amendment of the law

John Denham Excerpts

Monday 24th March 2014 Commons Chamber

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

The right hon. Member for Mid Sussex (Nicholas Soames) spoke of the importance of high skills, so let me consider the Government’s record on higher education. The Government’s approach to funding higher education is scandalously irresponsible. It is bad value for taxpayers, and wilfully makes graduates pay far too much for their degrees. By relying on unsustainable financial mechanisms, the Government threaten the long-term health of our universities.

Under their latest plans, each year the Government will borrow £14.6 billion to fund student loans, and each year they will write off, at taxpayers’ expense, £6.6 billion—a liability of £300 for every household in England, every year, and year after year. On every major judgment the Government have got their figures wrong. They said that fees above £6,000 would be exceptional, but most are at or near the maximum of £9,000. Last year the Government got their projection of student numbers in private colleges so expensively wrong that they had to step in to block recruitment. They said that debt cancellation rates would be 28%; last week they admitted that they are 45%. The public financing of higher education has been out of control since high fees were introduced for purely ideological reasons.

The immediate damage to public finances may be hidden by accounting conventions, but no public accounting convention should be allowed to disguise what is going on. As loans are not repaid in years to come, the cost of today’s higher education is put not just on graduates but on all future taxpayers, and this is from the Chancellor who said:

“We have always understood that the greatest unfairness was loading debts on to our children that our generation did not have the courage to tackle”.—[Official Report, 26 June 2013; Vol. 565, c. 303.]

A high-fee, high-debt cancellation policy forces up everyone’s fees and institutionalises waste. Of today’s public spending on higher education, £7.50 is spent on debt cancellation for every £1 spent on teaching students. If more were spent on teaching, fees would fall, as would the level of loans, the amount the Government had to borrow, the level and rate of debt cancellation, and the liability on the taxpayer. As a result of fees being lower, we would enjoy the virtuous outcome whereby all graduates would pay back less on their loans and more graduates would fully repay what they had borrowed.

There are many ways of modelling such a change. I set one out myself a few weeks ago at the Royal Society of Arts; it includes some wider changes to the delivery of higher education that are desirable. This is just an illustration of the scale of change that is possible. I am grateful to the House of Commons Library for modelling the figures that I am about to share with the House. With a different approach to higher education, whereby we spent money on teaching, not debt cancellation, Government borrowing would fall from £14.6 billion a year to £9.8 billion a year. Public sector net debt—that is, borrowing less the repayments made—would be about £10 billion lower after eight years and £30 billion lower after 20 years. The cost of debt cancellation each year would fall from £6.6 billion to £3.4 billion. The annual fees for a three-year degree could fall to £3,400 a year —pretty much the same as they were in 2010.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I am very interested in the figures that my right hon. Friend is reading out. What does he think the implications are for the Government’s policy to sell the student loan book?

[Mr Denham]

If I may, I will come to the student loan book in a moment, because that is a serious point.

One final point from the model that I have outlined is that the average amount paid back by each graduate would fall by £5,000 in total. On this model, usable university income would rise by at least £650 million a year.

The current approach is astonishingly wasteful in terms of public money and private graduate contributions —and that is not the end of it. As he said in the autumn statement, the Chancellor wants to encourage an additional 90,000 students, funded by the sale of the income-contingent student loan book. I do not object to the principle of selling the loan book. I tried to do it myself for two years when I was a Minister, but I became convinced that value for money was impossible to achieve. Buyers face such unknown risks on future inflation, earnings and the level of evasion that either the loan book has to be sold at a massive mark-down on face value or the buyer’s income has to be guaranteed through taxpayer subsidies—the so-called synthetic hedge, which is not so much plastic privet as guaranteed private profit. Selling a capital asset to fund hypothecated revenue spending is a short-term fix that exposes higher education to unsustainable costs when the money runs out. The Public Accounts Committee has said that it has no confidence in the ability of the Department for Business, Innovation and Skills to work out what is value for money.

This cannot go on. Universities are pressing for higher fees, and Ministers have refused to rule out an increase, but the financial futility of that is now clear. Every time fees go up, the cost and rate of debt cancellation will increase. Graduate repayments will rise, yet fewer and fewer graduates will repay their debts. The Prime Minister’s former head of policy, Paul Kirby, recently suggested closing 25% to 40% of all university courses—all those where graduate incomes are not enough to repay fees. Higher education is not simply a private benefit; it is a public benefit and a private benefit. It is now clear that we can reset the system so that there is a fair partnership between the state and the student. As my modelling has shown, we could have lower fees, lower borrowing and lower debt cancellation, with higher usable incomes for universities, within the current envelope of public spending. Only the ideological dogma and blinkered embarrassment of this Government stands in the way of doing just what is needed.