Higher Education: Funding

Lord Hannay of Chiswick Excerpts

Wednesday 27th October 2010 Lords Chamber

[Lord Hannay of Chiswick]

My Lords, even if the Government had not imposed a massive 40 per cent cut in the allocation of funds to universities for teaching costs, as they have now done, there would still have been a need for a report of the kind that my noble friend Lord Browne of Madingley was commissioned to produce. Given the success of the 2006 reforms in university financing—in my view they have been a remarkable success, resulting in greater investment in and greater autonomy for the universities without any falling off of demand for places or in the quality of applicants; rather the contrary—I would argue that they need to be built on, not dismantled.

However, those reforms were not sustainable in the long term within the parameters laid down in 2006, for reasons largely of parliamentary arithmetic and not objective consideration. The universities were being prevented, and still are, by law from recovering the full costs of the teaching that they provide. They were also being prevented from responding to the demand for places, while the provisions for subsidising student loans were running out of control. Now, with the cuts, the review and action to follow it up have become matters of life and death for our universities. I should declare a non-pecuniary interest as someone who has been involved for the past 12 years in university governance, first at Birmingham and now at Kent, but the views that I am expressing are not those of either institution.

I offer my sincere congratulations to my noble friend and his colleagues on producing such a crisp, clear and compelling report. He has explained a complex subject in manageable terms. His prescriptions seem for the most part to be what is needed, even if they are not what many of us, in an ideal world, would have wished for. I am grateful particularly for his dismissal of the false trail of a graduate tax, which would be neither implementable nor equitable.

However, I have doubts about some aspects of the report’s prescriptions. First, I am not entirely convinced by the rather tortuous provisions for removing the cap on tuition fees in its entirety, with a rising government levy on fees above £6,000. Does this not risk getting the worst of both worlds, widening the gap between the small number of top universities and the others while not really satisfying the elite group, which could well end up taking fewer UK students? Would not a substantially higher cap than the present one, with a further review after a fixed time, be a simpler and more acceptable way to proceed, so long as it fills the gap created by the Government’s cuts?

Secondly, I suggest that we should be a bit careful about how far we go in applauding and encouraging competition in the university sector. Well run universities have nothing to fear from a bit more competition, which variable fees could bring about. However, unlike with businesses, competition for profit is not universities’ raison d’être. Competition for academic excellence is what they are about, which is not the same thing.

Thirdly, the approach to cutting back the government grant for teaching, which it is clear cannot be avoided in one form or another, is a bit too crudely utilitarian. Do we really believe that science, engineering and medicine, along with the rather oddly named “strategic languages”, are the only subjects worthy of government support? Are the creative arts, social sciences and humanities of no value or benefit to our society? If so, I fear that most members of the Cabinet devoted their formative years to the wrong subjects.

Fourthly, while I see the logic of rolling up three of the present four quangos in the higher education sector into a single higher education council, I question the wisdom of including within its scope the Office of the Independent Adjudicator. This office performs a quasi-judicial function and needs total independence. Joining it with a body that performs regulatory and financial allocation functions could end up damaging the legitimacy of the adjudicator’s rulings with no serious benefit in efficiency or cost.

So much for my comments on my noble friend’s admirable report; what needs to be known now is the Government’s reaction to it and their intentions over implementation. I was most grateful to the Minister for her opening statement, which began to do that, although I think that she has a fairly long way to go. So far, the Government’s comments have been pretty vague and general. There is talk about a White Paper; there is talk about action being taken before the end of this year. The universities need clarity and certainty and they need it in the early months of 2011 if they are to be ready to work within the scope of the new arrangements by September 2012. I hope that the Minister will say more about the timetable and the procedures. Will primary legislation be required—I think that she suggested that that would be so—and, if so, for what elements? I also hope that the Government will give an absolute undertaking not to allow a gap in time to arise between imposing the cuts and empowering universities to have access to new funding. They should ensure that capital spending under way is not starved; otherwise, irremediable damage could be done.

The Browne report does not cover the whole field of higher education finance, as it says nothing about research funding or postgraduates. How soon will the Government be in a position to clarify the situation on research now that the science budget seems to have been spared the worst of the cuts? Nor does the report cover an issue that will crucially affect one of the universities’ most buoyant sources of non-governmental finance: access to visas for non-EU students, postgraduates and faculty. I echo what my noble friend Lord Bilimoria said on this. Can we be assured that the review of immigration will not result in barriers to these categories of student? Surely there is a better way of dealing with abuses to the visa system than the imposition of arbitrary caps and imposing more complex and more costly procedures on bona fide applicants, who now make up one of this country’s primary invisible exports.

A lot is at stake in the present review of university financing. If Britain is to be a successful competitor in a knowledge-based global economy, our universities need to emerge strengthened and not weakened. If the big society is to deliver the benefits sought of it, the universities must be available to all who want to go to them and are academically qualified to do so.

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[Baroness Wilcox]

My Lords, I thank noble Lords on all sides of the House for an excellent debate. The noble Lord, Lord Liddle, said that it was a tutorial and that is what it was for me. I thank the noble Lord, Lord Browne, for the work that he did, which enabled us to have this debate today. I also congratulate my noble friend Lord Boswell on a lucid and eloquent maiden speech. He is distinguished as a former Education Minister and has great experience in another place. He will be a great asset to your Lordships’ House. We look forward to hearing his views voiced often in this Chamber.

I should like to respond to as many questions and comments as I can but with one necessary and obvious caveat: there are two major pieces of work that set the context for reform of our higher education system—the report by the noble Lord, Lord Browne, and the comprehensive spending review. The Chancellor has already stated that we will build on the recommendations in the former to put universities on a sustainable financial footing so that we can maintain the quality and competitiveness of the sector. We will also provide financial support and solid advice to individuals to make sure that a decent university education is not beyond any person either because of pecuniary need or because of inadequate information. The Government will shortly produce a detailed set of plans covering both areas and I cannot pre-empt that this evening.

The thoughtful contributions from the noble Lords, Lord Maples and Lord Sawyer, the noble Baroness, Lady Morris, and others, illustrate the challenge facing the Government in responding to the Browne recommendations. The noble Lord, Lord Maples, strongly advocated the benefits of competition and unrestricted fees. The noble Baroness, Lady Morris, and the noble Lord, Lord Sawyer, are very concerned by that prospect. Both views are inspired by genuine concern for the welfare of students and the success of universities. The Government will truly find it challenging to please everyone, but we will do our best.

My noble friend Lady Falkner made some most interesting suggestions about improvements to access. She suggested that pupils receiving the pupil premium who have the desire and aptitude to go to university might get a first year free. We will carefully consider whether this could be achieved, building on the excellent work that many universities are already doing to support the neediest students.

Social mobility is non-negotiable for the coalition. We will improve the advice and guidance available to young people so that they are aware, for example, of the qualifications required for different courses and careers—and well in advance of applying. We will establish clearer, alternative routes into HE besides school or sixth-form college and we will communicate more effectively the considerable financial support available to applicants from poorer backgrounds. We note carefully what the noble Baroness, Lady Kennedy of The Shaws, had to say about the importance of fair access and of mentoring and raising the ambitions of all our young people. It might well be that lower expenditure on bursaries but higher expenditure on mentoring and links between universities and schools would prove more effective in improving fair access.

Just as we are determined to put the challenges, pleasures and rewards of a university experience within reach of people young and old, part-timers and those looking to develop new expertise, we also expect that experience to equip graduates with the knowledge and skills required to make their way in the world. The financial reforms conceived by the previous Government did not always lead to a qualitatively or quantifiably better student experience. We will expect universities to do better this time around, whether through better teaching, improved contact time with faculty or relevant preparation for life in the workplace and beyond. As my noble friend Lord Maples argued, allowing greater competition—such as new providers and alternative modes of learning—will help, boosting what is already a diverse sector.

The noble Lords, Lord Smith and Lord Hunt, asked whether departments will be allowed to close. It is not for the Government to tell universities which subjects they should teach or in which departments those subjects should be taught. That is for autonomous universities to manage for themselves. However, they will need to become more responsive to demands from students and employers.

I will deal with student support and university funding separately. For the former, I reiterate the recommendations made by the noble Lord, Lord Browne, which, in the Government’s view, set the right strategic direction and to which we are currently preparing a detailed response.

The noble Baroness, Lady Blackstone, asked about the default rate on higher fees, default by EU students and modelling. The repayment regime will be more progressive, which means that low-earning graduates will repay less than they do now. This is a welcome feature of the proposal of the noble Lord, Lord Browne, so it is not a question of greater default but an assurance to students who end up as low-earning graduates that their repayments will be fair. The European Union graduates will be required to pay their graduate contribution. There is no evidence so far that they are less willing to do so than home students. However, if they are, they will be pursued and their repayments enforced by the courts if necessary. To answer the final question asked by the noble Baroness, I can confirm that the Government plan to release data that underpin the financial modelling.

No students, part-time or full-time, will be required or expected to contribute to the cost of their tuition until they graduate. As graduates, they will begin to make contributions only once they earn a specified income, which will be higher than it is now. Should their earnings fall beneath that threshold, contributions would cease until earnings recovered. Full-time students from disadvantaged backgrounds can, in future, expect a more generous maintenance package, linked to their family’s income.

My noble friend Lady Sharp asked how we will help middle earners, especially those in valuable but low-paid professions. At 9 per cent of earnings over £21,000, these graduates will contribute at an affordable rate. Remember that this is not like a credit card debt. It does not affect one’s ability to obtain a mortgage or to get on the housing ladder, because it is income-contingent. Here I welcome the helpful, well informed comments of the noble Lord, Lord Desai. On bursaries and golden hellos for teachers and social workers, I must defer to the Secretaries of State for Education and Health, who oversee these schemes.

I have skipped away from the question asked by the noble Baroness, Lady Morris of Yardley, about protection for non-STEM subjects. The noble Baroness is right to remind us of the importance of universities teaching a wide range of subjects as part of our civilised society. I can reassure her that the coalition Government will keep this goal in mind when we consider our response to the report by the noble Lord, Lord Browne, and when we come to implement our decisions. I can also reassure her that we take very seriously the need to ensure that the poorest students get adequate financial support for living costs while at university.

The noble Baroness, Lady Blackstone, my noble friend Lord Smith and the noble Lord, Lord Hannay, asked about the timing of the government response, the HE Bill and the future of HEFCE, OFFA, QAA and OIA. The noble Baroness, Lady Blackstone, and my noble friend Lord Smith asked whether there would be a full government response about the shape of the higher education sector as a whole. We have committed to a higher education White Paper this winter followed, subject to parliamentary time, by an HE Bill later in this extended Session. This will invite views on a wider framework for higher education, including on the roles of HEFCE, OFFA, QAA and OIA. We are open to suggestions but, as my colleague the Minister of State for Universities and Science has already made known, we do not find the idea of a superquango inherently attractive. However, we accept the point made by the noble Lord, Lord Hannay, that universities and students urgently need to know the financial position and rules for the year 2012-13, and we will ensure that this is not delayed by lengthy discussions about quangos. We hope to make an announcement shortly.

I remind noble Lords that the previous Government had already reduced the spending on higher education institutions for 2010-11 and planned to go further. Tuition funding will in future be channelled much more through students themselves instead of through a block grant. Universities will decide what they charge for their courses but, as the Deputy Prime Minister has signalled, we expect to set a cap beyond which these charges cannot rise. We do not envisage unlimited university fees for UK and EU undergraduates, and if students are being asked to accept that they will, as graduates, face higher contributions than currently, we will expect a stronger performance from universities on fair access, transparency of information for students and parents and the overall quality of the student experience.

The noble Lord, Lord Norton, suggested that the Government should remove completely the cap on tuition fees. As the Secretary of State and the Minister of State for Universities and Science have stated, the Government recognise the concerns that uncapped fees would put off some applicants, particularly those from low-income families, and the need to balance these against the needs of our research-intensive universities to compete with their global competitors. We therefore have reservations about removing the fee cap completely, and the Deputy Prime Minister has made that known. The Government will put forward proposals on fee levels very shortly. I hope that also answers the question asked by the noble Baroness, Lady Blackstone.

Several noble Lords, including the noble Lord, Lord Giddens, and the right reverend Prelate the Bishop of Wakefield, raised concerns that these proposals on the arts and humanities would be to the detriment of the arts, humanities and social sciences. Many noble Lords spoke eloquently about the social, cultural and spiritual value of these subjects. On this, I wholeheartedly agree. These necessary reforms would not abandon the arts and the humanities and we will, through billions of pounds of investment in student support for tuition costs and in generous funding for research, continue to enable these disciplines to thrive. I make no apology for investing money in subsidising the teaching of STEM subjects because it is important to limit the proportion of costs that are passed on to graduates of these more expensive courses.

The noble Lord, Lord Bilimoria, and my noble friend Lord Norton spoke about the Government reducing public spending on higher education by so much. It is certainly true that in the spending review we have accepted that we need to reduce the public spending that we pay to universities via HEFCE, but that does not mean a straightforward reduction in the money that universities can secure from the public purse. If more funding flows to universities from those who study there and the Government lend students the money to pay that contribution on favourable terms, our overall GDP expenditure on higher education need not fall.

The spending review also contained several assumptions about efficiency savings within universities. They were focused around pay, pensions, procurement and shared services. It will be for each autonomous institution to decide how it will respond. More information about HE funding will, as usual, be contained in the annual grant letter to HEFCE, which the Government will send at around the turn of the year.

My noble friend Lord Norton of Louth suggested that we will not be able to compete internationally, as other countries invest in higher education. Let me be clear: the current level of investment in higher education is significant. However, the country is committed to delivering a tough deficit reduction programme. Only by rebalancing the contributions to higher education between the state and the beneficiary can we avoid a damaging impact on the quality of higher education.

I return to the related matter of research funding. The Government have recognised the substantial contribution that universities around the country make through research to economic growth and to the overall health and cohesion of our society. The decision to protect public investment in our highly productive science and research base represents a major investment in future growth. University reputations are built not just on teaching but on the quality of their research. The excellence of university research is also a critical factor in investment decisions by international companies. UKTI has used the strength of the United Kingdom research base to attract hundreds of R&D projects into the country.

I might now be taking the next points out of the flow of my response, but at least the noble Lord, Lord Willis of Knaresborough, the noble Baroness, Lady Blackstone, and others will get an answer. When I referred to the proposed HE White Paper and the HE Bill, I should have added that I welcome the suggestions that various noble Lords have made on the issues that we should consider in that White Paper, including the remarks made by the noble Lord, Lord Willis, about the spread of degree-awarding powers and research funding. We will consult widely with the sector, students and experts, such as the noble Lord, when formulating this White Paper.

The noble Baroness, Lady Kennedy of The Shaws, referred to NUS proposals on graduate contributions. The progressive repayment system proposed by the noble Lord, Lord Browne, shares many of the attractive features of a graduate tax and of the NUS proposals. I welcome the questions from the noble Lord, Lord Triesman, but I am sure that he will understand that I cannot pre-empt the Government’s full response, which will be announced shortly.

In conclusion, I remind noble Lords of the stakes involved in university reform. The Times Higher Education world rankings, which were issued a couple of months ago, highlighted the jewel that is our HE sector. The United Kingdom is home, once again, to 29 institutions in the top 200, second only to the United States of America.

League tables of this kind never tell the whole story, of course, but they at least provide a part of the narrative where higher education has become a global endeavour, where academics and students are mobile internationally and where universities in emerging nations are rising in stature. At present, the UK punches well above its weight. The quality of our higher education is one of the best adverts for our country and this must continue.

The challenge is to make sure that UK institutions dominate league tables in a decade’s time and in decades to come. We can meet one part of this challenge by building research partnerships with universities overseas, and that is happening already. My colleague, the Minister for Universities and Science, will be making a second visit to India next month, where he will discuss our role in this. However, much of the challenge will come down to introducing effective changes at home, for a renewed focus on higher education as a driver of social mobility, business growth, innovation and skills development is critical to our shared future.

The notion of a shared future brings me back to my starting point in this debate: the idea of autonomous institutions stimulating the curiosity and creativity of our people, reminding us of our common heritage and inspiring us in regard to human potential. The Government are duty bound to protect this invaluable national resource, and we will.

[Lord Hannay of Chiswick]

Can the Minister make a little more coherent the eloquent remarks she made about this being an international matter and that Britain’s place in the international market is strong and needs to become even stronger? Given the incoherence between that and the issue of immigration, I do not see how the two can be fitted together in the timetable she has given. Universities are being hampered now by the immigration system that is temporarily in place, and they do not know whether they will be hampered even more by the one that will be put in place. Can she not say anything about bringing some coherence into these issues?

[Baroness Anelay of St Johns]

My Lords, I am afraid that the noble Lord, Lord Hannay, has taken us to the point where guidance in the Companion says that we should consider finishing the debate. I have heard the debate throughout, both in the Chamber and out, and the noble Lord has raised an important point. I am sure that my noble friend will take the opportunity, through other measures in the House, to respond to him. I know she would wish to do so but, as Chief Whip, I invite her not to do so tonight.