Funding Higher Education

Gary Streeter Excerpts

Wednesday 28th February 2018 Westminster Hall

[Mr Gary Streeter (South West Devon) (Con)]

I beg to move,

That this House has considered funding for higher education.

It is a pleasure to serve under your chairmanship, Mr Hosie, in a debate that I suspect has been slightly snow-affected. No doubt my hon. Friend the Member for Cannock Chase (Amanda Milling), who is standing in for the Minister, will say more about that in a moment. Also, I would like to thank Mr Barnaby Austin, who is a fine young man who is with me for three months. He has helped me to prepare my remarks today, so my thanks to him.

Like many Members, among my constituency duties I particularly enjoy interacting with sixth-formers in schools in my constituency, and I always feel encouraged coming away from those encounters. Not that everyone necessarily supports everything that the Government say or do, but I always feel encouraged that the coming generation is as bright, motivated and impressive as any has ever been. Looking forward, I feel that the country is in very safe hands.

Inevitably, as I am sure we have all experienced, the issue of student finance, student loans and tuition fees come up in those sessions. I have always been very happy over the last 10 years or so to support the system that we have, explaining that it is a generous system that does the job, that no one has to pay fees in advance and that it does not preclude anyone from going on to higher education. I am very happy to support the funding model that we have and always make the point that education is the best investment that any young person will ever make. A show of hands normally demonstrates pretty clearly that no one is ever deterred—or very few are—from accessing higher education as a result.

However, in the last few months I have been less sure about the fairness of the current arrangements and have been looking into some of the statistics on student finance. Therefore, I applied for this debate, to put on record a few concerns that I have and some thoughts about the future. I was both delighted and surprised that, after I had applied for this debate but before it was granted, the Prime Minister herself—perhaps picking up on my thoughts, leading wherever I go—has now announced her own review of student finance, which I greatly welcome. In particular, I support the important focus in the official terms of reference of the review, which seeks to ensure

“a funding system that provides value for money and works for students and taxpayers”.

I hope that this 90-minute debate provides us with an opportunity to explore together in a hopefully thoughtful way—it is a subject that deserves a thoughtful approach—how the system might be improved. I look forward to hearing the comments from colleagues from all parts of the House—I am sure that many have greater expertise in this area than I do—in trying to find a way forward to a system that is both fair and sustainable.

The current system of student tuition fees and loans as a means of funding higher education has achieved many positives over the years, not least an increase in the number of students from lower-income backgrounds entering higher education, which has to be a good thing.

[Paul Blomfield (Sheffield Central) (Lab)]

The hon. Gentleman is making a really thoughtful contribution, and I share his hope that we can have an interesting and useful debate. On the question of providing more opportunities for people from disadvantaged homes, the top-line numbers are clear. Does he recognise that there is a problem in the way that the system is limiting choice—there is substantial evidence that those from lower-income homes are seeking to minimise their financial liability by going local—and that, to give students real choice, issues relating to fees have to be wrapped up with those relating to maintenance?

[Mr Streeter]

I do agree with that, which is one of the reasons I am speaking today. I will talk about that in a moment, because the full-on higher education experience of going away to university and growing up during those three or four years, or however long it is, is an important part of the process. As I will set out in a moment, when a young person chooses to stay local and live with their parents or parent still, to me that is not the full-on experience, which is regrettable. I agree with the hon. Gentleman: I am beginning to see the top-line figures becoming quite a barrier to a number of people. I certainly would not want to be 24 with a debt of £40,000 hanging around my neck as I entered the workplace.

That is why we are here this morning: we have to try to find a new way forward together, and I very much welcome the Government’s review. I will briefly summarise the operation of the current system—although I know that you are an expert on it, Mr Hosie—then I will point out some of the areas in which it falls short and finally present my thoughts about the way forward.

As we know, currently universities in England can charge up to £9,250 a year for undergraduate tuition, with substantial variations in some parts of the United Kingdom, such as Northern Ireland, Wales and Scotland—that is what devolution is all about. Students can apply to Student Finance Ltd for a non-means tested loan of up to £9,250 a year to cover the tuition fees, while also taking out loans to cover the cost of living while at university.

To reflect on that point for a moment, we sometimes look back to the old days of maintenance grants. I came to King’s College in London in the 1970s, between 1974 and 1977—I cannot believe it—and had a minimum grant, based on my parents’ financial circumstances. I do not want to do a Neil Kinnock, but I was the first Streeter in a thousand generations to go to university, and my parents did not really understand that they could top the grant up, so I spent my three years in London with not very much money. It was still a wonderful experience, but it was not all gold in the old days, depending on people’s circumstances. I hope my parents never get to read the Hansard report of this debate, because they are wonderful people.

[Gordon Marsden (Blackpool South) (Lab)]

You might get a cheque in the post.

[Mr Streeter]

It would be a little bit late, but I thank the hon. Gentleman for the thought.

Repayment of loans is a shared responsibility between the Student Loans Company and Her Majesty’s Revenue and Customs. The Student Loans Company receives all its funding from the UK Government and the devolved Administrations. Therefore, the system is based on the student owing however much money he or she needed to borrow to get through university and gradually paying it back during their working lifetime. Perhaps not surprisingly, 93% of all students in England take up student loans.

The total amount of debt that an average student who completes a three-year undergraduate course will owe has now risen to around £50,000, according to the Institute for Fiscal Studies. That sum will include just under £6,000 in interest accrued during the period of study, at a rate of up to 6.1%. A student who has taken out a loan will begin repaying 9% of their income when they are earning higher than the repayment threshold, and any unpaid debts are written off after 30 years. Broadly, that is the system.

The Government announced in October 2017 that the repayment threshold on student debts would be raised from £21,000 to £25,000, commencing from April 2018. At the same time, the fee cap was frozen at £9,250.

[Daniel Zeichner (Cambridge) (Lab)]

I commend the hon. Gentleman for making a very good speech. He has just outlined the way that the system is currently working, but does he agree that what is happening now is not what people anticipated when the coalition Government introduced it? They anticipated that there would be differential fees—different amounts paid at different universities—but because the system has not worked, a whole generation has been left with enormous debts. The system is absolutely broken, and the levels of interest are unacceptable. We really have to change it quite dramatically. Does he agree?

[Mr Streeter]

I do agree. I am looking for change and I think the Government are looking for change, which I guess is why the review is taking place. When the level of fees was increased, we were led to believe that different universities would charge different fees. Some of us who have been around for quite a long time recognised that that might not happen, and indeed all universities went for the maximum more or less straight away. However, the reason why we are here today and why the Government are reviewing this matter is that the system is not working as planned, and we now need to see some real change. That is very much what I am calling for.

Under our current system, students in the United Kingdom are landed with the greatest amounts of student debt in the developed world—greater even than the notoriously large student debts in the United States of America, which reach an average of $36,000 on graduation. The Institute for Fiscal Studies has recently reported that 77% of UK graduates will never pay off their full debt, even if they are still repaying in their fifties, and that is projected to rise to 83% once the new figures have been introduced. This is an important point: we have a system that is almost set up to fail. Built into the system is an understanding that most of the people who participate will not repay. I do not want that system in place for the long term. When graduates immediately move abroad, that results in more unpaid debts. When a graduate’s employer is not UK-based, they are not subject to the automatic repayment system as they would be in the United Kingdom. In 2014, it was estimated that, by 2042, £90 billion of student support funded by the Treasury will remain unpaid.

It is certainly right for students to contribute to the cost of obtaining a degree. The stats still demonstrate that, over a lifetime, a graduate is likely to earn significantly more than a non-graduate. According to Universities UK:

“Official figures are clear that, on average, university graduates continue to earn substantially more than non-graduates and are more likely to be in employment.”

In debates with sixth-formers and others, I guess many of us have argued, “Why should a proverbial taxi driver who does not have a degree pay extra tax to help others improve their income?” There are pushbacks and answers to that, but it is still a compelling and important point. We must remember that the figures involved are significant, with each new crop of student loans being £13 billion a year. That is a substantial sum that we are having to find to support students going to university.

The principle of students contributing to their own higher education is surely right, but it must be sustainable. I am beginning to see that it is not sustainable for someone to have a debt of up to £50,000 around their neck when they enter the workplace.

[Carol Monaghan (Glasgow North West) (SNP)]

Does the hon. Gentleman share my concern that some students, particularly those from a disadvantaged background, will experience much higher debt than that because their families are unable to support them financially? Students from disadvantaged backgrounds entering the workplace will have a much higher burden of debt.

[Mr Streeter]

I agree that people who are not able to draw down on the bank of mum and dad have a much tougher time. The figures I am quoting presuppose that someone has taken out loans for tuition fees and support. I think they are the maximum figures. I think the point that the hon. Lady and I would agree on is that there are students who do not rack up that kind of debt because they get support. Once again, there is an issue of fairness for students from disadvantaged backgrounds.

That debt is certainly a hindrance to getting on the housing ladder, to which 85% of young people aspire. It is something that the Government are desperate to encourage. If we are to meet the aspirations of generation rent, we might have to remove some of the burden from their backs. The prospect of having such a large debt hanging over their heads inevitably leads to some mental health worries among higher education students and graduates. In 2015, a study published in the Journal of Public Health, entitled “The impact of tuition fees amount on mental health over time in British students”, found that in the UK,

“poor mental health in students has been linked to financial problems, considering dropping out for financial reasons, financial concern, being in debt and concern about debt.”

It is worth noting that countries such as Sweden, Denmark, Finland and, more recently, Germany have moved away from the tuition fee model.

There are big questions about whether universities provide proper value for money for their degrees and offer favourable returns for graduates. The National Audit Office reported that two thirds of students consider that universities do not provide decent value for money. More students—especially those from poorer backgrounds, to come back to the point we were debating a few moments ago—are choosing to stay at home and attend their local university due to fears over unsustainable debt. That is a regrettable trend, because the whole university experience is partly about moving away from home for the first time, growing up and learning independence.

[Paul Blomfield]

I clearly agree with the hon. Gentleman on his point about the wider university experience, but does he recognise that staying at home narrows academic choice, depending on where someone lives? If people are choosing local, that might give those in London an immense range of opportunities, but in many parts of the country it narrows the choice significantly.

[Mr Streeter]

That is a good point. I represent the city of Plymouth. We have an excellent university, but it is particularly strong in certain fields. If someone is minded to stay local because of cost and debt and they want to become—I had better choose my subject carefully, because I do not want to diss any of its faculties, which are all excellent—a top-notch lawyer, they might not want to choose Plymouth. They might prefer Exeter. I think I have got myself into trouble here. I thank the hon. Gentleman for leading me down that path. Plymouth is an excellent university for all subjects, but he makes a compelling point.

Moving on, what might we do? We are right to ensure that students contribute. We want universities to be properly funded, but how can we make the system fairer and more sustainable? I have welcomed the excellently timed Government review, and I very much look forward to the outcome.

Universities could do more to reduce their costs. They are slightly strange organisations. In one sense, they are neither private sector nor public sector. They are a hybrid and in many ways they are perhaps unaccountable. The salaries of vice-chancellors is just one issue—acting on them would not have a huge impact, but would be emblematic. At the University of Bath the vice-chancellor’s salary is £471,000, at the London Business School it is £448,000, and at the University of Southampton it is £424,000. How can the leader of a university earn three times more than the Prime Minister of this country? I do not understand that, and it has to be tackled. It is a bit like people wagging their fingers at us and saying, “MPs all earn so much money.” Having proper oversight of vice-chancellor salaries would not save much money, but it would send a signal, bearing in mind that students contribute 50% of the cost of those salaries. The salaries are utterly outrageous and something needs to be done. Perhaps the Minister will touch on that when he winds up.

[Paul Blomfield]

Will the hon. Gentleman give way?

[Mr Streeter]

Yes, I enjoy giving way.

[Paul Blomfield]

Given the numbers here today, there is an opportunity to have a good interactive discussion. I will try not to lead the hon. Gentleman into difficult territory with this intervention. He is absolutely right about vice-chancellors’ pay. The sector has got it wrong, and in some cases spectacularly. Does he accept that the problem is that people have said to universities, “Behave like the big businesses you are”, and are then complaining when they do? Does he think we should have the same approach to unacceptably high pay in all parts of the private and public sectors?

[Mr Streeter]

If an individual sets up their own business and still owns it then it is up to them what they pay themselves, but other than that I tend to agree about large salaries at the top justified by being in a marketplace and having to compete with other organisations. The charitable sector is another one where we have seen massive chief executive officer salaries. I imagine that if many people knocking on doors raising money for charities really knew what was going on, they would not be so happy. There is a job to be done in all these sectors, perhaps sparked by the Government, to have more reasonable levels of pay at the very top. The gap to those at the top must be very dispiriting for those humbly working day in, day out for not very much money. I recognise that we need to do more about that. The Government have talked about it, and I support them.

I have three specific proposals before I sit down. There are two quick ones, and one where I will go into greater depth.

[Dr Roberta Blackman-Woods (City of Durham) (Lab)]

Does the hon. Gentleman agree that we need the Government to look at sustainability in the sector? The briefing for this debate said that the forecast surplus for the university sector is only 1.3% this year, so it is not a bloated sector. It does not mean there is a differential outcome for various institutions. In fact, university budgets are under threat from Brexit, from the cuts in research funding, from the fall in part-time students, and from a possible fall in international students, not to mention demographic trends in our country. We have to be careful to ensure a sustainable funding system.

[Mr Streeter]

I agree. When the panel reports its findings, I hope the Government take action to help us put in place a system that is both fair and sustainable. We have a world-class university system in this country that we must not in any way seek to undermine. It is hugely important that, as young people increasingly compete with people from other countries, we keep our highest university standards.

[Daniel Zeichner]

It is important to recognise that there is a dispute going on in higher education at the moment and that staff have been out on cold picket lines. Whatever one’s view of that dispute, it is partly about how resources are allocated and ensuring we have a sustainable system. Does the hon. Gentleman agree that we need an urgent resolution to the dispute? If we are to support academics in future, they must have a pension scheme in which they can have confidence.

[Mr Streeter]

I must confess I do not know the details of the current dispute. I am not a huge supporter of strikes, but I agree that it would be better to have the dispute resolved as quickly as possible. All people are entitled and should aspire to a proper and decent pension settlement.

Moving on to my three points, you will be pleased to hear that the first two are very brief, Mr Hosie. I have some ideas for the Government to grapple with, although I am sure they have thought about these things in advance. One possibility to soften the blow for students could be to make the monthly repayments tax deductible, which would basically reduce the true impact of the repayments and seems both reasonable and fair. Secondly, the current interest rate of 6.1% seems almost punitive when we have interest rates so much lower. I do not think that that was ever the intention when we started off on this journey. We should consider reducing the interest rates to the amount that Her Majesty’s Revenue and Customs pays us when it has our money for any length of time. The interest calculation for overpaid tax is a lot less than 6%. If it is fair for that purpose, it would be fair for students. Again, it would encourage people to embrace the student loan system if the rate of interest was significantly lower.

Thirdly, and in a little more detail, for the first time in my life I wonder whether it is time to consider a graduate contribution system in place of the current tuition fees and student loans: in other words, what some people would call a graduate tax. We have all been involved in debates over the years in which we have said that that is an absolutely disastrous idea but, for the reasons that I am about to give, I think it should be reconsidered.

A graduate contribution tax is essentially a system sub in which the student becomes obligated to an income-related additional tax on graduating in return for Government subsidisation of higher education, resulting in low or no tuition fees to the student. The Government would in effect pay all or most of the fees directly to the university, and the student would pay a contribution over and above ordinary levels of tax for a limited period of time once they start work. That removes the burden of individual borrower accounts or balances owed. The exact percentage of earnings that graduates would be required to pay back would be up for discussion, but one option is to have a banded system in which the percentage paid back is determined by income and increases across income bands. What is the point? Two things. First, a system based on the ability to pay rather than the amount of money the student has borrowed to get through university is more reasonable and fair than the current system.

[The Minister for Universities, Science, Research and Innovation (Mr Sam Gyimah)]

I thank the hon. Gentleman for giving way and register the fact that I have arrived at the debate. The point about a system based on the ability to pay is important. In a sense, the current system is a hybrid between a loan and a graduate contribution system. People pay 9% of their income, so those who earn a lot more pay a lot more of the loan back, and people who earn a lot less pay less back. There is already a significant taxpayer subsidy up to about 45%. I want to put on the record that the current system is a hybrid between the graduate contribution system that he is outlining and a loan system.

[Mr Streeter]

The Minister is absolutely right to make that point.

The second reason why I think a fresh look might be helpful is that, under a graduate contribution scheme, students would not leave university with the worries associated with personally owing so many thousands of pounds. There would be no massive debt figure around their neck. I know the Minister was snowed in this morning, so I am not sure whether he heard me say that I am coming to the view that young people having a personal debt of £40,000 or £50,000 around their neck as they enter the workplace is becoming a massive problem that we need to think about. I hope the review will look at that.

I believe that the vast majority of graduates would be happy to pay a fair income-contingent contribution in return for the direct payment of fees by the Government, thus breaking the perceived link between the cost of tuition and repayments from students. Such a change would hopefully serve to alleviate some of the mental health worries faced by students and graduates who, on finishing university, receive the infamous letter outlining how many tens of thousands of pounds they now owe: “Congratulations on graduating. Now we want the money back.” Paying a regular, reasonable graduate contribution through tax gives far less reason to worry than the contents of those letters sent to graduates. A graduate contribution system would also provide the Treasury and higher education institutions with a long-term guaranteed stream of money as graduates pay regular instalments of additional tax in line with their incomes over a certain number of working years.

The Minister might like to reflect on this next point. It would be possible also to tailor the contribution system to change the rate of tax on degrees that the Government are keen to encourage, perhaps in science, technology, engineering and maths subjects, and nursing, as an inducement for students to pursue those degree courses and consequent careers. I can see that the Minister is not leaping to his feet to agree with me. He will no doubt deal with that point when he winds up the debate later.

Obviously, training and recruiting sufficient nurses to meet the growing needs of our NHS is becoming a huge priority for our country. The Royal College of Nursing, which I had a meeting with recently in my constituency, informs me that applications to nursing courses have fallen by 33% since tuition fees for undergraduate nursing were introduced. The Government wisely said that they would review the impact on nurse training and recruitment once the new system had been in place for a year or two. We are now approaching that moment in time. I hope the review currently being undertaken by the Government will reflect on that and make recommendations. We cannot have a system that starves our NHS of sufficient nurses for the future, because that would be short-sighted.

[Carol Monaghan]

Coupled with that we have the issue of the sharp decline in EU nurses applying for positions here in the UK.

[Mr Streeter]

Yes, I agree, and one of the many consequences of the decision made by the people of our country in June 2016—

[Carol Monaghan]

Not my country.

[Mr Streeter]

Well, the decision was made by the majority of people in the United Kingdom. One of the consequences is that fewer doctors and nurses are coming here to work in our NHS. That is a very regrettable problem, but there we are. We are democrats and will therefore comply with the wishes of the people.

I hope my thoughts are useful to the Government—I can see the Minister nodding his head—as we try to find our way to a system that is fair and reasonable to students and taxpayers alike, and that ensures that the United Kingdom encourages the brightest and the best to reach their potential through higher education. I look forward to the rest of the debate and the Minister’s response.