Clause 33

Education and Inspections Bill – in a Public Bill Committee at 4:00 pm on 27 April 2006.

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Funding of voluntary aided schools: meaning of “capital expenditure”

Question proposed, That the clause stand part of the Bill.

Photo of Nick Gibb Nick Gibb Shadow Minister (Education) (Schools)

The clause relates to the alteration in the definition of capital funding for the purposes of voluntary aided schools. Its objective is to widen the definition of capital expenditure so that it is more in line with the definitions used in general accounting practice. It will enable voluntary aided schools in private finance initiative agreements to be funded in the same way as other schools. As a chartered accountant, I could not possibly let the clause go by without contributing to the debate.

Voluntary aided schools are required to contribute 10 per cent. of all capital expenditure. When it comes to PFI contracts, the question arises about whether10 per cent. of the revenue expenditure that relates to the capital of the project should be provided by the school and the foundation. It is usually the Church of England that supports them. According to the regulatory impact assessment,

“The aim of amending the legislation is to put VA schools on an equal footing with other maintained schools, and remove any doubt that PFI contracts can be met from revenue income without any statutory 10 per cent. contribution.”

We, of course, support the measure. However, I want to raise the issue of buildings insurance with the Minister. Insurance is an item of revenue expenditure. It is met by the LEA in the usual course of events. However, if there were a fire in a school, can she confirm either now or by letter whether insurance will cover the full cost of the new capital expenditure required to rebuild the school or will the voluntary aided school still be required to find 10 per cent. of the capital cost in those circumstances? If the school will need to contribute that 10 per cent. after a fire, presumably it will wish to insure itself for that potential liability. The question then arises that, if it does that, will the insurance premium be paid by the LEA under the provision?

Under the draft Education (Capital Expenditure in respect of Voluntary Aided Schools) (England) Regulations, a spending of £2,000 shall not constitute capital but, as an experienced chartered accountant, in the context of an average school’s expenditure that seems to be a reasonable figure to be regarded as revenue. I presume that there are practices that stop abuse of that by separating out items into smaller units to fall within that definition.

Photo of Jacqui Smith Jacqui Smith Minister of State (Schools and 14-19 Learners), Department for Education and Skills

How pleased I am that the hon. Member for Bognor Regis and Littlehampton is an accountant. However, I must say that he let me off reasonably lightly. As he identified, the clause updates the definition of capital expenditure in respect of voluntary aided schools under the School Standards and Framework Act 1998 so that it is consistent with more recent legislation. The current definition of capital expenditure set out under article 13 of the Regulatory Reform (Voluntary Aided Schools Liabilities and Funding) (England) Order 2000 contains a list of types of expenditure that are to be treated as capital, while the amendment defines capital expenditure as that which would be treated as capital in accordance with proper accounting practices.

The updated definition is in line with modern accounting practice, thus avoiding the need for an exhaustive list under the Bill. The definition also mirrors the approach taken under section 16 of the Local Government Act 2003, which defines capital expenditure when that term is used in relation to a local authority.

The hon. Member for Bognor Regis and Littlehampton is right that the change in definitionwill provide flexibility to help ensure that voluntary aided schools can be procured through optimal arrangements, such as the private finance initiative, when that offers best value for money. It will be especially relevant for new build, voluntary aided schools that are procured through the “building schools for the future” programme. That programme is one that will transform the secondary school estate throughout the country, and we would not want voluntary aided schools to be excluded from it or have any difficulties with it.

The hon. Gentleman raises an important issue about the treatment of insurance, and where insurance payments should come from. In accordance with his invitation, I shall write to him about it, because it is an important issue for the schools involved.

Question put and agreed to.

Clause 33 ordered to stand part of the Bill.