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Higher Education: Funding

Volume 721: debated on Tuesday 12 October 2010


My Lords, with the leave of the House, I would like to repeat a Statement made in another place by my right honourable friend the Secretary of State for Business, Innovation and Skills.

“I would like to make a Statement on the future funding of higher education and student finance, in the light of the report published today of Lord Browne’s independent inquiry. Lord Browne was asked to undertake his review in November last year. The review was set up by Labour on a cross-party basis, and that is how we want to proceed.

I and my colleague, the right honourable Member for Havant, want to thank Lord Browne and his review panel. The Government endorse the main thrust of the report, but we are open to suggestions from inside and outside the House over the next few weeks before making specific recommendations to Parliament, with a view to implementing the changes for students entering higher education in autumn 2012. More detail will be contained in next week’s spending review on the funding implications, but as a strategic direction the Government believe that this report is on the right lines.

Lord Browne acknowledges that:

“The current funding and finance systems for higher education are unsustainable and need urgent reform”.

The issue is how, and that question has to be framed in terms of how the higher education sector contributes to the deficit reduction programme.

There is also, I think, consensus around the idea that there should be no up-front tuition fees for students. That would seriously deter students from low and middle-income families. This Government are strongly opposed to up-front tuition fees. Indeed, we share Lord Browne’s conclusion that we should extend exemption from up-front tuition fees to part-time students, currently 40 per cent of the student population, who have been unfairly discriminated against hitherto.

The question, then, is how much the graduate contributions for tuition should be. We are considering a level of £7,000. Many universities and colleges may well decide to charge less than this, since there is clearly scope for greater efficiency and innovation in the way that universities actually operate. Two-year ordinary degrees are one approach. Exceptionally, Lord Browne suggests there should be circumstances under which universities can price their courses above this point. But, he suggests, this would be conditional on demonstrating that funds would be invested in securing a good social mix, with fair access for students with less privileged backgrounds, and in raising the quality of teaching and learning. We will consider this carefully.

We believe it is essential that if the graduate contribution is to rise, it should be linked to graduates’ ability to pay. On average, over their lifetimes graduates earn comfortably more than £100,000 more than non-graduates. However, not all graduates benefit in this way. Some choose socially useful but modestly paid or unpaid work, which may include time spent bringing up a family. At present the graduate contribution acts like a poll tax and is not fair.

Lord Browne has come up with persuasive proposals to deal with this issue. He suggests a £21,000 graduate income threshold before any payment is made, as against £15,000 at present, and for it to be linked to average earnings. He also suggests that a real rate of interest should be paid but only over that threshold. The effect is striking. Twenty per cent of graduates could pay less than they do now. The top third of graduate earners would pay more than twice as much as the lowest third. That is fair and progressive. The Government broadly endorse this approach and will examine the details of implementation. The principle of needs-blind admission to universities must remain central.

The cost of university education to individuals and the state reflects living costs as well as tuition costs. The Browne report makes some constructive suggestions here. We shall come forward with detailed proposals that will make it attractive for students from families of modest means to go to university and will be fair and affordable, including exempting the poorest students from graduate contributions for some or all of their studies.

Lord Browne considered alternatives, including a graduate tax, as I believe the new leader of the Labour Party favours. There are some key features in the current proposal for progressive graduate contributions which incorporate the best features of a graduate tax. It would be collected through the pay packet at a rate of 9p in the pound above the £21,000 threshold; combined with a real interest rate as Browne recommends, it would be progressive and related to ability to pay. But Browne identifies serious problems with a “pure” graduate tax. The proposal is unworkable: it does not produce sufficient revenue to finance higher education until 30 years from now; it weakens university independence; and it is unfair to British graduates, as opposed to graduates living overseas.

If there are any lingering doubts on the opposition Benches I would strongly commend a letter from the new shadow Chancellor to the new Labour leader three weeks ago, which reads thus:

“Oh, and for goodness’ sake, don’t pursue a graduate tax. We should be proud of our brave and correct decision to introduce tuition fees. Students don’t pay them, graduates do, when they’re earning … at very low rates, stopped from their pay just like a graduate tax, but with the money going where it belongs: to universities rather than the Treasury”.

I do believe, moreover, that we need to look beyond the graduate population. Fifty-five per cent of young people do not go to university. We must not perpetuate the idea, encouraged by the pursuit of a misguided 50 per cent participation target, that the only valued option for an 18 year-old is a three-year academic course at a university. An apprenticeship can be just as valuable as a degree, if not more.

Finally, there is a challenge to all of us to promote a long-term sustainable future for higher education. This has been a difficult issue for all parties of this House. Those opposite have ranged between being early advocates of a graduate contribution, such as the Member for Sheffield Brightside and the new shadow Chancellor, through to those implacably opposed to change, to the current Labour leadership who remarkably have now embraced a graduate tax. The Conservatives initially campaigned against graduate contributions but reversed their position. The Liberal Democrats consistently opposed graduate contributions. But in the current economic climate that policy is simply no longer feasible. That is why I intend, on behalf of the coalition, to put specific proposals to the House to implement radical and progressive reforms to higher education based on the Browne report”.

My Lords, that concludes the Statement.

My Lords, I thank the noble Baroness for repeating the Statement and giving us the opportunity to ask what I hope will be constructive questions about the direction that the Government now intend to follow. I appreciate the fact that the Secretary of State included so few rhetorical flourishes about the economic climate. I do not generally accept what is said about that but, more to the point, the university finance issues have been long in the making—we have had to address them very many times—and getting them right was in our minds well before the collapse of parts of the international banking system. I acknowledge what the noble Lord, Lord Browne, said in the passage quoted by the Minister about the depth and strength of the issues involved.

This is an urgent question because, in my view and that of the Opposition, investment in the United Kingdom’s higher education teaching and research is directly correlated with past prosperity, and will no doubt be correlated with future prosperity, future prospects for our country and with the ambitions of individuals and their families. If we seek growth, it is a key investment element in growth. Lord Dearing said that and, as I recall, no political party dissented from that view. He made the point that everybody should contribute to that investment—another principle from which there was no dissent on anyone’s part. We have long known what is needed to build on these achievements and to ensure that we retain our international competitiveness and the inclusive reach of our higher education.

Further to my point on the Secretary of State, I shall not dwell on the volte-face by the Lib Dems as it is sufficiently frequent as to be unexceptional. Nor will I dwell on Nick Clegg’s statement of 28 April that a £7,000 fee would be a national disaster. Let us look with care at the Browne report and ask questions about it. We will look very carefully at all the proposals. Incidentally, the issue about having a tax or other provision really concerns what the mechanism should be, whether it is progressive, appropriate, and affordable and whether having mountains of debt is a good start in life in the current environment. All those questions could be asked of any system and we will press them with regard to this and any other system. I thought that I detected in the Statement—I should be grateful if the Minister could tell us whether this is the case—an indication that a White Paper was on the way. I think that a couple of passages suggested that further work was to be put before Parliament. Any reform of student finance which relies on a significant increase in tuition fees and is based on the assumption of deep cuts in public funding to higher education also raises serious concerns. I hope in a few moments to return to some questions on that.

Our approach to the reform of student finance—a matter which I have spent a good deal of my adult life concerned with—is guided by the following principles: establishing a stable and long-term footing for higher education funding which enables our universities to fulfil the role that they must play in promoting knowledge, innovation and economic growth; no stop-start or radical and sudden changes in the unit of resource, as we saw under a previous Government; avoiding an unfair and unsustainable increase in the burden of debt on lower and middle-income graduates; and ensuring that graduate contributions are progressive, as I said a few moments ago, so that those who earn and can afford more end up paying more than those with smaller incomes.

It is those considerations that draw me to the questions that I believe the House will want to address over the next period. Can the noble Baroness tell us whether middle-income graduates will pay a fair share as compared with high-income earners? A first reading of Browne—we have had only a brief time for it—and the Statement suggests that not only do the proposals combine higher fees with the setting of a real interest rate, but graduates on middle incomes will end up paying far more than their fair share when compared with graduates who are relatively better off—those earning the highest amounts. There will potentially be significant differentiations between the two groups in cash terms because middle-income earners will take far longer to pay off their loans and will be more affected by the charging of a real rate of interest. Is this the correct reading of the proposition which has been put to us? If it is, I fear that we are in for a flawed future.

Will high earners be debt free much earlier than middle-income earners? It is likely that a larger proportion of people on lower incomes will be saddled with high debt for about 30 years. This will mean that, in most cases, they will retain their debt into their middle 50s—probably when their own children are starting to go to university and they are trying to work out how to finance that. Throughout that period, as we know from past debates, they are buying houses and starting families. I note that, on average, one has to be 37 years old before buying one’s first home. All these events come together in life and it is important that we do not make it more difficult, if we are placing more importance on families and having a home and a sustainable way of living. The Browne review estimates that on average only the top 40 per cent of earners will pay back all the charges paid up-front on their behalf by the Government. That tells me that 60 per cent will not be debt free for at least 30 years. Is that not the case?

What will be the impact on off-balance-sheet borrowing, which has always been one of the real issues with a student tax? The claims that it is too difficult to fund the cost of moving to a graduate tax ring hollow when the system that is being proposed will require the Government to borrow to fund the cost of much higher fee loans. The only difference is that the borrowing to pay universities the up-front fees is off the balance sheet. Can the noble Baroness tell us what level of off-balance-sheet borrowing the Browne review requires? What are the plans regarding the sale of the current debt book, a thorny issue which I remember well? That will impact across the whole of this area.

Will there not be a differential for, and a longer impact on, women? Many women will over their lifetimes earn less than men because of the differences in their careers. Will the Government give an undertaking today that they will undertake an equality impact assessment and give proper consideration to what might be a discriminatory difference between men and women in this regard?

The final questions are tremendously important to the university system and, I hope, to the House, because of the way in which we will all need to understand the process that we are going through not just today but over the next few weeks, which will include the comprehensive spending review. The proposals are unlikely to increase the overall funding to universities. That will almost certainly be the case if some of the cuts to university funding that have been hinted at in well sourced reports come through in the comprehensive spending review. Reports suggest that on the teaching side of university funding, the cuts will not be 25 per cent, or the sorts of figures that we have talked about in other areas, but possibly 70 to 80 per cent. Is the Browne report to be used simply as a mechanism for replenishing those cuts without producing any additional income for the universities, which they plainly need? Will it be a mechanism simply for shifting who pays the current quantum, rather than for producing an environment in which there is real growth and real competitiveness, and our universities can stand in the front rank of world universities, as they have done throughout their history and as they do today? That is vital, because some of those who are doing the sums in this sector have been telling us overnight—I have no doubt that they have told the Minister and her colleagues as well—that it will probably take a fee of something like £8,000 per year to produce any new money for universities if cuts at the level that have been prefigured come through the pipeline.

The noble Baroness may well say, “Wait for the comprehensive spending review and we will find out what all of these figures are”. Of course I understand that, but these are well sourced reports. They may be the type of report that raises the level of alarm so that when something slightly less draconian comes through one feels that only a few of one's teeth have been kicked out rather than the whole set. However, if this is a mechanism designed not to grow the income of universities so that they can complete their historic mission but to replace elements that have been cut, that is not the proposal that has run through Robbins and Dearing and, I hope, will run through Browne and into the future. No account of our national financial interest will be answered by cutting off that growth.

I ask one final question of the Minister. Will she say whether the noble Lord, Lord Browne, was privy to what is in the comprehensive spending review, so that he was able to do the sums and make sure that what he was doing would make the contribution that plainly he intended to make? If he was, I am afraid that we are in for some dire news for universities, and students are in for dire news as well. Of course, we will study and explore this, but I ask these questions because I hope that they will provide the answers that will tell us the trajectory of our universities over the coming years.

My Lords, I thank the noble Lord, Lord Triesman, for some very helpful comments and a largely constructive reply. I suspect that he will not be pleased with much of my reply, because of course we are waiting for the comprehensive spending review. Therefore, beyond what I have already said, there is very little to add at this stage that would not be conjecture. As Her Majesty’s Opposition know, there are very hard choices to be made here, and both we and they value the high quality of our universities and want to keep standards as high as we possibly can. We are second in the world only to the United States of America. That is a fine record and one that we would like to keep. However, we are in a very difficult set of circumstances. Again, I thank the noble Lord, Lord Triesman, and will help him by answering just one or two of his questions.

The noble Lord asked whether this is yet another squeeze on middle-income families. We are committed to ensuring that higher education is affordable for everyone. The Government will provide finance for anyone who succeeds in securing a place at university so that no one has to pay for tuition up front, as I said. We also recognise that all students need some help towards living costs. The noble Lord, Lord Browne, has put forward generous proposals for maintenance support and these need to be considered carefully as part of the spending review process. We want a system which provides adequate support for students from low and middle-income families but which is also financially sustainable.

We intend to publish an HE White Paper later this year, leading, we hope, to a higher education Bill in the autumn of 2011. I think that that was what the noble Lord meant in asking that question.

He also asked how the review of the noble Lord, Lord Browne, could affect any potential sale of the student loan book. The treatment of the existing student loan book was not included in the terms of reference for the Browne review, and the Government are currently looking at a range of options for a potential sale.

My Lords, the Minister will be aware that higher education is a devolved subject. Indeed, the financing of higher education differs somewhat in the devolved territories and in Scotland a separate review is under way. Should the Scottish Parliament come to a different solution from that advocated by the Government, will this Government ensure that, in order to fulfil its responsibilities to finance higher education, the Scottish Parliament will be granted additional powers?

The noble Lord, Lord Sewel, has me there. It is a wonderful question but at the moment I have no answer for him. However, I shall be only too delighted to check and come back to him. At this stage, I apologise.

My Lords, I thank the Minister for making the Statement, although, as all sides of the House will know, some of its contents are not totally welcomed by those of us on the Liberal Democrat Benches. Ideally, we should have liked to see a situation in which it was proposed to have no tuition fees, with the costs being met through progressive taxation. Our second best option was a graduate tax. However, we recognise that, given the current financial situation, that is not to be, and we also recognise the very real needs of the universities for extra funding.

As I understand it—perhaps the Minister will confirm this—this is an interim Statement. As she said, we are expecting the comprehensive spending review, which will spell out the details. However, the Government have accepted two aspects in the Statement. One is that a good deal of the extra funding will come from students themselves, and they accept that this will be in the form of repayments relating to extra loans. However, I suspect that the precise mix of loans, grants and dispensations for low-income families will be presented not within the framework of the comprehensive spending review but in—I hope I am right in thinking this—a separate Statement setting out precisely how this is going to be worked out.

I have two further questions for the Minister but before asking them I should like to say two things. First, I am pleased that the proposals suggest a level playing field for part-timers and full-timers. This is an issue for which I and many other people on all sides of the House have fought for a very long time and it is very good to see it at long last. Secondly, I also welcome the simplification proposed for the higher education system—that is, having one higher education council instead of HEFCE, OFFA and the QAA. Indeed, the Office of the Independent Adjudicator is also included, although I wonder whether it is appropriate for that to be subsumed into the single council. Although I recognise that this was not in the terms of reference, I am sorry that the review did not look further and perhaps amalgamate the old Learning and Skills Council element of adult education, as it would be good to see an adult higher education council.

I have two questions. First, am I right in thinking that—although Browne is suggesting no cap on fees, allowing universities to vary fees between institutions and indeed between subjects—the Government are, in effect, suggesting a cap of £7,000? My second question picks up a point made by the noble Lord, Lord Triesman: does the Minister accept that, although raising the threshold to £21,000 is to be welcomed, the introduction of real interest rates on a loan of £30,000 will mean that, even at an income of £30,000 a year, with repayments of £68 a month or £812 a year, most of the £812 will be consumed by interest payments and that very little capital will be paid off? That means that those in that income bracket will retain that debt and probably will not have paid it off after 30 years; they will have it hanging round them, with a 9 per cent extra marginal rate of tax.

My Lords, I thank the noble Baroness, Lady Sharp, very much for that. It is very nice to hear her speak from this side of the Chamber. I was a little confused to start with, as this is the first time I have spoken from here with our friends on this side.

I am very pleased that the noble Baroness likes the idea of the inclusion of part-time students. It is a very good idea. At times, I have been a part-time student, so I think it will be helpful. Yes, we are looking at fees simplification, but as has been pointed out, there are further discussions to be had outside the House and within it. At this stage, nothing is written in tablets of stone as regards the skills council and so on.

The noble Baroness asked what the fee cap would be and, if there is no fee cap, whether fees could be charged at £20,000. Browne makes important recommendations about the structure and level of student contributions. We need to consider the options carefully and work out the implications of implementing them. We are considering a level of £7,000. The noble Lord, Lord Browne, recommends that there may be exceptional circumstances under which universities can price their courses above that threshold, but that would be conditional on them doing more on quality and to promote access for students from less privileged backgrounds. We are considering this proposal very carefully. There are strong views both for and against and we recognise the concerns from some that student contributions over £7,000 would put off some applicants, particularly those from low-income families. Equally, some argue that universities need to be able to charge more if they are to match the highest international standards, but we shall consider the arguments before reaching final conclusions.

My Lords, there is much to welcome in the report and it is a very comprehensive and far reaching review. Unfortunately, it was established as a means of getting extra, long-term sustainable money into the university sector and is now being used, in essence, to replace major cuts. That said, I have one specific question, picking up on something raised by the noble Lord, Lord Triesman, which, with respect, I do not think was answered: the potential differential effect on women in the review. I shall give you one example. If you take a female teacher in the lower middle-income bracket, who maybe takes time out or works part-time for several years bringing up children as she wants to spend some time at home with them, can it possibly be fair that she, in the end, pays substantially more than a full-time City worker, earning considerably more?

I think that there was broad mention in the Statement that I repeated of women having to be with families and having to take time out. I hope that this will all be covered after we have got rid of this awful business of the money. These are the areas that we really need to discuss and get right now. If it is possible for us to move forward on areas of discrimination, we have an opportunity to get university fees—the way that they are done and the way that they are presented—right. Perhaps the noble Baroness, Lady Morgan, can contribute to that and ensure that I fully understand the situation of women, so that we can use all the time that we are spending on university funding and the future of universities to try to get a much better system.

My Lords, I thank my noble friend for repeating the Statement and very much welcome the prospect of finance to meet universities' growing difficulties in providing the excellent education that we all wish for in this country. I echo the welcome of my noble friend Lady Sharp for the provision for part-time students, for which many of us have argued for a long time. That is extremely welcome.

My question is about the relationship between what graduates will be repaying and the differential fees which the universities will charge. As I understand it, the proposal in the Browne report is that universities will be able to charge variable fees, quite different fees from each other and for individual courses. Is there a mechanism whereby the repayment which graduates will make will be matched to the differential amount which the universities charge; and, if so, how will that mechanism work?

Clearly, we are hoping to be able to fund students to do exactly what they want to, exactly when they want to do it. Therefore, given the way that these things are put together, at the end of the day we will decide just how much money they need, and we want to make sure that they get as much money as they need to do the course that they need.

My Lords, can the noble Baroness confirm that a study has been made of the possible prejudicial and deleterious effect of any adjustment of the cap in relation to higher education finances in Northern Ireland, Wales and Scotland? If not, can she give an assurance that such a comprehensive and rigorous study will be made before Her Majesty's Government come to any final conclusion in this matter?

My Lords, there will be consultation with the devolved authorities, of course, to see how this all progresses.

My Lords, when the present cap was introduced, the Government of the day said strongly that it would be a cap—a limit—and that variable fees would be charged. In practice the £3,000, now indexed, has been a normal charge. Do the Government expect the £7,000 to be the normal fee, or do they genuinely expect and aim to introduce variable fees?

My Lords, does the Minister accept that, in considering the review of the noble Lord, Lord Browne, equality of access to university is an absolutely fundamental principle? This is important in two key respects. First, while we welcome the extension of help to part-time students—that is an important social reform which the noble Lord, Lord Browne, is proposing—it will be wholly negated for the universities which rely heavily on teaching income if the teaching grant element of support for universities is slashed in the forthcoming comprehensive spending review. I speak with an interest here as a director of the University of Cumbria. Secondly, in terms of the principle that the brightest working-class children should be able to go to the very best universities in this country without fear of finance being a deterrent, what action is the Minister proposing to ensure that bright working-class children will be encouraged to apply for the best universities and will have bursaries and scholarships of sufficient adequacy to ensure that they do not face any deterrents?

This is very important to us; I support the noble Lord on it. We all agree that widening participation is very important. We are clear about the importance of promoting fair access and widening participation in higher education. We are clear that the brightest and best must have access to higher education irrespective of family income and in those universities where, as the noble Lord described, they have difficulties at the moment. We hope that as you give evidence to us, we hear these problems explained further and better and we know what we have after the spending agreement, we will then be able to start moving forward.

My Lords, I declare an interest as chancellor of the University of Essex. My question is about consultation. Before asking it, I pay tribute to the noble Lord, Lord Browne, and his team for producing this report. I pity the Minister and, indeed, the Government for having to contend with what is on any reckoning the most complex set of issues and counter-issues. It is gratifying to have the sense of the House that this will not become a political football. My question is this: public confidence in consultation is very low, so will the Minister give an absolute assurance that consultation on the set of issues we have to confront here will take as long as it takes and that every single one of our 130 or so universities will be individually consulted and that they, in turn, will consult inter alia with student unions and their staffs? Without that, frankly, we will not get the best outcome and we will not assuage public anxiety as we must.

I thank my noble friend Lord Phillips for that question about consultation taking as long as it should take and making sure that all universities and student unions are included in all the conversations. That will be the case. We will consult with all the facts before us. This has been a slow start for us as a Government, and I know that people are getting short-tempered with the lack of progress. We feel it. We would like to move ahead further than we have been able to do so far. The comprehensive spending review will allow us, at last, to see what the news is and to move forward from that. I am part of a coalition Government, and I can tell the House that over the past six months we have learnt to do consultation. We are doing better for it. I may not be able to produce the important answers to some of the very important questions that have been asked today, but I hope that the consultation process will bring about the thing that we all want: good education and good universities for our children, to give them the best.

Perhaps the noble Baroness will return to one of the questions raised by my noble friend Lord Triesman. He asked her whether the noble Lord, Lord Browne, had been given any indication of the Government’s evolving thinking on the CSR while drawing up his report. That is an important question. Was the noble Lord, Lord Browne, kept informed about government thinking on that point?

The noble Baroness, Lady Sharp, said that she and others in her party would have liked to have seen no raising of the cap. But it went a little further than that, did it not? Before the election, 57 Liberal Democrat MPs not only felt the same as the noble Baroness, but signed a specific pledge saying that they would oppose the raising of the cap. The Minister speaks for the coalition. Will she tell us her feelings about that and does she regret what those 57 Liberal Democrat MPs did?

On the first question, the noble Baroness will have to ask the noble Lord, Lord Browne. He is here today and it is lovely that he is. On the second question, all three parties here assembled have had to rethink this problem over time. Certainly, the Benches facing me have changed their mind more than once.

My Lords, the noble Lord, Lord Triesman, made an important point. A principle was established by the Labour Government in 1998; namely, that fees represented replacement funding. All the money which came in from the first round of fees was replacement funding. But the issue is fundamental. If our universities cannot get additional resources as a result of this increase, we will not remain competitive.

What assurance can the Minister give at this stage that additional resources will come into our universities for research and teaching over and above any loss of revenue as a result of the comprehensive spending review? On a very important point, we are to have real interest on repayment of loans after £21,000 is reached. If students repay those loans in their entirety and therefore escape having to pay any interest, have the Government and the noble Lord, Lord Browne, calculated the loss and therefore the additional revenue that would have to be taken out of the system to compensate?

My Lords, my noble friend comes from the other place, where I believe that he chaired the Commons committee on education. This man knows his questions. I cannot answer pretty well everything that he has asked me, sadly. There is nothing more that I can say at this stage. I realise that the comprehensive spending review is hampering us with everything today, so I offer my apologies for that.