Oral evidence: Recall on EFA and DfE financial statements/Durand Academy investigation, HC 924
Oral evidence, 26 January 2015.
Witnesses
Peter Lauener, Chief Executive, Education Funding Agency, Sir Greg Martin, Executive Head Teacher and Accounting Officer, Durand Academy, Simon Parkes, Chief Financial Officer, Education Funding Agency, and Chris Wormald, Permanent Secretary, Department for Education, gave evidence.
Chair
Welcome to one of your regular appearances. Let’s hope that this appearance is slightly less tetchy than the last one. We will try to keep our questions short and sweet, and if you can make your answers direct, the usual rules apply. I am going to start with Sir Greg Martin. Can I start by saying, for the avoidance of any doubt, that you ran an excellent primary school in Lambeth? We are always pleased to see excellence. It is a bit disappointing to see that it was downgraded in the latest Ofsted inspection. You also have plans to build a boarding school for Lambeth children in—
Sir Greg Martin
In Midhurst.
Chair
That is a really brilliant idea. For the avoidance of any doubt, we are not here to challenge any of your educational aspirations. We are here to follow the taxpayer pound and make sure that money is being properly spent. The reason we are a bit late is that we had to spend a bit of time understanding the structure, and it might be most sensible to go to figure 2 of the Report. Can I ask you first about the Durand Education Trust? Why did you set that up?
Sir Greg Martin
It was set up in 2010 prior to the school becoming an academy. It was set up by the foundation school. One of a few mistakes in this document is the suggestion that it was set up by the Durand Academy Trust. That is not true; it was set up by the foundation before the school became an academy. The reason we set it up was that we had worked quite hard over the intervening years before the change of Government, and we had concerns about the assets we had built, which had significant private equity in them. We wanted to make certain that they were safe going forward for our boarding school project, because crucial to the boarding school was the amount of private income generated which would support it. As you are probably aware, it was highly unlikely that any Government would give us boarding costs in the state sector. The only way we could achieve such a thing would be to generate those costs ourselves. That is a little bit of a task, and we had managed to get the assets to quite a significant point. Those assets were paid for by significant non-public money. The money coming off the assets was non-public, and that was the money that was going to support the boarding project. In order to make certain that we were going to be fine with that and that it was secure, we wanted a trust to be formed in which those assets would be placed, so that the children would be safe now and into the future. That was the motivation and the reason we did it.
Chair
Jacqui, do you want to come in on that?
Jacqui Smillie
I just want to come back to the factual accuracy. It is important that we clarify that the factual accuracy of the Report, which is on the oversight of the Education Funding Agency, was cleared with Peter Lauener and in discussions with Chris Wormald as well. We cleared the Report with Durand Academy Trust. I spoke to Victoria Robinson, the chair of governors at that time, and we made appropriate adjustments to the Report to recognise that. Subsequent to the publishing of our Report, an issue with the transfer of the land is now subject to legal discussion and advice.
Chair
I was going to come to the transfer of land. I have to say that I am somewhat bewildered by that. Perhaps either Peter Lauener or Chris Wormald can swiftly answer this question. Once you are an academy trust, how you use your assets and income is down to you; nobody else interferes. The same was probably true when you had foundation trust status.
Peter Lauener
Basically, that is correct. Obviously, there is—
Chair
So there is no advantage in setting up a separate organisation.
Peter Lauener
There is regulation through the funding agreement and the “Academies financial handbook”, but the use of the land is a matter for the Durand—
Chair
And any income would stay with the organisation?
Peter Lauener
Yes.
Chair
There is no way Lambeth council or the DFE could take the money away from you.
Peter Lauener
Basically, that is right. That is not to say that we would not take account of other income in reaching agreement, as we did when we discussed the boarding project, because we were expecting a contribution, which is rather as Greg says.
Chair
So we are slightly bewildered, Sir Greg, that your justification does not appear to be sound. Is it right that the school gifted to the education trust the land on which accommodation and leisure facilities exist? Am I right about that?
Sir Greg Martin
Yes, the—
Chair
So who owns that land and the leisure facilities and accommodation?
Sir Greg Martin
At the moment? Who owns it?
Chair
Who owns it?
Sir Greg Martin
The Durand Academy—the Durand Education Trust owns the land.
Chair
But this is public land and these are buildings built on school land—
Sir Greg Martin
Yes.
Chair
But they are owned by a charitable trust that is not regulated by the Charity Commission.
Sir Greg Martin
It is regulated by the Charity Commission.
Peter Lauener
There was some uncertainty over that point earlier in the year, when we carried out our investigation of Durand. We spoke to the Charity Commission. They said that the Durand Education Trust had been deregistered at the same time as the Durand Academy Trust had been deregistered, after the passing of the Act that made all academy trusts exempt charities regulated by the Secretary of State. The Charity Commission then took a different view, having had further advice last autumn from the Durand Education Trust, that the Charity Commission decision to deregister had been wrong, and the Charity Commission therefore decided to register it. This became apparent to us in November last year. It is fair to say that the Report that the National Audit Office has done, which I think is a very fair Report, a very good Report and, as Jacqui Smillie said, was the report of our investigation—the National Audit Office did not carry out new investigation work—the Report was concluded while there was a set of agreements in place. At that point, the Durand Academy Trust and the Durand Education Trust said, “Well, because of this development, we can’t go forward with the agreements that we’ve put in place.” So I think it is fair to say—I’ll look across to Jacqui—that the National Audit Office Report, although, I repeat, I think it is a very good Report, is not 100% up to date, because of developments since it was published.
Jacqui Smillie
There have been developments since the Report was published, yes.
Chair
Well, if anything in figure 2 has changed, let us know. [Interruption.] I don’t want us to get off the issue. Come in as you think appropriate. I am going to take us through the figure. Where we are at the moment is that Durand set up the Durand Education Trust. There is no agreement, and I can see no reason why it needed to set that up to safeguard the income. And you were in and out of charitable status. You are now in charitable status, and presumably the Charity Commission are, as we speak, undertaking an investigation.
Peter Lauener
They are reviewing the registration that the Durand Education Trust have made. I will not speak for the Charity Commission, but—
Chair
No. We are seeing them later this week, so we’ll ask them.
Stephen Phillips
I want to go back to the Durand Education Trust. What is it that that can do with the land that the Durand Academy Trust couldn’t do?
Sir Greg Martin
There are a number of things. For example, we couldn’t have bought the Midhurst property in the way we bought it without using non-public income, because we were able to secure an interest-free loan of £2 million five years ago—
Stephen Phillips
So what you say is the justification for the setting up of the education trust is that the academy trust couldn’t do things that needed to be done to raise money to run the boarding school that you had in mind. Correct?
Sir Greg Martin
That is one of the reasons.
Stephen Phillips
Right, so the specific question that I am asking is: what powers was the academy trust lacking that required transferring—without, incidentally, the consent of the Department for Education—all the land and buildings that the academy owned to a different trust, of which you are one of the directors? What was it that the education trust could do? What powers was the academy trust lacking?
Sir Greg Martin
Can I just say I am not one of the directors? I resigned from that a while ago.
Stephen Phillips
All right—you were a director at the relevant time. Let’s not mince words here.
Sir Greg Martin
Well, no, no—you said I was a director and I’m not. I was at the relevant time, but I’m not now. That is just a matter of fact; I was just pointing that out.
Dame Anne McGuire
Can I ask when you ceased to be a director?
Sir Greg Martin
I ceased to be a director when we discussed the whole of this situation, because of course the school developed as the EFA had recognised, historically over time. And when we set up the Durand Academy Trust, I was asked to be a director and I said yes, I would be a director. Later, when it was all looked at by the EFA, in the first instance when we believed the EFA to be the regulator, it said, “Look, it wouldn’t be wise. You need to rationalise the bodies that you are on, so you need to leave.”
Dame Anne McGuire
Right. So, a simple date would do. When did you cease to be a director of DET?
Sir Greg Martin
Probably about three months ago—four months ago.
Dame Anne McGuire
What? Three or four months ago, approximately?
Sir Greg Martin
Yes. But I will find the exact date for you.
Jacqui Smillie
September 2014.
Dame Anne McGuire
September 2014? Thanks, Jacqui.
Stephen Phillips
Because it was inappropriate, or thought to be inappropriate, and you recognised this, if you should be a director of both bodies. Is that right?
Sir Greg Martin
That is right.
Stephen Phillips
Right. And you had not appreciated that previously?
Sir Greg Martin
Absolutely not, no.
Stephen Phillips
Right. So, let me come back to my question, then. You set up DET and you transfer all the land and buildings to DET; we will come back to that in a moment. What is it that DET can do that the academy trust couldn’t do?
Sir Greg Martin
There are two things. One is that DET shelters the assets from changes of Government, and of course the income generation is non-public and goes into a trust for the use of the children. That is hugely important to us going forward because we want to be able to say, and we are saying to the parents, that boarding costs will be free for you going forward. Now, if everything was owned or run by a public body like a school, that is subject to changes of financial regulation and direction, which we could not know about. By doing it this way, we protect the assets going forward, for the sole and complete benefit of delivering the free education, in terms of boarding, for the children going forward. So, that is the first thing. Secondly, as I said earlier, there is the ability to buy land in the way we did, which simply would not have been possible through an academies trust, or any other form of school.
Stephen Phillips
I will take your word for that—
Chair
Can we get the other view on that? Can we get the view from Chris Wormald and Peter Lauener?
Peter Lauener
There are two points I would like to make, which I hope will be helpful to the Committee in understanding this. First, there are a range of models of land ownership by academy trusts. There are a number of academy trusts that own their own land. There are other academy trusts, and probably the most common mode is where the local authority owns the land and it is leased on a 125-year peppercorn lease to the academy. There are a number of other cases, and Church schools can be like this, where the trust is held in a separate body, for historical Church-ownership reasons. So there are a number of different models, and it is certainly not that unusual to have the ownership in a separate trust.
Stephen Phillips
What is unusual in this case is that this model created a separation of the land.
Peter Lauener
Well, indeed, and there is one tactical benefit. It is, as Sir Greg said, that it is possible for a separate charity to borrow money, which we don’t permit for academy trusts, except by permission; in some cases, we will give permission, but generally it would be easier for a separate charity to borrow money. But of course, as the NAO Report set out, we thought that the resulting governance of all the arrangements, as set out in figure 2, was far too complicated and untransparent. We proposed, and thought we had agreement to, a different model. When Durand Education Trust considered this further, it felt that was not what it should do, and we are in disagreement at the moment about the way ahead with Durand—actually, with the Durand Academy Trust and Durand Education Trust.
Chair
Now, if Durand Education Trust decides to sell the leisure facilities—?
Peter Lauener
It is under control of the Secretary of State through the Academies Act 2010 and the Secretary of State could—
Chair
There is disagreement on that.
Sir Greg Martin
There is disagreement on that.
Nick Smith
Why?
Sir Greg Martin
The disagreement is that it is a charity that owns the land, and the charity which makes those decisions is not under the control of the Secretary of State. It is simply under the control of the Charity Commission. So you are quite right that in the future, where the charity so wished, they could sell that, but of course that would defeat the whole project and prevent the boarding.
Chair
That is your view at present, but over time, in the same way as politicians and Administrations change, so do charities.
Sir Greg Martin
However, if a politician changed they could come in and sell the assets that belong to the state, and they may or may not distribute the money to the school. That would not be necessarily—
Chair
Well, a charity may or may not distribute.
Sir Greg Martin
No, the money would go into a charity which is held for the benefit of the children of Durand school. So it always—say we were very successful, or more successful than we are now, and we sold it for several million pounds. That would go into the charity. That would then support the boarding. But it would be foolish—
Chair
We will come on to that, because the lack of transparency, which I completely take—
Dame Anne McGuire
Sorry, I want to understand what is happening between Sir Greg and the Department in terms of this doubt about the ownership of the assets.
Chris Wormald
That is one of the issues where we and Durand are in disagreement. Our very clear legal advice is that this land is covered by the 2010 Act. Now, I know that you do not agree with that, but that is the legal advice that we have.
Sir Amyas Morse
May I ask another question on the same subject, which might be useful, just to be sure that I have understood it? I listened to your answers and I am taking them absolutely at face value, but I want to make sure that I understand them. The transfer into the Durand Education Trust—the primary motivation for putting it in there was to put it out of the reach of the Secretary of State and so on. It was transferred, and whether or not it was ultra vires that you transferred it—whether or not you had power to transfer it is an interesting question—anyway, you transferred it, you are telling us, expressly to put it out of the reach of the normal ambit of the Secretary of State in these matters. Is that right?
Sir Greg Martin
The Secretary of State and possibly local authorities. When we were building our project in Lambeth, we were subject to quite a lot of interest from Lambeth, and that resulted in a lot of argument. One of the things was that they claimed that they owned what we had built. So what could end up happening is that we could build this rather tremendous activity, have the money for our children and then it could be taken away from us, although we have got children boarding. We wanted to ensure—
Sir Amyas Morse
I am not disagreeing with your explanation; I just want to make sure that I have understood all the points. So the idea was not just to put it beyond the reach of the Secretary of State, but also to put it beyond the reach of the local authority.
Sir Greg Martin
Correct.
Chair
Given that the right permissions were never sought when the land was transferred—
Sir Greg Martin
May I just challenge that, Chair? That is just wrong. It was done under the authority of paragraph A1(2) of schedule 22 to the School Standards and Framework Act 1998. It was done entirely correctly. There was no requirement for the Secretary of State to give permission on this. The statute existed, and I believe still exists, for that to happen. So it is quite wrong when we are told that we did it without asking permission, as if we snuck it under the radar somehow and put it in trust. That is not true. This was done entirely correctly before the Academies Act 2010 came into being.
Peter Lauener
It is true that the Secretary of State’s agreement is not required for the transfer of land in particular circumstances, but there is a due process laid down including consultation and the like, and we have not seen evidence that that process was followed.
Chair
This was not your land at the time. It was local authority land, wasn’t it?
Peter Lauener
Well, no, it was held by the school. It was a foundation school that had its own land.
Chair
Right. So the foundation school was answerable to the Department or the local authority?
Chris Wormald
It was a maintained school at the time.
Chair
I just cannot remember the structure. Would that have been to the Department or to the local authority?
Peter Lauener
It was to the local authority before conversion. It had been a grant maintained school, of course.
Sir Greg Martin
It became a grant maintained school in ’95.
Peter Lauener
And then it became a foundation school.
Sir Greg Martin
In 2000.
Chair
So who is taking action? Who is looking at the legitimacy and whether it was ultra vires or not to gift the land? Who is looking at that?
Peter Lauener
We are certainly looking at that issue. We have taken legal advice on the proposals that—
Chair
What are you doing about it? Will you come back to us and tell us that you have resolved it?
Peter Lauener
We have only had the legal advice for a short time. Absolute clarity about the land is obviously important, but the thing that we are most concerned about is the appropriate governance arrangements—
Chair
Let us go on to that, but I think we have an issue.
Chris Wormald
Before we go on, just to be absolutely clear, we are in disagreement with Durand about these issues, and they are not yet resolved. It is perfectly reasonable, of course, for Durand to be making its case; we do not agree with it and clearly that needs to be resolved. We are very clear about what our legal advice says—
Chair
From the point of view of Parliament, you need to come back to us, Chris—
Chris Wormald
Delighted— Chair:—with an unequivocal answer as to who owns and therefore benefits from the growing asset value of the land.
Chris Wormald
We completely agree with you. The story of this, as the Report sets out, is that in May last year we believed that we and Durand had an agreement on a way forward that would meet all concerns. Durand, as is its right, then concluded that it did not want to sign up to that agreement—that happened at the end of October—so from that period to now has been the period of disagreement. That has not yet resolved itself.
Chair
I know, I understand that. We want to know whether the deal was intra vires/ultra vires. We also need to know, to protect the taxpayer’s pound, that if anyone were to benefit from an increase in value of the land or of the properties on the land, who it is that is benefiting and is therefore the taxpayer’s pound protected? We need to have answers to those questions.
Peter Lauener
We will write as soon as those matters are resolved.
Stephen Phillips
If this has been going on since last October—a massive disagreement, with on the one hand Durand and both trusts saying, “No, this is not right. This transfer was not ultra vires and the land is plainly owned by the education trust” and, on the other hand, the Department saying, “Actually, you didn’t follow the appropriate processes, so it was ultra vires”—when is it going to be resolved?
Chris Wormald
I certainly agree that this should be resolved as soon as possible. It is difficult in this situation to give a very hard and fast timetable—
Stephen Phillips
Try!
Chris Wormald
I take it from the Committee that you would like us to resolve this as soon as possible—
Stephen Phillips
I am not your boss. I am responsible, along with the Committee, for looking after taxpayers’ money. If the matter is not resolved quickly, it is quite plain to me that taxpayers’ money is not being looked after, so I want an estimate from one of you as to when you are going to resolve the issue—
Peter Lauener
I would hope that we can resolve this satisfactorily within two months, but as Chris said, we are in disagreement about the way forward, so—
Chair
Okay. Well, let’s go for two months.
Stephen Phillips
Conveniently in the middle of purdah, but never mind—
Chair
But we can still know, can’t we?
Peter Lauener
Two months will take us to just before the pre-election period—[Interruption.]
Chair
Right, it will be the middle of purdah—
Chris Wormald
No, two months will be before purdah—the week before purdah.
Chair
The week before, thank you. Now let us go back to figure 2. Why on earth did you set up London Horizons Limited, Sir Greg?
Sir Greg Martin
We set up London Horizons Limited back in the late ’90s on advice of accountants, because by that time I was generating significant income for the school through my work. We were told that if we were not careful we would be subject to corporation tax, therefore we needed to have the money donated to the school, because donations were free of that, otherwise we would be losing significant income for the benefit of the children.
Chair
You were avoiding corporation tax, were you?
Sir Greg Martin
We were making certain that the corporation tax was used much more efficiently—rather than going to the Government and then back to us, it could go straight to the children.
Chair
But that is not your choice. That is a democratic choice. You were setting up a deliberate structure to avoid paying proper tax on your earnings. It is up to us to decide how much money should go; it is not up to you to avoid the intent of Parliament that you should pay tax. Are you actually telling the Committee that this was a deliberate tax avoidance mechanism?
Simon Parkes
May I offer some help? This is actually in line with HMRC and Charity Commission guidance on how charities should run subsidiary trading companies, so this is not simply a tax avoidance scheme that Durand just dreamt up. This is what HMRC advises charities to do when they have trading companies, to get the charitable donations broadly in the right place. This is entirely in line with that.
Sir Amyas Morse
This isn’t just a subsidiary, is it?
Chair
I’m sorry, explain that to me.
Dame Anne McGuire
I did not quite pick up what the Comptroller and Auditor-General said.
Sir Amyas Morse
This is not a subsidiary, in fact.
Jacqui Smillie
It is a private company. It is not a subsidiary of DET, the charity.
Simon Parkes
The principle—the point I’m making—is that it is in line with HMRC advice to have a separate trading entity.
Chair
I don’t understand the disagreement between you two. Can you come back?
Stephen Phillips
It is not a subsidiary of either the academy trust or the education trust. It is a private company. I don’t know who the directors are, but—
Chair
Alan Davies and Tom Cornwall. That changed.
Stephen Phillips
Whether that has changed or not, they are all people linked with Durand again—is that right?
Sir Greg Martin
Can I just point out that Mr Parkes is exactly correct? This is advice we were given. It is a structure that is apparently quite normal in the private sector.
Chair
I am trying to find out why.
Jacqui Smillie
It is quite standard in the charity sector for a trading subsidiary to set up for a part of it.
Dame Anne McGuire
This was not a subsidiary. I understand the issue of setting up what are effectively holding companies for charities to do the trading—the trading arm of charities—but this is a separate private company that, according to the timeline, was established when?
Sir Greg Martin
1997.
Stephen Phillips
If it was a subsidiary the shares would have been owned by the academy trust.
Sir Greg Martin
No, it is limited by guarantee. There were no shares, because it was simply set up—
Stephen Phillips
All right then, the guarantor would presumably have been the academy trust, would it?
Sir Greg Martin
The guarantor was LHL. At the time there wasn’t an academy trust, because this was a grant-maintained school, which was a different entity from the one we are talking about now.
Dame Anne McGuire
It is a private company limited by guarantee, not a charitable company?
Sir Greg Martin
No, this isn’t a charitable company. What it agreed to do is hand money by donating, gift aided, to the school.
Dame Anne McGuire
I understand that bit. It is not a subsidiary of DAT; it is a private company limited by guarantee. It then has total jurisdiction over where it donates money. It does not necessarily need to donate it to the school—it could make other decisions.
Sir Greg Martin
That is right.
Stephen Phillips
Who are the people who own the company? It has no shares and is limited by guarantee, so who are the people who incorporated it—who are the members?
Sir Greg Martin
The members who incorporated it were Alan Davies and others in the past, going back 12 or 15 years.
Stephen Phillips
Who are the people who control and manage it now?
Sir Greg Martin
There is a licence for it to operate whereby it agrees to hand the money over. That is what happened for 17 years. What we are doing now, with the Charity Commission’s advice, is making it a wholly owned company of DET.
Stephen Phillips
Which is what it should have been in the first place.
Chair
Can I just note this? It employs absolutely no staff.
Sir Greg Martin
That is correct. It subcontracted that obligation to me.
Chair
Why do you have this interim company? I have to say, Simon, that I don’t think you are right. Anne will know more about this, but if you set up a charity and have a trading arm, it is a subsidiary of the charity. All of us have worked with that. That is not the structure that is here.
Sir Greg Martin
To help you, there wasn’t a charity set up then. This was back in 1997.
Chair
It doesn’t matter. I was working in the charity sector—
Sir Greg Martin
Well, it does matter in the sense that it wasn’t set up.
Dame Anne McGuire
Can I take us back to when you established the company? What were the objectives of the company? They weren’t charitable objectives at that time. It was a company limited by guarantee, so you would fully expect to trade, but not as a charitable company. What were the objectives in the establishment of the company when it was initially established and registered?
Sir Greg Martin
As my colleague Mr Parkes says, it was to ensure that the maximum amount of non-public money would get to the school in the most effective and efficient way.
Chair
Have you looked at the accounts of this company?
Simon Parkes
Yes, we have seen the accounts.
Chair
What do they tell you? What went in there? How much money went in in a year?
Simon Parkes
I haven’t got the figures in front of me, but from what I remember they showed the relatively modest amount of income being donated to the Durand—
Chair
How much?
Simon Parkes
About £370,000 a year.
Stephen Phillips
It was £367,000 for 2012. Does that sound about right?
Simon Parkes
About £360,000 a year is the right sort of number.
Chair
That the company?
Simon Parkes
I do not have figures for that. London Horizons does not actually do any of the trading, of course; it generates its income through GMG Educational Support and acts as a conduit.
Sir Greg Martin
Can I just bring you up to date on the figures? Last year we turned over £1 million, and about £630,000 was handed over to the trust because we—
Chair
Who is “we” in this context, Sir Greg?
Sir Greg Martin
Well, LHL and GMG made the money.
Chair
LHL or GMG?
Sir Greg Martin
GMG does the work and is the business really.
Chair
Who gets the money?
Sir Greg Martin
I get a fee from GMG—from LHL—which we will come to, no doubt. There is £1 million turnover, which is brought in by the business activity, and £630,000 of that is handed over to the trust. Over the past five years, we have been paying for the St Cuthman’s site, where we are doing our boarding. About half of the money goes to redeem that loan, which will be finished in about five months’ time. That asset, which is now valued at about £5 million is wholly paid for and, as we speak, 48 children in year 9 are being boarded free there.
Chair
If you were to sell that asset, where would the money—
Sir Greg Martin
The Charity Commission.
Chair
The Charity Commission?
Sir Greg Martin
DET could sell the asset. The money would then go into the DET trust for the support and use for the children in their free boarding.
Chair
Well, that is what you say but it could go—
Peter Lauener
Chair, that is one of the areas where we have a disagreement about legal fact. We do not think that DET could sell the land without the permission of the Secretary of State.
Stephen Phillips
Including the land in Sussex? Which land are we talking about? Are we now talking about the boarding land?
Peter Lauener
No, I am talking about the land on which Durand Primary School sits.
Chair
We are talking about the boarding land.
Sir Greg Martin
The boarding land certainly—
Stephen Phillips
Who owns that?
Sir Greg Martin
DET.
Stephen Phillips
Can that be sold without the consent of the Secretary of State?
Sir Greg Martin
Yes, it can.
Stephen Phillips
Is that agreed by the Department? As a result of these complex structures, money that was controlled, public money in the hands of the Secretary of State, has now become uncontrolled public money.
Sir Greg Martin
With respect, St Cuthman’s was never in the Secretary of State’s gift. The school bought it. LHL bought it entirely from non-public money. It was never owned by the state.
Chair
With respect, Sir Greg, there is a clearly a question to be answered as to whether money made from a school should be public money. I am anxious to get an answer from Peter Lauener or Chris Wormald. Who, if they sold the boarding—
Stephen Phillips
The £5 million boarding site in Sussex—whose money is that?
Peter Lauener
Actually, I cannot give you a 100% sure answer on that because we have been concentrating on the legal issues around the south London site for the primary school. I think that there is a difference in type between the St Cuthman’s site, which was bought with income generated from the operations of the leisure facilities in south London, and the original Hackford road site, which was clearly publicly funded land in its origins. The point is that, to the best of my knowledge, there was no private risk capital put into the ventures, but it was created—hats off—from an entrepreneurial approach.
Stephen Phillips
Which we understand, but it was created entirely out of public money so one’s anticipation would be that the end product—the £5 million site in Sussex—would belong to the taxpayer. Now you are basically telling us that you do not know, but you do not think that that is right.
Peter Lauener
I am not saying that. I am very certain, having taken specific legal advice on the Hackford road site in Stockwell, about the position on that. We ought to ask the question more specifically.
Chair
You ought to ask the question. It is £5 million of public money.
Peter Lauener
About that asset. Can I just make one other point? I do not want to delay the Committee.
Dame Anne McGuire
It is okay. We have plenty of time.
Peter Lauener
I have been admonished in the past for giving long answers. The fundamental issue here is the governance and getting that right for the whole set of operations. That was what we were very focused on in the review that we did in February, March and April, in the meeting Chris and I had in May and in the letter that we took to be an agreed letter in May. Looking at something very like this document, we said, “This is too complicated. It needs to be simplified. It is not sufficiently transparent and it ought to be wrapped up together, with all the land brought under one set of arrangements.” As Chris has said, we had an initial agreement on that.
Stephen Phillips
Mr Lauener, you are preaching to the converted. No one here thinks that poor governance is a good idea. We all support you on good governance. From the perspective of your job, good governance is your primary focus. Our focus is not only on good governance, but on the appropriate and proper use of taxpayer funds. I am concerned as a result of your answers and those I have had from Sir Greg that there will now be, when the loan is paid off, a £5 million site sitting in West Sussex that belongs to the Durand Education Trust, which the Durand Education Trust can do with as it will, without that money being regarded as taxpayer money.
Peter Lauener
I do not think that that is the case, but I—
Stephen Phillips
You cannot tell me. Let us assume that your legal advice says that that is not the case. I am damn sure that Sir Greg’s legal advice will say that it is the case.
Peter Lauener
I think we need to reach a resolution on that.
Stephen Phillips
You must agree that one thing all this discussion is demonstrating is that you are not acting speedily enough to resolve these issues.
Peter Lauener
This has been an extraordinarily complex case. It is the most complex case that we have had to deal with in the two and three-quarter years of the Education Funding Agency. I expected to be challenged on the question of whether we are taking too long to deal with this. I thought we had a resolution last May, and I was very disappointed when that fell away. I made the comment earlier that we—
Chair
But a resolution on governance would not have answered the question on ownership.
Simon Parkes
The resolution on governance would have answered that, because it would have meant that DET became part of DAT. It would have resolved that. That was the proposition that we thought was agreed.
Guto Bebb
To clarify the situation with the boarding school, my understanding is that the public asset was taken into DET and whether that was acceptable or not is the subject of dispute between you and the Department for Education. Once that money had been transferred to DET, a loan was taken against the asset, which was previously a public asset and is now in dispute. Is that correct so far?
Greg Martin
No, that is not correct. When we purchased the St Cuthman’s site, the chap who sold it to us took no charge against any of the assets, except that if we did not pay for the site, he would take that site back. The St Cuthman’s site—
Chair
The security was provided from the site itself.
Sir Greg Martin
And we have now got to the point where we have got four or five more payments to make of £30,000 a year, paid from non-public money. Your issue about this being taxpayers’ own property, I take issue with, on the basis that it has been paid for entirely—that is not absolutely true; about 60% of it has been paid by non-public income.
Stephen Phillips
It has been paid for from income generated from the sports and leisure facilities on the school site. Correct? How do you think, Sir Greg, that that is not money derived from public funds?
Sir Greg Martin
Well, I can think that because it is not, and I will explain to you why it is not. In the same way as if someone sold a playing field—as has sadly happened—and developers build properties on it and sell them, the money that derives from those sales is not public money—
Stephen Phillips
No, Sir Greg, it is a completely different situation when a school has sold a playing field to an arm’s length third party who has then paid what that playing field is worth, developed it and sold those assets. In this case, that is not what has happened. The school transferred, without consideration and without receiving any money, its assets to another trust, set up for reasons that continue to escape me, of which you and all the other little Durand pixies were also directors.
Sir Greg Martin
That is a very colourful way of putting it. Can I put it another way, which might be helpful to you? The actual assets on the Durand site, which we have transferred and which we are talking about, have been entirely paid for from the income generation, so no public money has gone into those assets. Those assets that were paid for by public money—or rent, if you like, paid for the land as it would be an arm’s-length developer—have been transferred over to—
Sir Amyas Morse
The fruit comes from the tree and the character of the tree is what determines the character of the fruit. There is quite a lot of legal argument on that.
Chair
The income is generated from a public asset. You do not think it is a public asset. I think we do, and this is what has to be agreed. Guto, were you going to ask something?
Guto Bebb
I need to clarify the issue of the £2 million loan, because I am certain I heard you stating initially that one of the advantages was to enable the borrowing of money against the assets. Is that clearly a misconception that I have?
Sir Greg Martin
No. One of the benefits of the possible ways of going forward would be that opportunity.
Guto Bebb
You mention that as an opportunity. It is not what actually happened.
Sir Greg Martin
Well, it is what actually happened, because that is how we got St Cuthman’s and that is why the children are boarding—
Guto Bebb
This is the point I was making. Therefore, the £2 million loan was initially secured against the public asset you have just transferred.
Sir Greg Martin
Well, it wasn’t; it was issued against—the point being that had we not had London Horizons to pay that, we could not have bought the land.
Guto Bebb
In other words, the asset, which is now worth £5 million, would not have been possible if it were not for the public money in the first instance.
Sir Greg Martin
That is absolutely correct.
Chair
I want to get on, because we have loads to cover, so very quickly on this point, Austin.
Austin Mitchell
I have only two points. First, it appears that in the rush to tarmacadamise the country, we have created a messy situation in terms of ownership of the land. Now that Sir Greg has created this precedent, and it works, perhaps Mr Lauener can tell us what is to stop other academies from doing the same thing.
Peter Lauener
This is a particularly unusual situation, as I explained.
Austin Mitchell
But what is to stop them?
Peter Lauener
Academies would have to get our permission, on behalf of the Secretary of State, to use the land, because—
Austin Mitchell
Would you give permission here— Peter Lauener:—because of the circumstances under which it happened, and this has developed over 20 years. I think there have been some very positive things about that, and then I think the governance has not been in place to support the ongoing management of the assets. I would just like to make the point clear—
Chair
Just answer the question very directly: what is to stop somebody else from doing it?
Peter Lauener
The academy funding agreement in the academies financial handbook requires every academy trust to gain permission from the Secretary of State for any—
Chair
Disposal.
Peter Lauener
Sorry—for any disposal of land?
Austin Mitchell
It isn’t a disposal; it’s a transfer.
Peter Lauener
For any activities that might be novel or contentious. That is clearly specified.
Chair
Transfer of land?
Peter Lauener
That comes back to the issue of whether due process was followed in the transfer of land.
Chair
Would it stop transfer of land?
Chris Wormald
The straight answer to Mr Mitchell’s question is that these transactions happened before the school was an academy. So I think we are clear that an existing academy could not do any of these things without our permission. I make no comment about whether—
Austin Mitchell
If I was running an academy, I would be tempted to do the same thing and not to let doubts get in the way. I want to ask a question to Sir Greg; I am a bit confused by what is happening here. I do not mind you playing top entrepreneur as a head teacher—you probably have a lot of fun with it—but I would like your assurance that none of the money made by these organisations goes into private pockets, and that it all goes into education or the boarding school, or into improving the lot of the kids. I would like your assurance on that.
Sir Greg Martin
I get paid. At the beginning of this business agreement back in ’98, the governing body and I, when I had other alternatives ahead of me and I could have left, saw the potential for the future of our children, and I will explain about education in a little while. We decided when we set up a trading company—and I would run that trading company—that the assets would always belong to, and be under the control of, one of the trusts, or the school at the time, and I would get 15% of the business going forward.
Chair
You personally?
Sir Greg Martin
My company, personally. It has been in the public domain for—
Stephen Phillips
Plus an annual fixed payment of £32,000. Don’t leave that out.
Sir Greg Martin
Yes. There was no income for the first nine years of working on producing this. If I had come to you and said, “I’ve got a reasonable idea that might be very effective at the end of 10 years’ work, with no risk to the taxpayer because all the money that would be paid will come from non-taxpayers’ money—from earned income. At the end of it, I’ll be able to hand you £10 million to £12 million-worth of assets and £600,000 to £700,000 a year income, and in return I would like 15% of what I make”—
Chair
Sir Greg, just to get this clear, in ’11-’12 you got £265,000, in ’12-’13 you personally got £256,000 and in ’13-’14 you got £269,000, on top of your salary as a head teacher.
Sir Greg Martin
Not quite, because of course some of that money went on the staffing costs.
Chair
How much did you get?
Sir Greg Martin
You can see, because it is written down there. Was it £98,000?
Chair
No, it isn’t. In ’11-’12 you were being paid at the highest rate for any head teacher in the land.
Sir Greg Martin
Are we talking about my public salary now?
Chair
Hang on. In 2011-12, GMG, of which you are the sole director, got £265,000. How much did you get?
Sir Greg Martin
I would think about £140,000 or £150,000 of that.
Chair
That is £140,000 on top of the salary that you were getting. In ’12-’13, GMG got £256,000. How much did you get?
Sir Greg Martin
Same again.
Peter Lauener
I have figures that might help. The amounts in the document were £172,000 in 2011-12 plus the £93,000 salary recharge.
Chair
So £172,000 into Sir Greg’s pocket?
Peter Lauener
That is my understanding. In ’12-’13 the figure was £161,000, and in ’13-’14 the figure was £175,000.
Dame Anne McGuire
The recharge of the staffing costs during those three years—just so we are all clear—was £93,000. Is that right?
Peter Lauener
It was £93,000 and £95,000.
Dame Anne McGuire
It was £93,000 in 2011, £95,000 in 2012 and £94,000, so they haven’t really varied all that much throughout that three-year period. Those are the staffing costs of GMG.
Peter Lauener
That is my understanding.
Dame Anne McGuire
Where does the management fee go? What is it for?
Sir Greg Martin
It is for my company, for me.
Dame Anne McGuire
That is for you as the sole director of GMG?
Sir Greg Martin
Correct.
Dame Anne McGuire
So that’s the management fee, which is nearly double the staffing costs.
Chair
This is pretty gobsmacking stuff. In ’11-’12 you were getting £172,000 in your pocket. At that time, you were earning some £250,000.
Sir Greg Martin
From the public purse.
Chair
I would say that you, as one person, were earning that much to run—how many children in your school?
Sir Greg Martin
There are 1,200 at the moment.
Chair
In your primary school or your secondary school?
Sir Greg Martin
In the whole school.
Chair
You were running a primary school and developing a secondary school.
Sir Greg Martin
Correct.
Chair
For doing those two things you were paying yourself £200,000, £300,000, £426,000.
Sir Greg Martin
That is quite wrong.
Chair
It is £250,000 as head teacher.
Sir Greg Martin
No, £200,000 as head teacher.
Chair
The figure I have is £250,000.
Sir Greg Martin
Why is it £250,000?
Chair
There was a point at which you gave yourself a 56% salary increase, according to the books.
Peter Lauener
May I clarify the salary figures? I believe Greg’s salary was £128,322 in 2011-12, and on top of that there was an £18,000 pension contribution.
Chair
Say that again slowly.
Peter Lauener
I will give salary then pension, and Greg will correct me if I get this wrong.
Chair
In ’11-’12.
Peter Lauener
In ’11-’12 it was £128,322 plus £18,093, which gives £146,415. In ’12-’13 it went up to £200,822 plus a pension contribution of £28,316.
Chair
And in ’13-’14?
Peter Lauener
I believe it is the same as ’12-’13.
Stephen Phillips
Let us put it slightly differently. If we look at 2012-13, your basic salary for being head teacher was a little over £200,000—correct? Then you got a £28,000 pension contribution. You are the sole director, and presumably sole shareholder, of GMG—correct?
Sir Greg Martin
Yes.
Stephen Phillips
GMG operates the sports and leisure facilities at the school at which you are a head teacher—correct?
Sir Greg Martin
It operates on private land and it is a private company, but yes, it is in the school site.
Stephen Phillips
Let me ask my question again and you can tell me whether I am wrong. It was a very simple question: GMG operates the sports and leisure facilities at the school at which you are a head teacher—correct?
Sir Greg Martin
Well, you are sort of correct. It is in the school site, but it is not at the school, because it is a private company.
Stephen Phillips
If the kids go swimming in the day, it is the pool they use—correct?
Sir Greg Martin
It is a pool that we allow them to use, and they go for free, yes.
Stephen Phillips
Oh, you allow them to use it.
Sir Greg Martin
Yes.
Stephen Phillips
How very nice of you.
Sir Greg Martin
Yes, it is very nice.
Stephen Phillips
Right, let’s move on. For operating those leisure facilities, in the 2012-13 year, a further £161,000 ends up in the pocket of Sir Greg Martin—in your pocket—correct?
Sir Greg Martin
Correct.
Stephen Phillips
So in the 2012-13 year you get, let’s say, £228,822 basic salary and pension, and then for having this other little company that is using the facilities at the school, which the school children use during the day and are then used by the community and others who pay for them in the evening, you get another £161,000 in your pocket.