Higher Education: Funding

Lord Smith of Clifton Excerpts

Wednesday 27th October 2010 Lords Chamber

[Lord Smith of Clifton]

My Lords, I thank the noble Baroness, Lady Wilcox, for introducing this debate. The Browne report on financing higher education reinforces and accelerates the trend begun with the Dearing report of 1997. As the noble Baroness, Lady Blackstone, said, it is a trend which essentially and eventually leads to the privatisation of tertiary education in the UK. Only today, press reports have said that the LSE, founded by that great bunch of Fabians, is considering going private. That is perhaps a portent. We have moved a long way from the old so-called mixed economy, the partnership between the state and the universities that existed during the four decades after World War II.

The terms of reference of both the Dearing and Browne reports meant that proposals were framed very narrowly. It is unfortunate that we have to debate Browne before the White Paper dealing with HE, which is due out in the next few weeks. Neither report could take a wider view about the structure and purpose of third-tier education. That constraint inhibits a full debate on the subject—a debate which has never really been conducted since the Robbins report and which is long overdue. If the Browne proposals are fully implemented, privatisation will become a more overt policy. Of course, a totally free market in higher education can be seen as a coherent model to follow—not that I would follow it—but I urge some caution in leaving the university system to market forces, for there are likely to be many consequences both intended and unintended that flow from that.

In the first place, the top-tier institutions will have to further rationalise and restrict the number of research and teaching areas they provide. This has already happened with the closure, for example, of a number of chemistry, language and philosophy departments. Market forces have dictated such closures. The fundamental question is: are universities to be allowed to determine such rationalisation on an individual basis or should some national criteria be applied? To take some specific examples: how many universities should offer subjects like architecture, palaeontology, archaeology, oceanology or nuclear engineering—one, two or half a dozen? We know the answer in the case of nuclear engineering: none. It has long since disappeared. A more systematic approach is needed along the lines of the inquiry conducted in the 1980s by the noble Lord, Lord Oxburgh, which rationalised the number of geology university departments in the country. This is not an exercise which should be left to the three funding councils, as the needs of the UK university system as a whole should be the focus. That includes a consideration of possible institutional mergers.

That last point leads on to my second set of consequences. Second-tier higher education institutions will be decimated. Three have already been mentioned in the press as being near bankrupt, and I believe that many more will become unviable in the not too distant future. Too much attrition at this level of tertiary education risks impeding one of the Government’s proposals for introducing two-year, fast-track degrees. Similar to initiating a series of Oxburgh-type reports to secure an optimal range of academic disciplines, we need a parallel set of inquiries into the optimal mix of higher education institutions along the lines of that conducted by Clark Kerr in California nearly half a century ago.

As the noble Lord, Lord Giddens, has said, that inquiry provided for California universities at the level of Berkeley, UCLA, Santa Barbara et cetera which could provide the full range of degrees: bachelor, master and doctoral. Then there was the spread of high-quality state colleges that offered bachelor and master degrees in places such as San Jose, San Diego, Los Angeles and Bakersfield. As the noble Lord, Lord Giddens, mentioned, there were also numerous community colleges that provided diplomas and the first two years of an undergraduate degree. I, too, have taught in California. I have suggested before to the House that such a scheme should be applied on a regional basis in the UK. I also suggest that, in much the same way as the newly created academies are seeking to restore what was good about the old grammar schools, such regional schemes should seek to restore what was good about the former CATs and polytechnics: namely, the provision of more vocational training.

Finally, I repeat to the House: if this generation of legislators, who benefited from no fees and had maintenance grants during their university careers, seeks to impose swingeing costs on future generations of students it must recognise the intergenerational inequality involved. Two steps should be undertaken. First, there should be a retrospective, hypothecated tax on those who graduated between 1948 and 1998 and, secondly, a graduate tax; that is what I want, rather than loans at high interest as the Browne report advocates. I do not believe it is beyond human ingenuity to devise such a tax. I fear that will not happen and that we will continue to muddle along.

In winding I therefore ask, as many previous speakers have done: when are we going to have the coherent debate that is long overdue on the whole future of tertiary education in this country? I ask the Minister to give me the assurance that when those discussions take place, particularly following the White Paper, both vice-chancellors and students’ unions will be fully and frankly involved in discussions about the Browne report and the White Paper.

--- Later in debate ---

[Lord Triesman]

My Lords, I start by declaring my non-pecuniary interests. I have visiting fellowships at Cambridge and Warwick universities. I also express—rapidly, as time is moving on—my appreciation for this early opportunity that the Government and Minister have provided to debate the report of the noble Lord, Lord Browne. I thank all noble Lords who have engaged so effectively and powerfully in the debate—and not least I thank the noble Lord, Lord Browne, himself. I congratulate the noble Lord, Lord Boswell, on a fine maiden speech. I used to negotiate with him and promise to carry on arguing with him. I now find that I share that experience with the noble Lord, Lord Sutherland of Houndwood, and I have no doubt that we will all enjoy it. I say to the noble Lord, Lord Sutherland, that Sir Keith was indeed reviled, not least by the noble Baroness, Lady Thatcher, who told the world that on that matter he had not briefed her.

When the Minister repeated Vince Cable's statement on 12 October, I said that the entire history of the debate on the scale of the United Kingdom's—and latterly, the English—system of higher education, and on how it and its students should be funded, had been going on for so long that it was essentially free-standing from the current controversy about the nation's financial circumstances. So it should be, if we are to have what the noble Lord, Lord Smith, described as a coherent debate on these matters. However, having read and discussed the comprehensive spending review, as we all have, I know that it will be necessary to deal with the interplay of the Browne review and the CSR. It is necessary because of the threat to our universities. Having had the chance to study the report in more detail, and having heard what was said today, I now feel also that the report signals nothing less than a true, but in our view little considered, paradigm shift. Many speakers have expressed the same conclusion in other words.

Before considering the monumental shift that is proposed, and to which I understand the Government have pretty much committed themselves, it would be churlish not to welcome some conclusions of the noble Lord, Lord Browne. For a start, he confirms an aspiration for higher education that I believe has been shared on all sides: that,

“teaching at our HEIs is sustainably financed, that the quality of that teaching is world class and that our HEIs remain accessible to anyone who has the talent to succeed … The quality of teaching and of the awarded degrees is the foundation upon which the reputation and value of our higher education system rests”.

I am wholly with him and I take that to be the guiding principle of all that follows. The report concludes that all those who benefit from higher education should contribute to the cost—holders of degrees and the nation as a whole. Again, I endorse the principle, as did Sir Ron Dearing, as he was when he published his report. Incidentally, Lord Dearing was never a university student but he understood this sector very well, and at the heart of his understanding lay his grasp of the value of universities at the core of our national infrastructure. I say to the noble Lord, Lord Butler—

[Lord Smith of Clifton]

Lord Dearing was a mature student at the University of Hull and did a BSc (Econ).

[Lord Triesman]

I am grateful for that information. I obviously read the autobiography that he wrote before he got to that point in his life.

I was going to say to the noble Lord, Lord Butler, that as a taxpayer I have paid for many things that I do not consume and probably never will, but I would rather live in a society that helps people who have not enjoyed the benefits that I happen to have enjoyed.

It is right that student contributions should be repaid when they are affordable to the graduate and collected through the tax system. It is right, as my noble friend Lady Morris stressed, to endorse expansion in a world where qualification is increasingly sought by individuals and society, and where, as my noble friend Lord Sawyer said, the opportunity has been developed by so wide a variety of higher education institutions, such as the one of which he spoke so highly. It is right that the growing numbers of part-time students should enjoy the same benefits in a broad sense, and that makes sense, particularly as people choose to study in different ways and at different stages of their lives. I know that the precise arrangements recommended in the report are thought by some vice-chancellors to be somewhat defective. I do not make a big point of that. If the principle is right, a modest redesign by those running the institutions could probably overcome any problems.

By raising the fees under the student finance plan—and it is essential today to interrogate some of the detail—it is easy to understand the argument that HE finances could have been restored to levels closer to those that obtained before John Major drove down the teaching unit of resource by a terrifying 40 per cent. I do not believe that we will see this report as the restoration that the Government intend to make. Rather, I should like to think that it was the mission of the noble Lord, Lord Browne, in part at least, to attempt that restoration. Therefore, the noble Lord’s proposals might have been grasped, in this discussion as elsewhere, as a mechanism to adjust the balance struck for the fee contribution in 2004 for students starting in 2006—a mechanism denounced by the Liberal Democrats not only as wrong but as the start down a slippery slope, and, my gosh, it is slippery. In short, it has been portrayed by the Government, and perhaps even by the noble Lord, Lord Browne, as being simply a financial adjustment. The noble Lord acknowledges his explicit aim at page 19 of the report: it is to enhance the income of institutions. He could be thought simply to be taking further the enhancement from the levels of 2006—not that that has fully restored the unit of teaching resource.

I said that I think it is a paradigm shift and I shall say why. For decades—certainly since Robbins in 1963—and in a variety of evolving ways, the state has allocated student numbers, has even threatened universities with hefty fines for exceeding their quotas, and has effectively set the price for courses wherever and however they have been delivered. This level of control, for which on occasions there were at least very good reasons, enabled Higher Education Ministers to go further in their control of universities than probably some people would have desired. They wrote each year to the funding council letters containing ever more detailed instructions. I remember reading some that the noble Lord, Lord Boswell, wrote. They were letters sometimes half the length of a short novel with instructions passed on by the funding council to institutions as advice, of course, which had to be followed.

The noble Lord, Lord Browne, changes the basics, and it may well be that we have seen the last of those central directions. Students carry with them the major sums to finance teaching and, to coin a phrase from commerce, to make the market. It is for those reasons that I agree so strongly with my noble friends Lord Giddens and Lady Blackstone. Students will decide where to take their money, will take their decisions on the basis of what is on offer—I understand the principles behind all that—and will be restrained only by the entrance requirements of the institution. The report recommends both a 10 per cent increase in numbers almost immediately and at the same time the removal of barriers to access. Like the noble Baroness, Lady Sharp, I can see how numbers will be very difficult to predict in any effective way. I can also see, as my noble friend Lord Liddle said, the need for certainty in the long run for universities and how hard it would be to achieve in this environment.

Given the excess of demand over supply, these new customers—that is what they will be—may well decide that even more places are needed. If I have understood the arguments about financial support for students from the poorest quartile correctly, it may encourage more applications; we may make ground on the United States, where about three times as many students from that background enter higher education, but I am candidly doubtful that will happen. I do not really believe it but it will be a great change if it does happen. Like my noble friends Lady Kennedy and Lord Judd, I think there is a misunderstanding about debt aversion and the way in which it affects families in that quartile. Perhaps too few of us have come from a background that has lived through that process.

On the other hand, numbers may not increase, which is my fear. Whatever the number is, I make this general point: increase or no increase, quality is sustained in large measure by having an adequate unit of teaching resource. That is what we do not have. None the less, this is a new paradigm created by a huge shift in student contribution and more or less unrestricted places. We had all better draw a deep breath and grasp the ramifications. Although we have held the view, in the past, that the state is a significant beneficiary, it will make a far less significant contribution. The report of the noble Lord, Lord Browne, is not an adjustment to finance; it is a fundamental policy shift and at the moment we have considered very little argument about the character of that shift. The noble Lord, Lord Willis, was appealing for a wider debate on those very issues. I do not mean to put words in his mouth but I think that was the burden of what he said. That has not been discussed. It is a massive policy shift, which takes little account of the complex issues which were set out in a very powerful speech by the noble Lord, Lord Broers.

I ought to add, before anyone claims that this is merely a replication of the successful American model, that it is not, on the evidence. Of course, American universities achieve higher levels of private income than English universities do, but they also, as has been noted in the debate, receive significantly higher proportions of state and federal public money as well. The noble Lord, Lord Bilimoria, was absolutely right about that. Their scope for scholarships and bursaries is richly endowed and there is a culture of giving which puts us to shame. From my time on the Front Bench on the other side of the House, I can tell the House that we have neither the culture nor, apparently, the appetite to change the culture to that extent here. I regret that. I was told that it would all change, but it did not. Although Cambridge has unquestionably been successful recently, I gave up making any financial plans on the basis of helpful interventions from the tooth fairy.

The changes in the Browne report are most likely to lead to what one eminent civil servant recently described to me as universities weaning themselves off the state. In the newly proposed circumstances, can the Minister tell us whether the Government will encourage vice-chancellors, as I think the noble Lord, Lord Sutherland, just invited her to do, to say that they would prefer to go private and that that is the route now being taken? That is why it is a paradigm shift. Are the proposals to that end now before us? Is it true that a new Statement will be made in the early days of next week? Here is a fundamental problem in the report: is it to be addressed that fast? I accept that universities are a public good and they will be eroded in that role, as my noble friend Lord Giddens so eloquently said, if we take a simplistic view of the character of the market which they are being asked to enter.

I know that there were a number of questions raised on 12 October and I ask them again because the CSR was not then published and I was told that they could not be answered before it was published. London Economics has provided a well researched analysis showing that there may be—may be—advantages for the poorest quartile. That would be an advance, but it also shows that it may discourage that group. Even more, it shows that people on middle incomes—those whose parents cannot pay upfront—will pay back far more for far longer than those on higher incomes as a result of the report. The richest are likely to pay back their loans by their late 30s. It will take middle-income earners at least 14 years longer. Some will not pay back their debts. As the right reverend Prelate the Bishop of Wakefield, said, it is a risky wager. I think that it is more than that; I think that the race has been fixed. Women graduates, given their career patterns, will be in a still worse position—they will be subject, in my view, to a form of discrimination. I repeat my question of 12 October. Will the Minister confirm whether that analysis is correct or whether there is specific information which refutes it?

Finally, on debt, there is a vital question about unintended debt falling on HEIs. I understand that the CSR cuts will be made in institutions a considerable time before increased fees arrive, creating negative cash flow and operating deficit. I go further than the noble Lord, Lord Hannay: will the Minister confirm today that no HEI will suffer financial loss because of that sequencing and that HEIs will have the interest and other charges on any finance and related transaction costs met by the Government? Many in the universities will look for an urgent answer to that question.

There remains the final theme that has run through the debate and is of the greatest importance. I started by applauding the restatement by the noble Lord, Lord Browne, of the value of our universities to our country. They are at the leading edge of science, innovation, culture, arts and competitiveness. They speak eloquently to our civilisation. The report makes that point briefly but very effectively in its first chapter, although I fear that it may have unintentionally increased the risk to all of those objectives.

Universities are at the strategic centre of our future prospects, as the noble Lord, Lord Liddle, said. Harvard economics professor Robert Reich argued that any nation's primary assets are its citizens’ skills and insights. Businesses in the leading-edge economies migrate to wherever the best and most consistent renewal of those skills occurs, where that inventiveness takes place. Without that, no advanced economy survives; no deeply civilised culture endures. As I believe one noble Lord said, that is the competitive edge. It is our future. There is no other. It is intrinsically interwoven into the development of the arts, humanities and social sciences. Many speakers, not least the noble Lord, Lord Hannay, have emphasised that point, and I share that concern because of the removal of funding from such a wide spectrum of study.

If we are asked in all seriousness to look ahead to full recovery and growth, it is inevitable—it is not any special pleading which tells us—that universities are the surest strategic weapon at our disposal. That is a proposition that has been tested and proved time and again. I thought, mistakenly, that it was the burden of what the Prime Minister said in his speech at the CBI. The noble Lord, Lord Sutherland, asks where alternative sources of money will come from. In most countries, even those facing difficult financial circumstances, that has been an investment which the state has still thought valuable, for the reasons that I have given.

I understood that the task of the noble Lord, Lord Browne, was to grow that indispensable resource. I believe that it must have been his intention. It was to bake in the principles that I cited from him about international reputation in teaching. It was once again to boost the teaching unit of resource. It was to accomplish what Lord Dearing and the Government tried in 2004. However, the outcome, taken together with the CSR, is that there is to be about a 75 per cent cut in the teaching unit of resource, to be made good by students contributing a matching sum from their own resources for a long period of their lives.

If the cap is set at £7,000, it may just about even up the books, although many people think that it will not. It will create not a penny more. The Government's solution is not investment growth but to stagger on. Real growth, as the noble Lord, Lord Luce, described it, will not occur, and this is despite the evidence of all the advantages. In a Written Answer on 7 October, I learnt that the commercial spin-off value of university flotations between 2003 and 2010 was more than £2.6 billion and growing.

Is this truly how we imagine that we will secure our world-class higher education system? We will not only be uncompetitive, which has been the great fear, but I suspect that many international institutions will question whether we are really worth co-operating with, let alone competing against. I cannot believe it is possible that as a result of the CSR we have so radically undermined—and will undermine—so great an asset and so set back the most certain path to growth.

So I return to the question that I asked on 12 October and which was not answered. Was the noble Lord, Lord Browne, made aware that the Government were going to inflict a cut of the same order on the higher education teaching budget? That is a question about the strategy that he was asked to follow. It is a question for the Government, because it is the Government who set the terms of this discussion.

We will keep returning to higher education. I know that this House will certainly debate it time and again. We will certainly debate any deterioration in the state of university finance. But if we are to do what we really want then there has to be a very much wider debate, as many noble Lords have said, about the character of higher education and what we want it to achieve.

Many people in the system have told me in the last days that Browne is the only game in town. They have tended to tell me this in a fairly dispirited way. They, and we, understand the downside of it being the only game in town—precisely that it is, apparently, the only game in town.