Higher Education Funding

Debate between David Lammy and John Denham

Thursday 8th January 2015 Commons Chamber

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

I welcome this debate and congratulate colleagues on both sides of the House on securing it. I pay tribute to my hon. Friend the Member for West Bromwich West (Mr Bailey) and the hon. Member for Northampton South (Mr Binley) who opened the debate with their excellent speeches that summarised so well the situation and the conclusions of the Business, Innovation and Skills Committee. I will try not to tread the same ground, but I do wish to strike the same note as the Chairman of the Select Committee and query why the Government are refusing to review the system when so many organisations across higher education as well as in the business community are saying that changes are needed. Such complacency is very dangerous indeed.

It is clear why so many organisations are saying that something has to be done, even if they do not agree on the solutions. It is because English universities are boxed in. As the real value of fees erodes, the squeeze on university incomes threatens teaching quality and research excellence. Over the past few years, universities have done quite well out of the system, and have not faced the sort of pressures that our colleagues in health or local government have experienced. But everyone in universities knows that that will not last. The real value of those fees is now well below £8,500 and continues to shrink. The public finances cannot bear ever more debt write offs, but raising fees and graduate payments is still politically toxic. I would be surprised if any political party goes into the next election promising that. Indeed, I would be surprised if they are not forced to rule it out over the course of the campaign.

The idea of allowing universities to fund their own fees might have some role to play if current fees were much lower, but sanctioning ever-more eye-watering fees is likely to be controversial and socially divisive. All the solutions that people come up with essentially boil down to making graduates pay more, pay earlier, pay at higher rates of interests and pay for a longer period of time. The idea that we can simply solve a problem by going back to graduates and asking them to pay more money, however we dress it up, is clearly not right.

It is worth noting that concerns are coming not just from within the sector, but from a range of business and employer groups, including the CBI, which all claim that the system is not working. I will base my remarks around not one, but two observations. Yes, we need to reform the funding system, but we also need to reform the delivery of some of the higher education systems, to echo what the hon. Member for Northampton South has said. The second of those two points is as important as the first.

We have engaged in this debate for a year now and there is a marked division between those largely in the sector who say that there is nothing wrong with higher education just the way we fund it and those largely outside it who say that it is not just about funding but about the higher education on offer.

Before turning to funding, let us review the problem of delivery, which is intimately linked to it. There is now strong evidence that there is a mismatch between the education of many graduates and the needs of employers, society and the graduates themselves. According to the latest figures, which I got from the Office for National Statistics yesterday, the long-term employment prospects of graduates are continuing to deteriorate. The percentage of graduates not working in graduate jobs five years after graduation has now reached a record 34%, up 4% since 2010. The newest graduates are doing a little better in the sense that the percentage not in graduate jobs just after they graduate has fallen from a peak of 48% two years ago to 44%, but that is still much worse than in any year before 2010 and has happened despite the much-trumpeted increase in overall employment in recent years. Whatever sort of recovery is under way, it is clearly not using the skills and education of recent graduates in high value-added graduate jobs. These levels of graduate underemployment are a far cry from the aspirations of students who now borrow huge sums of money to go to university. At the same time, organisations such as the CBI continue to complain about the quality of graduates being produced.

[Mr Lammy]

Does my right hon. Friend agree, on that fundamental point, that not only is there underemployment among that group of graduates who are not working at the level that was expected, but those graduates have pushed out other young people who are unemployed—in London, one in four young people are unemployed and they are depressed because they are outside the market—who cannot get the jobs that they were hoping to get, often in retail, as a consequence?

[Mr Denham]

That must of course be the case if graduates are working in non-graduate jobs. That is a bigger issue than higher education, of course, but the failure to use a graduate work force in graduate jobs is a huge drag on the economy and is one of the reasons why the RAB charges and debt write-off charges are as bad as they are.

Let me be clear that if we understand an honours degree as giving not just knowledge but technical expertise and the capacity to analyse, think independently, exercise intellectual judgement, take responsibility and innovate, we certainly need 50% or more of our population to be educated in that way. We do not have too many graduates, but too many graduates who are not receiving the most appropriate degree-level education.

One of the effects of Government policy over the past four years has been to undermine employer-based higher education. Foundation degrees, usually employer supported, have declined by nearly a half under this Government and employer-funded part-time degrees fell from 40,000 to 25,000 in one year. Out of the hundreds of thousands in university, fewer than 20,000 full-time students across the entire higher education system in all years of study are being funded by employers to do their degrees. The work force development programme, created when I was a Minister, was shut by the coalition, even though it alone was creating 20,000 employer co- financed degrees a year by the time of the last election.

There is much that is good and much that is excellent in the English higher education system and we do not need to change all of it, but we need to make changes that increase the diversity of routes to study and enhance employer engagement with delivering higher education. When we talk about funding higher education, we need to think about how we deliver a better system.

Let me make one point about the long-term sustainability of the system. The Business, Innovation and Skills Committee has done an excellent job and I will not go over that ground, but since then we have had the latest fiscal responsibility report from the OBR, which makes interesting reading. Ministers justified heavy cuts in teaching funding as part of a deficit reduction programme, arguing that we should not put the costs on to future generations. The Chancellor said in 2010:

“If we do not deal with these debts and do not have a credible plan, it will be our children and grandchildren who are saddled with the debts that we were not prepared to pay.” —[Official Report, 20 October 2010; Vol. 516, c. 989.]

The leader of the Liberal Democrats said:

“This strikes me as little short of intergenerational theft. It is the equivalent of loading up our credit card with debt and then expecting our kids to pay it off.”

The recent OBR report underlines just how the debts we are building up now will hang around the necks of graduates and non-graduates in years to come. The OBR estimates that additional net debt arising from new loans will reach nearly 10% of GDP in the late 2030s and 2040s. That debt brings cost. Some debt will have to be written off after 30 years and after 2046, when that kicks in, it will leap dramatically to 0.25% of GDP. Graduates will be making cash repayments of about 0.45% of GDP in the same period and the Government will be paying interest on that stock of debt that the Library estimates at 0.3% of GDP. Many of those costs fall on taxpayers as a whole, not just on graduates.

There is a lot of uncertainty about the figures, but those are the best we have. They tell us that in about 30 years, the public and private cost of paying for the regulated debts will be around 1% of GDP. None of that will fund anybody going to university. According to the OECD, in 2010 the UK spent only 1.3% of GDP from public and private sources on higher education and at that time little was being spent on the cost of debt. The simple conclusion from the OBR is that the policies of the Government are pre-empting a massive share of future national wealth being used to pay for their high-fee, high-debt priorities and not being available to fund future higher education. It is the opposite of what Ministers claimed and it is loading debt on to future generations in a way that is unfair and unsustainable. That is my answer to those who say that we should not worry about RAB charges as they are all technical: there comes a point at which these debts have to be paid and when they do, they will take money out of the national economy that will not be available to pay for higher education.

As for the alternative, I have set out my views over the past year on a number of occasions and, given your remarks, Mr Deputy Speaker, I shall make just two brief observations. Let us not deny that this started under the Labour Government, but it has accelerated under this Government, and we have developed a one-size-fits-all higher education system that is entirely focused on 18-year-olds studying for three years away from home for a residential degree. That has been at the cost of part-time education, at the cost of employer co- sponsored education and at the cost of mature student study.

In a constituency such as mine, where even today relatively few young people go to university, we are closing the door on every single person who did not get a chance to go to university by saying that if they did not do it when they were 18 or 19, they cannot afford it, it will not be flexible, it has to be done over three years, they cannot study part time, they cannot do it intensively and all the rest of it. That is a bad thing for social mobility. Of course, the fact that the move towards younger people from deprived backgrounds going to university has continued is welcome, as many of us said at the time, but we must consider the whole picture if we want to see what is happening.

Of course, we have a difficulty in that there is no new public money for higher education so we will have to do something within the skin that we have. The good news is that money, public and private, is wasted hand over fist in the current system. Every year, billions of pounds are borrowed with the intention of writing it off. The RAB charges essentially mean that almost £1 in two is written off. We have the most wasteful, or at least the most expensive, model of higher education in the three-year residential degree. We are by far the outliers in the OECD as regards the extent to which our higher education system is based on a three-year residential degree for young people. Nobody else graduates so many young people so expensively in that model at the moment.