Higher Education Funding

Barry Sheerman Excerpts

Thursday 8th January 2015 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I beg to move,

That this House notes the Third Report from the Business, Innovation and Skills Committee, Student Loans, HC 558, and the Government response, HC 777; and calls on the Government to outline proposals that will sustain funding for the sector while addressing the projected deficit in public funding.

I thank the Backbench Business Committee for agreeing to hold this debate, which is of huge significance to universities up and down the country and, indeed, to the cohorts of students at or about to go to those universities. The debate is essentially about the Business, Innovation and Skills Committee report on student loans. I must thank my Committee colleagues because the report’s recommendations to the Government were unanimously agreed on a cross-party basis. It is fair to say that they reflect the concerns of Members from both sides of the House.

I will also draw on other reports not mentioned in the motion, including some by academic and university institutions, but particularly a report by the independent Institute for Fiscal Studies and one by the Higher Education Commission. I stress that the IFS is an independent body with expertise across both the academic and economic spheres, and that the Higher Education Commission report was co-chaired by the Conservative peer Lord Norton of Louth and Dr Ruth Thompson. Although the reports’ details may vary, their conclusions are remarkably coherent and consistent.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

My hon. Friend will know that I used to co-chair the Higher Education Commission. I have a copy of the “Too Good to Fail” report, which we produced on an all-party basis, and I thank him for mentioning it.

[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.

[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.

[Mr Sheerman]

The IFS and the commission report highlighted the fact that many students we interviewed had no idea that the debt would be that much. They will possibly never be eligible to get a mortgage later on, which I find absolutely stunning, astounding and disgraceful.

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[Mr Bailey]

I thank the hon. Gentleman for his observation. When I speak to sixth formers and potential undergraduates I always make the point that, compared with the cumulative spend in their lifetimes on cars that depreciate immediately, investing in their education is a very good investment. But it will have consequences for patterns of consumer expenditure, the full implications of which we do not yet know.

[Mr Sheerman]

I am sure that my hon. Friend would not wish to mislead the House and I know that he is replying to an intervention, but the IFS study says that middle earners—the public administrators, the health and education workers—will be particularly affected. That is 40% of graduates, so we are not talking about a small number who may never be able to get a loan for a house.

[Mr Bailey]

I understand the point that my hon. Friend makes and I could talk about it at some length, but I recognise that other people wish to speak in the debate so I will not pursue it any further.

It is now clear that the level of debt repayments is predicted to be much lower than when the scheme was initiated. In the early days, the Committee questioned the Minister on that point, and the estimate was a level of default of between 28% and 30%. It is now acknowledged by the Government that the rate is 45%, and that may rise. In crude terms, for every £100 the Government lend, they get only £55 back. That has huge implications for the Government’s long-term budgeting.

The principal reason for the projected increase in non-repayment is the fact that graduate income has not grown as anticipated by the Office for Budget Responsibility. That will keep an increasing number of graduates below the repayment threshold, and even if they reach the threshold they will repay at the lower rate, commensurate with their lower income. That will mean that they will be unlikely to pay off the debt within 30 years.

The IFS has estimated that 73% of graduates will not repay in full. We can add to that the difficulties that the Student Loans Company has had in securing repayments, particularly from former students living abroad, so there is a basic problem and other administrative problems.

The Select Committee has made recommendations on the latter. If we look at the implications for annual budgetary expenditure, we find that £7.4 billion in loans was given to undergraduates in 2012-13. In 2015-16, that figure is estimated to be £12.6 billion. If we estimate that nearly half of the loans will not be paid back, it is clear that that has enormous implications for future budgetary planning. If that were not a big enough problem in itself, the Chancellor added to it in his 2013 pre-Budget report by announcing the lifting of the cap on student numbers to allow the additional recruitment of 30,000 students. He tacitly admitted that there was a funding problem when he said that that would be funded by the sale of the student loan book. The Committee subsequently questioned Ministers and others on that. We expressed considerable concern that such ongoing expenditure should be financed in this way, and we were very doubtful about the Government’s potential to balance their books by doing so.

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[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

What a privilege it is to take part in this debate. The quality of the contributions has been excellent. The House will recall that I have been involved in higher education for a very long time. Over the 10 years that I was the Chair of the Education Committee it partly covered higher education, so I was very absorbed in the subject. I was also a university teacher for 12 years, back when I used to work for a living, as I sometimes say—like the hon. Member for Northampton South (Mr Binley), I am one of the few Members who had a career before entering this place. The fact of the matter is that this has been a very high-quality debate.

I care deeply about higher education and love what it has done for my generation. I am the youngest of five children and the only one to go to university. I got into the local grammar school and was saved by going to Kingston technical college and then getting a scholarship to the London School of Economics, where I am now a governor. Higher education made my life. It gave me opportunities that my brothers and sister never had. I think that we underestimate just how powerful it can be and just what it has done in a short number of years for the people of this country.

I was at the LSE when the Robbins report was being written. Indeed, we had to walk quietly past the great man’s study in case he was behind the door, working on the royal commission. What he came up with still guides us, and I still think that it is right. He said that higher education should be paid for through a fair balance between the individual who benefits, the employer that benefits and society. That thread has run through all the contributions we have heard today. We are still concerned about how to deliver that fairness and that balance.

I do not want to repeat the excellent contributions we have heard on funding or to get into the black hole, so I will instead focus my remarks on delivery. However, I will say that the reason I gave, as co-chair of the Higher Education Commission, for doing a report on the long-term sustainability of higher education in our country was that everyone is talking about it. As my old friend the right hon. Member for Havant (Mr Willetts) knows, the higher education sector is very gossipy, and people in every corner—including vice-chancellors and business people—have been asking whether this is a long-term, viable model. They are asking that because higher education is so vital to our future. To get it wrong would be disastrous for our country’s future.

Fifty years ago Harold Wilson, who was born in my constituency, delivered a speech to the Labour party conference in Scarborough. It is now known as the “white heat of technology” speech. He said that for years this country had been ruled by a few people who went to posh schools and then to Oxford or Cambridge and who were essentially amateurs, but that the new world had no future for people without skills, or even for semi-skilled people. He saw that the future was in high skills, quality management and high science. He told us to look at what was happening in Russia: they had put a man into space before the Americans. He had been to the United States and seen production lines in the automobile industry where nothing was touched by a human hand. He could see that as a country we had to become highly skilled.

Harold Wilson also said some ridiculous things in that speech. He said, “Why do only 5% of people go to university? It should be 10%.” What a silly statement—I say that in jest. Why should we not have a university in every former industrial town? When Labour won the election a few months later, the polytechnics were introduced. There is a lovely story that Harold, when given the list of colleges of technology that were to be brought up to polytechnics, said, “Eee, where’s Huddersfield?”, before writing it in. I mention that because it is an amusing story, but there is a serious point: any town or city in this country that does not have a university cannot get into the super league. Up and down the country, large towns and cities that do not have a university—Huddersfield is lucky to have one—are in a lower league. I do not mean to decry those places, but universities are so important to the life of our communities, to their wealth and success. If we took them out of our towns and cities, we would be left with very little.

[Mr Binley]

I made a point earlier about being a secondary modern schoolboy at a time when only 2% of the population went to university, and I desperately regret not being able to take advantage of further education. I am really glad that so many of our young people can now do so. I was one of those boys that Harold Wilson was perhaps talking about—I was not a great fan of his, but that is another matter. Thank God we have a university that is doing its job so well in Northampton. I agree with the hon. Gentleman in that respect.

[Mr Sheerman]

I have a close relationship with Northampton university and its excellent vice-chancellor and know of its commitment to social enterprise. I am astonished by how few Members are in the Chamber for this debate. Huddersfield university is the biggest employer in my constituency, the biggest bringer of wealth, and it is what makes my town so vibrant. It has 25,000 students, and growing, and a massive number of staff. Think what that means for local businesses and supply chains. It pays very fair wages and sticks to all the principles. Indeed, not only was it last year’s university of the year, but it has just been given an award for the best level of employability of graduates. I will say more about that in a moment.

What Harold Wilson said 50 years ago is even more true today. If we do not produce the high skills we need in this country to compete and earn our living, we will be in dreadful trouble. Out in India, Brazil and China there are masses of people getting high-level and very practical qualifications. In every area where we have expertise we will find more and more competition as time goes on. We have to become brighter and smarter all the time. There is no place in our society for people without skills. That is a tragic aspect, but it is also a hopeful one. We have built up a fantastic university structure.

When I got the “Too Good To Fail” report going, what I wanted to say was that we do not want to throw everything up in the air. I do not want another Browne report, and I do not want to have to go back to the LSE and have another Robbins report. It is time that sensible men and women get together, as we have today, and say, “The system is working fairly well, but there are some real problems—can we fix them intelligently by co-operating?” The interesting and remarkable thing about the way in which higher education policy was produced, as Members might remember, is that it came out of an all-party agreement not to discuss the subject during a general election. We said that we would set up an inquiry agreed by both sides—Opposition and Government—and let it get on with its job.

[Ian Swales (Redcar) (LD)]

The hon. Gentleman is making a very powerful speech that I agree with. He talks about the fantastic system we have. However, it is basically a market-based system that is not delivering the balance of skills that the country needs. For example, we need 500 power engineers a year but we have only 100 undergraduate places. What does he think we should do about how the market delivers what the country needs?

[Mr Sheerman]

The hon. Gentleman anticipates the second part of my remarks, and I do not want to detain the House for much longer.

I wanted to begin by setting the scene in establishing how important universities are to towns, cities and communities. Our higher education system is pretty marvellous. People come from all over the world to see it. I show them around and they marvel at its quality. However, it is not perfect; the hon. Gentleman is absolutely right in many ways. As my right hon. Friend the Member for Southampton, Itchen (Mr Denham) said, we are not delivering the right product in our universities. All my vice-chancellor friends will disown me for saying “product,” but it is a product.

Are we delivering the kinds of graduates our country needs? In lots of cases, we are—they are brilliant. My own university has one of the best design departments in the country. Young people who do its fashion degrees are snapped up by fashion houses all over the world. Indeed, the head of Burberry is one of our graduates. Mechanical engineers and design engineers are snapped up by Formula 1. My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) has a son who is a graduate working in F1 because of the fine quality of the department. We do loads of things right—of course we do—but often not in a way that is appropriate to what is really needed.

That is not to say that things are not happening. There are people doing two-year degrees in Coventry. Skoda Coventry has people doing degrees either only in the morning so they can work in the afternoon, or only in the afternoon so they can work in the morning. The diversity of what is being done around the country is much greater than we might think.

[Mr Denham]

In its evidence, million+ said that the political sensitivity of fees denies it the chance to run two-year degrees that would cost 80% of the cost of a three-year degree, because that would take the fees to more than £9,000 a year, even though the degree would be cheaper. Does my hon. Friend agree that we need to remove some of the artificial constraints that have stopped universities being as flexible and creative as they would like to be?

[Mr Sheerman]

That is absolutely right. We must find the right model and give opportunities to people. Part-time degrees have plateaued—some say diminished—but not in Scotland and Wales, interestingly. We need a more flexible system.

I get a bit tired of the CBI saying, “We’re not getting the right people with the right skills as graduates”, but there is a strong element of truth in that. When people are delivered having finished their degree, there should be a strong element of their being fit for employment. When a good arts or social sciences graduate comes to see me, I say, “You’ve got an arts degree—go to Cranfield or the LSE and get yourself a business degree or something with economics that is much sharper, because that is what the market is looking for.” That is a good combination, but it creates a greater level of debt, and a lot of people are reluctant to increase their debt.

The level of debt is always on my mind. Young people’s inability to get mortgages is a very important issue. We are in an age when it is getting more and more difficult for people to get a home of their own. Many people are still living at home with their parents when they are in their 30s. Those within the middle-income areas in public services, education and health will be most hit by the inability to get a mortgage.

I do a great deal of work in identifying entrepreneurs and increasing their ability to be entrepreneurs. As some Members will know, a lot of it involves crowdfunding and crowdsourcing. I have been working with a number of universities to ensure that they are knowledgeable about crowdfunding platforms. Then, when their undergraduates become graduates and want to start a business, there is on the campus, as in Northampton, an ability for them to get money through crowdfunding for start-ups. When I go to universities nowadays, I look very carefully at how much space there is for young entrepreneurs. They do not have to be a private entrepreneur; they can be a social entrepreneur. Enterprise and entrepreneurship is going to be the future.

When people ask me why the industrial revolution started in places like Huddersfield, I say that it is because we had cheap power in the form of the water that flowed from the Pennines and turned the water mills that made the factories possible; we had high skills; and—people tend to leave out the third element—we had entrepreneurs who could put all that together and make something. Our universities have to be much more focused on how to create opportunities for entrepreneurship to be not only learned but encouraged. As opposed to the old, tidy world of going into the City, academic life, or whatever—the traditional occupations—we have to make it much more possible for young people, and older people, to find the spark of enterprise and entrepreneurship.

By the time people have graduated, they should understand some of the rules of how to be interviewed properly and organise themselves properly. That would make a real difference. I once horrified some people at a meeting in the House when I said that I would teach management from four years old onwards. I chair the all-party management group. Managing one’s life is pretty darn important. When I talk to undergraduates, I find that they do not know how to manage their life. If they did, they would be much more likely to get a job.

I go round universities all the time. I am a visiting professor at Huddersfield and at the Institute of Education in London. I talk to graduates and they do not know what the British economy is like. I ask, “How many people in this country make anything?”, and they say that the figure is 30% or 40%, but of course it is less than 10%. We have 1% of people working in agriculture, 30% in what Conservative Members tend to call public services—but I call it education, local government and health—and 60% in private services. People working in early-years or later-years care will be on the minimum wage or minimum wage-plus, as will those in retail and distribution. When I tell students this, they say, “Wow, is that true?” Then I say to them, “If you’re on the minimum wage or minimum wage-plus, you can’t have the good life.” Someone at the back always puts their hand up and says, “Mr Sheerman, I really disagree with that. You can have the good life in a cave—it is in your heart.” Then we get into the best discussion of the reason most of us come into Parliament—to give the people we represent and the people of this country the good life. We con people if they end up thinking that one can have the good life without high skills.

The model for universities has to be refined; we do not have to throw everything up in the air. We need more flexible degrees, with much more emphasis on people being work-ready and enterprising so that they can become entrepreneurs.

This has been a tremendous debate, and the quality of the speeches has been excellent. For the first time in a long time, I may not stay until the end. I have a sick elderly relative who has been rushed into hospital with pneumonia, so I may have to disappear, but that is no disrespect to those who speak after me.