Higher Education: Funding

Baroness Sharp of Guildford Excerpts

Wednesday 27th October 2010 Lords Chamber

[Baroness Sharp of Guildford]

I thank the Minister for the opportunity to discuss this important report from the noble Lord, Lord Browne, on proposals for student financing. I look forward to hearing other contributions to the debate because, as the Minister made clear, the proposals are still being discussed among Ministers and no final decisions on how the report will be implemented have been made.

Nevertheless, there has been some indication that Ministers will accept a cap on fees of somewhere in the region of £7,000, which would alter, in many senses, some of the proposals put forward by the noble Lord, Lord Browne. At that level, as the noble Lord, Lord Giddens, indicated, there would be no subsidy for the arts, the humanities or the social services: a graduate contribution would meet the whole cost of provision.

My right honourable friend in the other place, Vince Cable, Secretary of State, indicated that he had no alternative; he was confronted by the need to find savings of over £3 billion from his budget. A large proportion of his budget in BIS is made up of the science budget, the skills budget and the higher education budget. He judged—I think this is broadly welcomed in the House—that there was no room for cutting the science budget; that science, as the creator and nucleus of growth in this country, should be, and has been, left in cash terms at the level that it was. Similarly, the skills budget was vital to growth prospects. That left only the university budget and it was decided that there was a good case for asking students to pay a larger proportion of the cost of universities, and the report of the noble Lord, Lord Browne, gave an opportunity to do so.

There are a number of good features in the report. I particularly welcome the proposals for part-time students, a cause for which I have fought long and hard in this House for many a year. I am delighted to see that at long last there is to be pro rata provision in loans and grants for part-time students. It looks to be an important change in the structure of university provision in this country because it will provide an incentive, which to date has been lacking, for students to attend their local universities or further education colleges on a part-time basis. For some students, studying for the part-time two-year foundation degree—which, in effect, is the old HND—might be more appropriate to their capabilities and provide them with a stepping stone to further progression if needed. They are practical, vocationally based foundation degrees which, in many senses, meet our skills needs better than some of the wider degrees currently provided. It is a long-fought-for and important option.

I also welcome the proposition that, effectively, the students should carry the money with them; that universities should have to compete for students by offering good value for money in the courses that they provide.

Teaching has for a long time played second fiddle to research, and the long overdue recognition that teaching is important and should be valued in its own right in universities is implicit in the report of the noble Lord, Lord Browne. I like that very much. I should perhaps declare an interest as a former university teacher and I remain a visiting fellow at the University of Sussex. I can remember having like other academics to fill out diaries about how I used my time. It became clear from the output of those diaries that, far from research subsidising teaching, it was the other way round: the teaching budget in universities was subsidising research.

The proposals have also given vice-chancellors what they have long demanded: a stream of funding which comes directly into their coffers rather than, as at present, via HEFCE. That the Government are to keep a cap on it makes it clear that the flow of funding is still regulated by government. Since the Government are borrowing the money to pay the fees, the notion that the arrangement is independent of government is hardly correct.

I have some reservations about the merging of HEFCE, the QAA, OFFA and the Office of the Independent Adjudicator, all to create the superquango of the Higher Education Council. The issue about which I am particularly unhappy was voiced at length in last week’s Times Higher Education; that is, that places in universities are to be regulated by the Government setting the UCAS tariff for student access to universities. I do not see how that could possibly work; it means uncertainty both for students and the universities. It will not be known how many students will come in and in which areas.

What I find most difficult about the proposals is that, for many young people and the not-so-young, the debt will never be paid off. The IFS analysis of the proposals show clearly that, with fees of more than £6,000 a year, more than half of graduates would make repayments over 30 years and never pay off the loans. As the IFS points out clearly, the system amounts effectively to a graduate tax—a 9 per cent supplement on income tax for anyone earning more than £21,000 until they pay off the accumulated value of the debt. Approximately half the students will never pay it off.

The advantage of the proposals of the noble Lord, Lord Browne, over the present system is that it is more progressive: those whose parents’ income is low and whose earnings are low would benefit most because they would qualify for up-front grants and never have to pay the full interest rate or pay off the loan. The charging of the full rate of the interest on those earning more means that the higher earners would pay more. Since only the higher earners would pay off the debt, they would meet all the costs, whereas the low and middle earners, whose debt is never paid off, would benefit from the subsidy implicit in not having the debt paid off. As has been made clear by my noble friends, charging the real rate of interest with a high threshold for repayment is therefore a more progressive system than the present system with its lower threshold and the zero real rate of interest.

Most difficult is the situation that confronts the middle earner—let us suppose that they are a teacher or a social worker whose earnings start, at age 21 when they graduate, at about £21,000 a year and rise by their early 40s to something like £38,000 a year. Through their earning life, they will pay the 9 per cent supplement on income tax—a marginal rate of income tax on all earnings over £21,000 of 40 per cent, rising to 50 per cent when they hit the higher-rate threshold at about £37,000. We may argue about the disincentive effect of raising income tax by 1 per cent or 2 per cent, so a 9 per cent supplement must be a major disincentive. Is it fair that students whose parents have capital and will therefore pay off their loans when they graduate will not have to pay the 9 per cent supplement? It is this feature of the system that I find most difficult. Why should those who come from lower-income families and who earn reasonable but not very high salaries have to live with the incubus of an 9 per cent extra rate of tax for much of their working lives, especially at a time when they are struggling to get into the property market and provide a home for a family? I hope that the Government are thinking of a very generous system for a scholarship scheme. My noble friend mentioned that they would be introducing such a scheme, and I hope that it will be somewhat akin to the old state scholarship scheme that was around when I went to university. I hope, too, that in public service jobs that do not pay too highly there will be very generous golden hellos, paying off the debt for those students who fill those jobs where there are shortages, such as social work or science teaching.

The student loans are coming from the Government. My noble friend said very firmly that money was not being withdrawn from the students; they do not have to pay upfront. We have rather over 1 million students in this country at the moment. If the cap is set at £7,000, it suggests that the student loan book will rise by £7 billion a year, with the maintenance loans on top of that of something like £10 billion a year. The wonders of resource accounting mean that most of that cost will go off the books and not become part of the national debt. If the Government succeed in selling the student loan book, as they want—it is called securitising and is very much what Northern Rock did with its mortgages—the cost will be only the residual cost of the discount required to sell it off, which is probably something like 30 per cent. Nevertheless, that means that there is a net cost to the Government of some £3 billion a year. The original saving on the university budget amounts to £2.9 billion. What the whole exercise has done is to translate that £2.9 billion on current account into £3 billion on capital account. I sometimes wonder whether that is worth while.