Student Loans Agreement

Helen Jones Excerpts

Monday 18th July 2016 Westminster Hall

[Helen Jones (Warrington North) (Lab)]

I beg to move,

That this House has considered e-petition 131167 relating to changes to the student loans agreement.

It is a pleasure to serve under your chairmanship, Mr Pritchard, this afternoon. It may come as a surprise to some people that we are debating this issue in July 2016, as the decision was taken last autumn, but the reason is very simple: it took students some time to realise what decision the Government had made. Those of us who have been in the House for a while know that whenever the former Chancellor spoke, it was wise not just to listen to what he said, whether that was in the autumn statement or the Budget, but to look at the small print. And so it was last year: buried on page 126 of the Budget papers was the Government’s decision to freeze the repayment threshold for student loans at £21,000. Not unreasonably, it took students some time to realise what was happening. That decision was and is a real breach of faith on the Government’s part.

This is the second Parliament in succession in which students have been massively let down. Under the coalition, the Liberal Democrats promised to freeze, or in some cases abolish, tuition fees—as usual with the Liberal Democrats, it depended which part of the country people were in—and then the Government trebled them. This time, when the Government introduced the new student loans system, they promised that the threshold for making repayments would be updated from April 2017 in line with average earnings, but then they chose to freeze it until at least April 2021. The worst thing about that decision is that it is retrospective, so that students who took out a loan at the beginning of this process—let us remember that some of them were only 18 when they did so—have found the conditions of that loan changed, without any right of appeal or recourse to any other relief. People have said, quite rightly, that in a commercial organisation that would not be allowed, but it seems that the Government are not prepared to adhere to the standards that they impose on others.

Why have they done it? The late and fairly unlamented Department for Business, Innovation and Skills, which had some claim to being probably the most unskilled Department in Whitehall, said in 2015:

“We consulted on freezing the repayment threshold”.

So it did. The problem was that the responses were overwhelmingly against a freeze: 84% of respondents were against freezing the threshold and only 5% were in favour. When a Government conduct such a consultation, get a massive thumbs-down and still go ahead, we know that they are on very shaky ground, so we have to dig a little deeper to find out what was really going on. The answer is in another announcement from the Department:

“This increases the financial commitment of borrowers to repaying their loans.”

It added that it expected such a move to generate an extra

“£3.2 billion over the lifetime of the loans”.

There we have it. The Government were not getting enough money in, so they resorted to that rather underhand tactic to get more. There are two simple reasons why they are not getting enough money. First, they have failed to create enough highly skilled jobs in the economy, so many graduates are working in low-paid, low-skilled jobs, often in insecure unemployment, like many other people in the country. In fact, so committed are the Government to the notion of insecurity and low pay in employment that it was possible for them to have a candidate for the leadership of their own party, the right hon. Member for South Northamptonshire (Andrea Leadsom), who wanted to get rid of all restrictions on small firms—that was before she was given the revolver and the bottle of whisky. In 2012, she said:

“I envisage there being absolutely no regulation whatsoever—no minimum wage, no maternity or paternity rights, no unfair dismissal rights, no pension rights—for the smallest companies”.—[Official Report, 10 May 2012; Vol. 545, c. 209.]

It is not surprising that the Government have failed to create more skilled jobs. In fact, the Higher Education Statistics Agency pointed out last year that a third of graduates were working in low-skilled jobs six months after they graduated and that more than 16,700 graduates were unemployed. They worked as cleaners, office juniors and road sweepers. I am old enough to remember when graduates and students used to take those jobs in their holidays, or sometimes even in the summer after they had finished studying, while they looked for a permanent job and somewhere to live. We were told at the time that it was character-building for us, and it made us realise how lucky we were. Well, the luck has run out for many of today’s graduates. They are not doing those jobs for a few weeks; they are doing them for months, sometimes years, without reaching the level of wages that mean they can pay back their loans. No wonder the system is in chaos.

Secondly, the Government are failing to get this money in because the whole student loan system itself is in chaos. In 2013, the National Audit Office warned BIS that it was in danger of wasting hundreds of millions of pounds because it did not have enough information on the recipients of its loans. In fact, it had no employment information at all for 368,000 people, so it did not know whether they should be paying back or not. The NAO also said that

“BIS…consistently over-forecasts how much it expects to collect annually”.

Presumably, they were too frightened of the right hon. Member for Tatton (Mr Osborne) to tell him the truth.

At the time, the NAO estimated that a third of loans would not be paid back. The Library forecast a £3.2 billion shortfall, in this Parliament alone, between what the Government expected to collect and what they would actually collect. The former Business, Innovation and Skills Committee went further: in 2014, it suggested that almost half the loans would never be repaid. The Government’s own estimate was that 45% would not be repaid. That is perilously close to the 46.8% threshold at which the Government cease to get back as much as they are paying out.

What did the Government do in response? They did not think, “Well, perhaps the economic model we’re pursuing isn’t quite right.” They did not think to end the chaos in the Department. Instead, they sold off a bit of the student loan book—mostly old loans from the ’90s—and they used this back-door method of collecting more money, adding another flaw to an already flawed system.

Students are clocking up interest at such a rate that it is almost impossible for them to get a grip on what they owe. While they are university, interest is charged at the rate of the retail prices index plus 3%. One student recently posted online his statement from the Student Loans Company, which showed how much interest he was clocking up, sometimes at the rate of £180 each month. For someone earning under £21,000, interest clocks up at the rate of RPI. For someone earning more than that, it is on a sliding scale, so that when they earn £41,000 they are charged interest at the rate of RPI plus 3%.

Two things about that strike me as very interesting. First, the Government use the measure of RPI, when the rest of the time they tell us that the consumer prices index is the correct measure of inflation. They seem to hold two contradictory positions: when they are paying money out to their citizens—in the form of benefits, for example—they say that CPI is the correct measure of inflation, but when they are collecting money, they say that RPI is the correct measure. Holding two contradictory positions at the same time is what George Orwell called “doublethink”. The Government seem to believe in both.

Secondly, by freezing the earnings threshold at £21,000, the Government are ensuring not only that more people are on the wage level at which they start to pay back loans, but that they pay them back with a higher rate of interest. It is a double whammy. Such a piece of chicanery really should not be allowed to go unchallenged. It matters, because it is important that students have faith in the system. Changing that system destroys that faith, particularly among those from the poorest families or those who are the first in their family to go to university.

Let me tell the Minister what it is like to be the first person in a family to go to university—it was like this even under the old grant system. Such a person wants certainty. They calculate to the last penny what they are getting in and what they have to pay out. They want to know that when they leave university, they will get a decent job. That implied promise that if someone went to university, worked hard and got a good degree, they would get a decent job at the end, has now been abandoned.

[Valerie Vaz (Walsall South) (Lab)]

My hon. Friend is absolutely right to choose to introduce the debate on this particular petition. I hope she has more success in getting answers from the Minister than I did in my Adjournment debate on 27 June. She is making a powerful case. According to the Government’s own figures, graduates on a salary between £21,000 and £30,000 will have to pay back £6,100, whereas those on a salary of £40,000 will pay only £400 extra. Those on an even higher salary pay even less. The system disproportionately affects people who are worse off, including women and people from ethnic minorities.

[Helen Jones]

My hon. Friend is right. This system is flawed all the way through. Trying to fix it by making it more flawed is not going to work. Today’s students do not have the assurance, which we had in the past, that they will get a decent job. Many graduates are doing low-paid, low-skilled jobs that are perfectly useful but not commensurate with their qualifications. They often move from job to job, with nothing that could be described as a career. The doors of their chosen professions are frequently closed to them because they cannot afford to do the unpaid internships that are currently the way into many jobs.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

I congratulate my hon. Friend on introducing this debate. I declare an interest: I have two sons, both of whom will have to pay loans back at the higher rate, and both of them have paid fees of more than £9,000 a year. My hon. Friend might also have mentioned graduates like my elder son. He has chosen to work abroad for two years, on a low wage, to get an interesting experience of the world. He is not fully aware of the implications for what he is going to have to pay or how the repayment rates are rolling up year after year.

[Helen Jones]

I am grateful for that intervention. My hon. Friend is right. When students took out loans at the start of university—this was as true under the old system as it is under the new one—many were not really aware of the full implications: when they would have to start to pay them back, how interest accumulates and so on. We would be foolish to expect many of them to be aware of those things at the age of 18. I do not think I or many other Members would have been.

The problems faced by many young graduates are simple. They have little hope of getting into decent jobs and no hope of getting on the housing ladder. Many of them are stuck in rented accommodation, with rents rising every year, meaning that they cannot save for a deposit on a house. Recently released statistics show that this will be the first generation to earn less than the one before. The assumption we always made, certainly when I was growing up, was that each generation would do better than the one before, but that no longer holds good. That is a real betrayal of our young people. What the Government have done with student loans adds to that betrayal. They have failed to understand the implications for young people and to get a grip on the system.

As in so many other matters these days, the Government are making young people pay the price for their failure. The Minister should really think again. With a new Chancellor in place, there is a chance to revisit this matter and get the student loans system on a sensible and sustainable footing. I urge the Minister to take this chance, because what is happening at the moment is totally wrong.

--- Later in debate ---

[Mark Pritchard (in the Chair)]

Before I call the Minister, as colleagues will know, changes made in this Parliament to the Standing Orders allow the mover of a motion to speak for two or three minutes after the Minister has sat down. Helen Jones, would you like to do that?

[Helen Jones]

indicated assent.

[Mark Pritchard (in the Chair)]

You would. I call the Minister.

[The Minister for Universities and Science (Joseph Johnson)]

Thank you for your excellent chairing of this debate, Mr Pritchard. It is a pleasure to serve under your leadership. I am glad to have been reappointed in time to take part in this important debate and discuss the matter with the shadow Secretary of State for Education, the hon. Member for Ashton-under-Lyne (Angela Rayner).

I recognise the sincerity and strength of feeling about this question among hon. Members and members of the taskforce that advised the previous Government, but I am sure they understand that my challenge as a Minister in the Department responsible for student and university finance is to ensure that our higher education system remains open to all and that our universities remain well funded. The hon. Member for Warrington North (Helen Jones), who made an excellent opening speech, and other hon. Members have asked several important questions, which I will attempt to answer. However, I will first provide some strategic context to the decisions that the Government took in 2015.

When we reformed student finance in 2011, we put in place a progressive student loans system. Higher education is therefore accessible to all who have the potential to benefit from it, irrespective of their ability to pay. The system is working well and this Government have done more than any other to put higher education financing on a secure and sustainable footing. England has some of the finest universities in the world, and it is vital for our future economic prospects that they remain well funded. Total funding for the sector increased from £22 billion in 2009-10 to £28 billion in 2014-15, and it is forecast to reach £31 billion by 2017-18. We must ensure that our universities have the resources they need and every student has a high-quality experience during their time in higher education.

As the hon. Member for Southport (John Pugh) acknowledged, the warnings in the last Parliament that there would be a deterrent effect on student applications proved wrong. Students from disadvantaged backgrounds are now going to university at a record rate—up from 13.6% in 2009 to around 18.5% in 2015. People from disadvantaged backgrounds are now 36% more likely to go to university than they were under the previous Labour Government.

[Helen Jones]

Can the Minister enlighten us about the position with the Russell Group universities?

[Joseph Johnson]

It is important that we make progress across our system. In the guidance that I sent to Les Ebdon, the director of fair access, in February this year—by the way, that was the first guidance that he had had in more than five years—I explicitly gave him strong political support to ensure that all institutions, including those that see themselves as the elite institutions in this country, do the heavy lifting on access and that people who have the capacity to benefit from education at Russell Group institutions get the chance to.

In Scotland, as the hon. Member for Glenrothes (Peter Grant) may be aware, controls on student numbers continue to stifle aspiration and opportunity in a way that is simply no longer the case in England because of the way that we have put our student finance system on a sustainable footing. He made several points in this respect. I steer him towards a recent statement by the Sutton Trust that

“Scottish 18 year olds from the most advantaged areas are still more than four times more likely to go straight to university than those from the least advantaged areas.”

By contrast, the figure in England is 2.4 times. I also point him to a statement by Audit Scotland, which says:

“It has become more difficult in recent years for Scottish students to gain a place at a Scottish university as applications have increased more than the number of offers made by universities.”

--- Later in debate ---

[Helen Jones]

I had hoped for a more encouraging reply from the Minister, because he is generally a decent soul, but his reply showed that he just does not get it. We have heard about the impact on poorer students, on women and on those from ethnic minorities. Most of all, we have heard about the impact on trust in politics and the Government. The Minister has told us that the Government have not changed the terms and conditions, and that is absolutely true; but the Government have gone back on what they told students. He says we want a system that is open for all, but at the moment our most prestigious universities are open to all in the same way that the Ritz hotel is. He has not tackled that. He will not give us the figures for poorer students going to the most prestigious universities. He has admitted that the Government got themselves into trouble on this issue, because average earnings did not rise as much as they hoped they would. In other words, their economic policy is at fault.

As for the system being sustainable, all the evidence shows that it is in real trouble. It is not going to be sustainable in the long term or deliver what students want, or what the country wants, which is an opportunity for every young person, wherever they come from, to go to the university that is right for them—not the cheapest or the nearest—and for universities to admit them. Despite the talk of meritocracy, we do not have a meritocracy—unless we believe that those who are better off are automatically cleverer than other people; because in our system at the moment, people are less likely to go to a prestigious university if they are poor. I hoped that the Minister would be able to respond to those concerns today. Sadly, he has not. Students and their parents will note that.

Question put and agreed to.

Resolved,

That this House has considered e-petition 131167 relating to changes to the student loans agreement.