents should have a significant voice in schools.

As well as the provisions we are debating today, we have committed to empower parents further in the White Paper, “Educational Excellence Everywhere”. I will requote the line that the hon. Member for Scunthorpe helpfully quoted in his opening remarks from page 51 of the White Paper:

“We will also expect every academy to put in place arrangements for meaningful engagement with all parents, to listen to their views and feedback.”

That is the first time that that expectation will be imposed on academies. I do not believe it is patronising; it is the right thing to do to have that expectation on every multi-academy trust in the country.

The best schools demonstrate that parents can and should be involved in education in a wide variety of ways. We will always expect that one of those is governance. The provisions bring more rigour to ensure that those governing our schools are fit and proper people to hold office, and that federated governing bodies are not compelled to have more parent governors than they want.

Question put and agreed to.

Committee rose.