Higher Education: Financial Sustainability

Debate between Neil O'Brien and Rachel Hopkins

Thursday 5th December 2024 Westminster Hall

[Neil O’Brien (Harborough, Oadby and Wigston) (Con)]

It is a pleasure to serve under your chairmanship, Ms Vaz, and to have listened to some excellent speeches this afternoon from the hon. Members for Erewash (Adam Thompson), for Luton South and South Bedfordshire (Rachel Hopkins) and for Cheltenham (Max Wilkinson). I took different things from all of them.

I am going to concentrate on the teaching side of universities. However, I will note at the start that the previous Government put a huge amount more money into research, growing Government spending on it from £9.8 billion in 2011 to £16.1 billion, and increasing research and development as a share of the economy. I was part of that, and I am proud of what we did on that front.

Turning to the teaching side, which is perhaps the most topical part of this discussion, it is absolutely the case that a number of institutions—of course, I will not be naming them today—are financially stressed and thinking hard about their future and how they operate. I know people working in some of those institutions, and it is not easy, but I want to take a step back and examine the context before we talk about those pressures.

Working together with the Liberal Democrats, we brought in fees that did not necessarily work out politically for the Liberal Democrats at the time. However, it is good that we once again find ourselves in agreement that it is not sensible to simply increase fees without reform. As has been noted, the financial benefit to universities of the fee increase is wiped out by the increase in the national insurance contribution. One broken promise not to increase taxes is paying for another broken promise not to increase fees—it is a real connoisseur’s policy decision. In real terms, universities are left with less as a result. The pressures alluded to by the hon. Members for Erewash and for Luton South and South Bedfordshire are now made worse by the Government’s decisions.

The successes of the system, which we should note, are that it has hugely increased participation rates, causing participation in England to grow dramatically faster than in the devolved authorities in Wales, Scotland and Northern Ireland. In particular, it has dramatically increased the participation of the poorest people in our society. We can measure that in three different ways. We can look at free school meals: the proportion of those on FSM going to university has doubled, while the proportion of non-FSM kids going to university has gone up by about a third. We can look at the participation of local areas metric, which is the sector’s own measure of localities from which not many people go to university. We can see that, in both absolute and relative terms, the disadvantage gap has shrunk.

We can also use, as Universities Wales does, the index of multiple deprivation. Looking at the bottom fifth of the index—the fifth-poorest areas in each of the nations—we can see that although Labour-run Wales and England had similar numbers of people going to university back in 2006, at about 13% or 14%, the participation of poorer students has grown much more rapidly in England; it is up to 33%, compared with just 20% in Wales. That is because we made some difficult decisions, from which there have been benefits.

Much of the growth of higher education is a good thing. My generation was the first in my family to go to university. It was wonderful; it was a great experience, and it is generally a very good experience for most people who go. Universities are a wonderful thing because of not just the research and wonderful teaching that goes on in them, but the wider benefits to the community and the impact on their local society. I remember going to the University of Huddersfield as a teenager; if somebody looked nonchalant and like a student, they could just wander in and read all these wonderful books. That is just one of benefits they bring to lots of our country.

However, not all is perfect in the garden, because a university education is not cheap. We have put in a lot of resources, and while the decision to hold down the resources in recent years in order to hold down the costs for students has reduced the funding per student in real terms, it is still above the level it was at when I went to university; it is still higher in real terms than it was in 1997. But university really is not cheap for the students. The Government have just raised tuition fees to £9,535 a year. A maintenance loan for people who are not at home is £10,227, or £13,348 for those in London. After a typical three-year degree, a student is paying back £59,000, or £68,000 in London. That is a lot of money.

The Government have already increased fees once in this Parliament. Having promised to reduce the cost for graduates, they increased fees instead. There must be a decent chance that fees will continue to go up from now on—unless the Minister wants to contradict me on that. Yet, over the last decade, we have worried a lot about the financial plight of younger people. Ever since David Willetts’s amazing book “The Pinch”, we have been thinking about how we can make it easier for younger people to get on in life. Having these huge amounts to repay—and, in some cases, rather high marginal rates—makes it much more difficult for them.

We can see that, as has been alluded to, the point at which somebody starts repaying their loan to make the system financially sustainable for taxpayers has reduced over time. In 2005, a person had to be earning about 30% more than someone working full time on the minimum wage to start repaying. As of next April, a person can earn 2% less than someone working full time on the minimum wage and still be repaying. This has become more like a graduate tax. It is not quite like a tax—people do not repay it if they are not earning—but it is high.

If somebody is a postgraduate on top of that, or has a couple of kids and ends up being hit by the high-income child benefit charge, they face extraordinary marginal rates, even on middling incomes. In the £50,000 to £60,000 range, if a person has one postgraduate loan or two kids, they can end up paying a 70% marginal tax rate as a young person. That is insane. The Government have made the decision not to reform the high-income child benefit charge, so the problem will go on and get worse.

All of that context is by way of saying that, yes, there are pressures in higher education, but there are also pressures on young people; it is not easy. So before we increase charges further, increase tuition fees even more and tip in more money, we absolutely must think about reforms. Advocates of higher education, including me, say, “Look, there is a lot of higher education that is brilliant for people’s earnings and a good economic investment.” However, we know, because of the decision taken by the last Government to create the longitudinal educational outcomes database, that not everybody benefits from going into higher education, at least not economically. The seminal report on this issue by the Institute for Fiscal Studies stated that

“seen over the whole lifetime, we estimate that total returns”—

combining the perspective of both the taxpayer and the student—

“will be negative for around 30% of both men and women.”

For about 30% of people, at least in economic terms, this is not working out.

Now, economics is not the only thing in life, and it will always be worth us funding some things simply for their own sake—if they are beautiful and good and we think they are nice—but let us not forget that a lot of things that are economically beneficial are also beautiful, true, interesting and worthy in their own right. For example, it is cool to know that the word “Lent” comes from the Old English word for “lengthen”, because plants grow in the spring, which is when Lent is. That is the origin of the word, and it is cool to know things like that. It is also cool to know how to build an ion drive, how monoclonal antibodies work or innumerable other things in the hard sciences and other subjects as well.

We will always want to spend on some things that are just worth it in their own right, but the question is how much. If we are spending £20 billion a year on student loans, and let us say, hypothetically, that the IFS is about right, and that about 30% of that is not worth it, that is £6 billion. That is about 10 times what we spend on the Arts Council. How much do we want to spend on higher education that is not economically beneficial? Should thinking about some of those courses not be the first port of call before just increasing taxes on young people?

We could potentially do things to reform the system, as the last Government were starting to do, which would be of benefit to both the young person and the wider economy. We are not doing a young person a favour if we put them on, for example, some creative arts course and say, “This will be great for you. You are going to be the next Jony Ive. You are going to design the next iPad. You are going to have great outcomes. This degree is going to take you where you want to go”, when that is not true. Some people have fantastically low earnings. They feel like they have been lied to; they feel like they have been mis-sold something. Thankfully, that is not the median experience of students, but it is the experience of quite a lot of students. We have to worry about that.

I am totally sympathetic to those who say, “Let’s find more resources for the best of HE,” but we also need to have the conversation about HE that is of lower economic value—if I can call it that—before we just start increasing taxes even further on young people who are so hard pressed already. There are many questions about how exactly we would do that, and lots of technicalities, but in principle that should be our first port of call. Finding those resources would either let us do more in high-value higher education or let us help the perpetual Cinderella sector that is further education, or we could take the burden off of young people a bit more.

It is not for me in this debate to set out our entire vision of how we would reform HE, so I have a couple of questions for the Minister. In particular, I want to encourage her to talk about a decision taken this week by the Office for Students to stop accrediting new institutions. That has numerous consequences that are bad. First, it is a block to brilliant new entrants such as the New Model Institute for Technology and Engineering in Hereford, Dyson and other places that have come in and been brilliant additions to the higher education sector. It also potentially locks very large numbers of young people out of student support. What estimate has the Minister made of the number of young people who will now not be able to access student support as a result of that decision by the OfS this week? Secondly, how long will this “pause” go on for? I saw Ministers defending this decision, and it was initially presented as a pause. I hope it is not a permanent end to any new entrants coming into the sector. Will the Minister tell us a little about when she plans to end this pause?

We have been playing a game of cat and mouse across Parliament about the national insurance increase. Bizarrely, one Department—Defence—has answered the question of how much the national insurance increase will cost it. Defence can answer it, but seemingly no other Department can. The questions I asked the Department for Education a month ago about how much this is costing schools, universities and so on have somehow not been answered. The same is true across about 50 domains in Government. We cannot have a meaningful Parliament and we cannot have meaningful discussions in this building if the Government are not prepared to answer basic questions about the consequences of their own policies.

The Government want to say, “We are giving you this wonderful increase in spending” in whatever field it might—maybe it is childcare or schools or something outside education—but that actually turns out not to be true. The university sector has worked that out for itself. We know exactly how much the Government are putting in, because of the fees increase, and we can see that that seeming gift is completely wiped out by the national insurance increase. The Government are giving with one hand and taking away with the other. In other sectors, they are just refusing to answer the question. That is really poor.

When the Minister stands up today, can she promise me that she will finally answer the question I asked a month ago, not just for higher education, but for childcare and schools, and tell us the most basic information that taxpayers and voters deserve to know? How much is the national insurance increase going to cost our public services? Why do the Government think they cannot answer this question? It is genuinely disgraceful.

I have every sympathy with those who are under financial pressure in higher education institutions. In some cases there has been misadventure, where people have taken out ridiculous loans that are now rolling over, or they have become very exposed to one type of overseas student. I was intrigued to hear the contributions from the hon. Members for Erewash and for Luton South and South Bedfordshire, encouraging the Government to allow more students’ dependants as a way of selling higher education. I remember a speech in this House—I think it was yesterday—where one hon. Member stood up and condemned the open borders experiment of the last Government. I thought, “This is a wonderful, road-to-Damascus moment from the Labour party. They finally agree with people like me and do not want to endlessly increase immigration in an attempt to prop up high education.”

[Rachel Hopkins]

Will the hon. Member give way?

[Neil O'Brien]

I will give way. The hon. Lady mentioned that she thought it was good that the Government are increasing fees to allow more resources for universities. Will she confirm that she shares my understanding that overall resources are going down in real terms because of the national insurance increase?

--- Later in debate ---

[Rachel Hopkins]

Would the hon. Member mind clarifying his memory of what I actually asked? I asked whether an impact assessment had been done on that decision, rather than giving an opinion on it one way or another.

[Neil O'Brien]

Sorry. I misunderstood the hon. Lady; I thought she was pressing the Minister to reverse that decision and allow more overseas dependants as a way of encouraging overseas students to prop up higher education. I totally misunderstood—I thought she was pressing for something that she clearly was not.

I will conclude, because I am over time. I hope the Minister will answer some of those questions. I actually sympathise with her: there is a difficult challenge here and it is a knotty policy question. I will be behind her when she makes sensible decisions, and I wish her all the best in her endeavours to tackle some of those problems, not just for our universities, but for our young people.