Higher Education Funding

Gareth Thomas Excerpts

Wednesday 3rd November 2010 Commons Chamber

[The Minister for Universities and Science (Mr David Willetts)]

With permission, Mr Speaker, I would like to make a statement on higher education funding and student finance. This follows the statement made by my right hon. Friend the Secretary of State for Business, Innovation and Skills on 12 October.

Our higher education system has many strengths, but also faces challenges: the need for more focus on the student experience, the need to widen access and the need for sustained funding. These challenges led the previous Government, on a cross-party basis, to set up Lord Browne’s review. We are grateful to Lord Browne for his excellent work. I think he has made us all re-examine our positions.

On 12 October, my right hon. Friend said that the coalition endorsed the thrust of Lord Browne’s report, but was open to suggestions, before making specific recommendations, which would be radical and progressive. We have listened very carefully and with open minds, so I can now give the details of our proposals.

First, we will introduce a progressive system of graduate contributions to the cost of their university education, with nobody having to pay up-front fees. Lord Browne suggested that there should be no cap on the graduate contribution; we believe that a limit is desirable and are therefore proposing a basic threshold of £6,000 a year, and in exceptional circumstances there would be an absolute limit of £9,000. No publicly funded university will be able to charge more than that for its undergraduate courses. Because there will be a cap, we see no need for institutions to pay back a proportion of the graduate contribution as a levy to the Exchequer, as proposed by Lord Browne.

We are also proposing a more progressive repayment structure. At present, graduates start repaying when their annual incomes reach £15,000. We will increase the repayment threshold to £21,000, and will thereafter increase it periodically to reflect earnings. The repayment will be 9% of income above £21,000, and all outstanding repayments will be written off after 30 years. Raising the threshold will reduce the monthly repayments for every single graduate.

We will introduce a real interest rate on a progressive taper. For graduates earning less than £21,000, the real interest rate will remain at zero. For graduates earning between £21,000 and about £41,000, a real rate of interest will be tapered in to reach a maximum of inflation plus 3%. When graduates are earning more than £41,000, they will be making a full contribution to the costs of the system, but still incurring interest well below normal commercial rates. Under our proposals, a quarter of graduates—those on the lowest incomes—will pay less overall than they do at present.

The Government are committed to the progressive nature of the repayment system. It is therefore important for those on the highest incomes post-graduation not to be able to buy themselves out of the progressive system unfairly by paying off their loans early. We will consult on potential early repayment mechanisms similar to those paid by people who prepay their mortgages. Those mechanisms would need to ensure that graduates on modest incomes who strive to pay off their loans early through regular payments are not penalised. For example, a 5% levy might be charged on additional repayments each year over a specified amount such as £1,000 or £3,000. Alternatively, those on higher incomes—for example, over £60,000—who made an additional repayment could be required to pay a 5% levy on that sum.

Although participation in higher education has improved in recent years, there has not been enough progress in securing fair access to some of our best-known universities. We can make progress by improving the school attainment of pupils from disadvantaged backgrounds. That is why the Government are investing in a new premium for two-year-olds, and in the pupil premium. However, we want that focus on improving the life chances of those from disadvantaged backgrounds to continue to university. For that reason, as the Deputy Prime Minister has already announced, we will also establish a new £150 million national scholarships programme, which will be targeted on bright potential students from poor backgrounds to encourage them to apply to university and meet their aspirations.

All universities that want to charge a higher graduate contribution than the £6,000 threshold will be obliged to participate in the national scholarships programme. We will consult students and university organisations on the details. We will seek to increase the leverage of Government funding by securing matched funding from universities. Our current preference is for universities to offer scholarships to targeted students, including the principal beneficiaries of the pupil premium. That would mean that at least their first year at university was free. Other attractive ideas include expanding the model of a foundation year for young people with high potential but lower qualifications.

To ensure that the universities that charge tuition contributions above the £6,000 threshold take account of their particular responsibilities to widen participation and fair access, we will introduce a tougher regime of sanctions. Each institution will draw up a new access agreement with the Office for Fair Access. It would be expected to include activities such as outreach initiatives to attract more pupils to apply from disadvantaged backgrounds, and targeted scholarships and financial support for poorer students. OFFA will agree with universities a programme of defined progress each year towards their access benchmarks as calculated by the Higher Education Funding Council. If they are not making adequate progress towards those benchmarks, a mechanism will be established to allow OFFA to redirect a proportion of the income from contributions over £6,000 to specified access activities.

Our student support system is one of the most generous in the world. We will make it more progressive. Lower-income students, while studying, will get improved help with their living costs. Students from families with incomes of up to £25,000 are currently eligible for a maintenance grant, which is not repayable, of £2,900; we will increase that to £3,250. Those from families with incomes of up to £42,000 will be entitled to a partial grant. There will also be increases in maintenance loans for students from families with incomes from £42,000 to £60,000. We will also retain a higher maintenance loan for those studying in London.

All parties agree that the current system gives a raw deal to part-time students. They are particularly likely to be mature or disadvantaged students. Even the great higher education reports of the past, such as Dearing and Robbins, largely ignored them. Lord Browne has confronted the challenge head on. At last, under our proposals part-time students will be entitled to a loan for tuition on the same basis as full-timers, and this support will be available to those studying for at least a third of their time, unlike the current grants for tuition, which are only available to those studying for over half their time.

Overall therefore, this is a good deal for universities and for students. The bulk of universities’ money will not come through the block grant, but will instead follow the choices of students. It will be up to each university or college to decide what it charges, including the amounts for different courses. All universities and colleges, whatever contribution they decide to charge, will be expected to publish a standard set of information about their performance on the indicators that students and their parents value: contact hours, teaching patterns and employment outcomes. We also propose to open up higher education provision to new providers, including further education colleges. These proposals offer a thriving future for universities, with extra freedoms and less bureaucracy, and they ensure value for money and real choice for learners.

We need to act quickly so that prospective students know where they stand. We intend to implement these changes for the 2012-13 academic year. We will therefore bring to the House our proposals on changes to graduate contributions before Christmas. Both Houses will have the chance to debate the proposals before a vote is taken. I am today placing in the Libraries of both Houses additional material that explains the modelling that we have done. We will also take powers next year to set a real interest rate for graduate contributions. We will, as usual, publish the details of the university financial settlement for 2011-12 in our annual funding letter to HEFCE next month.

Later this winter, we will publish a higher education White Paper covering the wide range of long-term issues that arise from Lord Browne’s report. We will hope to bring forward legislation in due course. Given the time scales, we would not expect to be implementing those changes before the 2013-14 academic year.

Lord Browne’s report has rightly generated much debate. When the review was established exactly a year ago, it was on a cross-party basis. I hope the Opposition will feel able to maintain that spirit. From our side, the two parties in the coalition have accepted the report’s broad thrust and are today putting together a single, coherent and progressive policy. It will deliver a better deal for our students, for our graduates and for our universities. I commend it to the House.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I am grateful to the Secretary of State for giving me an advance copy of his statement, but is not the truth that what he has announced today is a tragedy for a whole generation of young people? It makes it much more difficult to protect our world-class university system and, for the country, puts the very building blocks of our economic future at risk. Even though there has been movement since the Business Secretary’s statement, is it not the case that our students will now face some of the most expensive and worst-funded degrees of any public university system, with students paying fees that are higher than those of the average public university in the United States? Our universities will be plunged into turmoil, facing massive funding cuts just when we need them most, supporting economic growth. All this because of choices being made by the coalition. The first is the choice to make reckless cuts in public spending. The second is the choice to put a disproportionate share of those cuts on to higher education. The third is the choice to bring about the biggest and most ideological upheaval in higher education since the Robbins report in the 1960s. All this is set to be rushed through Parliament without proper consultation with the sector and without our even yet having a higher education White Paper to tell us how this brave new world is supposed to work.

Is the reason why fees will be so high not very simple? Despite the Prime Minister’s claim that he wants to see well-funded universities, is the truth not that what motivates today’s announcement is a massive cut in the funding of universities? We are talking not about a cut of 19%, 25% or even 40%, but about an almost 80% cut in the undergraduate teaching budget. Is the truth not that universities will lose millions of pounds, that the London School of Economics stands to lose all its teaching funding, that Oxford and Cambridge between them will lose almost £56 million a year in teaching funding, that Sheffield Hallam university will lose more than £63 million and that Kingston university will lose more than £44 million? The Government do not have to do this, but the Minister and his friends in the Conservative party want to do it. They believe that a crude competitive market, with the Government largely kept out of the way, is the best way forward for higher education.

Like Lord Dearing, Labour Members believe that higher education funding should be a partnership between taxpayers and graduates. It should involve the taxpayer because the whole country benefits from good higher education and graduates get a direct personal benefit. So how much extra income will our universities have as a result of the Minister’s proposals today? Our fees brought more than £1 billion extra into higher education. Most graduates will now be expected to pay for the whole cost of their degrees. Many courses vital to a growing economy, such as those in the creative arts and digital industries, will receive no public funding. Why is this country joining Romania as the only OECD country to be cutting investment in higher education and science?

Has not the right hon. Gentleman managed to produce the worst of all possible worlds? Not only will most graduates be paying off their debts for 30 years and most universities will need to charge fees of at least £7,500 just to avoid losing money, but with some universities charging £9,000 many students will feel forced to choose the cheapest course, not the one that is best for them. Why does the coalition reject any idea that universities, employers, students and the Higher Education Funding Council should work together to make sure that we have the quality higher education that we need? Everyone believes that student choice is important, but why do the Government rely entirely on the choices made by students, who have very different levels of knowledge, aspiration and confidence about what higher education can offer them?

Labour Members welcome moves to improve access for those from low-income backgrounds, but does the right hon. Gentleman recognise how unfair the system will seem to those on middle incomes, who have worked just as hard to help their sons and daughters get to university? The Business Secretary says that he is against a graduate tax. Is it not true that Lord Browne proposed a system where more than half of graduates will pay 9% of their relevant income every year for 30 years and never pay off their debts? How many more now will never pay off their debts as a result of the Minister’s proposals? Will he confirm that those who are wealthy enough to pay up-front fees will pay less than those on middle incomes, such as teachers, police officers and engineers, who have to take out a loan? He says that universities will be able to charge the most fees only if they are working to increase access for those from low-income backgrounds, but is the truth not that universities are already carrying out the very measures he says they will now have to carry out? So his comments today on access are just a meaningless fig leaf.

The right hon. Gentleman has proposed today that higher earners should pay higher interest rates. Will that raise extra money? If so, will the extra payments go back into higher education or back to the Treasury? This is the day we found out how much Liberal Democrat ministerial cars cost—£9,000 a year, for students. All those principles so boldly championed have been forgotten; all those solemn promises to students and their families up and down the country waved away. All so that the right hon. Member for Tatton (Mr Osborne) can carry on as the real Deputy Prime Minister. After weeks of being told that Liberal Democrat Back Benchers were in full rebellion, have tuition fees been reduced as a result? No, they are set to treble. What a huge success those Back Benchers have had and how they have made their leadership listen. This is not a sustainable system of university funding and it is not a fair system of student finance. We will not support it.

[Mr Willetts]

What we just heard from the hon. Member for Harrow West (Mr Thomas) was a classic old Labour attack, when all it can do is complain about cuts and make its own uncosted and indiscriminate public spending pledges. Last week we heard from the shadow Business, Innovation and Skills team that they did not approve of what we are doing on regional development agencies. They want to spend more on RDAs. Today we hear that they want to spend more through HEFCE on universities. How would they pay for it? What is the costing of that? Are we supposed to cut the science budget, which we are protecting so that we can invest in our future? Are we supposed to cut apprenticeships, which we are increasing by 50,000, or is it just a general belief that public spending can rise, from the party that brought us the fiscal crisis that we are having to tackle?

Even with the fiscal crisis that we face, we are nevertheless able to produce proposals that are progressive and recognise that there is a continuing role for Government. It remains the case that of every £100 that Government loan to students, just as with the previous Government, we accept that we will not get back £28 because it is a necessary subsidy for poorer students and people who have intermittent earnings. We have improved the maintenance package. As part of our Government’s commitment to our universities, we have secured a ring-fence for science and research spending, much of which money will go to our universities.

The hon. Gentleman asked specifically about student choice. I thought his point about student choice got to the heart of the difference between us in the coalition and the Opposition. He says, “You can’t trust students to choose.” We say, “Of course, we trust students to choose, but we are committed to more information, better information, advice and guidance, and proper careers advice because we want to see students driving the system.” That is what we believe in, and students will know that the Opposition do not trust them.

The hon. Gentleman asked about interest rates. The higher interest rate of the retail prices index plus 3% will go into financing the system as a whole, but it is a more favourable interest rate than anyone would be able to secure on the open market for a loan of the sort that is being offered—an unsecured loan that does not have to be repaid if the borrower’s income falls below £21,000.

What was missing from the hon. Gentleman’s speech was any clear Labour alternative. He announced that he was against this policy, but he did not explain what his policy was. Surely we are at least entitled to know whether he agrees with his own leader. The Leader of the Opposition—I quote from only 14 October this year—said:

“I do favour a graduate tax. I said that during the campaign and that remains my view . . . I am someone who believes in the graduate tax.”

That is the policy of the Leader of the Opposition. As for the shadow Chancellor, he has a rather different view. Also in the past few weeks he said:

“I like the two lads”—

that is, the right hon. Members for Doncaster North (Edward Miliband) and for Morley and Outwood (Ed Balls)—

“dearly, but I can’t understand why they are pushing the Graduate Tax and even going further in suggesting the introduction of tuition fees was one of the things we got wrong. It wasn’t. . . It was one of the things we got right.”

If Labour cannot even resolve a fundamental disagreement between the shadow Chancellor and the leader of their party, why should we take what it says on this subject remotely seriously?