Post-18 Education and Funding Review

Lord Adonis Excerpts

Tuesday 2nd July 2019 Lords Chamber

[Lord Adonis (Lab)]

My Lords, the noble Baroness did a good job of explaining clearly the recommendations of the report of which she was a party. I agree with her that Heath Robinson would be proud of the current university finance system. Indeed, it is now so complicated that it reminds me of Lord Palmerston’s famous remark, on the Schleswig-Holstein question, that there were only three people who understood it: one was dead, one had gone mad, and he was the third and had forgotten it. It is that complicated now, and part of the reason is that one reform has been layered on another reform. In the last 20 years, there have been three major reforms of the university finance system. Each Government have engaged in a substantial reform—indeed, as I look around the Chamber, I see the authors of many of them here, with the wounds to show for their works.

I had the misfortune to be closely associated with two of those reforms: the 1997 reform and the 2003 reform. The 2003 reform was the first of the seriously controversial ones, because it required an appreciable fee level of £3,000 being paid by students. I shall never forget that, when we had the general election shortly after in 2005, a friend of mine was standing in a university seat, and the fees were the big, controversial issue. I thought that I would defuse the issue at the beginning of my speech by saying that I knew that on my tombstone will be engraved the words “Tuition Fees”, and somebody shouted out from the back, “Not soon enough”. It got much worse than that, because that was £3,000 and we at least managed to create a consensus. Indeed, I was rather proud of the consensus we established between the two major political parties on tuition fees at the level of £3,000, because in my view big reforms of this kind only stick if you can create a consensus. It was not a complete consensus, because the Liberal Democrats were strongly in favour of abolishing all fees and fought the 2010 election on that.

The big mistake in policy, in my view, was the decision in 2010 to treble fees. That was a mistake in terms of making the policy acceptable, because it broke the consensus. It was the straw that broke the camel’s back in terms of public acceptability to go from £3,000 to £9,000. It was also a mistake in policy, because the universities did not actually require, in terms of any objective assessment of need, that degree of cash infusion. Indeed, they were not capable of absorbing it. All of the Government’s own modelling on the 2010 reform—the noble Lord, Lord Willetts, is not in his place, but he and I have debated this a lot over the years—was done on a fee level of £7,500, because £9,000 was supposed to be the upper limit, and it was expected that most courses would be at £6,000 and that the fees would be varied. What happened, of course, was that every university went straight up to £9,000. Universities could barely absorb the cash, which is the reason why the vice-chancellors are being paid £300,000 to £400,000, and in the case of the University of Bath—which I am afraid I got rather involved in because it was such a scandal—a salary of £500,000. It is not just the people at the top; there was a huge increase in the size of senior management teams and a big sense of resentment inside the universities themselves.

Although the noble Baroness is absolutely right to say that we need to tackle the issue of FE, it is important to understand that the inequity in the system has got substantially worse over the last 10 years. It is not as if we are moving towards an end point where there is going to be a fairer and better system. As the noble Lord, Lord Patten, said, the words of the report are excellent, but I am afraid that the graphs and figures—I always go to those first, as they tell you what is really going on—are startling. I invite noble Lords to compare Figure 3.1 with Figure 4.3. Figure 3.1, which gives university resources per student per publicly funded degree, shows that in real or constant terms the resources per publicly funded degree in the last 15 years have gone up from £18,000 to £28,000. There is no area of public spending which has been remotely as well protected as universities. However, Figure 4.3, which gives FE college sector total income in constant prices, shows a decrease in real terms, from spending of nearly £8 billion a year 10 years ago to under £6 billion a year now. So what we have done in the last 10 years—we as a Parliament and the coalition Government and the Conservative Government since 2010—while we have all been paying lip service to equality of opportunity and investing in the majority who do not go to university and are dependent on the FE system, is to massively increase resources per head in universities, irrespective of the type of university. There has been no differentiation of the kind that the noble Lord, Lord Patten, was talking about.

It is striking that, for a lot of courses in universities now, the fee level is higher than the actual cost of delivering the course. With fees at £9,500 per student per year, most social science and arts courses do not remotely cost that much to deliver. That is the reason why secondary schools, which teach about three times as much as universities in terms of per hour teaching in the arts, have a fee level—a grant per year—which is half the level of universities now, and that is being cut year by year, although they are the supply chain for the universities. At the same time as that has happened, we have had a huge cut in resources for FE.

On apprenticeships—we do not have my noble friend Lord Layard speaking, who has rightly championed apprenticeships over the years—

[Noble Lords]

We do!

[Lord Adonis]

Oh, we do. Well, I may slightly be pre-empting my noble friend’s speech. He has been lobbying—he lobbied me when I was in government—for substantial reform to bring us much more in line with the German system, where young people who do not go on to university have a standard apprenticeship offer, which is what we desperately need as a society.

We have managed the remarkable feat of introducing an apprenticeship levy, which is requiring employers to pay towards apprenticeships, while apprenticeship numbers have gone down. So we have managed the triple whammy of massively increasing resources per head for the most privileged part of the post-18 system, slashing resources for the part of the system that deals with those who have the lowest skill levels at 18, and creating a funding system for apprenticeships which has got more money going in but does not appear to be producing any decent output. If we were not dealing with the crisis of Brexit—and I have to raise that in every speech I make, because it is the opportunity cost and the reason that the Government cannot do anything about any of this—these would be urgent matters requiring attention.

What should we do? I do not think that the current system is sustainable. I know that I am surrounded by people who are deeply engaged in the work of universities, who would love to think that we can maintain fee levels of £9,500 a year, with a 6% real interest rate and the current system. For what it is worth, speaking as a politician, I simply do not think that it is going to be sustainable. There is no other country in the world that has an average public fee level as high as ours that is required to be paid by students. Most European countries that started to go down this road, because of massive public pressure—of the kind we had at the last election, with it becoming a contentious issue between the parties—have abolished them. Most significantly, looking at leading-edge public policy, the Federal Republic of Germany, which introduced modest fees, has abolished them. In the United States, in US public universities—not private universities, which of course is what we spend most of our time looking at—where most students go, fee levels have been coming down and are being abolished in some states, notably now in New York.

I do not think the current system is sustainable, and there will be pressure over time to reduce the fee level. Either universities will have to take the burden of that entirely, which in my view they could afford to do if it was done in a managed way, or there will have to be some shift towards taxation. It is very clear to me that that should be done in the form of adjustments to the higher rate of tax, because only about 15% of taxpayers pay the higher rate. The idea that it would be inequitable to move towards a tax-based system is completely wrong. It depends on which taxes you increase and what system you put in place. If there was a modest increase in the higher rate traded off against a reduction in tuition fees and the money was segmented in some form, it could be done. I say all that not because it will be popular in the House but because it is probably inevitable that that will happen in due course.

The really important recommendation in the report, which is hugely significant for where it might lead in long-term policy, was mentioned at the end of the noble Baroness’s remarks, and that is the proposal for a lifelong loan allowance. The principle of the lifelong loan allowance is, to my mind, incontrovertible, and that is that the state should make an investment in all young people at the age of 18 that is in principle the same: whether you go on to an apprenticeship, further education or higher education, the commitment the state makes to you should be the same. Of course, they will be going to different institutions and many will go into apprenticeships and so on, but it is totally unjustifiable that, at the moment, the state makes a contribution about three times as great investing in students going on to universities, who already, by and large, have most spent on them before the age of 18, with many of them going to expensive private schools. It is totally unjustifiable that they should also then be the beneficiary of so much additional state investment beyond the age of 18.

If the principle of the lifelong loan allowance—that all students get the same investment—is accepted, over time that must lead to new investment going into further education and apprenticeships. Then the big challenge—and I look forward to my noble friend Lord Layard’s speech—is how we create a system that ensures we have an apprenticeship regime in this country that resembles that of the Federal Republic of Germany. I have always taken the view in public policy that R&D stands for “Rob and Duplicate”: where somebody else does something really well, you should copy it like mad. It is high time that we accepted that many of our continental friends have done a brilliant job of creating high-quality apprenticeship systems, and the sooner we copy them, the better.