Higher Education Funding

Debate between Adrian Bailey and Paul Farrelly

Thursday 8th January 2015 Commons Chamber

[Mr Bailey]

I understand that my hon. Friend is due to speak, so although I will draw on his report, I will not pre-empt him by discussing its conclusions.

The motion mainly deals with the policy’s public spending and budgetary aspects, but it is important to recognise that we are not just talking about money. Higher education is vital to the economy of this country and to our society. It is an £8 billion export earner and attracts students from all over the world, because British universities consistently feature at the top of the rankings of world universities. In addition, universities drive and sustain economic growth in their immediate local economies, which are often in some of the most deprived parts of the country.

For an individual going to university, such an education is a potential path to personal fulfilment, and of course an economic advantage. Various estimates of graduate earnings show a minimum of something like £150,000 earned by a graduate over their lifetime over and above what they might expect had they left school after A-levels, and many estimates show more.

The Treasury estimates added benefits from taxes earned, and further benefit to employers through productivity gains. In short, higher education in this country is a success story that needs to be sustained, and it is crucial to reinforce Britain’s position in a global economy that is becoming ever more competitive.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I congratulate my hon. Friend and the Business, Innovation and Skills Committee on its report. Clearly, the size of student loans reflects in great part the size of fees. I have read the Government’s response to the consultation in which they state that they have

“no current plans to initiate a formal review of the sustainability of the student loans system in England.”

That means that there are no formal plans for a review of fees. Does my hon. Friend think that that is right or responsible?

[Mr Bailey]

My hon. Friend, as ever, touches on the key issue underlined in the Committee’s report, and I will address that issue in due course.

As I was saying, higher education is a success story and vital for our economy, our society and the aspirations of millions of young people in the country. To underpin it we need a funding system that enables it to respond to the demands that will be placed on it by outside pressures, and to sustain its role as a driver of social change. The current funding system is based on recommendations in the 2010 Browne review and subsequently implemented, with some changes, in 2012. The key change was to replace direct Government funding of university teaching by a fees-based system payable by individual students on the basis of Government loans through the Student Loans Company, capped at £9,000. Those fees are to be repaid after graduation once a salary of £21,000 has been reached, over a period of 30 years.

There were short-term benefits to that model. It removed the cost of funding from public accounts, except for those costs that would have to be written off through under or non-repayment in the future—technically known as the resource accounting and budgeting, or RAB, charge. That model benefited the universities because it led to an increase in funding at least in the short term, and it benefited taxpayers because there was a drop in public subsidy per student of something like 5%. The benefit to the student is far less clear. Although the system delays payment for education until later in life and is income-contingent, the Institute for Fiscal Studies estimates that the average debt per student will be more than £44,000 for a combination of tuition fee and maintenance loans. In its report the Higher Education Commission stated that focus groups demonstrated a low level of awareness among students about that issue and its potential implications for them.

--- Later in debate ---

[Mr Bailey]

Far be it from me to intervene in the exchanges between the Front-Bench teams on this point, but I stand by my earlier point: when this response was made, it was done on the basis of evidence submitted on the pre-2012 model.

[Paul Farrelly]

Let me come to the Select Committee’s aid. Does my hon. Friend recognise that it is not only his Committee that has found the system to be unsustainable, but the former adviser to the right hon. Member for Havant (Mr Willetts) when he was a Minister, Nick Hillman, who said that the Government had got their maths wrong? He is now the director of the Higher Education Policy Institute and he said in March last year:

“The government has got it wrong and therefore there is a big funding gap and something has to be done about it.”

[Mr Bailey]

I agree. What I find odd is that Ministers will pray in aid a body such as the OECD, but refuse to recognise the overwhelming consensus of opinion of experts across the academic and economic sphere in this country that the system is unsustainable.

So far, the Government’s approach has basically been to say that the figures on which the estimates are based are essentially projected hypothetical figures, which could be altered if macro-economic conditions change. I certainly accept that that is absolutely true in broad terms. One point quoted more often than others is that if graduate incomes increase, it will substantially alter the projected potential deficits and increase in RAB charges.

The trouble is that it is possible to look at a whole range of economic variables, many of which might work in the other direction. Let me cite a couple of examples off the top of my head, but there are many others. First, if the cap in student numbers is removed and we have a larger number of graduates coming on the market as a result, that could further depress the starting salaries for graduates to a lower level than before. That could also have a significant impact on future RAB charges. If the Government had to borrow money at a higher rate than applies at the moment in order to re-lend, that, too, could considerably alter RAB charges.