Mr Bailey
I welcome the interventions of two former Ministers, which have shone an economic light on some of the most obscure elements of our education accounting.
To return to my point on the student loan book, the fact that the sale has now been abandoned underlines what my right hon. Friend said about the non-viability of this course of action in funding future financial higher education commitments.
In short, we have an education funding model that is producing an ever-increasing call on the nation’s finances, and actually further commitments are being added. The House of Commons Library paper projects that by the mid-2030s the addition to the national debt incurred as a result of this policy will be equivalent to 8%—about £350 billion to £360 billion at current prices. That is a huge sum of money that will have enormous implications for future Governments—and universities and students—in terms of financial planning.
The Minister for Universities, Science and Cities (Greg Clark)
I am sorry to pre-empt my response to the debate, but at the beginning of his contribution the hon. Gentleman mentioned the important benefit—he referred to it as unambiguous—to the Exchequer. Has he made an estimate of that benefit to set against the costs he is referring to?
Mr Bailey
I believe that these estimates are projected in the figures from the Institute for Fiscal Studies, and certainly there is the netting off if you like, of these figures. There will be benefits. I said in my opening comments that there would be benefits. However, to have this level of future debt without any policy recognition that it will have to be funded in the future accounts is complacent and, in my view, a dereliction of duty. I shall return to that in one moment.
It was because of the figures that the Committee recommended an urgent review of the sustainability of the system, and obviously the sort of figures the Minister mentioned would be incorporated in such a review. If the model does stack up, I do not see why the Government should have any problem undertaking that review to demonstrate it. In their reply to the Committee’s recommendation, the Government quoted, of course, Andreas Schleicher from the OECD—I believe this featured in exchanges earlier today:
“The Government has no current plans to initiate a formal review of the sustainability of the student loans system in England. Indeed the OECD’s Director for Education and Skills, Andreas Schleicher, considers that we are the first European country to have established a sustainable higher education system.”
However, the Government response did not mention, as the Minister’s earlier response did not, that Andreas Schleicher’s comments were about the pre-2012 funding model, not the current one.
Greg Clark
I was aware of this matter, and I was surprised to hear that with uncharacteristic discourtesy—it is not his normal demeanour—the shadow Business Secretary accused me of having misled the House in referring to this endorsement from the OECD. It is important to clarify to the House that I met the author of the report, Mr Schleicher, on the day he published it. I know that overseas visitors often do not get the chance to meet members of the Opposition Front-Bench team, but I had the great privilege of meeting him, and there was never the slightest doubt about what he meant. In fact, he wrote to me this week, on 6 January, having read the report from the shadow Business Secretary. He wrote: “I had made it very clear that the rise to £9,000 fees had not changed the overall assessment by the OECD.” In fact, it is in the opposite direction: “The UK higher education system is excellent for individuals and for the Government. England has got it right on paying for higher education. Among all available approaches, the UK offers still the most scalable and sustainable approach to university finance.” I hope that when he responds, the Minister, on behalf of the shadow Business Secretary, will apologise to me for his accusation.
Mr Brian Binley (Northampton South) (Con)
I pay tribute to my colleague the Chairman of the Business, Innovation and Skills Committee, the hon. Member for West Bromwich West (Mr Bailey), not just for the report, but in recognition of all the years during which we have worked together on the Committee, with me as his would-be vice-Chairman. I believe that I speak as the longest-serving member of the Committee: I have been a member for nine years, and the grey hairs can attest to that record. I also thank all the other Committee members with whom I have worked during those nine years. It has been a fascinating experience.
I hope that I may wander off the main topic of the debate just a little—and it will only be a little. It is about time we saw Select Committee membership as an alternative career choice in the House of Commons. I hope that the importance of Select Committees will be enhanced, because, if that does nothing else, it may end what I consider to be the dangers of patriotism and patronage that apply in this place. I hope that that remark has been recorded, and will be picked up somewhere.
Greg Clark
I know that my hon. Friend—and he has been a friend for many years—is a considerable patriot. I cannot imagine that he was deprecating patriotism.
Mr Binley
No, not patriotism; I meant patronage, and I am glad that my right hon. Friend has pointed that out. I will now continue to speak according to the terms of the motion, Mr Deputy Speaker, which I am sure will delight you.
My colleague—indeed, I shall use the term “hon. Friend”—the Chairman of the Committee said that he would concentrate on wider issues than that of the money itself. I want to concentrate on the issue of the resource accounting and budgeting charge, the money and the black hole that the charge is producing for future generations.
The Minister for Universities, Science and Cities (Greg Clark)
We have heard many good words to inspire us in what has been, as many Members have said, an excellent debate. The fact that three of the Members who have spoken will be leaving the House at the election invites us to pay tribute to the contribution they have made over the years. It could be, of course, that more than three may find themselves leaving the House, but three, at any rate, are planning to leave.
I am grateful to the Backbench Business Committee for granting us the opportunity to have this debate, and to the Select Committee, several of whose members have spoken. They have done a valuable job and I echo the tribute paid by my predecessor, my right hon. Friend the Member for Havant (Mr Willetts). They have an important job to do in scrutinising the implementation of the reforms to student finance. As the Chair will know, the Government have rightly adopted many of its specific recommendations, for example on continuously improving the forecasting methodology and on targets for the Student Loans Company. In a different context, I told the Committee that my experience in this House has always been to listen very carefully to the advice of Select Committees. I will always do so.
As the new system is gradually exposed to the clear light of how it works in practice and not in prospect, it is becoming increasingly plain that it is a very considerable achievement and a source of confidence in our future excellence and prosperity. My right hon. Friend the Member for Havant has reason to be very proud of his achievement in carrying through the reforms.
Greg Clark
I want to make some progress. I have the least time of all, which is appropriate in a Backbench Business debate. However, if I have some time later, I will of course take an intervention.
Since the Committee took its evidence, which the Chair will acknowledge was about a year ago, the evidence in favour of the positive effects of the reforms has been mounting. We have discussed whether to undertake a review. I encourage the successor Select Committee in the next Parliament to undertake a stocktake of the system in practice. I suspect that it will draw the same conclusion as I have.
In the words of the OECD, which is widely regarded as the leading authority in the world on comparing education systems, the UK is one of the few countries that has figured out a sustainable approach to higher education finance and the investments pay-off for individuals and taxpayers:
“among all available approaches”—
the OECD includes 34 countries—
“the UK offers still the most…sustainable approach to university finance.”
In responding to the debate, I want to summarise how the advantages are clear for students, the taxpayer and universities.
The system is good for students, because it has allowed more of them than ever before to fulfil their dream of a place at university. Many Members have acknowledged the importance of achieving what has previously been beyond the reach of many of our fellow citizens. This autumn, for the first time in the history of this country, half a million applicants were placed in higher education. The head of UCAS put it this way just last month. It is, she said,
“a stunning account of social change, with the most disadvantaged young people over 10 per cent more likely to enter higher education than last year and a third more likely than just five years ago – 40 per cent more likely for higher tariff institutions.”
Despite predictions to the contrary, students have seen that going to university is an exceptional investment. Graduates earn on average £9,000 more than non-graduates. In the past year, the graduate premium for young graduates—those under 30—has risen to £6,000. Graduates are half as likely to be unemployed as non-graduates and two-thirds are in highly skilled jobs, a proportion that has been rising substantially as we recover from recession. Students know that they will pay nothing up front and that they will pay back only if and when they can afford to do so. It is important to be clear to the House that for a graduate earning £30,000, a high salary compared with the population as a whole, for the benefit of a three year degree they will repay £2.22 a day. That is an eminently reasonable reflection of the value they obtain from that degree. It is no wonder that students are responding with such alacrity—more than ever before.
Let me say why the system is good for taxpayers, as the OECD director said. The reforms have made it possible—without them it would not have been possible—to abolish the cap on student numbers. That is overwhelmingly in our national interests, as I think most Members would acknowledge. The earning power of graduates means that it is not just the graduates themselves who gain—the Exchequer gains hundreds of thousands of pounds over a graduate’s lifetime of employment. That is many times more than even the most conservative estimate of the so-called RAB charge. Andreas Schleicher of the OECD said that what one loses through non-payments is small versus the tax revenue uplift from more students earning more in work and that this premium is expanding.
It is important to emphasise—it has not been clear in some of the contributions—that this subsidy is nothing like a commercial loan, in which any debt that is written off is somehow a mistaken lending decision. It is not like that. It is a reflection of a set of deliberate policy choices to write off, for example, outstanding debt after 30 years, and to repay at 9% above earnings of £21,000. It is highly progressive, according to the Institute for Fiscal Studies: the lowest earning 10% get a 93% subsidy and the highest earning 10% get a 1% subsidy. For the record, I am perfectly content with all the policy choices that produce the published RAB charge.
Greg Clark
I have been very clear on this. I am not persuaded that there is any reason to increase the ceiling. I think the ceiling at £9,000 is reflective of the costs of providing a good education to people.
Greg Clark
Let me make a bit of progress, but I will come back to the hon. Gentleman.
As my right hon. Friend the Member for Havant said, the published RAB charge, as it is known, is notional and, in fact, ultra-conservative. I mentioned—to the mystification to the OECD, I might add—that it takes no account of the dependable tax revenue uplift that the Treasury takes. It also assumes, as my right hon. Friend said, that the Government’s cost of borrowing is 2.2% a year in real terms. In practice, it has been closer to 0% in real terms. The student loans system is therefore a good deal for students and a good deal for taxpayers.
Paul Farrelly
The Minister speaks of confidence in the system. Does he share the widespread concern across the country that other Government changes are making it more difficult for students to cast their verdicts on the fees and funding system they have inherited? The changes to electoral registration rules mean that universities cannot register their students en bloc. For example, at Keele university in Newcastle-under-Lyme just 144 students registered last month, and we have lost nearly 2,600. Is he concerned about the likely effect on student participation and their ability to give a verdict on the system in which he is so confident?
Greg Clark
Every Member takes great pains to encourage young people to register to vote. Through the online registration system, it is easier than ever, and I think that everyone in the House, over the next few months, will encourage people in schools and universities to register. The hon. Gentleman mentioned the university of Keele, but he has to accept that without the reforms that my right hon. Friend the Member for Havant introduced, there would be fewer students going to Keele university in the future than is now possible. That would be bad for the university, which I had the privilege to visit just before Christmas, and bad for the hon. Gentleman’s constituents, who benefit substantially from the presence of that fine university.
The system is excellent for universities too. It is an extraordinary achievement, at a time of financial stringency, that, according to the Institute for Fiscal Studies, the resources available to universities for teaching have on average increased significantly. It estimates an increase from £22,000 under the previous system to about £28,000 per student under the current system. The Institute for Public Policy Research, which tends towards the left in its assessments, said that the main strengths of the current system are that it has increased the resource flowing into higher education, which has enabled institutions to maintain or enhance their level of provision. This led the OECD to conclude that the UK is probably the only country in Europe, and one of the few in the world, to be able to support and sustain a big increase in participation and yet raise unit costs. No wonder that recruitment increased last year for all university types with higher tariff providers to record levels.
Our system of university finance offers extraordinary opportunities to students, universities and the taxpayer, which is why it is mystifying that the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) called for a review. It was not clear to me in his response whether that was the Opposition’s new policy. They have had four and half years to come up with a policy, but now it seems to be a review. Just a few weeks ago, he was speculating vaguely, just as the success was being recognised, about turning turtle on it. It is completely unclear what his policy is. Is it a review or a change? He has previously said that fees would be reduced by £3,000, but that would blow a £3 billion black hole in the public finances and force universities to go cap in hand to the Treasury every year just to maintain their funding. It would decimate that stunning social progress I referred to earlier, since it would obliterate the funds from the access agreements, which will be worth £718 million next year—I was surprised that the right hon. Member for Southampton, Itchen (Mr Denham) did not think they were worth having—and impose pressure to cut student numbers. The IPPR said that the pressure to cut student numbers would crowd out students from disadvantaged backgrounds.
Mr Denham
For the record, I judge that of the roughly £700 million, £300 million is replicating the work that Aimhigher used to do and is of real value in encouraging social mobility, but £400 million is spent on fees, reductions and bursaries, which has almost no value in persuading somebody to go to university.
Greg Clark
Those funds are available through the access regulator to be invested in the best way. Social progress has been made and people from my background now have the chance to go to university in increasing numbers. To rob universities and our young people of that help and assistance is an extraordinary suggestion from the Labour party.
For what purpose? It would reduce the payments not for poorer graduates but for the very richest. Those who pay off the £9,000 loans in full would be the only beneficiaries. I am talking about the richest 20% of earners, who would pay off their loans on average 28 years after graduation, when they are in middle age, and when they are earning on average £78,000, according to a think-tank. Ironically, this debate has been largely focused on the concerns that too high a proportion of loans is notionally projected to be written off, yet the Opposition want to write off 100% of loans over £6,000 for all graduates, even the ones who can comfortably pay.
I am not instinctively a partisan politician, and I believe it is strongly in our interest that policy questions about our universities should be, wherever possible, rooted in consensus and stability. That was the intention behind the Browne review, which the hon. Member for Huddersfield (Mr Sheerman) referred to, and which the previous Government set up. My right hon. Friend the Member for Havant implemented that dispassionate and thorough report. I hope that the right hon. Member for Birmingham, Hodge Hill will reflect on the ever more obvious success of the system, get behind it and drop his temptation to engage in a stunt that would plunge the financing of higher education into chaos.
Greg Clark
I am just about to conclude.
If the right hon. Member for Birmingham, Hodge Hill does get behind the system, in the same spirit, he will attract praise, not opprobrium, from those on the Government Benches—I am sure that my right hon. Friend would be generous in acknowledging that—and he will earn the respect of the sector, which values the stability and the sustainability that we now have in the financing of higher education in this country.