Higher Education Funding

Debate between Lord Willetts and Liam Byrne

Thursday 8th January 2015 Commons Chamber

[Mr Willetts]

My hon. Friend makes an important point. This is not public spending, as is explained in the Office for Budget Responsibility “Fiscal Sustainability Report” at page 174, paragraph B.21, which states:

“given the way the National Accounts are measured this does not directly affect our fiscal forecast.”

But that does not mean that we should be cavalier or wilful and say, “It doesn’t matter what the write-offs are. That is a problem for 2046.” My hon. Friend is absolutely right, and that is what I want to touch on. Clearly, we have to do this prudently, which is why this appears as an item of spending in some BIS departmental budgets. Quite rightly, BIS Ministers and Treasury Ministers have to discuss what they think will happen on the write-offs. Incidentally, a very sensible reform a couple of years ago, when even the Treasury understood that having this in the annual budget bouncing around as forecasts was nonsense, was for the accounting charges to happen at a rate of one thirtieth a year. We want to recognise this issue, but it would be a mistake for it to be regarded as just like normal departmental expenditure.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I am conscious that this may be the last time in this Parliament that we have a debate on higher education on the Floor of the House, so it is appropriate to salute the right hon. Gentleman’s extraordinary career and contribution, not just to this field of public policy, but to public policy in this country more generally. [Hon. Members: “Hear, hear.”]

During the last year or so, the right hon. Gentleman has been sanguine about a debt write-off rate that has risen quite dramatically. Why does he therefore think that a debt write-off rate of 100% would be a bad thing? Does he draw from that hypothetical argument that there is an optimum rate, and if so, will he share it with us?

[Mr Willetts]

I thank the shadow Minister for his generous remarks. I, too, as the former Secretary of State was saying, shall miss the House and even, no doubt, these debates. The shadow Minister asks a very fair question: what has happened to the RAB charge and why? The RAB charge is a peculiar calculation. First, it is a forecast, not public spending, and it has several elements. One element is a schematic assumption of the cost of Government borrowing. One reason why I am less worried about the so-called RAB charge than some other Members in the debate is that the RAB charge calculation assumes that the cost to Government borrowing is 2.2% real, when it is not. That is fixed by the Treasury. It may have been before the right hon. Gentleman was Chief Secretary, but under the previous Labour Government in 2005, when they first launched their scheme—very similar in structure to the scheme we have now—the RAB charge was 42%. One of the reasons why it was 42% was that it assumed a Government cost of borrowing of 3.5% real. In 2005, they announced that the actual cost to Government borrowing was 2.2%, and in a stroke, that reduced the RAB charge to 33%.

One piece of advice I would give to my excellent successor is that he should go back to the Treasury and ask why we are all having an argument about a figure that is based on a completely incorrect assumption for the cost of Government borrowing. If he does not do it, and the right hon. Gentleman were to be in Government, I will make a modest prediction that one of the first things that will happen to the RAB charge is that there will be a different and more realistic cost of Government borrowing, and lo and behold, the RAB charge will suddenly be discovered not to be 45%. As the OBR helpfully point out, 1% off the cost of Government borrowing lowers the RAB charge by 10 percentage points. So we are stuck on a calculation, one crucial element of which is fixed by Treasury stipulation. It does not respond to the real world.

Another bit of the calculation absolutely responds to the real world, and with excessive sensitivity. The other reason why it has gone up is what it is thought the £21,000 repayment threshold will be worth in 2016. Clearly, it will be worth more relative to earnings than we thought it would be when we set it. That is because, rightly, Ministers take the OBR earnings forecast, and the OBR’s assessment of what will happen to earnings year on year has kept on changing.

There was a deliberate decision to have a higher threshold than the previous scheme. We wanted to lower graduates’ fixed monthly outgoings. The hon. Member for Huddersfield (Mr Sheerman) asks whether graduates will be able to get into the housing market, and all the lenders to whom I spoke made it clear that when it came to mortgages they looked at fixed outgoings. So if the threshold is raised, fixed outgoings are lowered and the capacity of graduates to take out mortgages is increased. That was one of the arguments for the higher threshold. Nevertheless, it has turned out that that £21,000 will be worth more in 2016 relative to earnings than was expected.

The real impact comes because it is then assumed that the £21,000 threshold is uprated with earnings, year after year for the next 30 years. In other words, the real value of that threshold, relative to earnings, over the 35 years of a graduate’s experience, is entirely determined by the performance of wages between 2011 and 2016 compared with the OBR forecast in 2011. That is a peculiar way of modelling a graduate repayment scheme. The Labour party, which says that that proves it is unsustainable, did not increase the £15,000 threshold during the entire five years after it came into force. The Labour party lowered the RAB charge by changing the figures for the cost of borrowing, and the threshold stood at £15,000 without an annual uprating.

What is happening? The reason why I am so uncomfortable with this focus on the RAB charge is that this is a forecast that we have to make, but it is a very peculiar forecast indeed, and we need to keep it in proportion.

[Mr Byrne]

I am grateful to the right hon. Gentleman for that contribution, because I think he has given us one of the best arguments that I have heard this afternoon for precisely the review that my right hon. Friend the Member for Southampton, Itchen (Mr Denham) has called for. If the right hon. Gentleman poses significant questions about the right interest rate and the right earnings threshold—which we all know was a compromise with the Liberal Democrats—there are obviously some serious questions that demand a review. That is why the logical conclusion is that the Minister should stand up later today and admit that he has changed his mind. I hope that the right hon. Gentleman will just underline an acceptance that, although we might dispute the right way of calculating a RAB charge, being concerned about the level of debt write-off is none the less very important, because the lower we can keep it, the more money there is for future generations.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The right hon. Gentleman should save some speech for later.

Disabled Students Allowance

Debate between Lord Willetts and Liam Byrne

Wednesday 2nd July 2014 Westminster Hall

[Mr Willetts]

I am not sure that this extra time will be as good as that in the Belgium versus United States match, but I will do my best. I welcome hon. Members who have come for the next debate and apologise to them.

I was starting to wind up the debate, explaining why it is legitimate to carry out the review and why the term “modernisation” is legitimate. One argument in that regard was about technical change. I was also saying that there is a genuine issue about obligations under the Equality Act, whereby universities have a duty to make reasonable adjustments for students who are disabled. We have to get the balance right between the institutional obligation on the university and personal financial support for the individual student. I was giving an example of how a library should function, saying that the obligation could be discharged by a library properly training its staff to help people with a range of disabilities. That may be a more effective way of delivering support for disabled people than individual disabled students turning up at the library with a personal assistant to help them. It is legitimate to try to get the individual versus institution balance reviewed in the light of the equalities duties.

The right hon. Member for Sheffield, Brightside and Hillsborough did not like the fact that I referred to the funding available for universities, but several hon. Members, beginning with my hon. Friend the Member for Cambridge but not only him, specifically asked, “How will universities pay, given that you are expecting them to discharge these institutional obligations?” There are two genuine points to be made in response, although more could be made.

First, with regard to the equalities duties that the House has introduced under successive Governments, by and large we do not say, “We therefore need an extra stream of funding for the NHS”, any more than we say that there should be extra public support for Marks & Spencer. Hon. Members should remember that, legally, universities are independent institutions outside the public sector. The general view across the House, when we have imposed equality duties, has been that that is just part of the proper functioning of an institution.

Secondly, it is fortunate that our universities are in a healthy financial position. I will not stray from the point, as happened in the argument a few minutes ago between the hon. Member for Huddersfield (Mr Sheerman) and my hon. Friend the Member for Cambridge, but the sums going to universities for teaching—the combination of the grant income and the fee income that they receive—is rising substantially as a result of the controversial changes that we introduced, going from £7.9 billion total income in 2011-12 to £9.9 billion in 2015-16.

To be frank with hon. Members who voted against the £9,000 fee—I suspect that the majority of those in this Chamber did so—it is inconceivable that universities would have enjoyed a £2 billion increase in teaching income in the life of this Parliament under any other model of financing universities, especially one that depended on public expenditure through grant. There is a genuine increase in their financial resource. Several hon. Members expressed concern that our proposal comes at a bad time, when universities have not got any money, but in fact they have had an increase in their cash resource.

[Mr Byrne]

I am grateful to the Minister for giving way with characteristic generosity. Can he help hon. Members? He has made an eloquent argument for the need to rebalance responsibilities between central Government and independent universities, saying that we need to do so because it is a long time since we have considered the matter. By how much is he seeking to reduce the DSA budget over the next financial year and the one after? He must know, because he has a list of specific measures.

[Mr Willetts]

I was going to get to that point in a moment. We are still consulting—it is a genuine consultation—so I cannot give the House a specific figure, because that will depend on a host of things, including exactly how the proposals are implemented and wider effects. However, it is a budget that has grown rapidly. Incidentally, the right hon. Gentleman said that that growth had stopped. There is always a difference between the provisional figures and the final outcome figures. My personal expectation is that the final outcome figures for the latest year should be higher than those for the previous year. It is not fair to compare final outcome figures with provisional figures. We will see. The budget has increased from about £88 million when we came to office to about £125 million now, so it is legitimate to look at it. However, we do not have a specific allocated figure.

Oral Answers to Questions

Debate between Lord Willetts and Liam Byrne

Thursday 26th June 2014 Commons Chamber

[Mr Willetts]

I remember vividly that visit last month and congratulate my hon. Friend on his very good working relationships with local employers. He is right that our life sciences strategy is not simply about research and development, important though that is. It is also about supporting high-tech manufacturing and promoting more of that in the UK.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

In the run-up to the election, it is important that we try to maximise consensus across the House on science policy. To help the debate, we launched our Green Paper on science on Tuesday, and I welcome the Royal Society’s report today. It is important to be honest about where we are, though. Life science investment has fallen, according to the Library, by almost £500 million since 2010. In the last year for which data are available, total R and D spending in the UK is down by nearly £1 billion. We are now 23rd out of 33 for R and D spending in the OECD. Why does the Minister think that is? I am sure he will agree that this is not the way to win a race to the top.

[Mr Willetts]

A major change is happening in the structure of the life sciences industry, with it moving away from having large, in-house R and D facilities. That trend is happening around the world. We have been particularly successful in this country in making sure that as that happens we promote alternative investment, and we are now seeing—for example, in the facility that Pfizer operated in Kent—significant renewal as new, small businesses come in. Our life sciences strategy is attracting new investment to the UK—£2 billion of it since we launched the strategy.

Oral Answers to Questions

Debate between Lord Willetts and Liam Byrne

Thursday 10th April 2014 Commons Chamber

[Mr Willetts]

What we have achieved with our higher education reforms is significant savings to the taxpayer and extra income going to our universities. That is the right combination.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

The whole House will want to join me in congratulating Toni Pearce on her re-election as president of the National Union of Students. Figures this morning from the Sutton Trust and the Institute for Fiscal Studies show that Toni’s generation will now be paying off their student loans into their 50s. Will the Minister get to the Dispatch Box and confess that this student debt system is now not only unsustainable, but unfair? Does the Conservative party have any plans to raise the £9,000 fee in the next Parliament?

[Mr Willetts]

Let us be absolutely clear what today’s IFS report shows. It shows that people on lower earnings throughout their working lives are going to pay back less. That is a deliberate feature of our reforms which means that they are fairer and more progressive than the system we inherited from the Labour Government. Meanwhile, people who earn a lot during their working lives as a result of going to university will pay back more. That is what we intended with these reforms, and that is what the IFS shows we are delivering.

Oral Answers to Questions

Debate between Lord Willetts and Liam Byrne

Thursday 5th December 2013 Commons Chamber

[Mr Willetts]

We have a fair and sustainable way of financing higher education. It is right to expect graduates to pay back the cost of their higher education if they are earning more than £21,000. That has enabled us to see more students going to university and increases in funding for teaching at universities, even while we have been tackling the budget deficit we inherited from the previous Government.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

As you know, Mr Speaker, while the Minister was batting for Britain in Kazakhstan last week, the National Audit Office was battering his handling of the student loans system. We look forward to the hearings at the Public Accounts Committee, but in the meantime would he mind telling the House how late he discovered that students at private higher education institutions were soaking up public subsidies at such a rate that there was an overspend of hundreds of millions of pounds? How did he lose control so spectacularly?

[Mr Willetts]

Let us be clear: these students are studying for HNCs and HNDs, which are all legitimate and valuable qualifications. Whereas under the right hon. Gentleman’s Government there was no control whatsoever of the designation of alternative providers, we have introduced controls. The number of students going to alternative providers has increased dramatically, and in order to maintain budgetary controls, we have introduced further limits on the numbers, but these are worthwhile courses that we should support.