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General Committees
21 March 2018

Delegated Legislation Committee

Draft Insolvency of Registered Providers of Social Housing Regulations 2018

The Committee consisted of the following Members:

Chair: Mr Nigel Evans

† Blackman, Bob (Harrow East) (Con)

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

† Cunningham, Mr Jim (Coventry South) (Lab)

† Fitzpatrick, Jim (Poplar and Limehouse) (Lab)

† Garnier, Mark (Wyre Forest) (Con)

† Goodwill, Mr Robert (Scarborough and Whitby) (Con)

† Grant, Mrs Helen (Maidstone and The Weald) (Con)

† Jenkyns, Andrea (Morley and Outwood) (Con)

† Letwin, Sir Oliver (West Dorset) (Con)

† Lloyd, Tony (Rochdale) (Lab)

† Masterton, Paul (East Renfrewshire) (Con)

Morden, Jessica (Newport East) (Lab)

† Morgan, Stephen (Portsmouth South) (Lab)

† Raab, Dominic (Minister for Housing)

Smith, Angela (Penistone and Stocksbridge) (Lab)

† Tolhurst, Kelly (Rochester and Strood) (Con)

† Williams, Dr Paul (Stockton South) (Lab)

Claire Cozens, Committee Clerk

† attended the Committee

Tenth Delegated Legislation Committee

Wednesday 21 March 2018

[Mr Nigel Evans in the Chair]

Draft Insolvency of Registered Providers of Social Housing Regulations 2018

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I beg to move,

That the Committee has considered the draft Insolvency of Registered Providers of Social Housing Regulations 2018.

It is an enormous pleasure and an honour to serve under your chairmanship, Mr Evans.

The regulations were laid before the House on 7 February 2018. Increasing the supply of homes is a top priority for the Government, and that includes increasing the number of homes for social and affordable rent to help people access decent housing in which to build and improve their lives. Since 2010, we have delivered more than 357,000 new affordable homes, including 257,000 affordable homes for rent. The Prime Minister recently announced an extra £2 billion of funding for affordable housing, which will increase the overall affordable homes programme budget to more than £9 billion. The new funding will support councils and housing associations to build more affordable homes where they are needed most—where families are struggling with rental costs and some are at risk of homelessness. Only last week, the Chancellor announced a further £1.67 billion to provide an extra 26,000 homes to further boost affordable housing in London.

Housing associations are a key part of the delivery of those new homes. Three things enable housing associations to borrow cheaply: a stable operating environment, a robust regulatory framework and the fact that there has been no default in the sector that has resulted in loss to lenders or investors. Insolvencies in the sector are rare. To date, there has only been one insolvency since the moratorium arrangements were introduced back in 1996. Both lenders and providers value very highly the no loss on default record of the sector, meaning that no lender has lost money in the event of a housing association insolvency. It is vital that we maintain that robust financial regime so that housing associations continue to deliver the homes we need.

We also want to protect tenants so that their homes are not put at risk should any landlord get into difficulty. That is why, in the Housing and Planning Act 2016, we introduced a special administration regime for the social housing sector. The regime will give the Secretary of State the power to apply to the court to appoint a housing administrator in the event of a private registered provider being at risk of insolvency proceedings. In introducing those changes, we were responding to concerns that the existing moratorium provisions were not suitable for modern, large, developing and complex housing associations that might conceivably get into financial difficulty. Although financial failure is extremely rare, the housing association sector has changed significantly in recent years. The level of private finance has grown from £48 billion in 2012 to £70 billion last year.

Having introduced the main provisions in the 2016 Act, the regulations extend the housing administration framework in that Act to registered societies and charitable incorporated organisations. For those who are unfamiliar with those terms, a registered society is defined in the 2016 Act as having the same meaning as in the Co-operative and Community Benefit Societies Act 2014. It is a particular type of legal entity. Registered societies include co-operative societies, community benefit societies and pre-commencement societies registered before August 2014. They need to be registered with the Financial Conduct Authority. A charitable incorporated organisation is defined within the 2016 Act as a charitable incorporated organisation within the meaning of part 11 of the Charities Act 2011. Again, it is a particular type of legal entity. There are four main types of charitable structure: the incorporated organisation, the charitable company, which is limited by guarantee, the unincorporated association and the trust.

Due to drafting complexities, the provisions in the 2016 Act apply only to those housing associations that are companies. That is the key reason we are here today. There are 1,483 non-local authority private registered providers of social housing in England, providing 2.6 million homes; 885 charitable incorporated organisations with more than 2 million properties; 336 companies with 380,000 properties; and 262 registered societies with more than 95,000 properties.

A further piece of legislation will be needed before the special regime can be enacted: a statutory instrument setting out the rules that apply to administrators’ conduct of a housing administration. That will follow the negative procedure.

Under the law at the moment, where a housing association gets into financial difficulty and steps are taken towards entering a formal insolvency procedure, a 28-day moratorium begins that restricts creditors’ ability to enforce their security during that period. If the regulator cannot reach a solution with creditors during that 28-day period, or during an extension, creditors are able to call in loans and seek to recover their debts through the sale of assets, which can include social housing stock.

At least in theory, that could lead to a fire sale of social housing, meaning the stock would no longer be regulated and tenants would lose the protections of the social sector, including rent regulation. Therefore, the 2016 Act gives the Secretary of State, or the regulator of social housing with the Secretary of State’s consent, the power to apply to the court to appoint a housing administrator. The administrator would manage the affairs, the business and the property of the registered provider of social housing for the duration of the housing administration.

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I apologise for interrupting the Minister in mid-flow. I am not sure if it is the same in the rest of the country, but in London we are seeing a wave of amalgamations and takeovers of the smaller housing associations, apparently driven by Government policy, whether deliberate or unintentional. Is that part of the overall scheme? Does that fit into the protection that the Government are trying to introduce in terms of insolvency, or is that totally separate?

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The hon. Gentleman makes an important point. One reason we are introducing these regulations is precisely because the housing association sector has changed. That does include some of the mergers and acquisitions—the consolidations—that we have seen with housing associations. It is ultimately a balance, but there is a real benefit to housing associations realising economies of scale in the way he has described, because that has a stimulus factor on the supply of new homes, which must be a plus.

Equally, as a responsible Government, we want to be mindful of any risks involved. The regulations can certainly be seen as ensuring that we have a strong regulatory regime in place so that we glean the benefits of the behaviour that the hon. Gentleman described, but also ensure that we mitigate the risk as best we can.

As with any administration regime, the main objective would be to rescue the organisation or return money to creditors. The crucial difference is that a housing administrator would also have a second important objective, which is to retain as much of the social housing as possible within the regulated sector. I think that goes to the point the hon. Gentleman alluded to. In addition, a housing administrator would not be constrained by a 28-day timeframe and would have the time to investigate the business and find the best solution possible in order to meet the objectives. We are ensuring that the process is flexible enough and specific to the housing association sector.

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I thank the Minister for giving way and apologise for interrupting his speech. The hon. Member for Poplar and Limehouse raised the issue of amalgamations taking place. Something else being encouraged by the Government is for housing associations to borrow more money and, therefore, stretch their capability to pay down their bills and debts. I seek the Minister’s reassurance that, in the extremely rare event that a housing association were to go bankrupt or become insolvent, the tenants would be absolutely protected from losing their homes and from savage rent rises if the homes were sold in the private sector.

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I thank my hon. Friend and, I think, vice-chairman of the Housing, Communities and Local Government Committee for his intervention. He makes an important point. As with the point made by the hon. Member for Poplar and Limehouse, my hon. Friend is right to raise this perfectly legitimate issue. The very reason for bringing in the regulations, which build on the primary legislation, is to ensure that we protect those social tenants in the way he described. The details of the regulations are technical and complex, but they hopefully serve precisely the objectives that the two hon. Members, who are from across the political divide, rightly raised. As with any administration regime, the main objective will be to rescue the organisation or to return money to its creditors. However, as I have said, it is crucial to protect the social tenants as well.

Turning to the specifics of the regulations, they extend the housing administration framework in the 2016 Act to registered societies and charitable incorporated organisations. They are complex but, simply put, they give effect to two schedules that apply certain provisions of the Insolvency Act 1986—with necessary modifications, of course—to registered societies and charitable incorporated organisations. To illustrate the nature of those modifications, they involve things such as modifying the Insolvency Act where it uses “administrator” so that it would read “housing administrator”, for where the court has appointed a housing administrator. They are quite technical changes and adaptations, but none the less significant ones, for this sector.

We carried out an informal consultation with representatives from insolvency practitioners, valuers, UK Finance and private registered providers and lenders prior to the introduction of the 2016 Act and again before laying the regulations. That group represented the organisations that have the main interest in housing administration, and they are keen to have this regime in place. It is important to say that the housing associations and the lenders and creditors—both sides—think this is an important piece of legislation to have in place. A fuller public consultation was not carried out due to the technical nature of the regulations and because the process of housing administration will only be required in the event of a housing association facing insolvency, which, as I have said, is an extremely rare contingency, but none the less one that we want to cater for.

The regulations apply to the whole of the UK. We want the regime to cover social housing stock in England, including any stock held by housing associations registered with the social housing regulator for England but that, as legal entities, are registered in devolved Administrations. To be clear, the provisions in the 2016 Act and in the draft regulations will only apply if there are English properties at risk from a housing association becoming insolvent. However, if, for example, a Scottish housing association had properties in England at risk from an insolvency, this housing regime would apply to that particular housing association.

These are important regulations in continuing to safeguard investment in social housing and, critically, protection for tenants. I commend them to the Committee.

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May I, too, say what a joy it is to serve under your chairmanship, Mr Evans?

I reflected, as the Minister was speaking, that it is always good to be a lucky politician. The Minister will probably count himself as lucky. All his predecessors in the housing brief did not have the advantage of serving in a Government that have at last stumbled on the political importance of housing. In that sense, we all enjoyed the romantic introduction to what could otherwise have been a technical but important speech.

This is an important issue, and I reassure hon. Members—as much those on my own side as the Government’s—that we will certainly not seek to divide the Committee on this occasion. Nevertheless, I will probe some of the issues that the Minister raised. While the draft regulations are technical and sensible, we need to know that they will actually do the job that we and the Minister want them to do.

In that context, the Minister rightly raised something that the Department tells us in the impact assessment: that a failure to protect the social housing assets of an insolvent provider would mean that tenants were at risk of losing their homes or having their rents increased to market levels; that much-needed affordable housing would be lost; and that the taxpayers’ investment, through affordable housing grant, could be lost. We agree with the ambition to avoid that situation. In fairness, as was raised by my hon. Friend the Member for Poplar and Limehouse and the hon. Member for Harrow East, the protection of tenants is fundamental in this.

In that context, will the Minister clarify the operation of objective 1 on financial stewardship and objective 2 on the protection of tenants’ rights? It is right and proper that we have those two objectives, but my concern is that if objective 1 takes precedence over objective 2, and if realising market value, possibly for taxpayers but certainly for creditors, becomes the dominant issue under it, how will we operationalise objective 2—the protection of tenants’ rights and the transfer of any assets to another social housing provider? That will be the nub of the statutory instrument when it comes into operation. That is a technical point, but it would be helpful if the Minister talked us through exactly what that means.

Under any sensible structure, one of the duties placed on lenders is that they operate due diligence. Those lending to one of the companies caught under the statutory instrument have an obligation to protect their shareholders and owners—that is a legal duty—and to ensure that the housing company operates in a prudent fashion. Of course, the more we insure lenders against risk, the less due diligence is part of their motivating force, so it is important that creditors know they are responsible for ensuring that their lending to housing companies is prudent. I hope the Minister will comment on that.

My third point is perhaps the most important. When Cosmopolitan Housing Group almost failed in 2012, the regulator acted promptly and in a way that secured advantage both to the public weal and to the tenants of Cosmopolitan, who were transferred to the Sanctuary Housing Trust. That is the way the system ought to operate, and I congratulate those who were involved with it at the time. The best thing in such a situation is to ensure that we do not repeat Cosmopolitan’s journey to self-destruction.

In 2014, Altair published a report, which was commissioned by the Minister’s Department, looking at the lessons to be learned from Cosmopolitan, and it asked how we prevent housing associations from operating in an imprudent way that puts their organisation, and more importantly their tenants and public assets, at risk. That would potentially lead to the use of powers in this statutory instrument. Of course, we do not actually want the statutory instrument ever to be brought into operation. We want prevention, rather than remedy.

Altair’s report came to a number of conclusions about how the regulator and the boards of housing companies should operate, and about what duties should be imposed on those companies. My question to the Minister—he may not have chapter and verse on this—is, how far can we be assured that the governance regime that let people down in the Cosmopolitan situation is not being replicated by housing associations up and down the country? That touches on the point that my hon. Friend the Member for Poplar and Limehouse made. One of the drivers of this problem, to the cost of my erstwhile constituents, is housing associations that see their corporate objective to be growth, rather than growth that is consistent with their original purpose, which is to provide social and affordable housing for their tenants. We need to guard against such wrong ambitions, and we need to ensure that corporate structure and governance of housing associations is secure enough to guarantee that we protect tenants’ rights and public assets.

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I am following the hon. Gentleman entirely. Does he agree that the biggest exposure is one that the report does not dwell on—I am not quite sure why not—which is that housing associations that match liabilities to rent are doing so on the basis of an unusually low interest environment? They have quite large roll-overs of their debt, which occur at various times. One could imagine not just one, but a swathe of housing associations, if they have not managed their financing portfolios correctly, hitting a moment when interest rates, for some reason or other, rise unexpectedly. I am quite worried—I do not know whether the hon. Gentleman is—that that is not one of the things on which the regulator for social housing appears to be focusing at the moment.

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The right hon. Gentleman raises a very important point, because that is where risk comes in. Frankly, not every housing association has the same depth of experience as the right hon. Gentleman on these issues. There has to be the capacity to ensure that the regulator is in a position to secure the public interest against precisely that.

There is another risk. Although the right hon. Gentleman is right that borrowing against rental income is one form of exposure, a lot of housing associations have been asked to put themselves in this position. They accept that, in order to advance the interests of the housing association, they will build for sale and invest part of those proceeds in social housing. That is a legitimate and necessary operation for housing associations, but, of course, it is a different kind of risk from those that housing associations have been asked to consider in the past. Some will absorb the new culture well, but some may not. The question of financial risk is very real and that emphasises the point I was trying to make to the Minister. Given that prevention is better than remedy, we need guarantees that the regulator has absorbed the lessons of Cosmopolitan a few years back. In fairness, the regulator performed well at the time. However, having absorbed those lessons, we now know that across the whole piece of the housing association family we are measuring risk and are in a position to blow that early whistle, where appropriate.

There are three issues, essentially, for the Minister to address. First, how does objective 2—the transfer to another social housing landlord—operate with respect to the duties under objective 1? Secondly, how can we guarantee that tenants maintain tenancy rights, in terms both of the rent they pay and of the longevity of tenancies and so on? How do we guarantee that financial risk is being properly measured to prevent the need to use these regulations? Thirdly, the issue of due diligence is important. I look forward with interest to hearing the Minister’s comments.

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It is a pleasure to serve under your chairmanship, Mr Evans. I want to reinforce the points made by my hon. Friend the Member for Rochdale and end up by addressing the question asked by the hon. Member for Harrow East about the security of residents—tenants—were things to go awry. In my part of the world, in Tower Hamlets, a proliferation and explosion of housing associations have arrived on the scene over the past 20 years. They are registered as social landlords, partly because of the restrictions on councils being able to borrow money to build homes.

In 1997, the Labour Government took the clear view that, with 2 million homes below the decency threshold, it was going to be a long, complicated task to change the rules of local government financing and house building, so we promoted housing associations, which did not have the same financial restrictions, to move into the vacuum and build, repair and refurbish. We spent billions—that is on the record—taking 1.5 million of those homes above the decency threshold, with new windows, new kitchens, new bathrooms, central heating, double glazing, security systems and the rest. Estates in Tower Hamlets in east London that had been neglected for decades are now model estates and mixed estates, with private sales subsidising new social homes and the refurbishing of all social homes. From my point of view, that was a huge success.

Subsequent policy since 2010, and most recently the Government’s insistence that housing associations require a payment of 80% of local market rents, has meant that market rents around Canary Wharf in my constituency are way above what ordinary local people can afford. That has created great difficulty for housing associations. The Government’s policy to reduce rents by 1% put a great strain on housing associations’ budgets and future planning, so there has been a real tussle.

My question for the Minister is whether the regulations are totally separate from any concerns about collapses. Are they totally incidental to the mergers and acquisitions? He made the point about sharing back-office functions, which makes sense, given the pressures on public finances.

One of the downsides, however, is that local control has been sacrificed because of the mergers and acquisitions. Many of my housing associations were voted for by former council tenants, because they saw the improvements that they would get. Rather than having a mono-tenure, 95% council-housing monolith, tenants realised that they could have smaller local housing associations, where the line of communication between the tenants or leaseholders and the housing association’s chief executive was two steps rather than seven, so the executives lost that total anonymity. Now, much bigger housing associations mean that the people who make the decisions are further removed from the tenants and leaseholders who pay the rents and service charges and who pay for the refurbishments.

As I have said, my final question goes back to that asked by the hon. Member for Harrow East. Will a threat or jeopardy be attached to the tenants and residents in the organisations if they suffer difficulties and have to take advantage of the new legislation? Is the legislation a totally separate initiative that was introduced by Government because they spotted a gap that needed to be plugged, rather than a response to a fear that such regulations would have to be brought in anyway because of the current danger in the sector?

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We have had a good debate with some interesting technical interventions, and I am grateful to hear from hon. Members with a great deal longer experience of the sector than I have. The hon. Member for Rochdale made some kind remarks at the beginning and I appreciate his support of the regulations. He asked three specific questions, which I will endeavour to answer as best I can.

First, the hon. Gentleman asked how objective 1 and objective 2, as I described in the regulations, interact. Objective 1 is to rescue the business and service the creditors. Objective 2 is to look after housing, including social tenants. It is right that in one sense, the overriding objective 1 takes precedence over objective 2, because it is an insolvency proceeding. As a result, the housing administrator cannot do anything that results in a worse distribution to the creditors.

In all cases to date, the creditors have recognised that it was of the best value to them to save the properties in the sector. Having a social housing regulator and a specific regime for insolvency proceedings in the sector ensures that objective 2 shapes and influences the way in which objective 1 is delivered, which will provide materially greater protection for social tenants. If I understood correctly, that was key to what the hon. Gentleman was getting at.

The hon. Gentleman asked about lenders’ responsibility and due diligence, which is an important point. It is crucial that lenders take the initiative and ensure that their due diligence is in place, not only in relation to commercial transactions but in the social housing sector.

There has been a swathe of new regulation since the financial crash. I do not think it is a zero-sum game—I know the hon. Gentleman was not suggesting it was—and we need to do both. The protections in relation to due diligence and the regulation of lenders are in place, and lenders support the extension of the 2016 Act through the regulations. We can do both of those things, and that will create an increased tier of protection for tenants.

The hon. Gentleman asked about the lessons learned from Cosmopolitan, and the previous report commissioned by my Department. The Cosmopolitan Housing Group was a large private registered provider of social housing. It owned or was managing more than 13,000 homes in the north-west. It had serious financial difficulties, as described by the hon. Gentleman, in part as a result of its involvement in non-social housing activity. None the less, the regulator at the time, the Homes and Communities Agency, carried out intensive regulatory engagement with Cosmopolitan to resolve the situation. That engagement concluded with Cosmopolitan being taken over by Sanctuary Housing, which was a large and more financially robust provider. The specific situation was dealt with, and afterwards, in terms of the lessons learned—the crux of what the hon. Gentleman was getting at—the Homes and Communities Agency carried out an independent review of its handling of the Cosmopolitan case. As best as possible in the aftermath of such a financial challenge, lessons have been learned. I certainly agree with the hon. Gentleman that prevention is better than cure, and that is what the regulations will help achieve.

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Can we be clear, though? In the end, it is the regulator who acts as the public eyes and ears with respect to the housing associations, to make sure that their behaviour is consistent with common sense and prudence. Are we certain that the regulator has the capacity to do that? That is not a malicious question. These are new duties on the regulator, but the general duty to cover the extraordinary range of different types of housing associations is a real one. It is important that we know that the regulator has both the competence and the capacity. I am confident in the competence, but I do not know about the capacity.

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That is a perfectly legitimate question. Of course, the regulations are partly about making sure that the regulator has the capacity and the legal powers to deal with the whole sector. I hope that was addressed in my opening remarks.

The hon. Member for Poplar and Limehouse spoke about the history of housing associations in his constituency with great knowledge and insight. He also spoke about the pressures on rent. I accept that, particularly in London and urban areas. In the past year, we have seen 217,000 new homes delivered, which is the highest number in all but one of the past 30 years. That is important not just if someone wants to own their own home, but because supply is a key factor in bringing down the affordability of rent. There is other proposed legislation coming down the pipeline on the quality of rented accommodation as well.

The hon. Gentleman asked whether this is a protective measure. It is. It cannot be entirely dislocated from what is happening in the social sector and the evolution of that sector, so I suppose it is a response to both the regulatory gap and the evolving nature of the sector, making sure that as it grows and the structure of the sector changes, and we see the dividends in terms of supply and the economies of scale that build up, we also make sure that we have a careful safety net in place. Hopefully that is the right balance and the prudent course to take.

In conclusion, I say again that we imagine that the occasions when this legislation would be necessary, if ever, will be very rare. The introduction of the regime reflects the nature and the scale of the sector, which has changed and will continue to change. It is not a commentary on the state of the sector as it currently stands. Housing associations continue to be key partners in fixing the broken housing market that this Government are absolutely dedicated to addressing. It is right that we ensure the regulator has the tools and the capacity to do the job to maintain lender confidence and to protect tenants as far as possible should a potential insolvency occur.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Insolvency of Registered Providers of Social Housing Regulations 2018.

Committee rose.

Draft National Minimum Wage (Amendment) Regulations 2018

The Committee consisted of the following Members:

Chair: Mrs Madeleine Moon

† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)

† Duguid, David (Banff and Buchan) (Con)

Glindon, Mary (North Tyneside) (Lab)

† Griffiths, Andrew (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

† Harris, Rebecca (Lord Commissioner of Her Majesty's Treasury)

† Howell, John (Henley) (Con)

† Huq, Dr Rupa (Ealing Central and Acton) (Lab)

† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)

Nandy, Lisa (Wigan) (Lab)

† Pidcock, Laura (North West Durham) (Lab)

† Robinson, Mary (Cheadle) (Con)

† Shapps, Grant (Welwyn Hatfield) (Con)

† Smith, Nick (Blaenau Gwent) (Lab)

† Stephens, Chris (Glasgow South West) (SNP)

† Stewart, Iain (Milton Keynes South) (Con)

Streeting, Wes (Ilford North) (Lab)

† Watling, Giles (Clacton) (Con)

Rob Page, Committee Clerk

† attended the Committee

Eleventh Delegated Legislation Committee

Wednesday 21 March 2018

[Mrs Madeleine Moon in the Chair]

Draft National Minimum Wage (Amendment) Regulations 2018

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I beg to move,

That the Committee has considered the draft National Minimum Wage (Amendment) Regulations 2018.

It is a pleasure to serve under your chairmanship, Mrs Moon. The Government are committed to building an economy that works for everyone. Through the national minimum wage and the national living wage, we continue to ensure that the lowest-paid in our society are fairly rewarded for their contribution to the economy. Raising the minimum wage is one way that our industrial strategy creates an economy that boosts productivity throughout the UK, and provides good jobs that increase people’s earning power.

This morning’s employment figures are a testament to the success of that policy. We have a record employment rate of 75.3%, and our unemployment rate of 4.3% is the joint lowest in more than 40 years. The Government are increasing the tax-free personal allowance to £12,500 by 2020, both to ensure that workers keep even more of their income, and to take more of the lowest-paid out of paying tax altogether. Between 2016 and 2017, thanks to the Government’s introduction of the national living wage, the lowest-paid 5% of full-time workers saw the biggest increase in pay.

I am proud to introduce the latest set of inflation-busting increases to the national living wage and the national minimum wage, which will give more than 2 million low-paid workers a well-deserved pay rise next month. I am particularly pleased to announce that the biggest increases in the national minimum wage rates—the largest for more than a decade—are for younger workers.

The regulations increase all national minimum wage hourly rates, including those for workers who are entitled to the national living wage. The national living wage rate for people aged 25 and over will increase by 33p to £7.83, and the rate is on course to reach 60% of median earnings by 2020. The increase means that a full-time worker in receipt of the national living wage will receive an annual pay rise of more than £600.

The rate for 21 to 24-year-olds will also increase by 33p, which means that people in that age group will be entitled to a minimum rate of £7.38—an annual increase of 4.7%. The annual earnings of a full-time worker in that age group will also increase by £600 a year.

People aged between 18 and 20 years old will be entitled to a minimum of £5.90 per hour, which is an annual increase of 5.4%. People aged 16 or 17 years old will be entitled to a minimum of £4.20 per hour, which is an annual increase of 3.7%. Apprentices aged under 19, or those aged 19 and over in the first year of their apprenticeship, will be entitled to £3.70, which is the largest annual increase of all the hourly rates—5.7%. We estimate that more than 2 million workers will get a pay rise. Finally, the accommodation offset will increase from £6.40 to £7 per day.

I place on record my gratitude for the work of the independent Low Pay Commission. It brings together businesses and workers to form a consensus on the rates, and advises the Government accordingly. It is asked to recommend the highest possible increase in the national minimum wage, without damaging the employment prospects of low-paid workers by setting it too high, and to recommend a national living wage rate that will ensure that it reaches that 60% of median earnings by 2020, subject to economic growth being sustained. It has carried out extensive research, consultation and analysis, which have informed the rates recommendations in its 2017 report. It recommended each of the increases that I have announced.

We recognise, though, that as the minimum wage rises, so does the risk of non-compliance. The Government will ensure that every worker in the UK who is entitled to the national minimum wage or national living wage receives it.

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The Minister knows from my written parliamentary questions that 25% of posts in the national minimum wage compliance unit at Her Majesty’s Revenue and Customs are vacant. Can he tell us whether those posts will be filled by HMRC?

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The hon. Gentleman raised that issue just a few days ago—in a Westminster Hall debate, I think. He will know that the Government have doubled their investment in enforcement of the national minimum wage. There is, of course, always a turnover of staff, but we intend to have the compliance enforcement unit up to its full potential as soon as possible. We are actively taking steps to tackle non-compliance, sending a clear message to employers that minimum wage abuses will not go unpunished. We have invested £25.3 million in that this year—almost double what was invested in 2015. The Government have also invested £1.5 million in an awareness campaign to highlight the rights and responsibilities of workers and employers.

We have seen a jobs miracle in this country. More than 400,000 more people are in work than were a year ago, showing that the labour market remains a key strength of the UK economy, and proving that the UK can accommodate a higher minimum wage. The economy has grown continuously for more than four years, and UK businesses have created a record number of jobs. I pay tribute to the workers and employers who made that happen.

According to the Resolution Foundation, the national minimum wage and the introduction of the national living wage have contributed to the elimination of extreme low pay. The Government estimate that more than 2 million workers will directly benefit from the uprating of the national minimum wage and the national living wage next month. Raising the minimum wage is just one part of the “good work” agenda that underpins our vision for a more productive and motivated workforce. Between April 2015 and April 2017, the wages of the lowest-paid have been increasing fastest, thanks to the national living wage, with the wages of those in the fifth percentile of the earnings distribution growing by almost 7% above inflation. That is faster than at any other point in the earnings distribution.

The Prime Minister committed that this would be a Government that worked for everyone. It is right that the lowest-paid workers in our society are fairly remunerated for their contribution to the economy. I commend the regulations to the House.

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I have a somewhat different take on the state of the economy from the Minister. Real wages, excluding bonuses, are still down by 0.2% and are still £15 a week lower than 10 years ago. That is a starkly different picture from the one painted by the Minister.

No one would expect me to oppose this increase in the minimum wage for working people, and the increases to the minimum hourly rate. However, this small rise in the minimum wage cannot go without comment or critical analysis; I wish that the Government would do some critical analysis of the growth in employment, the nature of that employment, and how precarious, insecure and low-paid it still is, specifically in the north-east, the region I represent.

I acknowledge that this increase in the minimum wage will be helpful, but it certainly will not be transformative for the many who are the lowest-paid. The Government seem obsessed with keeping the minimum wage at the lowest level at which it is possible to maintain a subsistence existence—it is called the Low Pay Commission for a reason. Perhaps the Government do that because they mistakenly believe that keeping wages low is good for business, or that it is not the state’s job to set wages, but rather the law of the markets that does that.

What the Government fail to acknowledge is that increasing wages, particularly of the lowest-paid, will immediately increase demand in the economy, which in turn will stimulate production, retail and services. It will also decrease Government expenditure on subsidising low pay, while increasing Government revenue—for example, where tax thresholds are exceeded. Improving the quality of life and economic wealth of the least well-off is not a cost, but an investment in society.

No Government should ignore—though the Minister did ignore it—the huge pressure on wages due to the fact increases in the cost of food, energy and transport, and other living costs, have outstripped increases in wages over recent years. The 33p an hour increase for those over 21 is, I repeat, a help, but not the transformational change we need to help working people in very difficult times.

Let us briefly talk about what might bring about that transformation. I am sure the Minister has read the Labour party’s manifesto in depth, so he will know that Labour would set the minimum rate of pay at £10 an hour by 2020.

There can be no more inspirational story about low pay than that of the striking McDonald’s workers. I met some of them on Monday evening, when they eloquently expressed the hardship that they endure working for the minimum wage. What an injustice it is that people work extremely hard each week to create enormous wealth for the McDonald’s corporation, yet their pay scarcely affords them an existence. Will the Minister join me in congratulating those workers who took industrial action and achieved a 6% pay rise, and will he encourage fellow fast-food workers, and indeed any group of workers, to take collective action against their employers if their pay does not afford them an existence?

On an associated point, what exactly is the rationale for the sharp decrease in minimum wage when we move between age brackets, and in particular for the difference between the rates for those in the 18 to 20 bracket, and those in the 21 and above bracket? It would be really helpful if the Minister set out the assumptions that led the Government to conclude that workers aged 18 to 20 should be paid a different rate from those aged 21, for exactly the same work. That would be instructive; that way, the the voting public, young and old, could understand our different political positions on this. As he knows, the Labour party is committed to a minimum wage of £10 an hour for all workers aged 18 and over by 2020.

The pay changes that will take place in April are a result of recommendations by the Low Pay Commission, as has been said. It is important that the state sets a minimum rate of pay based on the commission’s recommendations, but does the Minister agree that it would be so much better, and so much more dignified, if workers had direct control over setting their pay, through national sectoral collective bargaining? It is workers who understand their work intimately, and who ultimately are best placed to bargain over what they are paid for that work, within a negotiating framework.

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I am listening to the hon. Lady’s speech, and she is making some very powerful points, but could she clarify something? Does the Labour party support the Low Pay Commission or not? From what she is saying, I am beginning to doubt that it does support the commission.

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I have said twice in this short speech that of course a rise in wages is welcome, but we have a completely different philosophy on how wages should be increased.

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And the Low Pay Commission?

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I will address the Minister’s point: we support the Low Pay Commission’s making these recommendations; that is absolutely right. However, we would prefer that power to be in the hands of workers, through national collective sectoral agreements, so that they could bargain over their terms, pay and conditions. Our position is that that would be preferable.

I support these increases—I say that for the third time—but it is my priority and responsibility to be critical of low pay in this nation. The Minister must acknowledge that even with these changes, there will still be people in poverty, struggling, and that there are other solutions to low pay. I support these increases within the limited parameters of today’s discussion and decision-making process.

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It is a pleasure, Mrs Moon, to see you in the Chair.

I associate myself with many of the shadow Minister’s remarks, and while I do not plan to oppose the recommendations, I have questions to ask and points to make.

I thank the Minister for confirming that there will be an increase in staff at the national minimum wage unit. That is important, because the latest National Audit Office report demonstrates that 208,000 people are not being paid their proper wages. That is a massive challenge, so I hope that the Minister will give us more of a timetable for what is happening.

The Low Pay Commission makes recommendations based on parameters set by the Government. It was not the commission that decided to set different minimum wage rates for different ages. Can the Minister provide a justification—as the Government failed to do when we discussed the matter last year—for applying the national living wage only to people of 25 and over? The age of 25 seems to have been plucked out of the air with no justification. Many people younger than 25 have the same commitments and the same bills to pay. Are the Government looking to review the difference in national minimum wage rates depending on age?

My only concern about the wage rates that we are agreeing today is that the wage gap between the youngest and oldest workers seems to be increasing. Is the Minister looking specifically at that? Does he believe, as I do, that we should narrow that gap, not widen it?

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I thank hon. Members for their valuable and detailed comments. I am disappointed, but not surprised, that the hon. Member for North West Durham talks down the state of the economy. She may view a pay rise of £600 a year as “small”—I think that was the word she used—but I do not. I draw her attention to the fact that the annual earnings of a full-time minimum-wage worker will have increased by more than £2,000 since the introduction of the national living wage in April 2016. I do not think that that is small; I think it is important.

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I wonder whether the Minister has fully taken into account the impact of the increase in the amount that people can earn before they pay any tax at all. My recollection is that it was £6,475 back in 2010; perhaps he will tell us what it is today.

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My right hon. Friend makes a hugely important point. The fact that we have taken so many people out of paying tax altogether has made a huge difference to the money in their pocket at the end of the month. Through the national living wage and through changes to taxation, we have made a huge contribution to the take-home pay and the bank accounts of the people we represent, particularly the poorest in society.

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It is not a victory to take people out of tax if they are still so low-paid. Would the Minister not prefer that they were paid more and therefore paid tax?

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What I am concerned about is ensuring that the lowest-paid in society keep more of their money, so that they have more money to decide what to do with and to look after their families with.

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Whether the threshold is £13,000 or £10,000 does not really make any difference to someone on £5,000, does it?

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That is why, as a result of the decisions we make today, those people will be £600 a year better off.

The hon. Members for North West Durham and for Glasgow South West both raised the issue of differences in pay according to age. Let me explain the rationale behind that. The age-related rates protect younger workers, who are more vulnerable to the labour market. For example, between November and January, the unemployment rate for people aged 16 to 24 was 12.3%, compared with 3.1% for those aged 25 or over. We are rightly cautious for this group and do not want to harm young workers through the policy, which was intended to benefit them.

Nobody wants to see people paid less than they would hope for. When coming to its conclusions, the Low Pay Commission bears in mind the impact that its decisions will have on the lowest-paid in our society, but it also has a mind to the impact on jobs, the economy and the businesses that have to pay. Bear in mind that this is employers’ money that we are spending; it is they who have to bear the brunt of the decision we make. Unlike the hon. Member for North West Durham, who seemed to be quite negative towards the Low Pay Commission, I pay tribute to it and the work that it has done.

Our industrial strategy aims to build a country that works for everyone, wherever they live and wherever they work. It recognises that it is people who drive success, whether they are innovators, entrepreneurs or workers. Good employers have long recognised the value of investment in their workforce. Ensuring that we have a fair minimum wage is just one way in which the industrial strategy is working to build and support the investment in people. The Government continue to build an economy that works for everyone. Making work pay for the lowest earners in our society is a key part of our commitment. I commend these regulations to the House.

Question put and agreed to.

Committee rose.

School and Early Years Finance (England) Regulations 2018

The Committee consisted of the following Members:

Chair: Albert Owen

† Chalk, Alex (Cheltenham) (Con)

† Champion, Sarah (Rotherham) (Lab)

Coffey, Ann (Stockport) (Lab)

† Fletcher, Colleen (Coventry North East) (Lab)

† Gibb, Nick (Minister for School Standards)

† Graham, Luke (Ochil and South Perthshire) (Con)

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

† Hoare, Simon (North Dorset) (Con)

† Jones, Susan Elan (Clwyd South) (Lab)

† Kane, Mike (Wythenshawe and Sale East) (Lab)

† Knight, Sir Greg (East Yorkshire) (Con)

† Milling, Amanda (Cannock Chase) (Con)

† Platt, Jo (Leigh) (Lab/Co-op)

† Shah, Naz (Bradford West) (Lab)

† Vickers, Martin (Cleethorpes) (Con)

† West, Catherine (Hornsey and Wood Green) (Lab)

† Whately, Helen (Faversham and Mid Kent) (Con)

Joseph Watt, Committee Clerk

† attended the Committee

Ninth Delegated Legislation Committee

Wednesday 21 March 2018

[Albert Owen in the Chair]

School and Early Years Finance (England) Regulations 2018

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I beg to move,

That the Committee has considered the School and Early Years Finance (England) Regulations 2018 (S.I. 2018, No. 10).

It is a pleasure to serve under your chairmanship this morning, Mr Owen. I can feel the palpable energy in the room, among Members and officials alike, from being in the House this early for a Statutory Instrument Committee.

The context for the debate is the Conservative manifesto statement:

“Under a future Conservative government, the amount of money following your child into school will be protected. There will be a real terms increase in the schools budget in the next Parliament.”

That pledge was repeated, and the previous Prime Minister was clear about what it meant:

“I can tell you, with a Conservative Government the amount of money following your child into school will not be cut.”

But the Government are not keeping that promise to the British people. Under the present Government, schools face the first real-terms cuts to their budgets in nearly 20 years, despite the Secretary of State’s having inadvertently claimed the opposite in the House last week.

The National Audit Office has said that under the current spending settlement there will be

“an 8 per cent cut in pupil funding”

between 2015 and 2020. The same conclusion was reached by the Institute for Fiscal Studies. That means that every school in every region and town will lose money because of the Government’s failure to protect funding in schools. The so-called fair funding formula—there we are at last—is simply a redistribution of a sum of money that is already inadequate to support schools and provide children with the excellent education that they are entitled to.

The National Audit Office has also said that the Department for Education expects schools to find a total of £3 billion savings in the course of the Parliament, yet it has failed to communicate to them how to achieve it. Of course I support the principle that all schools should receive fair funding, and there are progressor elements in some of the regulations before the Committee, but the answer is not to take money from schools and redistribute it when budgets are being cut across the country.

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Does my hon. Friend agree that some schools now tell parents that they have to close at 1 o’clock? They give various reasons, but we all know that they do not have the money to pay teachers in the afternoon. Does he agree that although that may not be unlawful, specifically, it takes vital study time away from young people?

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I could not agree more. Schools are having to make heinous decisions. In the Minister’s county, West Sussex, some are already threatening a four-day week because of the budget cuts.

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Does the hon. Gentleman welcome the real-terms funding increase that schools across the country are getting between now and 2020?

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The hon. Lady was recently quoted in KentOnline boasting about a 0.5% real-terms increase in school funding, but when inflation in education is running at 3% or 4% that will be a massive cut for schools in her area.

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It is a real-terms increase.

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The solution is to invest, to help every child receive an excellent education. The Government’s stated aim in revising the schools funding formula is fairness. There should be fairness in the formula, and there are good things in it, such as the emphasis on high need, a deprivation index—albeit using a crude measure—and a focus on prior attainment. Why would the Opposition not welcome those things? However, there is nothing fair about a proposal under which funding will be cut from high-performing schools in deprived areas.

A fair approach would take the best-performing areas in the country and apply the lessons from those schools everywhere. It would look objectively at the level of funding required to deliver in the best-performing schools, particularly in areas of high deprivation, and use that as the basis for a formula to be applied across the whole country. Unfortunately, though, the Government are not listening to the voices of schools, teachers or parents. Evidence from the general election suggests that 750,000 people switched their votes to Labour because of the impact of school funding cuts on their local communities.

We only have to look at the impact already being played out. Under this Government more than half a million infant schoolchildren are in super-sized classes, and new research by leading education unions shows that class sizes are rising in the majority of secondary schools in England as a result of the Government’s underfunding of education. There is a particular problem in secondary schools because of the shortfall in funding of £500 million a year for 11 to 16-year-olds between 2015-16 and 2019-20, plus the deep cuts to sixth-form funding of more than 17% per pupil since 2010.

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My hon. Friend is being generous with his time. Subjects such as music are now offered at A-level only in one school in a large area. Is it therefore any surprise that under 44.1% of the Royal Academy of Music’s intake come from state schools?

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I am grateful to my hon. Friend. I am a product of the Manchester music service, and the music education that I received as a child is nowhere near what we now provide in our schools. We now have secondary schools in Yorkshire charging parents for music GCSEs. My final point on class sizes is that 62% of secondary schools in England have increased the size of their classes.

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As my hon. Friend brought up Yorkshire, it would be remiss of me not to intervene. He also talked about 16-to-18 colleges, and another hit for them is that they are charged VAT. Thomas Rotherham College, a great college that gave a broad curriculum, had to cut its curriculum size right down, and giving a holistic education has become so unviable that it has been forced to become an academy. That makes one wonder if there is a grand plan at play.

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I could not agree more. The curriculum is being narrowed for a whole series of reasons, but the main one is severe funding cuts in our schools.

I have talked about class sizes, and the second huge impact is teacher numbers. Staff numbers in secondary schools fell by 15,000 between 2014-15 and 2016-17 despite their having 4,500 more pupils to teach. There is a huge recruitment and retention crisis. The Times Educational Supplement says that we will be short of 43,000 secondary school teachers in the next few years. The figures are being masked by the greater supply in primary schools. That equates to an average loss of 5.5 staff members in each school since 2015. In practical terms that means 2.4 fewer classroom teachers, 1.6 fewer teaching assistants and 1.5 fewer support staff in every school.

Cuts to frontline teaching posts are happening at a time when pupil-to-teacher ratios are rising, which means bigger classes and less individual attention for children. Research published only last week by the Education Policy Institute shows how many schools have been struggling financially and are now in deficit.

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Does my hon. Friend agree that cuts to other public services and mental health services in particular are putting undue pressure on our schools, given their teacher resource capacity?

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I am grateful to my hon. Friend for that extraordinarily valid point. We know from our postbags that a rising number of parents cannot get special educational needs and disability provision for their children because schools are having to cut that and less specialist services back at local authority level. Local authorities have been cut—they have lost around 30% to 40% of their budgets—which has had a direct impact on the services that schools can buy in.

The number of local authority maintained secondary schools in deficit has nearly trebled, which means that more than a quarter of all such schools are now in deficit. In 2016-17, the proportion of primary schools in deficit increased significantly, to 7.1%. The average primary school deficit also notably increased, from £72,000 in 2010-11 to £107,000 in 2016-17.

Perhaps the most worrying finding was that a large proportion of local authority maintained schools are now spending more than their income, and 40% of those secondaries have had balances in decline for at least two years in a row. Similar figures are found for local authority maintained primaries; in 2016-17 more than 60% were spending more than their income. A quarter had had a falling balance for two years or more.

The Education Policy Institute report points to the inevitable outcome of the growing budget pressures. Staff account for the majority of spending by schools, at around two thirds. It is therefore likely that schools will find it difficult to achieve the scale of savings necessary without cutting back on staff. What is the Government response? Only last week we found that the new Education Secretary had been forced into an embarrassing U-turn after he claimed wrongly that school spending is going up. That is the message they would like to put out. The constant delay of the fair funding formula led to constant Conservative press releases about fixing funding in our schools, but that has been far from the case.

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Does my hon. Friend agree with me that in places such as Bradford West, where we have an excellent cluster of maintained nurseries, we are still not sure where the funding is coming from? If it is coming, will it be to meet the existing deficit—from special needs, early years and so on—or will it be new money?

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The biggest impact we can have as civil society and government on the social mobility and educational attainment of our young people is in the early years, but our Sure Start centres have been decimated over the past few years, with no guarantee—absolutely none—of what their future will be. My hon. Friend makes a very valid point.

The Secretary of State originally said:

“We know that real-terms funding per pupil is increasing across the system, and with the national funding formula, each school will see at least a small cash increase.”—[Official Report, 29 January 2018; Vol. 635, c. 536.]

Last week, however, he had to respond to the House on that. What had Sir David Norgrove, head of the UK Statistics Authority, pointed out? He had said that funding was being frozen in real terms until 2020, not increased. The Secretary of State therefore had to write to correct the record.

I have a few questions for the Minister. One of the major issues is whether he will confirm that the regulations allow for a 1.5% cut in funding per pupil in cash terms. Our evidence suggests that they do, so that is a fair funding formula that allows for a 1.5% cut in funding in cash terms. Will he confirm that the Government will not increase overall pupil funding? As the Institute for Fiscal Studies has said, the additional £1.3 billion announced after the election last year keeps funding basically flat in real terms over the next two-year period. Will he confirm that? Will he also confirm that funding has fallen in real terms since 2015? For example, the National Audit Office reports an accumulated £2.7 billion cut from school budgets since 2015, despite the regulations before us.

The national funding formula consultation has been delayed and delayed, and pushed back and pushed back after the election. Looking at the regulations, the formula has been a colossal waste of time, effort and money, and has come with that delay. The Government have come to a conclusion that only tinkers with the edges of the funding crisis in our schools. For now, I will leave it there.

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It is a real pleasure to serve under your chairmanship once again, Mr Owen.

I want to put some real figures into our debate. We keep hearing about “real terms” funding and savings, so let us put some real figures in there. Rotherham has 88 primary schools and 14 secondary schools, and there have been real cuts to their funding in the past couple of years. In 2015-16, income was £4,150 per primary school child and £5,876 per secondary school child. However, by 2017-18, funding had dropped to £3,954 for that same primary school child and to £5,587 per secondary school pupil. Looking forward to 2019-20, under this funding formula, schools will receive £3,965 per primary school child and £5,518 per secondary school child. Collectively, the primary schools in Rotherham are losing £4,404,897, and the secondary schools are losing just over £5 million. The hon. Member for Faversham and Mid Kent said there had been a real-terms increase. I am sorry, but funding has fallen in real terms since 2015.

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Does my hon. Friend agree that those cuts are landing in places with the most deprivation, such as her constituency and mine?

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My hon. Friend is absolutely right. We were hoping for a funding formula that recognised the different pressures in different areas. A blanket funding formula does not recognise the real issues we have in the north of England in particular.

The IFS states that overall, school funding will have fallen by 4.6% in real terms between 2015 and 2019. We do not know the real impact of the next round of cuts, but perhaps the Committee can make an informed assessment by looking at what happened in the previous two years. Between 2014-15 and 2016-17, class sizes rose by 54% in primary schools and by 50% in secondary schools. In the same period, the ratio of pupils to teachers rose by 61% in primary schools and by 71% in secondary schools. The ratio of pupils to teaching assistants rose by 58% in primary schools and by 79% in secondary schools.

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Does my hon. Friend agree that that is having a big effect on morale in schools? Did she know that a position to learn to be a teacher in a primary school in my constituency that once attracted 150 applicants now attracts 10?

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I did not know that, but it pains me to hear it. When I was going through school and university, people aspired to become a teacher. Teaching was a secure career in which people felt they were giving something back to their community. Now, it is seen as something to try to escape from, and we do not attract the best people to be teachers. That is such a shame. The impact on future generations is immeasurable.

Why has there been such a dramatic rise in the ratio of pupils to staff? It is not rocket science. To try to bridge the gap between their costs and the income they get under this Government, schools have had to lose staff. In the same period—2014-15 to 2016-17—staff cuts in primary schools increased by 44%, and cuts to secondary teaching staff in Rotherham rose by a staggering 93%.

Using that as my evidence, I guess that class sizes in Rotherham will increase again for the next two years under this Government. Schools will be forced to cut more staff, so the pupil to staff ratio will increase. There is no evidence—if anyone can show me some, I would welcome that—that bigger classes lead to a better education. I have not discovered evidence of that anywhere in the world. To be honest, all the evidence points to bigger classes leading to worse education.

Are children in Rotherham worth a good education? Is it a surprise that we have some of the highest rates of exclusion and youth unemployment when there is not enough money to pay for an adequate number of teaching staff? I am afraid that things will only get worse under the regulations. The minimum funding guarantee in the local formula is currently set at minus 1.5%. That is a guarantee that no school can lose more than 1.5% of its per pupil funding year on year as a consequence of changes to the local funding formula. Paragraph 8.4 of the explanatory memorandum states:

“The new level of flexibility around the MFG set out in these Regulations will allow local authorities to set the MFG at any value between -1.5% and +0.5%, allowing them to replicate this element of the national funding formula at a local level if they choose.”

The second stage of the consultation underlined the importance of stability in funding levels for schools. As a result, the national funding formula will allocate a cash grant of at least 0.5% per pupil for every school. This new MFG flexibility will enable local authorities to pass those gains on to schools, but here is the but—as of yesterday the CPI inflation rate dropped, woohoo, to 2.7%. Even if the local authorities had the cash to apply the maximum funding of plus 0.5%, schools would still be losing 2.2% in real terms. Perhaps that is why paragraph 10.3 of the explanatory memorandum says:

“An Impact Assessment has not been prepared for this instrument.”

One wonders why.

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Because it does not affect the private sector.

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I appreciate the clarification from the Minister.

I would now like to ask him a couple of specific questions, if he can answer them. Let me quote part 3, chapter 1, regulation 13(3):

“The date for ascertaining pupil numbers is 5th October 2017.”

I will give an example of why that is likely to present problems in my constituency. In an area of Rotherham called Eastwood, we have quite a large Roma population and I have spoken to a number of my primary schools to discover what happens. Children tend to be signed up for the autumn term and start in September but then go missing, reappearing later in the year. I am concerned that class sizes might have increased after 5 October but the funding might not follow that.

In addition, because we have a lot of cheap privately rented accommodation, a lot of asylum seekers are sent to Rotherham. They come throughout the year, so what happens to pupil funding if, again, they arrive after 5 October? I am not sure whether the Minister has some money ring-fenced for when classes ebb and flow but his response would be most helpful, because I know it is an issue for my schools.

Regulation 18(3), in the same chapter, states:

“For the purposes of this regulation, a child is disabled if he or she is paid or entitled to disability living allowance by virtue of section 71 of the Social Security Contributions and Benefits Act 1992.”

My hon. Friend the Member for Wythenshawe and Sale East mentioned special educational needs and how late children are now getting statements. In my constituency it is getting increasingly hard to get statements because of access to the services that can do the assessment. A child might enter a school without a statement but after a couple of years get a diagnosis, for example, of autism. Would the additional money follow through with that child, once the diagnosis is in place?

My final point concerns chapter 2, regulation 27, which discusses how funding will be clawed back from maintained schools if a child is excluded. Does that provision also apply to academies?

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It is a pleasure to serve under your chairmanship, Mr Owen. I am pleased to be able to discuss the school and early years finance regulations at a time when local authorities are about to receive their first grant payments calculated by the national funding formula—an historic and necessary reform.

The regulations set out how local authorities should distribute between local schools the £33.7 billion of funding that they collectively receive through the schools block of the dedicated schools grant. Before I turn to the regulations, it is important to place them in the context of the historic change that the Government have made to the broader funding system. The introduction of the national funding formula means that, for the first time, this £33.7 billion of funding will be distributed between local authorities based on the individual needs and characteristics of every school in the country.

The Government are determined to create an education system that offers opportunity to everyone at every stage of their lives. That is the key to raising standards for all and improving social mobility. We are making significant progress: more schools than ever before are rated good or outstanding, the attainment gap is beginning to close and we have launched 12 opportunity areas to drive improvement in parts of the country that we know can do better. However, those achievements have been made against the backdrop of the old, unfair funding system, which we have reformed. Under the old system, schools across the country with similar pupil characteristics have received markedly different levels of funding for no good reason.

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Will the Minister explain whether more schools being rated as good or outstanding, which is happening in many of our constituencies, is linked to a higher rate of exclusions?

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We have launched an exclusions review, conducted by our former colleague, Ed Timpson. He will look at precisely those issues. We actually raised the bar for Ofsted’s judgments on schools. Despite our raising the bar for academic standards, we are still seeing more schools rated as good or outstanding.

In the hon. Lady’s constituency of Hornsey and Wood Green, schools would attract 0.9% more funding if the national funding formula were implemented in full, based on the 2017-18 data. Under the national funding formula, schools in Hornsey and Wood Green will be funded at £5,671 per pupil, compared with the national average of £4,655 per pupil.

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In that case, will he direct two schools that insist on closing at 1 pm on a Friday, which parents have raised with me as an issue, to open their gates until 3 pm?

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As she will know from the figures I just cited, schools in her constituency are being funded at significantly higher than the national average.

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That does not answer the question, Minister.

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I am coming to the hon. Lady’s question. Given that schools in Hornsey and Wood Green are being funded at significantly more than the national average, and given that the vast majority of schools are not doing the things she talks about, there is no reason for schools in her constituency to take that action.

Across the country, schools with similar pupil characteristics have received markedly different levels of funding. That is why our promise to reform this unfair, opaque and outdated school and high needs funding system and introduce a national funding formula has been so important, and I am particularly pleased that this Government were able to deliver on that.

This reform represents the biggest improvement in the school funding system for more than a decade. From April 2018, the introduction of the national funding formula will put the funding system firmly on track to deliver resources on a consistent and transparent basis, based on the individual circumstances of every school in the country. Following extensive consultation, in which we carefully considered more than 25,000 individual responses to our proposals, last September we were able to publish full details of the school and high needs national funding formulae and the impact they will have on every local authority.

Those proposals were underpinned by an additional £1.3 billion for schools and high needs across 2018-19 and 2019-20, over and above the funding confirmed at the 2015 spending review. School funding is at a record high because of the choices we have made to prioritise school funding, even as we faced difficult decisions elsewhere to restore our country’s finances.

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I visited the launch of the Bradford for Teaching initiative, trying to get teachers in. The truth is that when I talk to teachers, and those amazing people who want to teach, I hear that the funding formula does not allow the schools to get the best teachers in. It is not just about the children; the impact on the level of teaching in places such as Bradford West really needs to be looked at. These solutions are just not good enough.

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There are two points. First, we have only been able to deliver these high levels of spending on schools, rising from £41 billion this year to £42.4 billion next year and £43.5 billion the year after, because the way in which we have managed the economy means we can afford to do so. A Labour Government, particularly a Labour Government under the current leadership—any future Government led by the party opposite—would bankrupt our economy and there would be no chance of any of these increases in funding coming into our public services. We have to have a strong economy first of all. Secondly, responding to the hon. Lady’s point, schools in Bradford West, as she should know, would attract 1.3% more funding if the national funding formula were implemented in full, based on the 2017-18 data. That is equivalent to £1.4 million more funding for those schools.

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Having campaigned for the fairer funding formula on behalf of my Kent constituency, I welcome the formula. For many years, similar schools with similar pupils in other areas were getting significantly more money than schools in my area.

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It is 0.5%.

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It gives children in my constituency a fairer chance of getting the good education they need, coupled with rising funding. It is truly welcome.

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The hon. Member for Wythenshawe and Sale East said from a sedentary position that it is 0.5%. Schools in Faversham and Mid Kent would attract 6.4% more funding if the national funding formula were implemented in full based on the 2017-18 data. That is equivalent to £2.7 million, so I understand why my hon. Friend the Member for Faversham and Mid Kent made her intervention.

The new funding formula will be fairer. The additional funds mean, as I have said, that spending will rise from £41 billion this year to £43.5 billion by 2019-20. As the independent Institute for Fiscal Studies has confirmed, that will allow us to maintain schools and high-need funding in real terms per pupil for the next two years. I hope that answers the comments made by the hon. Member for Wythenshawe and Sale East. As the IFS also pointed out, by 2020 real-terms funding per pupil will be 70% higher than it was in 1990, and 50% higher than it was in 2000.

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When the Minister was talking about the increases over the next two years, I did a quick bit of maths. The increase seems almost to keep up with inflation, but there does not seem to be any additional money on top of that. Does the Minister agree?

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I will come to the cost pressures that schools have faced in the last two years, particularly the increase in the employers’ contribution to teachers’ pensions—we regard teachers’ pensions as very important—and the higher level of the employers’ national insurance contribution. Again, the higher employers’ national insurance contribution is about raising more tax revenue to help close the historic deficit we inherited. Achieving the reduction of that deficit to 2% of national income, from 10% when we came into office, has enabled us to maintain a strong economy. We acknowledge that there have been cost pressures on schools in that period. Those cost pressures have now been absorbed and schools will see real-terms increases across the board in their funding, taken as a whole.

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The Minister is extremely generous in giving way to me a second time. Will he comment on the increase to NHS staff today? Will we hear a further announcement in a few months’ time that there may be more money for teachers, given that there tends to be a knock-on effect when one public sector group gets a pay increase? Not that any arguments were won last June, I hasten to add.

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The hon. Lady raises an important point. We have given evidence to the School Teachers Review Body; the Secretary of State gave oral evidence a week ago. We will receive its recommendations, I think, in May and we will respond to them then. It is important that these issues are dealt with by independent pay review bodies.

With the additional £1.3 billion that we were able to identify last summer, we have been able to ensure that all schools and all areas will attract some additional funding over the next two years while providing for up to 6% gains per pupil for the most underfunded schools. That significant extra spending in our schools demonstrates our commitment to ensuring that each child receives a world-class education. The hon. Member for Wythenshawe and Sale East cited our manifesto; we have gone further than our manifesto commitment that no school should lose funding as a result of the national funding formula. Now, every school in every area will attract at least 0.5% more per pupil in 2018-19 than it received in 2017-18, and 1% more in 2019-20.

We also heard throughout our consultation on the formula that we could do more through our formula to support those schools that attract the lowest levels of per pupil funding. We listened to those concerns, and our formula rightly will direct significant increases towards those schools. In 2019-20, the formula will provide minimum per pupil funding of £4,800 in respect of every secondary school, and £3,500 in respect of primaries. In 2018-19, as a step towards those levels, secondary schools will attract at least £4,600, and primary schools £3,300. These new minimum levels recognise the challenges of the very lowest funded schools.

There was considerable debate during the consultation on the funding formula about how much funding it was appropriate to direct towards schools with higher numbers of pupils likely to need additional support—I welcome the hon. Gentleman’s support for that element of the national funding formula—as a result of a disadvantaged background, low prior attainment, or because they speak English as an additional language. In our final formula, we have been able to protect this funding—£5.9 billion in 2018-19—while improving its targeting. Alongside that, we will continue to deliver the pupil premium— some £2.5 billion a year—to provide additional support to schools to narrow the attainment gaps and to promote social mobility. As I mentioned earlier, we have closed the attainment gap by 10% in both primary and secondary schools since 2011.

The dedicated schools grant provides local authorities with funding for their high needs provision and for early years. We are absolutely committed to supporting children who face the greatest barriers to their education. That is why we have also reformed the funding for children and young people with high needs, by introducing a high needs national funding formula. That will distribute funding for children and young people with high needs more fairly, based on accepted indicators of need in each area.

The additional spending that we have announced means that every local authority will see a minimum increase in high needs funding of 0.5% in 2018-19, and 1% in 2019-20. Underfunded local authorities will receive gains of up to 3% per head a year for the next two years. Overall, local authorities will receive £6 billion to support those with high needs in 2018-19. We are also determined to support as many families as possible with access to high-quality, affordable childcare. That is why in 2019-20 we will spend a further £6 billion on childcare support—a record amount of support. This record spending includes £1 billion a year, delivering 30 hours of free childcare for the working parents of 3 and 4 year-olds and funding the increase in rates that we introduced in April 2017.

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I welcome the fact that the Minister talks about childcare, as that is one of the quickest and most effective ways to bridge the gender pay gap and to get women back into work. The National Audit Office says that Sure Start funding, which is very close to my heart, has been cut by £763 million since 2010. How does that fit into the Minister’s attempt to support all children?

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We have to marshal our resources. A lot of the statistics cited on Sure Start are to do with buildings and not the provision of services in those buildings. Schools in Rotherham would attract 4.5% more funding if the national funding formula were implemented in full, based on the 2017-18 data, coming to £2.9 million. Under the national funding formula, schools in Rotherham will be funded at £4,982 per pupil, compared with the national average of £4,655.

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Does the Minister agree that losing investment in early intervention and prevention is having a huge knock-on effect on school readiness for children, and therefore on attainment? Should the NAO figures on the closure of Sure Start centres not be taken seriously, and should we look again at investing in early intervention and prevention?

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We take those issues seriously and the hon. Lady raises an important point. However, the attainment gap between those from disadvantaged backgrounds and their more fortunate peers in primary schools has closed by 10%, and there has been a huge increase in children’s ability to read. We are moving from joint 10th place to joint eighth place in the international reading surveys of nine-year-olds, and there has been a huge increase in the proportion of six-year-olds who pass the phonics check—in 2012, 58% passed, but 81% passed in 2017.

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Look at the social mobility figures. Why are a record number of people unable to get on when they leave if attainment is good in our schools?

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We have some of the lowest levels of young people not in education, employment or training —lower, certainly, than under the previous Labour Government. We have very low levels of youth unemployment compared with other countries in the European Union, and we have the lowest level of unemployment in this country for 42 years. That is the consequence of proper stewardship of our public finances and our economy. That is how we provide opportunities and social mobility, ensuring that more people have the opportunity to earn a pay packet, and pay their rent, mortgage and bills. I will give way to the hon. Member for Rotherham.

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The Minister is incredibly kind and intuitive, and I thank him for giving way without my asking—[Laughter.] He could see that I was willing him to do that; he is a good man. I would love him to come to Rotherham. I am grateful for the £20 uplift per primary school child that comes on top of the cuts we have sustained for the past eight years, but £20 will buy us a book and a couple of pots of paint; it will not deal with the decades of deprivation faced by my constituents. I understand that the Minister is genuinely trying to come up with a fair funding formula, but life is not fair. In Rotherham we have had so many knocks and lost so much industry that a small increase is not enough to get us to the standard of a school in Surrey, for example. I urge the Minister to reconsider.

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I would be delighted to go to Rotherham again. I was the candidate there in 1994 in a by-election. I thoroughly enjoyed my stay, and I was delighted narrowly to beat Screaming Lord Sutch. The hon. Lady raises an important point, and the £2.9 million extra funding is equivalent to about £214 per pupil in Rotherham. I would be delighted to come and see some schools in Rotherham soon.

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Given that the Minister is in the mood to travel to Yorkshire, perhaps he could come to West Yorkshire and visit my constituency of Bradford West. We have had this discussion previously, but the real-term cuts to SEN, and the immense pressures on local authorities to deliver on education have had a real impact in my community. I would appreciate the Minister coming a few miles up the road to West Yorkshire so that I can introduce him to headteachers of schools in my constituency.

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I would be delighted. The hon. Lady and I have discussed education in her area, and I know how passionate she is about improving academic standards in schools in her constituency. I would, of course, be delighted to visit some schools in her constituency with her in the very near future.

Under these regulations, the national funding formula will allocate the schools, high needs and central school services blocks of the dedicated schools grant fairly to local authorities. The school and early years financial regulations govern how local authorities can distribute that funding between schools and early years providers, and they apply for the coming financial year. Regulations that have recently been made will replace those for 2017-18.

In 2018-19 and 2019-20, local authorities will continue to set their own local funding formulae for schools, which will determine individual schools’ budgets in their areas. Those formulae are set following consultation with local schools. It remains the Government’s clear intention to move, in time, to a system in which each school’s individual budget is set directly by the national funding formula without local variation. That will ultimately ensure that similar schools will receive similar funding, regardless of where they are situated.

However, by continuing to allow a small but important element of flexibility for local authorities over the next couple of years, the regulations will be able to help to smooth the transition to the national funding formula at a local level. They set the rules within which local authorities must operate as they set their local formulae. The changes we have made to the regulations for 2018-19, compared with 2017-18, enable local authorities to mirror the national funding formula for schools in their local formulae. Unless we make these regulatory changes, they would not be allowed to do that. Many local councils have decided that they should replicate the national funding formula in their local formulae. We support that decision, which is a strong vote of confidence in the principles behind our national funding formula.

The regulations need to be made each year, and for the most part, the 2018 regulations simply ensure that the rules set in the 2017 regulations will continue in place. The changes we have made are intended to enable local authorities to mirror the national funding formula.

The changes on school funding are, first, the introduction of an optional minimum per-pupil funding level—the £4,600 I mentioned—which local authorities can now use as a factor in their local funding formulae to ensure that every school receives a minimum amount of funding for each pupil. Unless we pass the regulations, local authorities would not have the discretion to do that.

I do not understand why the Opposition prayed against the regulations. The hon. Member for Wythenshawe and Sale East raised the -1.5% minimum funding guarantee. That is the current position. Currently, if a local authority wants a minimum funding guarantee to smooth the effect of any changes to the local formula, to ensure that no school can lose more than -1.5% per pupil when a local formula changes, it can introduce that minimum funding guarantee. We have changed that in the regulations to give local authorities more flexibility, so that, instead of the option of -1.5%, they can now also vary the amount, up to +0.5%, which is the minimum funding guarantee in the national funding formula.

By praying against the regulations, the hon. Gentleman is entrenching in the rules for the local funding formula a minimum funding guarantee of -1.5% and preventing local authorities from having a +0.5% minimum funding guarantee, which we have introduced into the national funding formula. Secondly, the regulations on indicators of deprivation have also changed. Local authorities can choose to use a combination of the free school meals, Ever 6 free school meals and income deprivation affecting children index—IDACI—formulae. Thirdly, there are also some technical changes regarding looked-after children and the scaling factor used to set funding for pupils with low prior attainment.

The hon. Member for Rotherham also raised issues about significant growth in pupil numbers in constituencies. She cited regulation 13, which is designed to tackle precisely the problem she refers to. Regulation 13(4) states:

“Where (a) there is or may be an increase to the published admission number at the school; or (b) the school is subject to a prescribed alteration that may lead to an increase in the number of pupils at the school, the authority may, instead of ascertaining pupil numbers on 5th October 2017, include an estimate of pupil numbers.”

That will help schools to ensure that they have the proper funding as a consequence of a growth in their numbers.

The change to the high needs regulations removes an adjustment that was previously made to schools’ five to 16-year-old pupil numbers to reflect the number of places that the local authority has reserved for children with special educational needs. From 2018-19, five to 16 year-old pupils in such places will attract funding to their school through the local formula on the same basis as all other pupils at the school. Local authorities will have additional funding of £6,000 for each place from the high needs budget.

We introduced a new early years funding formula in April 2017; therefore, the regulations for 2018-19 are largely unchanged from 2017-18. The changes we have made in these regulations implement previously announced policy or are amendments intended to bring greater clarity to existing policies. For example, when we introduced our new funding formula, we announced that from 1 April this year, local authorities must pass on 95% of the national funding formula funding allocation to providers. That is up from 93% in the previous year, and it is an important change in these regulations.

How funding is used in practice is just as important as its fair distribution. We are committed to helping schools to improve pupil outcomes and promote social mobility by getting the best value from all their resources. School efficiency must start with, and be led by, schools and school leaders, but the Department provides practical support, deals and tools that will help all schools improve their efficiency. We will continue our commitment to securing national deals that procure better value goods and services in areas that all schools purchase. Schools can already save an average of 10% on their energy bills and around 40% on printers, photocopiers and scanners. Those deals have already saved schools over £46 million.

Across school spending as a whole, we are improving the transparency and usability of data, so that parents and governors can more easily see how funding is being spent and understand not just educational standards, but financial effectiveness. We will continue to expand our package of support for schools so they can ensure every pound is achieving the best outcome for pupils.

The hon. Member for Wythenshawe and Sale East raised the question of teacher numbers. We have record numbers of teachers in our schools: we have 457,000, up 15,500 since 2010. Last year we achieved 89% of our secondary target for graduate recruitment and 100% of our primary target. Returners are rising, from 13,000 in 2011 to 14,200 in 2016. We have tax-free bursaries of up to £26,000 for priority subjects. People often talk about retention; 70% of teachers are still in teaching after five years and 60% are still in teaching after 10 years, but the important point is that that figure has remained broadly constant for the last 20 years.

Class sizes have not shifted very much: they are about 27.1 in primary and 20.5 in secondary schools, on average.

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Will the Minister confirm that there are more teachers because there are more pupils, that one third of teachers have left teaching since they trained since 2011 and that education authorities have not filled one third of vacancies for teacher training courses next year?

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There were a number of points there. First, the pupil numbers have increased; we have created 735,000 new school places since 2010, and one of the first things we did in 2010 was double the amount of capital spending on creating new school places. The previous Government had cut school places, particularly in primary schools, where 200,000 places were cut during that period despite knowledge of the increased birth rate.

The hon. Gentleman’s figure of 33% leaving teacher training who joined in 2011 is the 30% figure I was referring to; there are 70% still in teaching after five years. That is broadly the same figure that it has been for the last 20 years. People change their minds after starting a profession, and that figure has not changed significantly over the past 30 years.

I forget what the final issue was that the hon. Gentleman raised, but he also mentioned the report by the Education Policy Institute, which I think came out last week. We do not recognise the findings of that report, because the latest figures show that schools hold surpluses of more than £4 billion against a cumulative deficit of less than £300 million. We trust schools to manage their own budgets, and only a small percentage are operating a cumulative deficit. We are providing support to help those schools get the most out of spending.

I thank the Opposition again for securing this debate. For this Government, providing a high-quality education for every child is a top priority. The additional funding we have announced, together with the introduction of a national funding formula, will provide schools with the resources they need to deliver that. The school and early years finance regulations represent a vital piece in the funding jigsaw, making it possible for local authorities to make funding fairer at a local as well as a national level. By doing so, we can continue to drive school standards ever higher.

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So there we have it—that is the silver bullet, and a way to get the Government out of the political hole that the previous Government got into over getting fair funding for schools; we are left with a variance of 1.5% down or 0.5% up. The hon. Member for Cheltenham is in the room, and I hope that he had a good weekend, by the way—it seems to be a great festival. However, he has been quoted by Gloucestershire Live as saying that the national funding formula needed “major surgery”. What we are considering is not even a minor intervention.

The Minister said that the manifesto commitment was that no schools would lose money. That was the commitment—not that no schools would lose money because of the national funding formula. Manifesto commitments are not something that can be made up as you go along. It is incredible that there can be a funding formula with so much variance, so that schools can still receive a cut because of it.

The Minister was good with his facts, and in replying to my hon. Friend the Member for Hornsey and Wood Green he talked about schools in her constituency. Perhaps I may point out the £82,000 cut affecting St. Catherine’s Catholic Primary School in his constituency, and the reduction in pupil funding of £355 per pupil. Schools in West Sussex are threatening a four-day week. That, in the Minister’s back yard, is incredible.

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The hon. Gentleman is wrong about his facts. I tend to know the schools in my own constituency quite well, and every school in my constituency will receive an increase in funding according to the national funding formula. Many of the schools there are receiving significant increases—way above the 0.5% that some schools are receiving.

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Again, that is a sophist argument that some schools will receive an increase, but not in terms of the general level of cuts since 2015; and it is nothing in comparison with what the Minister rightly pointed out about budget pressure and inflation. All the schools in his constituency will be taking a cut over the next few years.

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A similar problem has been mentioned to the one in my constituency, where schools are cutting the school day, and I hope that the matter will be raised again, to prevent a domino effect that might lead to a four or four-and-a-half-day week. That would have a huge impact on productivity in the economy, as much as anything.

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My hon. Friend is a passionate advocate on behalf of schools in her constituency. The way she stands up for them will be on the record.

There is only one party represented here today that has had a reprimand about dodgy stats on schools: the Secretary of State received one from the UK Statistics Authority last week. The Opposition will not take lectures on statistics at the moment. The funding formula has been a colossal waste of time and effort and has not got to where the Minister wanted. I can see from the reactions of some Conservative Back Benchers that the same situation will continue. Schools in their constituencies will be under enormous pressures, and what has been done has not ended the situation.

The Minister talked about having to rescue the economy. The Government have led us to a nearly £2 trillion deficit in the economy.[Interruption.]

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The reason the Opposition will vote against the regulations is that Labour was extraordinarily clear, with a fully costed manifesto at the general election. [Hon. Members: “To increase the debt.”] There is a lot of tutting from Conservative Members, but the only numbers in the Conservative manifesto were the page numbers. We had a well costed manifesto. At the general election, our policy on school funding was to reverse the cuts. That is what we said in June.

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Order. We have had a great opportunity for wide-ranging debate. The hon. Gentleman is now concluding it. If hon. Members want to carry on, they can do so in the Tea Room.

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Thank you, Mr Owen.

That would have led to an increase in real terms, which would have left per pupil funding at a record high and cost about £4.8 billion in the final year of this Parliament. That is what Labour committed to: investment in schools and our pupils, compared with disinvestment and cuts from the Government Benches.

Question put.

Division 1

21 March 2018

The Committee divided:

Ayes: 9
Noes: 7

Question accordingly agreed to.

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Resolved,

That the Committee has considered the School and Early Years Finance (England) Regulations 2018.

Committee rose.