Treasury Committee
14:20
Speaker 1
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Speaker 1
Order, order!Welcome to the Treasury Select Committee. On Wednesday, the 10th of June 2026. We're delighted to have our final panel on our investigation into student loans and taxation of graduates, and I'm really pleased to welcome two ministers, Lucy Rigby, formerly of the committee, indeed is actually now the Chief Secretary to the Treasury. So the minister responsible for overseeing and agreeing all public spending in the Treasury. So welcome to you all. Back to you, Lucy Rigby.
And she's joined by the right hon. Baroness Jackie Smith, who's the Minister for skills at the Department for education, so. Um, over to you. An MP to kick off, Miss Yang.
And she's joined by the right hon. Baroness Jackie Smith, who's the Minister for skills at the Department for education, so. Um, over to you. An MP to kick off, Miss Yang.
14:21
Speaker 3
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Speaker 3
Thank you chair. The question that motivates this inquiry is whether the student financial system is fair. We've had an overwhelming response from students and young people who've submitted to our inquiry saying that they don't believe it's fair. Can you share the question that motivates this inquiry is whether the student financial system is fair?We've had an overwhelming response from students and young people who've submitted to our inquiry saying that they don't believe it's fair.
14:21
14:22
Speaker 3
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Speaker 3
Thank you chair. The question that motivates this inquiry is whether the student financial system is fair. We've had an overwhelming response from students and young people who've submitted to our inquiry saying that they don't believe it's fair. And Baroness Smith, in April this year, you described the student loan system as already unfair. What parts of the system do you consider most unfair?
14:22
Speaker 2
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Speaker 2
The context in which I made that statement. Was the point at which the government decided to cap from the next academic year. The maximum interest rate, and that I think we felt, uh, given that it had, on previous occasions gone well above 7%. And given the concern that there was within the system and given the risk that the external environment in which we were operating, the global shocks that were potentially going to impact inflation in the UK, that it would be unfair if it then went up to what would have been 7.1%.
Recognising the concerns that were being expressed about the level of interest, and for that reason and in that context, we felt it was fairer to put the cap on in the way in which we did in.
Recognising the concerns that were being expressed about the level of interest, and for that reason and in that context, we felt it was fairer to put the cap on in the way in which we did in.
14:23
Speaker 3
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Speaker 3
The limited amount of resource, of course, that the Treasury has to spend. There are different ways in which that could have been spent, for example, rather than capping the interest rate, changing the. Increasing the threshold or changing the repayment rates. Was there a particular decision, you think, around interest rates that meant that you want to target that instrument rather than other instruments?
14:23
Speaker 2
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Speaker 2
Well, I think the decision, as I've suggested, was based on the context in which we made that decision. So, uh, interest rates would particularly at that point, given the potential risks to inflation that the Chancellor had already identified, would potentially have increased, as we can see. In fact, they would have done once we saw that April inflation figures would potentially have increased, um, in a way that would understandably have brought concern to, uh, graduates who were repaying their loans. So that was that was the context in which the decision was taken.
And so that was the reason for focusing, uh, on the interest rate cap.
And so that was the reason for focusing, uh, on the interest rate cap.
14:23
14:24
14:24
Speaker 3
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Speaker 3
As many people who might be watching this inquiry may or may not know, changing the interest rate doesn't change. Of course, the monthly repayments. So in terms of the living conditions of those graduates who are paying the loans, um, changing the interest rate doesn't change that directly, but it does benefit those who are the most well-off graduates who then repay the total loan. So was there a judgement within the Treasury, Mr. Rigby, about what groups of graduates you wanted to benefit by this change in terms of the different, um, differences along the income spectrum?
14:24
Speaker 4
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Speaker 4
Um, I know it was a reaction to the position in the Middle East, and the view was taken that this is something which we could do. I mean, it's fair to say, taking a step back and sort of thinking about the fairness of the system, uh, as a whole, it's to be very candid with you. There are a number of things which in a sort of ideal, perfect world that I would like to change about it. And I'm pretty sure many others would say the same.
This is a situation, as you know, that we, um, inherited. And as you know very well, there are a number of levers, levers that in theory could be pulled, each of which would have different effects, but the overall context, of course, is that we have to stick to, uh, or. We have to bear in mind the overall, um, the overall fiscal, um, position. Um, I think looking, if I may sort of go into a little bit of the fairness of the system as a whole.
And I've been giving this some, I don't mind saying some quite deep thought, uh, myself, not least because I anticipated the, um, you know, the fact of, uh, appearing here, but also because I think, um, I've always considered education to be a fundamental public good. We of course now have more, uh, people going to university. It's right that we have a student finance system that means that we can enable people to go to university without, without those upfront costs, because otherwise you would only see, um, wealthy.
People being able to, being able to go to university. Um, but I think that question of, of fairness, I think the right way to look at it is about fairness to taxpayers as a whole because, um, there are a number of aspects of student loans and student finance, which are very fundamentally different from a commercial loan. The fact of the debt being written off after a set period, but most fundamentally, um, the fact of them being income contingent. So you're only repaying if your, if your income hits a certain level.
So I think in all considerations about fairness as to the system we do, we do have to bear in mind, uh, fairness to, to taxpayers as a whole. And of course, the majority of young people don't go to, don't go to university.
This is a situation, as you know, that we, um, inherited. And as you know very well, there are a number of levers, levers that in theory could be pulled, each of which would have different effects, but the overall context, of course, is that we have to stick to, uh, or. We have to bear in mind the overall, um, the overall fiscal, um, position. Um, I think looking, if I may sort of go into a little bit of the fairness of the system as a whole.
And I've been giving this some, I don't mind saying some quite deep thought, uh, myself, not least because I anticipated the, um, you know, the fact of, uh, appearing here, but also because I think, um, I've always considered education to be a fundamental public good. We of course now have more, uh, people going to university. It's right that we have a student finance system that means that we can enable people to go to university without, without those upfront costs, because otherwise you would only see, um, wealthy.
People being able to, being able to go to university. Um, but I think that question of, of fairness, I think the right way to look at it is about fairness to taxpayers as a whole because, um, there are a number of aspects of student loans and student finance, which are very fundamentally different from a commercial loan. The fact of the debt being written off after a set period, but most fundamentally, um, the fact of them being income contingent. So you're only repaying if your, if your income hits a certain level.
So I think in all considerations about fairness as to the system we do, we do have to bear in mind, uh, fairness to, to taxpayers as a whole. And of course, the majority of young people don't go to, don't go to university.
14:27
14:27
Speaker 4
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Speaker 4
I think I think we said, and we will continue to, um, keep everything under under review, as I hope you would expect us to do. So I think um, I mean, as I said, we inherited a system we can talk specifically about plan two and the various parameters and, you know, everything that's happened, but I think it's not, um, you know, it's not a system which, uh, on our side, we, uh, necessarily would have designed and taken some of those decisions, which the coalition government in particular in relation to plan two took.
So we have sought to where we can and within the context of a fiscally responsible approach, um, do things like capping interest rates, but we also unfroze the repayment thresholds for 2025 and 2026. And of course, um, Baroness Smith can talk more about, um, the reintroduction of maintenance loans. So there's a host of things which we, which we have been able to do, but obviously. Politics is about choices and the chancellor has chosen to prioritise a host of things, including um lifting the two child cap, for example, funding free breakfast clubs, send reform.
We could I know you don't want me to list all the things so I won't. But um, I suppose my point is that that, you know, there have been um some decisions that have been taken, some of which of course are you. Know, are things which are, which will help graduates like our renters rights. Um reform, for example, the money that we're taking off of energy bills. But these are all decisions, you know, the decisions vis a vis student finance are taken in the round, I suppose is the short version of what I'm trying.
So we have sought to where we can and within the context of a fiscally responsible approach, um, do things like capping interest rates, but we also unfroze the repayment thresholds for 2025 and 2026. And of course, um, Baroness Smith can talk more about, um, the reintroduction of maintenance loans. So there's a host of things which we, which we have been able to do, but obviously. Politics is about choices and the chancellor has chosen to prioritise a host of things, including um lifting the two child cap, for example, funding free breakfast clubs, send reform.
We could I know you don't want me to list all the things so I won't. But um, I suppose my point is that that, you know, there have been um some decisions that have been taken, some of which of course are you. Know, are things which are, which will help graduates like our renters rights. Um reform, for example, the money that we're taking off of energy bills. But these are all decisions, you know, the decisions vis a vis student finance are taken in the round, I suppose is the short version of what I'm trying.
14:28
14:29
14:29
Speaker 2
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Speaker 2
I mean. First of all, just to reiterate the point that the Chief Secretary made, of course, um, when we came into government, we took a series of actions to try to make the system fairer threshold increase for the first time since 2021, capping the interest rates and the reintroduction of um. Of maintenance grants. Those were important decisions, um, to be made. We are going further in terms of thinking sorry. And I think the other important point is of course, plan two remains, as we've seen from your inquiry, very live for those who are in repayment for plan two loans.
But of course, it isn't the case that now that anybody who was going to university and taking out a loan would be facing the same, um, terms, they wouldn't be facing, for example, A repay a. Rate of interest above RPI because in plan five, the rate of interest is already capped at RPI. So that's one of the ways in which the system is already changing. But we will also be wanting to, to look certainly in in terms of sort of higher education, um, finance, how we can ensure that the system in the future better supports, um, disadvantaged students.
That's the reason for bringing back maintenance grants, which of course were stopped ten years ago in 2016. And it's also the reason for and as the chief Secretary says, we want to continue thinking within the confines of, of the, of the fiscal challenges that we face and the decisions that we want to make about other areas of policy. And by the way, other areas of education and skills policy as well, where there's been considerable investment. We want to think about what more we can do, but we are this year introducing a new system of student finance through the Lifelong Learning entitlement, which will provide considerably more flexibility for people about how they study, uh, about the ability to be able to come back to study at different points in their lives about the ability to do shorter courses.
And that, of course, has implications for how much you need to borrow and how much you will therefore need to repay. And it means you can make your higher education study fit more around your your circumstances and the point in your life that it makes sense to do it.
But of course, it isn't the case that now that anybody who was going to university and taking out a loan would be facing the same, um, terms, they wouldn't be facing, for example, A repay a. Rate of interest above RPI because in plan five, the rate of interest is already capped at RPI. So that's one of the ways in which the system is already changing. But we will also be wanting to, to look certainly in in terms of sort of higher education, um, finance, how we can ensure that the system in the future better supports, um, disadvantaged students.
That's the reason for bringing back maintenance grants, which of course were stopped ten years ago in 2016. And it's also the reason for and as the chief Secretary says, we want to continue thinking within the confines of, of the, of the fiscal challenges that we face and the decisions that we want to make about other areas of policy. And by the way, other areas of education and skills policy as well, where there's been considerable investment. We want to think about what more we can do, but we are this year introducing a new system of student finance through the Lifelong Learning entitlement, which will provide considerably more flexibility for people about how they study, uh, about the ability to be able to come back to study at different points in their lives about the ability to do shorter courses.
And that, of course, has implications for how much you need to borrow and how much you will therefore need to repay. And it means you can make your higher education study fit more around your your circumstances and the point in your life that it makes sense to do it.
14:34
Speaker 3
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Speaker 3
Thank you. And finally, Miss Rigby, um, we heard from many of the panellists that we saw earlier in this inquiry, um that they were concerned about the issue of intergenerational fairness, that particularly during the previous government, there were a series of changes to student loans, some of them retrospective, but all of which meant that the Treasury went out at the expense of younger people. What would you say to that argument?
14:34
Speaker 4
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Speaker 4
I think I think the assessment as to fairness, and this is partly why I said I've been trying to give it some really, um, deep thought. I think it's multi-layered. And I think that intergenerational fairness, when it comes to students specifically. So when I think about myself as a student, I had a plan one loan. My situation relative to someone on plan two. And indeed relative to my, uh, mum who received a grant.
14:35
14:36
Speaker 4
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Speaker 4
That's why I didn't say yes. I think if you look at, as I said, students in each of those cohorts, you can make a case to say the situation that um plan two uh. People on, on plan two is, you know, has elements of, of unfairness relative to those other generations. And I don't mean to say in anything that I've said so far, I'm not, um, being unappreciative or not acknowledging the, um, you know, the really tough circumstances that um, some, some graduates really are really are in and we've seen that in the material that you've come, that's come back to the committee.
14:37
14:37
14:37
Speaker 2
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Speaker 2
Can I just add something on that on the intergenerational point, because I do have the charge made to me that I went to university at a time at which nobody needed to take out loans. But of course, I also went to university at a time when less than 1 in 5 young people went to university. And if we want a system in which we're, we provide those opportunities to take part in higher education to more people. And I believe that both in terms of opportunity for people and in terms of the growth that we need to see in the economy, then we have to find a way of funding the higher education system that is fair and sustainable and allows us to provide those opportunities to far more people.
14:38
Speaker 1
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Speaker 1
Okay. Well, that's interesting because your department, the government, actually put evidence to the committee that the government inherited, and I quote the broken student loan system. So we've heard from the Chief Secretary, Baroness Smith, about the challenges financially of dealing with this, about choices and so on. But, you know, if it's broken, how will you be fixing it?What's what's what's the long term plan for sorting this out?
14:39
Speaker 2
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Speaker 2
So I think it's some of the things, chair, that I was talking about previously. So it is, um, what more we can do to support disadvantaged students. So that is the action that we're taking on maintenance grants. It's also the action that we're promoting, uh, in universities supported with some government funding to make sure that student experience, once disadvantaged students get to university is as effective as it, um, can be. And that students are essentially supported to make the most of their, um, education.
Uh, it's about the support that universities themselves can provide in terms of bursaries and particular support for students to be able to access higher education. And it's about the targeted grants that the government provides. Secondly, I said I think it's important that we do make things fairer for graduates. And I think in terms of the increases to the threshold that this government has already put in place, the cap, um we've already, um, done. That in the way in which we've just discussed.
And then it's about the future and how we create a more flexible and um, student finance system whilst nevertheless ensuring that um, the. Bottom remains sustainable. And I think it is also about recognising that people will come through different routes to enter higher education. And this comes back to the point that the Chief Secretary rightly made. I think about the choices that we make about where we focus, uh, even just post 16. Uh, education funding, where we're, we're spending over a, the course of this, um, spending review period, over £18 billion per year on post 16 education and skills.
But what we've done there is to say, for example, as people around this room may well have lobbied us about, uh, that means that we need, uh, more sustainable 16 to 19 education, particularly in further education. That's why we've increased investment by 800 million.
Uh, it's about the support that universities themselves can provide in terms of bursaries and particular support for students to be able to access higher education. And it's about the targeted grants that the government provides. Secondly, I said I think it's important that we do make things fairer for graduates. And I think in terms of the increases to the threshold that this government has already put in place, the cap, um we've already, um, done. That in the way in which we've just discussed.
And then it's about the future and how we create a more flexible and um, student finance system whilst nevertheless ensuring that um, the. Bottom remains sustainable. And I think it is also about recognising that people will come through different routes to enter higher education. And this comes back to the point that the Chief Secretary rightly made. I think about the choices that we make about where we focus, uh, even just post 16. Uh, education funding, where we're, we're spending over a, the course of this, um, spending review period, over £18 billion per year on post 16 education and skills.
But what we've done there is to say, for example, as people around this room may well have lobbied us about, uh, that means that we need, uh, more sustainable 16 to 19 education, particularly in further education. That's why we've increased investment by 800 million.
14:43
14:44
Speaker 2
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Speaker 2
Chair, with respect, I think it is because what it does is it demonstrates where the government is putting its money in order to support individual students, to be able to, to, uh, proceed to higher education and to support the financial stability of the sector as a whole. And it sort of demonstrates the choices, which as a government, we have made.
14:44
14:44
Speaker 2
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Speaker 2
Uh, well, that will we we will introduce those in, uh, academic year. 28, 29. Uh, and they will be £1,000 a year for students below £25,000 family income. And they will be in particular areas that support industrial strategy areas. So we'll have more to say about um, how that. Will, how that will be determined in terms of courses as we get closer to delivering them.
14:45
14:46
14:46
14:47
14:47
14:47
14:48
14:48
14:48
14:48
Speaker 2
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Speaker 2
It is. Well, no, it is, it is, uh, it is for the practical reason of putting £1,000 into the pockets of the most disadvantaged students who wouldn't otherwise have it. There is an element of it that is about saying we want to to begin to bring down the barriers that might exist to disadvantaged students.
14:49
14:50
14:50
14:51
14:51
Speaker 1
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Speaker 1
Okay, fine. The jargon of education. Sorry, rather than treasury. So, so that's all very well. That's about the student experience. But the evidence was saying the system, the loan system is broken. So you talk about having a flexible, uh, future student financial system that's sustainable. So can you just give us a couple of examples of, look, you're sitting next to the chief secretary. You could count it as a bid for the next spending review, perhaps.
But, you know, we know that the money we know that I'm sure as well. Yeah. Probably dealing with other other issues right now. But but we know that the funding situation, the chief Secretary's been very clear about that. We've heard what the Chancellor said about that. What would you like to see in an ideal world?What's your vision for what a future, flexible, future, flexible, future student finance system sustainable?What does that mean in reality?
But, you know, we know that the money we know that I'm sure as well. Yeah. Probably dealing with other other issues right now. But but we know that the funding situation, the chief Secretary's been very clear about that. We've heard what the Chancellor said about that. What would you like to see in an ideal world?What's your vision for what a future, flexible, future, flexible, future student finance system sustainable?What does that mean in reality?
14:55
Speaker 2
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Speaker 2
Well, it means the lifelong learning entitlement system that we're introducing. Uh, it means, of course, ongoing government commitment, which is already in the student finance system, because let's not forget in the system as it is at the moment, on average, 30% of that money that is. Loaned by students is never repaid. And therefore there is already a considerable government subsidy that goes into, um, the, uh, into the. Finance system. And I'm going.
14:56
14:56
14:56
Speaker 1
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Speaker 1
You've talked quite a lot about the post 16 agenda. Clearly you're very proud of that very much core of your portfolio. But in the the white paper that you published last October, there was no mention of the student loan system being broken. But in evidence to us recently, you said that that was the case. Do you think that there was an impact on breaking of the freezing of the, uh, threshold last November, so that that's now frozen before the point at which graduates have to start repaying?It has been frozen.
Do you think that's what's broken?The student loan system?
Do you think that's what's broken?The student loan system?
14:58
Speaker 2
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Speaker 2
Um, no, I don't think that's what I don't think that's what broke it. I think it's some of the elements of unfairness that I was talking about earlier. I think it is. And I mean, uh, actually, chair, within that white paper, that was also where we talked about the range of other things that we were doing to improve the student finance system. So it wasn't that we didn't mention it. Uh, but.
14:59
14:59
14:59
15:00
Speaker 2
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Speaker 2
We sit in government departments. But, um, certainly no longer me, but lots of other people are also listening to their constituents receiving correspondence. In my case, listening to my children. It's obvious that people feel, uh, this point, for whatever reason, it has emerged, concerned about the impact of their, particularly their plan to repayments on themselves. And, uh, you know, it would be false of me to say that that isn't something that people have been concerned about.
15:01
15:01
15:02
Speaker 2
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Speaker 2
Um. I. Well, put it this way. I think it's interesting and important that of course, what students are facing nowadays in terms of plan five. Student loans that they will they began, uh, repaying I think in 23, 24, uh, the interest rate that they'll be facing in those cases is retail price index. So it is already lower than 6%. And I think to come back to the point that we made earlier, the context for what is fair, I think, is the decisions that you want to make as a government about where you want to focus your resource, because it is of very big impact on the public finances.
If, for example, uh, we reduced interest rates in the way in which some people have suggested that we should do for plan two loans, that would cost a considerable amount of money. Um, so, uh, those are the decisions that we've had to weigh up in terms of the fairness of the interest rate. We were clear that we didn't think that seeing an increase in that in plan two loans, where of course, uh, you could be paying RPI plus up to 3% under the scheme caused by external events which impacted inflation in this country was fair.
And so we took action to cap a 6%.
If, for example, uh, we reduced interest rates in the way in which some people have suggested that we should do for plan two loans, that would cost a considerable amount of money. Um, so, uh, those are the decisions that we've had to weigh up in terms of the fairness of the interest rate. We were clear that we didn't think that seeing an increase in that in plan two loans, where of course, uh, you could be paying RPI plus up to 3% under the scheme caused by external events which impacted inflation in this country was fair.
And so we took action to cap a 6%.
15:04
15:05
Speaker 2
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Speaker 2
No, no, that isn't what I said. What I said was I think 6% is is fair in the context in which we capped it. Uh, the point I was making, first of all, was that students who were taking out loans now would be paying a lower interest rate than that at this point. And the other point I was making, the reason why I used the 7% was had we not capped, uh, in the way in which we have done back in April for this forthcoming academic year, students would be facing student sorry, graduates repaying a plan to loan would be facing a 7.1% interest rate.
That was the comparison I was making. It wasn't about one being fair and one not being.
That was the comparison I was making. It wasn't about one being fair and one not being.
15:06
15:07
Speaker 5
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Speaker 5
And I know there'll be more questions about the retrospective changes, but I'm going to carry on about interest rates. Some of the evidence we've had has been suggesting that the interest rate really should be just a pass through of what the government itself pays. Um, would that be practical?Chief Secretary?
15:07
Speaker 4
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Speaker 4
Um, I think that look, I think the starting point, if I might, um, Dame Harriet, when it comes to interest rates and to indeed to sort of partially address some of the points which Bernard Smith was making, this is not these are not design choices, uh, that we made. This is these are design choices that we inherited. And so interest rates, along with repayment thresholds and also repayment rate, uh, and the length of the length of the repayment term, each of these parameters of the scheme are things that we inherited.
I accept that they are levers that could be altered to um, mean that in each particular case, either students are repaying less or are we paying less over the long term or, or whatever it is. But each of those choices has to be made in a way, which is, um, in a way which is fiscally responsible. And with regard to the interest rate, um, specifically because as Because, as Baroness Smith referred to the fact that many graduates simply never pay off their loan. Uh, it doesn't it doesn't make a difference to to them, if you see what I mean.
Because of this very key way in which student finance is different to a commercial loan, in addition, with obviously no collateral, no credit history, there's kind of there's these really key terms in which student loans are made available for the express purpose of allowing people from all sorts of backgrounds to go to, um, to go to university.
I accept that they are levers that could be altered to um, mean that in each particular case, either students are repaying less or are we paying less over the long term or, or whatever it is. But each of those choices has to be made in a way, which is, um, in a way which is fiscally responsible. And with regard to the interest rate, um, specifically because as Because, as Baroness Smith referred to the fact that many graduates simply never pay off their loan. Uh, it doesn't it doesn't make a difference to to them, if you see what I mean.
Because of this very key way in which student finance is different to a commercial loan, in addition, with obviously no collateral, no credit history, there's kind of there's these really key terms in which student loans are made available for the express purpose of allowing people from all sorts of backgrounds to go to, um, to go to university.
15:09
15:09
Speaker 4
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Speaker 4
Um, it, I mean, it benefits in theory all, but as you say, subject to the fact that those who are not um, earning above the repayment threshold eventually will get their loan written off or do, do, um, don't over the period of the loan able to able to pay it off, I should say. Um, but the key thing is that we made that change the capping at 6% because we took the view in the context of what was happening in the Middle East that were, were, um, interest rates to skyrocket.
That would, there would be an inherent element of unfairness in that. Um, I also think for what it's worth, that it's pretty unfair, um, on graduates and indeed on all of my constituents when, uh, some of the, uh, events. Under the last government caused, you know, certain impacts on our economy, not least the, um, Liz Truss's mini budget. So I think, I think it's really important to bear in mind exactly why we put that 6% cap, on interest rates. And you mentioned repayment, um, thresholds.
I'll address that directly. I just come back to the um, things that. We were talking about at the start in the sense of that. We have to have fiscal responsibility and to look at these things in the, in the round. And the Chancellor has made a series of choices, um at budget and indeed those before to do things like the funding, um the, to lift a two child cap, funding, free breakfast clubs, funding, free childcare.
That would, there would be an inherent element of unfairness in that. Um, I also think for what it's worth, that it's pretty unfair, um, on graduates and indeed on all of my constituents when, uh, some of the, uh, events. Under the last government caused, you know, certain impacts on our economy, not least the, um, Liz Truss's mini budget. So I think, I think it's really important to bear in mind exactly why we put that 6% cap, on interest rates. And you mentioned repayment, um, thresholds.
I'll address that directly. I just come back to the um, things that. We were talking about at the start in the sense of that. We have to have fiscal responsibility and to look at these things in the, in the round. And the Chancellor has made a series of choices, um at budget and indeed those before to do things like the funding, um the, to lift a two child cap, funding, free breakfast clubs, funding, free childcare.
15:12
Speaker 6
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Speaker 6
We heard that list before and I'm actually just going to put on record chair that I think to, um, I'm concerned that the chief Secretary is not aware that interest rates are actually considerably higher than they were under that 49 day premiership that she alluded to. But on the point about the evidence that this committee has received, I would just like to highlight the fact that of the 52,000 people who've written in to us, the thing that they find most concerning about their student loan is the fact that every time they look at their statement, the balance itself has just increased.
So I just want to to point that out as you think through the different options. That's very much the overall theme.
So I just want to to point that out as you think through the different options. That's very much the overall theme.
15:12
15:13
Speaker 4
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Speaker 4
I think I think there's a broader point, and I come back to what we were talking about at the start about Dame Harriet, referring to to fairness. And I do think because of the nature of the student loan system and it has all the characteristics that we've described, the right way to think about fairness is fairness to taxpayers, uh, as a, as a whole. So I think that really is the and as I said, the fact of more than half of young people not going to, going to university, I think what really would be unfair to graduates and indeed to, uh, to, to my constituents and to others to is, um, losing control of the public finances because I think that, um, has very negative consequences.
15:13
15:14
15:14
15:14
15:15
15:15
Speaker 7
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Speaker 7
The point I want to get to is. I totally respect the fact that what you're saying. There's a different volume of people going to university than there is now. But we also have the evidence that 39%, I think, of people never pay off their student debt. I just wondered what you think about this sort of narrative that more graduates in all disciplines, in all courses is almost it's sort of a sort of given implicit in what you're saying is good for the economy.
Do you do you have any comments to, to make about the sort of range of options, I'm around, you know, the different courses and whether they provide value for money, given that striking statistic about those that don't actually obviously, some will go into vocations that won't give them higher salaries. We expect that, expect that, but many don't. What do you think about that?
Do you do you have any comments to, to make about the sort of range of options, I'm around, you know, the different courses and whether they provide value for money, given that striking statistic about those that don't actually obviously, some will go into vocations that won't give them higher salaries. We expect that, expect that, but many don't. What do you think about that?
15:17
15:17
15:17
15:18
Speaker 2
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Speaker 2
Um, so I certainly think that there is more that we need to do in the system. And we've been clear about this, firstly, to inform young people who are thinking about what they want to do, uh, at university or in fact, whether or not that is the right route for them at all about. What?Outcomes of that might be, uh, course by course, subject by subject. Uh, so we will be providing, more information for students thinking about those options. Um, through Ucas, for example, through using some of the, bringing together the information that we have about graduate outcomes so that students can make a more informed choice about the decisions that they're making.
That might of course, mean that they want to look for alternatives. So they might say, okay, well, I think perhaps an apprenticeship route is more suitable for me in terms of the um. Course that the, the sort of course through life that I want to take, which is why we've seen investment in a pivot of the apprenticeship system back towards um, back towards young people. Uh, we should also, we will also, uh, take a stronger approach to how we tackle the quality of courses that are being offered.
So we've already said, for example, that, as we increase tuition fees, we will link that to the quality. So we'll link the ability to index link your tuition fee cap to the quality of what's being produced in your, um, in your university. And we will also, particularly given some of the concerns about the quality of what is being offered in franchise provision, where there has been a very big expansion of the numbers of students going into higher education. We have already said, of course, that we will.
Expect any franchise provider with 300 or more students to be registered with the office for students, and we will want to look very carefully at the quality of what's being offered there.
That might of course, mean that they want to look for alternatives. So they might say, okay, well, I think perhaps an apprenticeship route is more suitable for me in terms of the um. Course that the, the sort of course through life that I want to take, which is why we've seen investment in a pivot of the apprenticeship system back towards um, back towards young people. Uh, we should also, we will also, uh, take a stronger approach to how we tackle the quality of courses that are being offered.
So we've already said, for example, that, as we increase tuition fees, we will link that to the quality. So we'll link the ability to index link your tuition fee cap to the quality of what's being produced in your, um, in your university. And we will also, particularly given some of the concerns about the quality of what is being offered in franchise provision, where there has been a very big expansion of the numbers of students going into higher education. We have already said, of course, that we will.
Expect any franchise provider with 300 or more students to be registered with the office for students, and we will want to look very carefully at the quality of what's being offered there.
15:20
Speaker 7
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Speaker 7
And thank you for that. In some countries, like France, for example. Higher numbers of people would go to university near to their home and removing some of the significant burdens of maintenance costs and so on, do you think and we also heard evidence from the previous panel that, you know, the UK system has quite significant sort of wraparound costs around the what what is offered to a student. Do you see any means of reducing those costs to, you know, create a lower burden for, um the state and the individual?
15:22
Speaker 2
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Speaker 2
Well, I mean, first of all, on the, um, on the point about being nearer to home, we're already seeing in this country a big increase in the numbers of students who commute, who, who live at home. And that might be for a variety of reasons. I would have to go back and read the evidence about what people meant by wraparound support. I mean, personally, I've actually pushed quite hard for appropriate wraparound support to be put in place for students because I think I think actually it's a waste of everybody's money.
If somebody gets into university and then drops out. Exactly. So the work that we've done on mental health support, um, some of the targeted grants I was talking about, some of the expectation we're putting on, uh, universities in terms of student experience. I think those things are not not just sort of some option that we could do away with, but they're part of making a success of the system.
If somebody gets into university and then drops out. Exactly. So the work that we've done on mental health support, um, some of the targeted grants I was talking about, some of the expectation we're putting on, uh, universities in terms of student experience. I think those things are not not just sort of some option that we could do away with, but they're part of making a success of the system.
15:23
Speaker 7
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Speaker 7
Thank you very much. I turn to the Chief Secretary and congratulations on your, uh, your latest promotion. Um, could I, could I ask you from your previous role as economic Secretary, you'd be very familiar with the sort of terms that exist in financial services for loans and so on. Yet we seem to have an anomaly that the Treasury would have over years of all governments. I think PFI deals, contracts for difference that we'd look back on. And probably the chair has looked through her role and chair of the Public Accounts Committee to see that they weren't value for money, but we've got this unusual situation with student loans where any government can vary the terms used using the carve out, I think in Higher Education Act in the late 80s.
Do you think that's fair?
Do you think that's fair?
15:25
15:26
Speaker 4
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Speaker 4
I think it's a different sort of product. And yes, so I've mentioned those key characteristics, but I think the other side of that, that I think is worth emphasising is the fact that for most people that want to go to university at the point at which young, most people, most young people want to go, you couldn't get a commercial loan because you don't have the credit history, you don't have the collateral. You certainly wouldn't be able to get something which, um, you could write off if you don't hit certain repayment thresholds.
So my point is that student loans, despite having the name that they have, are really very, very different as a product to. Um, to, to a commercial loan. And you're right, inherent in there is the fact that because they are so heavily subsidised by the government, the government has the right, as indeed um previous governments have done to change some of those terms of the, of the loan.
So my point is that student loans, despite having the name that they have, are really very, very different as a product to. Um, to, to a commercial loan. And you're right, inherent in there is the fact that because they are so heavily subsidised by the government, the government has the right, as indeed um previous governments have done to change some of those terms of the, of the loan.
15:28
Speaker 7
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Speaker 7
Do you think that therefore, given what you've just said, it would be better to rebrand the loans as a student contribution?Uh. A university education contribution because it's not really a loan in the conventional sense. Wouldn't that do justice to the essential co-payment that exists between the state and the individual?
15:29
Speaker 4
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Speaker 4
I've seen I've seen this argument, um, being being made. I personally I'm not sure I see the value in changing the name to a graduate contribution. I mean, despite me saying it has these key differences to a commercial loan, it is still a, it is still a loan. It's something that um, that students are expected to pay back, as I said, because of those, um, I think it differs sort of according to, um, according to cohort and yes, you're absolutely right. Some, um, some people, a large number of people can never, um, pay it all back, but I'm not sure.
I'm not sure it's necessarily right to characterize it as a, as a contribution, uh, when a sum of money is, is being loaned with expectation that it, it would be paid back only on certain terms.
I'm not sure it's necessarily right to characterize it as a, as a contribution, uh, when a sum of money is, is being loaned with expectation that it, it would be paid back only on certain terms.
15:31
Speaker 7
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Speaker 7
Don't you think, though, that students, having seen the history of different schemes over time and the changes in the thresholds and the rates, etc., there'll come a point where their level of confidence in what they're signing up to will diminish. And therefore, you know, people will, you know, not have confidence. It's not really a good start to in a young adults relationship with the state, is it to be in a situation where they've got a sort of dicey product that any government can change?
15:31
Speaker 4
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Speaker 4
I yeah, I wouldn't characterize it as as a dicey product. I feel I should, uh, specifically, uh. rebut that, push back on that. Yeah, absolutely. I, I look, I've talked and I won't repeat myself about why I think student finance is, is a good in and of itself in the sense of meaning that, um, you don't have to pay up front to be able to go to university and education is a public good, etc., etc. I won't repeat myself. Um, but, but I do think that because of the very large nature of the government subsidy that.
You do need a means by which the government. And obviously when I'm saying the government, I'm saying it's obviously subject to parliamentary scrutiny, which is important. Um, can change those those terms.
You do need a means by which the government. And obviously when I'm saying the government, I'm saying it's obviously subject to parliamentary scrutiny, which is important. Um, can change those those terms.
15:33
Speaker 7
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Speaker 7
Just one. I believe one of the retrospective changes to the student loans was the freezing of the thresholds which determine the, the graduate student loan interest rate, but that wasn't disclosed in the budget document yet. It was scored at £1 billion. Why wasn't I know you weren't responsible for this at the time, but why do you think that that wasn't in the budget document?It was it was a billion in the scorecard. Subsequently.
15:34
15:34
15:35
15:35
15:36
Speaker 8
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Speaker 8
Very much. Meg, I have two questions for both ministers. Um the first is that data from the OECD shows that the UK now has the highest private contribution to higher education, the highest levels of student debt in the world, and staff facing redundancy and universities facing insolvency. So I'm wondering, can either minister identify a major stakeholder group that's actually benefiting from the present funding model?
15:37
15:37
Speaker 2
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Speaker 2
So, I mean, first of all, on the on the point about the OECD, um, the the way in which the OECD classifies, um, uh. Student debt, uh, loan debt in the student finance system. Allocates it as private despite the fact, as the chief Secretary have said, that this is a debt which is backed by government very largely subsidized by government. So I'm not sure that I quite would accept the characterization of the extent to which that then implies that the UK system is private.
Uh, on the point about, um, I think you're sort of linking the system to, um, uh, the, the financial sustainability of the sector. And I accept your point that the higher education sector is under considerable financial pressure at the moment. I would argue that that is less to do with the structure of the system and more to do with decisions that have been made in recent years. So, for example, as a considerable part of um. The finance of higher education institutions comes from tuition fees.
The decision by the last government to freeze those tuition fees for a period of time essentially led to a fall in the real value of the unit of income that. Universities were receiving. That's why when we came into government, we made the decision to increase in the first year the tuition fee income by, uh, the rate of inflation we've subsequently taken through Parliament, the ability to be able to, to do that again, I think for the next two years. And we will, as we've said, legislate in order to link that increase to inflation over time.
And in fact, we've already you know, I'm not arguing, by the way, that the higher education system is, uh, out of the difficult time, but we have already seen in the, um, analysis that. The office for students does of the financial Sustainability of higher education institutions. We've already seen a small improvement in terms of the levels of deficit that higher education institutions are facing.
Uh, on the point about, um, I think you're sort of linking the system to, um, uh, the, the financial sustainability of the sector. And I accept your point that the higher education sector is under considerable financial pressure at the moment. I would argue that that is less to do with the structure of the system and more to do with decisions that have been made in recent years. So, for example, as a considerable part of um. The finance of higher education institutions comes from tuition fees.
The decision by the last government to freeze those tuition fees for a period of time essentially led to a fall in the real value of the unit of income that. Universities were receiving. That's why when we came into government, we made the decision to increase in the first year the tuition fee income by, uh, the rate of inflation we've subsequently taken through Parliament, the ability to be able to, to do that again, I think for the next two years. And we will, as we've said, legislate in order to link that increase to inflation over time.
And in fact, we've already you know, I'm not arguing, by the way, that the higher education system is, uh, out of the difficult time, but we have already seen in the, um, analysis that. The office for students does of the financial Sustainability of higher education institutions. We've already seen a small improvement in terms of the levels of deficit that higher education institutions are facing.
15:41
15:42
15:42
15:43
15:43
Speaker 2
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Speaker 2
And the terms on which students enter into their student loan are quite clear that it is possible that regulations will change the basis on which that um. That collection is done. But the question I was being asked was, how is the system working for the financial sustainability of higher education?And I was pointing out how it was because of decisions that this government has made.
15:44
15:46
15:47
Speaker 4
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Speaker 4
I think, um, I think in the in your question, when you asked at the outset, you referred to partially privatize this being a feature as well. My understanding of the classification is such that, um, our system is characterised for methodological reasons, uh, as having a higher contribution, but obviously it's the state fronting the money in the way that we've, we've been discussing. But I think that classification does make those international comparisons a bit trickier, um, than it would that it would otherwise do. I think, I think it is interesting to look across at other jurisdictions and how they're, how they're doing this.
And I think that any sort of, you know, we should all be rightfully curious about ways in which we can improve the system. And clearly, part of that curiosity is about looking elsewhere at who does what. I mean, I know, uh, certainly just from my own experiences, um, over the, the. Many, many years that there are different models available, including things like a graduate tax and get into detail about, um, why I don't think that's the, um, the right. Answer. But obviously there are other, other ways of, other ways of doing it.
And I think that any sort of, you know, we should all be rightfully curious about ways in which we can improve the system. And clearly, part of that curiosity is about looking elsewhere at who does what. I mean, I know, uh, certainly just from my own experiences, um, over the, the. Many, many years that there are different models available, including things like a graduate tax and get into detail about, um, why I don't think that's the, um, the right. Answer. But obviously there are other, other ways of, other ways of doing it.
15:50
Speaker 8
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Speaker 8
I made my final question would just be about we had, um, Vivienne Stern from universities UK in last week talking about that sort of the government funding element and the student funding element and the fact that one's going right down. And the other one is sort of inching up. And I just wanted to reflect to, um, perhaps the two of you as the conversation will definitely be at some point. Is there any more money from the Treasury?Because we know that our student education is one of the jewels in the crown of our trading partnerships, for example, and we need to, um, be aware that there does have to be a government interest and funding at some point for a good like university education.
15:51
15:51
Speaker 4
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Speaker 4
And I have to say before I pass the check, I mean, it's absolutely it's absolutely right. And I, I haven't, um, to date, you know, wax lyrical about just how incredible our university sector is. We have four of the ten leading, uh, universities in the world. And indeed the sector is a huge contributor to economic growth domestically, in addition to all the reasons why education is a huge contributor to, um, to economic growth, Jackie.
15:52
Speaker 2
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Speaker 2
And I, I mean, I would, I would simply add to that when we're making international comparisons, I think it is probably worthwhile putting, uh, alongside the cost of other systems and the public subsidy of other systems, the quality of what they produce. So, you know, what we have in the UK is a world renowned higher education system with some of the best outcomes anywhere in the world, including other systems in which there is actually a larger public contribution. So this goes back to the point about quality, which I think is an important one.
I could also I could also, if you want to, I could also, um, take. On the point, for example, that has been made about whether or not we should, you know, what the proportion is of what's being.
I could also I could also, if you want to, I could also, um, take. On the point, for example, that has been made about whether or not we should, you know, what the proportion is of what's being.
15:53
15:54
Speaker 2
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Speaker 2
And that is and that is, as I've suggested, due to some of the decisions made by the last government, it means that we now find ourselves in a position where, for example, around 30% of the annual student loan outlay in any financial year is forecast not to be repaid. And therefore that's a 30% um, government subsidy. If you then add in um, additional, uh, money around some of the grants that I was talking about and some other, the strategic priorities grant as well, which is government support for universities.
We then have a government overall contribution in the region of 35% to 40%. Now, I know that there is a, um, a. Call, you know, I've heard um. Philip Augar make this argument for 5050. I mean, essentially, you know, with one part of me, I have sympathy for the idea that the government might fund higher education more, but that is what it is. It is a request for more public investment into higher education, which, as the Chief Secretary has quite rightly said, needs to be weighed up against the other priorities that, um, not just the Treasury, but even we in the Department for education have and we have made decisions about where we invest money.
And it has been.
We then have a government overall contribution in the region of 35% to 40%. Now, I know that there is a, um, a. Call, you know, I've heard um. Philip Augar make this argument for 5050. I mean, essentially, you know, with one part of me, I have sympathy for the idea that the government might fund higher education more, but that is what it is. It is a request for more public investment into higher education, which, as the Chief Secretary has quite rightly said, needs to be weighed up against the other priorities that, um, not just the Treasury, but even we in the Department for education have and we have made decisions about where we invest money.
And it has been.
15:56
15:56
15:57
15:58
Speaker 9
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Speaker 9
Thank you very much. And as a member of the Education Select Committee, Baroness Smith, you'll not be shocked to hear. I'm very interested in the issue around, um, the financial stability of the sector. And indeed, we look forward to receiving your your response to our report on higher education and funding in due course. Um, you mentioned in your previous responses there about how the loss of revenue from tuition fees under the previous government had increased instability in the sector. If I can paraphrase your words.
Well, the latest British Attitude survey shows the proportion of people who believe a university degree is not value for money has jumped from 14% in 2005 to 34% in 2025. Uh, I'm sure as many colleagues around this table have had conversations with young people in their constituencies telling us that they're choosing not to go to university, in part because they're very anxious about high repayments of student loans. Is there a risk to the financial stability of the sector that young people take a look at the products on offer and simply say, I don't think that that is value for money for me.
Well, the latest British Attitude survey shows the proportion of people who believe a university degree is not value for money has jumped from 14% in 2005 to 34% in 2025. Uh, I'm sure as many colleagues around this table have had conversations with young people in their constituencies telling us that they're choosing not to go to university, in part because they're very anxious about high repayments of student loans. Is there a risk to the financial stability of the sector that young people take a look at the products on offer and simply say, I don't think that that is value for money for me.
15:59
Speaker 2
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Speaker 2
Uh, well, I very much hope not, but I do. Think it is, uh, in. Important, first of all, that we are clear that what young people are being offered in higher education is of high quality. And that refers to some of the points that I was making earlier, that it is the right choice for an individual. And that's the reason why It is the right choice for an individual, and that's the reason why we will provide, uh, more information for young people thinking about their choices, to be able to look at what they might expect in the broadest possible terms, uh, the sort of opportunities that a course might open up for them, including in terms of earnings, including in terms of the contribution to the economy.
Uh, it's why we need, I think, to be, uh. But that does come back to the point about how we ensure that the. Make, understand the range of choices that are available to them within, uh, the needs of the country. The Prime Minister has set a clear target that two thirds of young people should be able to do level four or above, uh, qualifications by the age of 25. Those level four or above qualifications include a range of things. They do, of course, include a traditional route through higher education.
They include a level 4 or 5 or in fact, six, uh, apprenticeship. Uh, they include higher technical qualifications, um, offered by universities. Now that range of choice, which we need to make sure students understand about, I think is the best way of ensuring that there are the right things for students who want to make the choice that works for them, and that those are backed up by information that, um, will. Uh, tell them about what the, um, you know, what it will do for their prospects as an individual if they do those particular courses.
Uh, it's why we need, I think, to be, uh. But that does come back to the point about how we ensure that the. Make, understand the range of choices that are available to them within, uh, the needs of the country. The Prime Minister has set a clear target that two thirds of young people should be able to do level four or above, uh, qualifications by the age of 25. Those level four or above qualifications include a range of things. They do, of course, include a traditional route through higher education.
They include a level 4 or 5 or in fact, six, uh, apprenticeship. Uh, they include higher technical qualifications, um, offered by universities. Now that range of choice, which we need to make sure students understand about, I think is the best way of ensuring that there are the right things for students who want to make the choice that works for them, and that those are backed up by information that, um, will. Uh, tell them about what the, um, you know, what it will do for their prospects as an individual if they do those particular courses.
16:03
16:03
Speaker 2
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Speaker 2
Absolutely. And I do think that's an important point that I want to come back to from from earlier. There is a lot of information out there, uh, for students at the point at which they, uh, make a decision about whether or not they take out a student loan. I'm very open to the idea that we should think even more about how we can improve that. I know that the student loans company has, uh, for example, uh, advisory group, which includes students on it to help to think through the information that's, um, provided, uh, they produce, uh, on gov.uk as well as, um, the SLC, there is information about what you are taking on when you take on a student loan.
Uh, they describe it as speed bumps that mean that as you are reading the terms and conditions, uh, that you are entering into in a student loan, uh, you are forced to sort of slow down and accept that you have understood what those terms and conditions are before you're able to go on to the, onto the next stage. There are, you know, there's lots of non-government information out there about the nature of the loan and what you're taking on. But, you know, any ideas that come out of, of this inquiry or any other suggestions that people have about how we can improve information?I'm very open to and I talk, uh, regularly.
With the student loans company, and I'm more than happy to talk to them about that.
Uh, they describe it as speed bumps that mean that as you are reading the terms and conditions, uh, that you are entering into in a student loan, uh, you are forced to sort of slow down and accept that you have understood what those terms and conditions are before you're able to go on to the, onto the next stage. There are, you know, there's lots of non-government information out there about the nature of the loan and what you're taking on. But, you know, any ideas that come out of, of this inquiry or any other suggestions that people have about how we can improve information?I'm very open to and I talk, uh, regularly.
With the student loans company, and I'm more than happy to talk to them about that.
16:06
16:06
Speaker 7
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Speaker 7
Yes. Um, could I ask Baroness Smith about the some of the evidence we've received around, particularly from the Student Loans Company, um, about the level of understanding that students have about the loans they're taking out because it appears that the vast majority or a lot of them didn't know about those loans. Um, what do you think about that evidence?
16:08
Speaker 2
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Speaker 2
Um, well, what I saw in terms of the student loans company evidence and what I see when I look at what's being provided for students goes back to, to my previous response, I think, um, as of this moment, I think quite a lot of work rightly happens to make sure that people, particularly young people as they enter into a student loan arrangement, understand the terms and conditions, they understand the nature of what they're doing. I know that, um, the student loans company also, um. Want to use I'm not a comms person, but they want to use what they would describe as multi-channel approaches to ensuring that, uh, targeted information gets to particular groups of um.
Students, for example, estranged students, they want to make sure that they use different ways of communicating that. And as I said earlier. You, when you take on a student loan, you have to sign to say that you have understood the terms and conditions. Now, any of us know that, uh. I have to.
Students, for example, estranged students, they want to make sure that they use different ways of communicating that. And as I said earlier. You, when you take on a student loan, you have to sign to say that you have understood the terms and conditions. Now, any of us know that, uh. I have to.
16:10
16:10
Speaker 2
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Speaker 2
To confess to not having always read all of the terms and conditions of every financial arrangement that I've entered into. Um, that's why I think it's also quite important that there are other routes for students to understand both the quality and the value of what it is that they're undertaking. And also the nature of what they're entering into when they take on a student loan. And I do think that some of the important positives that we've already talked about, you know, the fact that if your income drops below a certain level, you won't be expected to make repayments.
You will have your, uh, if you haven't repaid, your loan will be written off after 30 years for plan 2 or 40 years for plan five. That's quite important.
You will have your, uh, if you haven't repaid, your loan will be written off after 30 years for plan 2 or 40 years for plan five. That's quite important.
16:11
Speaker 7
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Speaker 7
I accept that. But do you think that given the uncertainty and the apparent evidence that despite that stipulation that you have to tick that box, the evidence is that people did did not grasp that any future government could change materially. The terms and conditions of the loan. Would it not be wise to instruct the student loan company to make that a very explicit, clear, um condition that. That is made transparent to all of those that take it along alongside those other things that you mentioned quite reasonably about things being written off and so on.
16:12
Speaker 2
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Speaker 2
I mean, it's it is obvious that there are lots of people who feel that they didn't realise that that was potentially going to, to happen, you know, I mean, it's completely fair to say that I would just in evidence point to page one of the student loans guide to terms and Conditions. 2627 where it says, in terms the regulations may change from time to time, which means the terms of your loan may also change, uh, and then gives further information about how, uh, quite a lot of further information about the nature.
16:13
16:13
16:14
Speaker 7
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Speaker 7
Could could I could I just turn to, um earnings to pay off the loan terms?There's another point really, I suppose, about transparency. I understand the department was unable to give us um the number of how much a graduate would have to earn in their lifetime to pay back their loan on average. Um, it just seems a bit odd because it's sort of quite a key part of the, the system. Um, does the department know what that number is now?
16:15
16:15
16:15
Speaker 2
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Speaker 2
The. I think we can go further than we have gone to provide information to support the committee. Um, I do think it's important, though, to be clear that I wouldn't be comfortable with saying if you earn X over your lifetime, you will therefore be able to repay your loan and I'll explain why not in a moment. Because of course, as we've already pointed out, this is not unlike a mortgage. This is not a loan which you repay whatever the level of your income, and you have to have repaid it in a certain period of time.
So, so there are all sorts of things that will impact the extent to which you're repaying. But each year we do, the department does produce. Here's my second document. The department does produce a. A publication called Student Loan Forecasts for England. That itself includes information on the average borrowing per student and the average repayment per student. We publish it around July. When we do it this July. Given the interest of the committee, we will um.
We are working to be in a position to publish more information on that relationship between borrower earnings and loan repayment. For example, presenting the proportion of borrowers in different Post-study earnings bands with pound values who are forecast to finish repaying their loan before it is written off so that you could, for example, uh, I hope we will be able to deliver is the ability for people to say, uh. If your post-study earnings amount to X number of pounds above that, almost all, uh. Borrowers will repay their loans.
I don't just to come back to the point about how I wouldn't want that to be turned into an. If you earn this amount, you will repay their loan.
So, so there are all sorts of things that will impact the extent to which you're repaying. But each year we do, the department does produce. Here's my second document. The department does produce a. A publication called Student Loan Forecasts for England. That itself includes information on the average borrowing per student and the average repayment per student. We publish it around July. When we do it this July. Given the interest of the committee, we will um.
We are working to be in a position to publish more information on that relationship between borrower earnings and loan repayment. For example, presenting the proportion of borrowers in different Post-study earnings bands with pound values who are forecast to finish repaying their loan before it is written off so that you could, for example, uh, I hope we will be able to deliver is the ability for people to say, uh. If your post-study earnings amount to X number of pounds above that, almost all, uh. Borrowers will repay their loans.
I don't just to come back to the point about how I wouldn't want that to be turned into an. If you earn this amount, you will repay their loan.
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Speaker 2
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Speaker 2
Yes. There'll be illustrative. And just to explain why, I wouldn't want us to get into the position which we've been talking about, of misleading, uh, potential students about that. Just let me give you two examples about the way the system works. If you are a plan five borrower and you have earnings of one point, you could be in a position where you had one borrower had earnings of 1.74 million. Their earnings were £25,000. And over their working life they track, uh, the the repayment threshold.
Uh, despite earning 1.74 million over their life, they would repay nothing because they would never get above the repayment threshold. But you could have somebody who earned less than 550, thousand over their working life, but because they earned it, uh, at a very high income for a few years, they might repay all of their student loan. So that's just by way of saying, I don't want us to be in a position where we're saying this number means you would repay your, your loan, because I think that would risk misleading people in the way in which we've obviously been talking about not wanting to do so.
Uh, despite earning 1.74 million over their life, they would repay nothing because they would never get above the repayment threshold. But you could have somebody who earned less than 550, thousand over their working life, but because they earned it, uh, at a very high income for a few years, they might repay all of their student loan. So that's just by way of saying, I don't want us to be in a position where we're saying this number means you would repay your, your loan, because I think that would risk misleading people in the way in which we've obviously been talking about not wanting to do so.
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Speaker 2
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Speaker 2
Uh, I think we could. So what I'm committing to doing is going further than we have done to say in different for different levels of earnings. Uh, what would be the extent of the amount that would be paid and therefore above what level would the majority of people repay their loan?I think, which I think goes further than we've anything we've produced before. And we can do that alongside the student forecast publication that we publish in July. But you're right.
If somebody then said, if you earn that amount of money, you will repay your loan, they would be wrong. In any particular individual case.
If somebody then said, if you earn that amount of money, you will repay your loan, they would be wrong. In any particular individual case.
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Speaker 2
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Speaker 2
I can't answer for what I can't answer confidently for what was available at the time, but I. I don't think it was the case. And certainly the legislation on which the loans were based was clear that regulations could change the terms and conditions. Um, so to that extent, it was, uh, known, but uh. So, but I can be confident that it is clearer now.
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Speaker 1
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Speaker 1
I mean, the challenge here isn't there, because what you read out is, you know, it's true and what you said, but if you're a student and 17 year old and their family and their teachers, it's there's a lot else that's going on. You weren't able to go to university without a loan in most cases. So it's Hobson's choice. Even if you read the terms and conditions for a lot of young people, it's quite a lot to understand. And the department at the time put this forward as it compared the cost of student loan repayments to a mobile phone contract.
In fact, in one extraordinary thing, it also compared it to £12 a month to go to nightclubs, which we all think is quite cheap for a nightclub anyway. Maybe we're giving a different world. Um, do you think, though, that there's this I mean, there's, there's a real sense that they were mis sold at the time. I mean, they can't legally be mis sold because the law doesn't allow government. But there was that they seem extraordinary comparisons. Do you think that that was fair.
In fact, in one extraordinary thing, it also compared it to £12 a month to go to nightclubs, which we all think is quite cheap for a nightclub anyway. Maybe we're giving a different world. Um, do you think, though, that there's this I mean, there's, there's a real sense that they were mis sold at the time. I mean, they can't legally be mis sold because the law doesn't allow government. But there was that they seem extraordinary comparisons. Do you think that that was fair.
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Speaker 2
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Speaker 2
So, um, I think you get the balance through all of the information that I've talked about. Also given, as you say, um. These are young people who may well want to engage in a conversation or to see a range of information, things like the student room website, where the SLC facilitates part of the conversations that might go on within. It might well be a way that perhaps people could ask questions about things they didn't understand, about the loans, about the terms and conditions, and get more of a hopefully accurate but also helpful way to think about it.
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Speaker 1
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Speaker 1
I think he's wrong. Okay. Very categoric. But do you think it's now a problem because you talked about we've said this, you know, we're very clear on this. You've talked about the interest rates and what you're tying things down in law. Do you think there's confidence out there that what the government says today is going to be upheld in future, given what the history is, particularly of plan two loans?
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Speaker 2
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Speaker 2
Um, well, look, we we have looked at the, um, response that you got to your survey. We've listened to what um, people have said about the way that they feel both about the situation that they're in now and, um. Uh, their confidence in the system. I think we've, we've talked quite a lot about the choices that would need to be made and the consequences of, uh, changes to that system over and above what we've already done. The cost, for example, and therefore the opportunity cost to other things that we might invest in.
I've said that I think it's important that we keep thinking about how we communicate, uh, and give people confidence about what it is that they're entering into. Just as I can't answer for, um, past governments, I, I, I can't answer for future governments either, I'm afraid, but I, I think, you know, people need to.
I've said that I think it's important that we keep thinking about how we communicate, uh, and give people confidence about what it is that they're entering into. Just as I can't answer for, um, past governments, I, I, I can't answer for future governments either, I'm afraid, but I, I think, you know, people need to.
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Speaker 1
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Speaker 1
I think there's maybe just a disconnect from the world of Whitehall and the world of 17 year olds. But in Whitehall it seems logical. The boxes were ticked. The information was on the website, the the small print. There's legislation saying that these things can happen all perfectly watertight and wrapped up with a bow in government. But then when you actually launch it out there and 17 year olds have a look at this, they don't read it in the same way at all.
I think that's both those positions could be true at the same time.
I think that's both those positions could be true at the same time.
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Speaker 1
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Speaker 1
And of course, your department's introducing financial education training. Um, I can't remember. A minister told me that they'd been to visit one year. Six students were being taught all sorts of interesting things. So do you think is this the whole issue around student loans is going to be part of that?
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Speaker 3
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Speaker 3
Thank you, chair. I'll move on to the question of distributional effects and social mobility. Um, we heard from previous panels, um, particularly Sir Philip Auger in his review, who recommended that there should be a 5050 split between the individual's contribution to higher education and the state's contribution through general taxation. Um, right now for university students going to university, uh, on. The plan five scheme, this is more than 90% on the individual and less than 10% on on the state's, um, miss Rigby, I was wondering if you could describe why the, why you feel the general taxation system isn't sufficient to just capture the higher income from higher earners over the country more generally, rather than placing that subsidy on one specific cohort in society, i.e.
those going to university?
those going to university?
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Speaker 4
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Speaker 4
I think I think it's a really good question, and I think it goes back to the, um, issues that we were discussing at the outset about, um, the value of education to society as a whole, but also to the individuals that are take out loans and go to university. And as we've been discussing, we still have a position where less than half of young people go to university, the majority don't. And that's the current position that that ratio, um, been different over, um, over previous generations. But you come back to this question about fairness, not only to students, um, to current and former students, but to, to taxpayers as a whole.
And that's when this question about the contribution, I think, um, the overall contribution, but that of course is not just about, uh, student finance, it's about the additional areas of funding that Baroness Smith has been, uh, referring to the further ways in which, um, her department, uh, is supporting the, is supporting the sector.
And that's when this question about the contribution, I think, um, the overall contribution, but that of course is not just about, uh, student finance, it's about the additional areas of funding that Baroness Smith has been, uh, referring to the further ways in which, um, her department, uh, is supporting the, is supporting the sector.
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Speaker 3
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Speaker 3
We heard from universities UK who gave, you know, quite striking example of social, um, or public goods caused by going to education, going through higher education that for example, if you're in an accident, then the person who sews you back together again in the hospital will have gone through a university degree. And so, of course, there's an extent to which, um, like many public goods, going to university is good for you individually. And that might increase your earnings. It may or may not as well, but it's also certainly good for society in different in different situations.
Do you or does the Treasury have a kind of in principle approach to estimating what that that theoretical level of fairness should be in terms of what the public good benefits from and what is the individual benefit and therefore, what should be the ratio of state versus personal. Uh, contribution. Or is that not really the way in which the Treasury has arrived at its current system of student finance?
Do you or does the Treasury have a kind of in principle approach to estimating what that that theoretical level of fairness should be in terms of what the public good benefits from and what is the individual benefit and therefore, what should be the ratio of state versus personal. Uh, contribution. Or is that not really the way in which the Treasury has arrived at its current system of student finance?
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Speaker 4
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Speaker 4
I mean, the blunt answer in which is that we inherit, you know, we inherited what we inherited. That's how we arrived at the situation, um, that we are in. And as we've talked through, we wouldn't have designed some of these, um, parameters in the way that they, in the way that they currently exist. But I think the more sort of direct answer to your question is, um, I, I'm not kind of any of us, we're not sat with a blank sheet of paper being able to design a system, which we're dealing with, we're dealing with what we, with what we have.
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Speaker 4
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Speaker 4
I just I don't mind answering in the sense of saying, um, I think, and I think the Chancellor's. Said this as well. If it was open to us from the wider point of view of, you know, within the kind of envelope of fiscal responsibility to make some of these changes to the levers that we've been discussing, I certainly would be pushing for us to do that. You know, come back to some of the responses that you've had to.
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Speaker 2
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Speaker 2
Uh, I just wanted to say, I mean, you of course, right, that there is an element of higher education that is a public good. There's also quite a considerable element that is a private good in that. And this is where the design of the student finance system, I think rightly and fairly, is based both on a contribution from the student who will receive those those private benefits in terms of their lifelong earnings. Uh, if they do, they will repay. If they don't, they won't.
Uh, and there is an element of public good. And that's the reason for, for some of the, um, ratios that I was talking about earlier. So it is already the case that for full time undergraduates, government's overall contribution is in the region of 35%, 35 to 40%. And so that is a considerable government subsidy, which represents, which recognises that point that you've raised, as does the fact that if you think about overall higher education income in the 2020 four. 25 financial year, that was £46.1 billion that the higher education sector received divided between, uh, tuition fees.
Therefore, student contributions, international student contributions and research. And out of that 46.1 billion, the government was responsible for 16.4 billion of that. In other words, 36% of what was funding universities was coming from um government contribution.
Uh, and there is an element of public good. And that's the reason for, for some of the, um, ratios that I was talking about earlier. So it is already the case that for full time undergraduates, government's overall contribution is in the region of 35%, 35 to 40%. And so that is a considerable government subsidy, which represents, which recognises that point that you've raised, as does the fact that if you think about overall higher education income in the 2020 four. 25 financial year, that was £46.1 billion that the higher education sector received divided between, uh, tuition fees.
Therefore, student contributions, international student contributions and research. And out of that 46.1 billion, the government was responsible for 16.4 billion of that. In other words, 36% of what was funding universities was coming from um government contribution.
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Speaker 9
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Speaker 9
Thank you, chair. And I should quickly declare that I'm the chair of the Appg for Social Mobility. And I wanted to to raise social mobility. Um, Baroness Smith, you've you've spoken very eloquently about the benefits to the individual of a university degree, which in very many cases remains a very powerful tool of social mobility. But I want you to imagine for a second two students going to university from from my constituency, student A is fortunate enough to come from a. A very advantaged background and their parents can afford to pay their student loans up front.
Uh, and they graduate with a good degree and entered the workforce without student loan repayments ever being on their plate. Student B is not in a similar position and will spend for a considerable period of the rest of their lives, earning at the same point in their careers, imagining they get the same jobs and move through the same career paths 9% less in terms of their take home pay. Um, for the rest of their careers. In many instances. I'll just put it to you that that is a barrier to social mobility, isn't it?
Uh, and they graduate with a good degree and entered the workforce without student loan repayments ever being on their plate. Student B is not in a similar position and will spend for a considerable period of the rest of their lives, earning at the same point in their careers, imagining they get the same jobs and move through the same career paths 9% less in terms of their take home pay. Um, for the rest of their careers. In many instances. I'll just put it to you that that is a barrier to social mobility, isn't it?
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Speaker 2
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Speaker 2
Um, it is obviously the case that if you have in any system that included a, an element of, uh, loan finance, that would be the case. So to that extent, ever since 1990, when loans were first introduced into the student finance system, that that discrepancy has, uh, so, uh, yes, you're right. And the only way to get around that would be to, to, to move to a fully funded grant system. In doing that, of course, you would be making a very, very big, um, financial fiscal commitment, uh, which of itself, given some of the, the other things that we've, we've talked about some of the choices that the government has made would imply far fewer people going to university, potentially far less money for universities, far less ability to get people to the position where they would be likely to get into university in the first place if they had special educational needs or if they needed an Fe.
Education or, uh, if they needed to benefit from the from the start in life, that early years investment gives them. So, uh. Yes, but the way in which you solve that, I think, uh, is problematic.
Education or, uh, if they needed to benefit from the from the start in life, that early years investment gives them. So, uh. Yes, but the way in which you solve that, I think, uh, is problematic.
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Speaker 3
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Speaker 3
Thank you. Chair. Um, we had a number of submissions from students who felt that the marginal tax rates that they were facing were particularly, uh, were particularly unfair. Um, and that's because they are often paying their student repayments on top of everything else that somebody with the same income, but say, of, of a different generation to them might be paying. And so they can make that comparison in their own workplaces. Um, do you think these complaints are justified, Mr.
Rigby?
Rigby?
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Speaker 4
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Speaker 4
Um, I think I'm right in saying that the fact of having student loan adds about 9%. Um, and I think that, um, you know, ultimately at root, we, um, as a government want to see, uh, and we have a progressive system when it comes to income tax. And we also want to be able to provide student finance on, uh, in as fair way as can possibly, be provided set in the parameters that, sorry, the aims that Baroness Smith has set out, which of course is to allow people to access higher education, no matter their, um, no matter their, their background.
I think it's obviously within the fact of wanting to ensure that we have a progressive system. Uh, it is right, therefore, that graduates that earn more once they've left university, as indeed it's the case for anyone graduate or non-graduate that when they their earnings reach a particular level, that they are contributing more to the, um, to the system. So I think the fact of, um, wanting, uh, as I said, student finance and taxation system to be progressive is at the, is at the root of that.
I think it's obviously within the fact of wanting to ensure that we have a progressive system. Uh, it is right, therefore, that graduates that earn more once they've left university, as indeed it's the case for anyone graduate or non-graduate that when they their earnings reach a particular level, that they are contributing more to the, um, to the system. So I think the fact of, um, wanting, uh, as I said, student finance and taxation system to be progressive is at the, is at the root of that.
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Speaker 3
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Speaker 3
And I appreciate that point about the progressiveness of the income tax regime. And I suppose I'm speaking to more of a, of a sense of, again, intergenerational, intergenerational unfairness that there is this cohort of young graduates who have, um, from their perspective, done what their teachers and parents have encouraged them to do, gone to university, worked hard and are paying so much in tax and are facing such a difficult economic circumstances compared to, say, their parents generation, um, that they're much less likely to get on the housing ladder at the same time in their, in their lives compared to those of an older generation who may be earning in the same tax bracket.
So earning the same amount of income, but simply more asset wealthy, plus not paying the student loan, um, payment repayment issue. And that is really a sense of unfairness from those who wrote in to us. And what would you say to that?
So earning the same amount of income, but simply more asset wealthy, plus not paying the student loan, um, payment repayment issue. And that is really a sense of unfairness from those who wrote in to us. And what would you say to that?
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Speaker 4
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Speaker 4
Um, that I appreciate that as I hope I've made clear in my, um, in my answers so far, what I think it is important to bear in mind, though, is some of the features of student finance that we've been discussing. So the repayment rate of, of 9% and indeed the thresholds being set as they are, the interest rates, etc., the various parameters of the loans, one of the key features that I think is, is really, really important is the fact that lower earners are protected. That we have these repayment thresholds as a as a feature overall.
So I think what whilst I acknowledge and I understand that concern, I think if you are attached to having a progressive system, one aspect of that is if you want to protect the lower earners. There are other ways in which the. The system has to reflect that as well. Thank you.
So I think what whilst I acknowledge and I understand that concern, I think if you are attached to having a progressive system, one aspect of that is if you want to protect the lower earners. There are other ways in which the. The system has to reflect that as well. Thank you.
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Speaker 10
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Speaker 10
Thank you. Meg, um, something that came through in the evidence that we had was the sort of psychological pressure that the notion that you're repaying a loan, which is going to be there for a long time, um, no matter what you, you earn. And one thought that certainly has occurred to others before. And Sir Philip Augar, um, was clear on this, but also came through in people's, um suggestions for how the system might change would be just to accept that this isn't a conventional loan in the normal sense.
You don't necessarily have to pay the whole thing off. It require a credit history. Um, there are various aspects of it that make it not really resemble that sort of financial project. Product.
You don't necessarily have to pay the whole thing off. It require a credit history. Um, there are various aspects of it that make it not really resemble that sort of financial project. Product.
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Speaker 3
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Speaker 3
I mean, I do say I thought that the Chief Secretary very clearly explained why that wouldn't necessarily be the right or wouldn't be the right thing to do. I think given that we've spent quite a lot of time understandably talking, uh, the clarity and transparency of the information that we're giving to people when they take out a student loan, I think the fact is this has the elements of a loan, which is you have borrowed money, you are expected to repay it, uh, under a set of terms and conditions, which do protect you in the way in which we've described.
Secondly, it is in legislative terms, a loan. That's the basis on which it is paid by the government. So I'm not sure that that all of the problems that this inquiry has identified are solved. If only they were solved by a renaming, uh, to something else. And I noted, which I thought was interesting that the, the representatives of the campaigns and the NUS in their evidence also didn't think that renaming was the answer to.
Secondly, it is in legislative terms, a loan. That's the basis on which it is paid by the government. So I'm not sure that that all of the problems that this inquiry has identified are solved. If only they were solved by a renaming, uh, to something else. And I noted, which I thought was interesting that the, the representatives of the campaigns and the NUS in their evidence also didn't think that renaming was the answer to.
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Speaker 3
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Speaker 3
No, I wasn't saying that. The legislation calls it a loan. I was saying the basis on which it is paid legislatively is that it is a loan, and in fact, it's paid on the expectation that it will be repaid. I mean, you know, with a set of things that limit you having to repay. Depending on your. Income and having it written off after a period of time. But it acts like a loan in that you borrow the money and you expect it to repay it.
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Speaker 2
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Speaker 2
One other idea. Again, it's really about the way in which the transaction that people are engaged in is described, but I think it is still quite important, is that the student loan company, when it provides its annual statements to people on their repayments and how much they still have to repay might actually include, um, a statement about how much of the loan might be written off if that particular person continues to repay at the rate they are. And, and people then will find it easier to understand that although it seems like a large amount of money, actually 50% of people and, and, you know, it may well be the case for the individual who's receiving the statement that they won't have to pay the whole thing off.
And that's made a bit clearer. I again, sort of, um, that'd be a bit easier for people to deal with.
And that's made a bit clearer. I again, sort of, um, that'd be a bit easier for people to deal with.
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Speaker 3
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Speaker 3
I understand the point that's being made, and I very much understand this point that the committee has made about the psychology of seeing you having a very large, you know, seeing your debt going up. Um, I think the problem, you know, let me think about it more, but I fear that the problem might be the problem that I was talking about. Um, earlier. Here, which is to, to say to, to say to an individual, you will definitely not have to repay or you definitely will have to repay if X there's an awful lot of moving parts in that.
And whether or not that actually helps people to understand, I'm not sure whether or not it does. You know, I think probably we should be clearer about what the mitigations are here. You know, we should keep reminding people that if you earn below a certain level, you pay nothing. Uh, if you have still got loan debt after 30 years for plan two, it is completely written off, unlike any other sort of debt that you might have or loan that you might enter into. I think we need to keep making that clear, but I'm not sure that individual numbers for individual people help them.
And they might risk risk misleading them.
And whether or not that actually helps people to understand, I'm not sure whether or not it does. You know, I think probably we should be clearer about what the mitigations are here. You know, we should keep reminding people that if you earn below a certain level, you pay nothing. Uh, if you have still got loan debt after 30 years for plan two, it is completely written off, unlike any other sort of debt that you might have or loan that you might enter into. I think we need to keep making that clear, but I'm not sure that individual numbers for individual people help them.
And they might risk risk misleading them.
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Speaker 5
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Speaker 5
I didn't mean that. I'm more. Baroness Smith was speaking with a degree of familiarity with. As to how loans have been provided. The sort of documentation and. Indeed, she made the um the good point, of course, that she can't answer for um decisions that that that previous governments have um have made. But I, I am simply not familiar with exactly what information was provided.
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Speaker 1
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Speaker 1
But that information is provided and thresholds. The thresholds have changed and the different government's interest rates have changed. You know, there have been changes made good and bad because when interest rate is reduced, people are happier about that, obviously. But would would you be happy if a financial product had been sold in this way?
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Speaker 5
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Speaker 5
But I think I mean, and again, I defer to your. Uh, and indeed misunderstanding, but I think I'm right in saying that the general principles, uh, of, of the FCA should apply and indeed do apply to, um, to, to student finance. Uh, so I think in that, um, in that context, if you, if you wanted to make a judgement about, um, about this, you could, but I'm simply, but the problem is I don't have all of.
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Speaker 1
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Speaker 1
The. Because in legislation, there is no ability. In fact, it prohibits sort of it describes you can't sell this product because legislation legislatively. That's not possible. Nevertheless, we've seen changes of terms and conditions, information provided, which, you know, I'm not attempting to pull any wool over your eyes as factually provided by the department, saying things that just were not actually 100% accurate. I think in probably with best intent to try and make it easier for people to understand, but written by policy officials rather than people with a financial background, we are guessing.
So that's a surmise because of what we've seen. Um, you know, do you think there's a duty of care that government should have to young people, as you've already highlighted, without a credit history, a very young making these decisions. And, and in the context that it's a Hobson's choice, if they don't take a loan, they probably most of them will not able to go to university. Do you think there's a stronger duty of care that should be taken on board by the government?
So that's a surmise because of what we've seen. Um, you know, do you think there's a duty of care that government should have to young people, as you've already highlighted, without a credit history, a very young making these decisions. And, and in the context that it's a Hobson's choice, if they don't take a loan, they probably most of them will not able to go to university. Do you think there's a stronger duty of care that should be taken on board by the government?
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Speaker 5
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Speaker 5
I think it's critically important that the information that is provided to students is accurate and done. So in a way that's a plain English, um, version, which is indeed the standard that you would expect in other contexts as well. But, um, I wholly appreciate the strength of feeling that the committee's heard, uh, in relation to this issue. And I think it is, um, it's incredibly important that, uh, that we get this right going forward.
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Speaker 1
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Speaker 1
Another saying though, even even knowing what they know, they wouldn't have had the opportunity to go. So they would have still, they would still grudgingly do it, but not really, you know, but they would have either have known more so. Well, I mean, I appreciate that Minister's time. We are going to move on to defence matters. So, Baroness Smith, if you wish to to leave, you may um but but uh if.
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Speaker 1
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Speaker 1
That's nice. There you go. Well, okay, so, um, just, I mean, just for, for just a quick, some quick factual questions. Um, we are obviously all expecting and we're waiting with bated breath for the announcement of the defence investment plan. We appreciate there was an urgent question in the House, but we've all the talk is that this will be before the NATO summit. Can you give any clarity on on the date that we might hear about the Defence investment plan.
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Speaker 1
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Speaker 1
Which is for records on the seventh and 8th of July. So, okay. Thank you for clarifying that. Um and um, also there's been speculation about how this will be, how the commitment to move from 2.6% of GDP on defence to 3.5% will be funded. We've obviously been a long standing big hole in the defence budget and lots of challenges about spending there, but the speculation is that to fund this and understandably, money has got to come from somewhere. The capital spend in each department will have to give up some of its capital spending.
Is that a reasonable assumption?
Is that a reasonable assumption?
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Speaker 1
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Speaker 1
So could you perhaps explain that, given we've had the spending review and all the statements were made for departments, what's the mechanism?Were that to be the case for a department to give it up?Does it do you, as Chief Secretary, simply click your fingers and departments have to do what you tell them, or is there do you have to go through some more formal mechanism for them to, to, to if they were being asked in a hypothetical situation to give up some of their capital spending towards defence.
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Speaker 1
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Speaker 1
Just for the context, we did hear very clear evidence last week that as many of us know, there's been a long standing gap in the defence budget between what the country needs and what what was the money available. Um, and that was before the increase in defence money. But, but on the to increase from 2.5 to 3.6% of GDP is £500 per person in the UK or the whole of the transport budget. So that's just setting it in context. But you've also got um, presumably across your desk discussions about the multilateral defence mechanism and the defence security, um and resilience bank.
And it seems that the government's tending towards the MDM, the model, the European model. Can I just ask what, what conversations you are having with the Canadians in particular about the defence Security and Resilience Bank and whether it's something on your agenda?
And it seems that the government's tending towards the MDM, the model, the European model. Can I just ask what, what conversations you are having with the Canadians in particular about the defence Security and Resilience Bank and whether it's something on your agenda?
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Speaker 5
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Speaker 5
I'm happy to confirm that, um, that we are having discussions with various parties about how we can collaborate to ensure that we are, um. Better, uh, defending and enforcing our collective security. Absolutely. Right. To refer to the, to the, to the MDM, indeed, to, to Finland and the Netherlands and other partners as well. And those discussions are, um, those discussions are ongoing.
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Speaker 1
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Speaker 1
Okay. But not part of it now, but because that is an interesting mechanism. Mark Carney has been leading on it as Premier of Canada, of course, and the DSB has been very clear that funds in it will only be spent within industries of members of the defence, Security and Resilience Bank member nations of that. So if the UK is not in it, it will. They will not spend any money of any or use any of that credit support for British businesses.
Are you aware of that?
Are you aware of that?
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Speaker 5
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Speaker 5
I'm happy to look. I think, as I said, there are many, many discussions in this space which are ongoing. And clearly the objective amongst allies is to make sure that each of the bits of kit that we have all work together and that we're all securing the best value for money, uh, that we can. We're not currently part of the, um, DSB we've talked about the MDM, and as I said, we'll continue to have discussions with, our allies because our interests, um, are as I set them out, indeed their, their shared interests across.
And we.
And we.
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Speaker 5
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Speaker 5
I think I think it's absolutely right that we're having discussions that go to ameliorating that problem as indeed, I think, you know, it's right. And I think you're rightfully questioning me on, um, on defence because I appreciate this is a, this is a really significant um, matter of, of, of public interest. Um, the Chancellor has already committed to spending an additional £270 billion on defence over the course of this Parliament. And the Prime Minister has been clear, not least in his speech at the Munich Security Conference, that we will spend more money on defence and as to come back to where you started, chair, the.
The dip will be published in a few weeks time, and you'll see that.
The dip will be published in a few weeks time, and you'll see that.
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Speaker 1
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Speaker 1
And the Chancellor has also been very clear about buying British um and has talked about this in defence. But with the defence value chains and supply chains actually very some things just can't be bought British because our allies and our relationships mean that we'll do things. Do you think there's going to be any likely change. And if we're not in the DSB and it's got money to spend, it won't be buying British. So is there any are there any conversations that are going on about supporting British industry on defence procurement?
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Speaker 5
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Speaker 5
You'll forgive me. Uh, chair, I'm again, I'm afraid I keep saying you'll forgive me. You haven't told me that you're going to forgive me. I just hope I just hope that you will, um, for not wanting to, um, to delve into the subject matter of discussions, which, as I said, the dip will be published, um, in due course.
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Speaker 11
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Speaker 11
chief Secretary. We of course discussed this many times the economic benefit of increased defence spending if done correctly. Uh, I was very concerned to see the reports in the Sunday Times about, uh, cutting capital spending elsewhere, which of course, I understand you can't comment on, but if the government was to cut capital spending elsewhere, you take the risk that the net economic impact of the dip is negative. If that results in lower capital spending overall, especially on R&D. So given everything we discussed, would you share my frustration?Would you share my frustration if the, um, if the dip actually has a negative economic impact on UK overall?
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Speaker 5
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Speaker 5
Um, I think I'm very clear as indeed. We've been discussing in relation to um student finance, uh, that the, the chancellor's um view on the public finances is such that of wanting to um and indeed continuing to adhere to her, to her fiscal rules. So I think, um, it's important to bear that in mind when considering, um, what may or may not happen in future.
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Speaker 11
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Speaker 11
Of course, but there are different types of public spending. There's capital spending and current spending. Capital spending has far more economic impact, positive economic impact than current spending. So would you agree that it would be in an ideal scenario that at a minimum, there should be no net decrease in capital spending and government expenditure, which would have a fiscally neutral impact?
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Speaker 5
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Speaker 5
I think, look, I'm a huge proponent of more capital spending. I think this is something that marks out this government as different from the last the fact of, um, putting an extra 120 billion, um, into, into capital spending. So look, I think I think this is an important consideration across the piece.
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Speaker 11
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Speaker 11
And how, how carefully is government considering the advice of Draghi, which of course was to the EU, but that you can raise economic growth by borrowing for defence R&D and decreased debt because growth increases faster than debt. In terms of thinking about the the impact of the defence investment plan.
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Speaker 1
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Speaker 1
Which then brings us to my final question. I'm sure you are aware we are trying to secure your presence and the presence of the defence Procurement Minister in front of us to discuss this once it is published with our sister committee, the Defence Select Committee. I'm sure you'll be. He's very keen to come. I'm sure you are too.
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Speaker 1
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Speaker 1
We would hope to do that, though, before the end of the summer recess. Given the timetable on this very important issue, which is incredibly important to the security of the nation. But obviously, we recognise a huge challenge for any government to increase defence spending to the level that's now required. But can I thank our witnesses very much indeed for their time?Baroness Jackie Smith, formerly of this parish, and Lucy Rigby MP, Chief Secretary to the Treasury, formerly of this parish. The transcript of this session will be available on the website uncorrected in the next couple of days, and we're aiming to produce a report on the issue of student loans and student finance before the summer recess, with a fair wind behind us.
So can I thank our witnesses very much indeed for their time?Order!Order!
So can I thank our witnesses very much indeed for their time?Order!Order!