Higher Education Funding

David Lammy Excerpts

Thursday 8th January 2015 Commons Chamber

[Mr Binley]

I will allude to that problem, which I hope will be corrected when this place discusses—if it has the courage to do so, and I pray it does—devolution and the Barnett formula, because there is no doubt that Scottish students who attend Scottish universities get a much more helpful and lucrative deal than Scottish citizens who attend English universities. This is a matter not of English or Scots, but of devolution, which in this instance works very much against students in English universities. They are ill done by, as are citizens more broadly, on whom less per head of population is spent than on our fellow Scottish citizens.

The much discussed 50% target for participation in universities, although arbitrary, was entrenched in the need for change in the 1990s and was one of the motivators of the current situation. I was a secondary modern schoolboy under the tripartite system, which could have been enhanced and could have flowered in the extent of choice it gave to parents. I regret that, at a stroke, it was done away with. I fear that was to our great cost and genuinely feel that the extension of offers in education that is beginning to flower now is an important development. Most importantly, we must place apprentices, technologists and all those who are so vital to the well-being of our economy on an exact par with university students, and in the past I fear they have not been given that recognition. I want to see a more equitable division between those who have gone on to higher education in technical fields and those who have chosen the academic areas for which the universities are famous. I think that that is part of the answer and I am sure that the Government will take it on board.

The 2011 White Paper promised that higher education would be put on a financially sustainable basis. The Browne review established the principle that the beneficiaries of higher education would need to make a greater contribution towards the costs, and I agree with that. It was also proposed that graduates should pay a proportion of their salary only when they were earning more than £21,000 a year, and that was widely welcomed. That provides a part-answer to a previous question.

The Select Committee inquiry in the first Session of this Parliament, to which I contributed, drew two conclusions about the affordability of the loan system. We agreed that there should be clarity for students about the relationship between the burden borne by them and that borne by the taxpayer, as a function of the performance of the economy. That seemed to me to be vital, because we have turned students into customers and consumers, and consumers have a right to know that they are getting a fair deal. That fair deal will also have an impact on their children and grandchildren, which is why this matter is so important.

I genuinely believe that we are leaving a massive black hole for future generations to deal with, and I say to my right hon. Friend the Minister that I find that immoral and totally unacceptable. I know that he thinks of politics in terms of an ethical and moral base, and I hope that he will hear my plea. We have no right to lay so much danger and concern on to those who follow us. We are already doing it with a deficit that was built up to far too high a level. That is causing us problems now and will continue to do so for at least the next five, six or seven years. I do not want that problem to be added to by a black hole because we did not take the trouble to consider this issue properly.

That is why I am appealing to my right hon. Friend in this regard, and I do so not for ourselves. Of course the Government can hide the problem away, but if they do so, they will not be acting in the ethical and moral way in which the Minister and I would want them to act. I therefore hope that he will recognise this element of the problem. This is not about the accounting that the Treasury seeks to project; it is about what most Members of the House of Commons want to see. I have served here for almost 10 years, and I believe that Members consider morality, ethics and good practice to be massively important factors in their deliberations, and I hope that we can apply those factors to this issue.

I shall be leaving this place in three months and I want to make a heartfelt appeal to the Minister on behalf of my two children and three grandchildren. The problem could easily be shoved aside, but it will come back to haunt us in a big way in 15 or 20 years if we are not careful.

The Select Committee inquiry drew two conclusions. I have just outlined the first, but the second has greater significance. We stated:

“The affordability of the new system is dependent on a wide range of variables which are outside of Government control.”

The truth is that we doubted that they had been fully taken into account when the system was set up. That gives the Minister the opportunity to say that there is a need to revisit this issue to consider what the other variables outside the Government’s control are. We are not the masters of every issue we face—we are rarely the masters of any issue we face, but that is especially true of this one, which will leave a deficit for our children and grandchildren if we are not careful. This issue is not totally, by any means, within the Government’s control and we need to consider that aspect. If we do not do so, we will be letting future generations down. Consequently, I wish to focus my remarks on the second conclusion.

Let me repeat for the record the doubts I had at the time the reforms were introduced. My right hon. Friend the Member for Havant (Mr Willetts) will know of them, because of some friendly, courteous but relatively robust cross-examinations when he was on the Front Bench. He knows that we were deeply concerned at that time, and nothing that has happened since has changed my mind. I do not believe that proper regard was given in the first place to long-term sustainability, and I want to concentrate on that nub of this matter.

In October 2012, my right hon. Friend the Member for Havant, a wise and certainly highly intelligent Minister, was reported in The Independent—this was “reported”, so I cannot claim he actually said these things, as we all know the dangers that lie in that term—to have said that the RAB on students loans would not rise above 32%, with a 38% ceiling being the worst possible outcome for the taxpayer. In April last year, in response to a parliamentary question, he asserted that estimates at that time placed RAB at about 45%—in such a short time it had already risen way above what I believe were his genuine and heartfelt estimates. In my view, a level not far off 50% has been reached—perhaps it has already moved above that figure—and that simply highlights how important this matter is. To be totally fair, I should point out that he also stated that the Government had achieved significant savings for students, and increased income for universities. I believe he was right to say that, and I welcomed that view then and do so now. We pay tribute to the work he did in the Department, which will benefit my children and grandchildren. I hope I have given an even view of how I see the work of a right hon. Friend I am criticising just a little.

Looking at the reforms from a more detached perspective, it is far from clear that the Government can claim that these changes were a total success, not least on the RAB. A forecast drop in student loan repayments has raised existential questions about the true sustainability of the new system, and we could face a situation in which the effect of trebling tuition fees has resulted in a more expensive settlement for taxpayers, in the way that I have described. A report in March last year by London Economics found that if the charge increases beyond 48.6%, the cost of the reform

“will exceed the 2010-11 system that it replaced.”

That is a startling fact and it ought to add not only to our concern, but to the need for an immediate review in the way the Select Committee is requesting. As I have said, the RAB index is perhaps already above 50%. No business could sustain, and no Government should be prepared to sustain, such a situation, because it is the worst kind of accounting. It is the worst kind of financial thinking about the future, and I reject it, not only as a business man, but as a parent.

[Mr David Lammy (Tottenham) (Lab)]

I hesitate to interrupt the hon. Gentleman during what is emerging as an outstanding contribution on the Floor of the House. Does he agree that, given the Government’s continued repetition of the need to balance the country’s books, this is an extraordinary outlier in relation to that clear view that we have to have a sustainable economy? The fact the RAB is moving beyond 50%, as he is indicating, should cause real alarm.

[Mr Binley]

I am most grateful for the right hon. Gentleman’s remarks, and I add that this situation should cause real alarm to not only every Member of this House, irrespective of their position or party, but to every parent, business man and citizen in the land. At some stage their children and grandchildren will have to meet this charge if we do nothing about it now. I do not take the accounting answer given earlier by a man I respect, my right hon. Friend the Member for Havant, and I welcome the comments made by the right hon. Member for Southampton, Itchen (Mr Denham), a former Labour Minister, who, sadly, is leaving this place, too—that will be a great loss. He made the point that we cannot avoid debt of any kind and we cannot talk it off a balance sheet; it has to be dealt with at some stage. I would rather it be dealt with now than at some point in the future.

Any business would stem the flow of debt immediately, as it would be so damaging—it would threaten the very livelihood and stability of that business. Any business would be looking for ways of tightening up on credit control—it would probably have done that already, because it could never have afforded to have got into this situation. Any business would look for ways of increasing productivity within the system, and you will be pleased to know that I wish to say a few words about that relatively shortly, Mr Deputy Speaker, and then I will sit down. Does that reassure you?

--- Later in debate ---

[Mr John Denham (Southampton, Itchen) (Lab)]

I welcome this debate and congratulate colleagues on both sides of the House on securing it. I pay tribute to my hon. Friend the Member for West Bromwich West (Mr Bailey) and the hon. Member for Northampton South (Mr Binley) who opened the debate with their excellent speeches that summarised so well the situation and the conclusions of the Business, Innovation and Skills Committee. I will try not to tread the same ground, but I do wish to strike the same note as the Chairman of the Select Committee and query why the Government are refusing to review the system when so many organisations across higher education as well as in the business community are saying that changes are needed. Such complacency is very dangerous indeed.

It is clear why so many organisations are saying that something has to be done, even if they do not agree on the solutions. It is because English universities are boxed in. As the real value of fees erodes, the squeeze on university incomes threatens teaching quality and research excellence. Over the past few years, universities have done quite well out of the system, and have not faced the sort of pressures that our colleagues in health or local government have experienced. But everyone in universities knows that that will not last. The real value of those fees is now well below £8,500 and continues to shrink. The public finances cannot bear ever more debt write offs, but raising fees and graduate payments is still politically toxic. I would be surprised if any political party goes into the next election promising that. Indeed, I would be surprised if they are not forced to rule it out over the course of the campaign.

The idea of allowing universities to fund their own fees might have some role to play if current fees were much lower, but sanctioning ever-more eye-watering fees is likely to be controversial and socially divisive. All the solutions that people come up with essentially boil down to making graduates pay more, pay earlier, pay at higher rates of interests and pay for a longer period of time. The idea that we can simply solve a problem by going back to graduates and asking them to pay more money, however we dress it up, is clearly not right.

It is worth noting that concerns are coming not just from within the sector, but from a range of business and employer groups, including the CBI, which all claim that the system is not working. I will base my remarks around not one, but two observations. Yes, we need to reform the funding system, but we also need to reform the delivery of some of the higher education systems, to echo what the hon. Member for Northampton South has said. The second of those two points is as important as the first.

We have engaged in this debate for a year now and there is a marked division between those largely in the sector who say that there is nothing wrong with higher education just the way we fund it and those largely outside it who say that it is not just about funding but about the higher education on offer.

Before turning to funding, let us review the problem of delivery, which is intimately linked to it. There is now strong evidence that there is a mismatch between the education of many graduates and the needs of employers, society and the graduates themselves. According to the latest figures, which I got from the Office for National Statistics yesterday, the long-term employment prospects of graduates are continuing to deteriorate. The percentage of graduates not working in graduate jobs five years after graduation has now reached a record 34%, up 4% since 2010. The newest graduates are doing a little better in the sense that the percentage not in graduate jobs just after they graduate has fallen from a peak of 48% two years ago to 44%, but that is still much worse than in any year before 2010 and has happened despite the much-trumpeted increase in overall employment in recent years. Whatever sort of recovery is under way, it is clearly not using the skills and education of recent graduates in high value-added graduate jobs. These levels of graduate underemployment are a far cry from the aspirations of students who now borrow huge sums of money to go to university. At the same time, organisations such as the CBI continue to complain about the quality of graduates being produced.

[Mr Lammy]

Does my right hon. Friend agree, on that fundamental point, that not only is there underemployment among that group of graduates who are not working at the level that was expected, but those graduates have pushed out other young people who are unemployed—in London, one in four young people are unemployed and they are depressed because they are outside the market—who cannot get the jobs that they were hoping to get, often in retail, as a consequence?

[Mr Denham]

That must of course be the case if graduates are working in non-graduate jobs. That is a bigger issue than higher education, of course, but the failure to use a graduate work force in graduate jobs is a huge drag on the economy and is one of the reasons why the RAB charges and debt write-off charges are as bad as they are.

Let me be clear that if we understand an honours degree as giving not just knowledge but technical expertise and the capacity to analyse, think independently, exercise intellectual judgement, take responsibility and innovate, we certainly need 50% or more of our population to be educated in that way. We do not have too many graduates, but too many graduates who are not receiving the most appropriate degree-level education.

One of the effects of Government policy over the past four years has been to undermine employer-based higher education. Foundation degrees, usually employer supported, have declined by nearly a half under this Government and employer-funded part-time degrees fell from 40,000 to 25,000 in one year. Out of the hundreds of thousands in university, fewer than 20,000 full-time students across the entire higher education system in all years of study are being funded by employers to do their degrees. The work force development programme, created when I was a Minister, was shut by the coalition, even though it alone was creating 20,000 employer co- financed degrees a year by the time of the last election.

There is much that is good and much that is excellent in the English higher education system and we do not need to change all of it, but we need to make changes that increase the diversity of routes to study and enhance employer engagement with delivering higher education. When we talk about funding higher education, we need to think about how we deliver a better system.

Let me make one point about the long-term sustainability of the system. The Business, Innovation and Skills Committee has done an excellent job and I will not go over that ground, but since then we have had the latest fiscal responsibility report from the OBR, which makes interesting reading. Ministers justified heavy cuts in teaching funding as part of a deficit reduction programme, arguing that we should not put the costs on to future generations. The Chancellor said in 2010:

“If we do not deal with these debts and do not have a credible plan, it will be our children and grandchildren who are saddled with the debts that we were not prepared to pay.” —[Official Report, 20 October 2010; Vol. 516, c. 989.]

The leader of the Liberal Democrats said:

“This strikes me as little short of intergenerational theft. It is the equivalent of loading up our credit card with debt and then expecting our kids to pay it off.”

The recent OBR report underlines just how the debts we are building up now will hang around the necks of graduates and non-graduates in years to come. The OBR estimates that additional net debt arising from new loans will reach nearly 10% of GDP in the late 2030s and 2040s. That debt brings cost. Some debt will have to be written off after 30 years and after 2046, when that kicks in, it will leap dramatically to 0.25% of GDP. Graduates will be making cash repayments of about 0.45% of GDP in the same period and the Government will be paying interest on that stock of debt that the Library estimates at 0.3% of GDP. Many of those costs fall on taxpayers as a whole, not just on graduates.

There is a lot of uncertainty about the figures, but those are the best we have. They tell us that in about 30 years, the public and private cost of paying for the regulated debts will be around 1% of GDP. None of that will fund anybody going to university. According to the OECD, in 2010 the UK spent only 1.3% of GDP from public and private sources on higher education and at that time little was being spent on the cost of debt. The simple conclusion from the OBR is that the policies of the Government are pre-empting a massive share of future national wealth being used to pay for their high-fee, high-debt priorities and not being available to fund future higher education. It is the opposite of what Ministers claimed and it is loading debt on to future generations in a way that is unfair and unsustainable. That is my answer to those who say that we should not worry about RAB charges as they are all technical: there comes a point at which these debts have to be paid and when they do, they will take money out of the national economy that will not be available to pay for higher education.

As for the alternative, I have set out my views over the past year on a number of occasions and, given your remarks, Mr Deputy Speaker, I shall make just two brief observations. Let us not deny that this started under the Labour Government, but it has accelerated under this Government, and we have developed a one-size-fits-all higher education system that is entirely focused on 18-year-olds studying for three years away from home for a residential degree. That has been at the cost of part-time education, at the cost of employer co- sponsored education and at the cost of mature student study.

In a constituency such as mine, where even today relatively few young people go to university, we are closing the door on every single person who did not get a chance to go to university by saying that if they did not do it when they were 18 or 19, they cannot afford it, it will not be flexible, it has to be done over three years, they cannot study part time, they cannot do it intensively and all the rest of it. That is a bad thing for social mobility. Of course, the fact that the move towards younger people from deprived backgrounds going to university has continued is welcome, as many of us said at the time, but we must consider the whole picture if we want to see what is happening.

Of course, we have a difficulty in that there is no new public money for higher education so we will have to do something within the skin that we have. The good news is that money, public and private, is wasted hand over fist in the current system. Every year, billions of pounds are borrowed with the intention of writing it off. The RAB charges essentially mean that almost £1 in two is written off. We have the most wasteful, or at least the most expensive, model of higher education in the three-year residential degree. We are by far the outliers in the OECD as regards the extent to which our higher education system is based on a three-year residential degree for young people. Nobody else graduates so many young people so expensively in that model at the moment.