Education Bill

Lord Peston Excerpts

Tuesday 4th October 2011 Grand Committee

[Lord Young of Norwood Green]

My Lords, this is one of those amendments that speaks for itself so I do not intend to detain noble Lords long on this particular issue. Nevertheless, it is an important issue these days given the levels of redundancy and the need for people to retrain and reskill throughout their working lives. It is important that there is an assessment of the impact. It is difficult enough for people with disabilities to gain employment without any further impediments. Of course, there is the impact on women as well. I would welcome a response from the Minister.

[Lord Peston]

My Lords, I support my noble friend’s amendment. I do so with a certain degree of sadness. It is just under 50 years since I wrote the first paper ever written in the Treasury on loan schemes, and it would never have occurred to me then that we would end up discussing this sort of thing 50 years later. It would never have occurred to any of us who were among the first to think that loan schemes were the right way into student support that we would live in a world in which tuition fees were charged in higher education. That is why I say that there is a certain sadness here.

It may well be that the economy is so dire and so many people want to benefit from higher education that we have to have tuition fees, but it has always seemed quite awful to me. I assume that this amendment has been tabled so that the Minister can tell us exactly what preparations the Government looked at before deciding to go along the path that they have chosen.

I would like to hear what the research is that tells us that those who are disabled will not suffer from extreme disincentives because of these fee increases, and that there is no gender bias in them. I find it very hard to believe that there is no gender bias in what is happening here; quite the contrary. My noble friend has not told us this, but I assume this is why the amendment was tabled. This is all in preparation for the next stage, and for how we analyse these things. I look forward to a lecture from the Minister answering everything implicit in this amendment.

[Baroness Turner of Camden]

My Lords, I support the amendment. It is an amendment that the Government should welcome, because they are always telling us that we do not have a skilled workforce, and that the workforce needs to be skilled. Here is a specific recommendation for reskilling people who are disabled. I would have thought it would have been welcomed by the Government as being well in line with their policies; the policies they are always telling us about, anyway. Therefore I am very happy to support my noble friend’s amendment.

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A positive real rate of interest will impact in particular on the repayments made by mature students. Getting behind the figures, we find that there has been no increase in the salary threshold, so only the term has changed. However, as a result of that, many more graduates are likely to reach the end of the repayment period without paying off their loans—and I understand that these typically will be of the order of £45,000 at the end of a three-year course. It is also likely to have an inadvertent impact on female graduates and on men at the bottom decile of earnings. I am afraid that it is beginning to sound like a bad deal all round. It will set up a lifelong debt and borrowing habit that some people will take to their graves—a new form of the term mortgage. If this clause stays in the Bill, it should be seen for what it is: deeply unfair and divisive. It is not progressive. Indeed, it is easier to see it as part of the narrative of readying the Student Loans Company for sale as well as depressing demand for higher education than about cutting public expenditure. Our amendment would at least restore the status quo. I beg to move.

[Lord Peston]

My Lords, I am very puzzled by what the Government want to do. I thought they wanted people to “stand on their own two feet”—I think that is an exact quote from the Chancellor. The effect of raising the real cost of repaying loans must act for some people as a disincentive to going into the labour force. Otherwise, in my favourite remark, economics makes no sense at all—you may think economics makes no sense at all, but that is another matter. That is one bit that puzzles me. What do the Government think they are doing? Should they not be pursuing exactly the opposite policy and trying to encourage people where they can to re-enter the labour force?

The second thing, which goes back to the earlier amendment that we did not debate at great length but will on Report, is the gender bias question. Is it part of the Government’s view that they want women not to take out loans and go into higher education so they do not have this burden and therefore it does not act as a disincentive to marriage and family life? After all, if they go into higher education and carry this implicit cost with them, their ability to find a suitable partner, who may have to bear this cost at some point, might go down.

I thought the Government favoured families instead of the reverse. Equally, maybe it is much more subtle than that. Where there are lone parents, for example, who are graduates, maybe we do not want them to stand on their own two feet and take a job and hire a babysitter. Maybe we want them to stay at home, driving themselves round the bend trying to cope with the children, and so forth. My general point from all that, is that I can see no rationality in what the Government are doing, other than: “If we can get some more money from any route that we can find we will take it”. That is not a rational way to produce economic policy.

If I can revert to my 1960s Treasury experience, one of my thoughts listening to my noble friend’s speech was about when I wrote a hotshot paper on student loan schemes—nothing to do with fees, but about maintenance. One question that never occurred to me in what must have been a really bad paper—in those days you did not take home your work so I have no idea precisely what I wrote—was the rate of interest. It never came up in my mind. I just took it for granted that it would be the Treasury bill rate.

[Lord Sutherland of Houndwood]

My Lords, the noble Lord, Lord Stevenson, has made a powerful and cogent case, and I look forward with more than usual interest to the Minister’s response because there are some issues of real principle. I would add two points. One is that much of the odium for charging fees is falling on universities. I still remember sufficiently far back when that would have fallen on me, and it looks like there is an extra 3 per cent of odium being added. That is not a good principle.

More to the point, I have supported the principle of student fees on the basis that students pay for what they get in educational terms, not for an additional premium for whatever accounting reasons seem necessary to the Government at the time.

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[Baroness Verma]

I remind the noble Lord, as he was in Government, that they also used RPI as a measure. It is a commonly used measure. My right honourable friend the Chancellor, of course, is the Chancellor, and has to find all means of reducing the debt that unfortunately we inherited from noble Lords opposite.

We should remember that the changes to the rate of interest on student loans are part of a new student finance package that creates a progressive repayment system and is designed to protect lower earning graduates, as well as balancing the financial demands of universities with the interests of students and future graduates by delivering necessary savings without cutting the quality of higher education or student numbers.

Under the new system, students from lower income households will receive more support than they do now—I hope that that satisfies the noble Lord, Lord Foulkes—although many will pay back for longer than they do now. Their monthly repayments will be less than now, and the variable interest rate we propose will mean that they will also pay back less overall. If we accepted this amendment and capped the rate of interest that we could charge on student loans, we simply could not deliver this new system, nor would it create a suitable or worthy alternative. A cap would have little or no positive effect on borrowers who did not repay in full, nor would it afford greater financial protection.

This amendment would mean that higher earners would be charged a lower rate of interest than under the Government’s proposals. Higher earners would therefore benefit the most from this amendment, since the interest rate that they are now charged would reduce typically from RPI plus 3 per cent to RPI plus 2.2 per cent, while lower earners would not benefit at all as their interest rate would already be less than the Government’s cost of borrowing.

The system of student support would be much less progressive as a result. The Government remain committed to delivering a progressive system whereby those who benefit the most from higher education contribute the most. Would the noble Lord really favour a package that meant that the highest earners did not contribute to the cost of their higher education in net terms, or one that would inhibit our ability to protect lower earners?

[Lord Peston]

What the noble Baroness has said is not quite right. Is it not the case that those very much higher earners whose parents pay off the loan immediately will not bear a higher cost? It is only those whose parents have not paid off the loan immediately who will do so.

Equally, while I am on my feet, I say to the Minister that there is no ideal index number at all. I do not use either of those—I always use the GDP deflator as the correct measure of inflation—but that is another matter; it is not what this debate is about. It is not about an ideal index number, it is about who pays what, and that is all it is about. My noble friends, particularly the noble Lord and I, have made it very clear: all that we are discussing is, who are we going to take the money from? Am I right that the plus 3 per cent is definitely decided?

[Baroness Verma]

Yes. And the noble Lord knows that I would be the last person here to make sure that people of low incomes could not get fair access. That is why it is so important that those who can afford to pay more do so, because they benefit more from higher education. Those families on low incomes will actually be able to be better protected. That is the key to this.

I am sorry that the noble Lord shakes his head. There will never be an ideal measure, but we have to have a measure. The previous Government did it and we are carrying on doing it. Anything to do with higher education will be coming up in the higher education White Paper, which we are consulting on at the moment, and of course that will be a wonderful opportunity to get the sort of questions posed by the noble Lord asked and responded to.

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[Baroness Verma]

If the noble Lord will allow me to continue, I am hoping that I will be able to respond to the questions that he has raised.

The system of student support would be much less progressive as a result of the noble Lord’s amendment. The Government remain committed to delivering a progressive system whereby those who benefit most from higher education contribute the most. With regard to imposing the cap, the noble Lord asked if the current £15,000 threshold would have risen in 2016 compared with the £21,000 threshold proposed by the Government. Of course he knows that the previous Government did not raise the threshold annually, which is why we are proposing from 2016-17, as part of the progressive system, that it be introduced.

The noble Lord, Lord Peston, asked about the impact on women. It is important to consider the package in the round. The amount that borrowers repay in a year is strictly linked to income. Borrowers whose income drops below the threshold, for example, when moving to part-time work or seeking downgrade posts at the end of their career, or who leave employment for whatever reason, will be protected because their repayments will cease immediately.

[Lord Peston]

But they will still owe the money.

[Baroness Verma]

But the repayments are written off after 30 years.

My noble friend Lady Sharp asked about the sale of student loans. The student loans Act makes clear that the borrower will not be affected by the sale. Their loans will be subject to the same terms as those that remain unsold. Nothing in the Bill changes that position.

I would like to finish on Sharia law. In relation to issues around Sharia compliance, the noble Lord mentioned the meeting between the Minister for Universities and Science, my honourable friend David Willetts, the Federation of Student Islamic Societies—a body that represents students from the Muslim faith—and the National Union of Students to discuss the issue. We accept the importance of the concerns raised by those organisations and have an ongoing dialogue to see how we can best ensure that student finance is not impacted on through the systems that we are bringing in. However, it would be better for me to write to the noble Lord on the outcomes after we have made sure that the consultations have been fully gone through.