Higher Education Funding

Paul Blomfield Excerpts

Thursday 8th January 2015 Commons Chamber

[Paul Blomfield (Sheffield Central) (Lab)]

I echo the comments of my hon. Friend the Member for Huddersfield (Mr Sheerman), who said that one of the advantages of speaking towards the end of a debate is being able to reflect on the quality of the speeches so far.

As we head towards a general election, it is fitting to debate an issue that was central to the last one; I very much feel that as the Member of Parliament who, according to the last census, represents more students than any other. It was certainly an issue on which the Liberal Democrats, who are conspicuously absent from today’s discussion—

[Ian Swales]

indicated dissent.

[Paul Blomfield]

The Liberal Democrats are absent in terms of their contribution. They put the issue at the very centre of the campaign in my constituency. My political neighbour, the right hon. Member for Sheffield, Hallam (Mr Clegg), was very busy at both the universities in Sheffield—they are both in my constituency—emphasising the pledge that he subsequently quickly forgot.

The debate in the early days of this Parliament arguably introduced the biggest changes to higher education funding since those introduced in 1962, following the Anderson committee report. I have enormous respect for the right hon. Member for Havant (Mr Willetts), but I do not agree when he says that the Government simply in some way tweaked the system that they inherited. The fundamental changes introduced in 2012 effectively removed all public funding from the majority of undergraduate courses in most of our universities, which was a very significant alteration to the model that had been in place for the previous 50 years.

As other hon. Members have mentioned, the changes have put huge debts on students. According to the Institute for Fiscal Studies and the Sutton Trust—I think this is the most recent calculation—we are talking of a debt of about £44,000, when maintenance costs are added in, for an ordinary three-year course, and the debt is clearly much higher for medicine, dentistry and other longer courses.

My hon. Friend the Member for Huddersfield was right to view such debts in the context of the other burdens we are placing on the generation graduating this year, who face such debts for the first time. They are also having to deal with a housing market in crisis, and all the costs associated with buying or renting. That generation will not be able to enjoy the benefits of final salary pensions, which many of us expected to have in our careers, and will have to put aside very substantial sums to provide for their old age. We have created a real financial crisis for them.

The problem is not just one for that generation, but one for the public purse. That is the key point of our Select Committee’s report. I underline and echo many of the points made by my good friend and Committee colleague, the hon. Member for Northampton South (Mr Binley). In the unanimously agreed report we said that we were

“concerned that Government is rapidly approaching a tipping point for the financial viability of the student loans system.”

Our point about the tipping point is based on our assessment of the RAB charge. We have discussed that a great deal, and I will talk about it a bit more. The Government, like the right hon. Member for Havant, are keen now—it was not always thus—to talk down the importance of the RAB charge. He said earlier that we are not talking about spending, but about a forecast. That is absolutely right, but it is a forecast of costs that will fall on the public purse, and we cannot get away from that.

The Secretary of State for Business, Innovation and Skills was much more cavalier at last year’s Liberal Democrat conference, when he said:

“These losses crystallise in 30 or 40 years’ time—when I’m well over 100. I shan’t be sitting round, spending the rest of my life worrying about what happens in the year 2000 and whatever it is.”

Actually, the responsibility of this place is to worry about such issues.

It was a very different story when, back in December 2010, we debated proposals to treble fees and to shift the cost of higher education from the Exchequer to students. The Secretary of State was keen to justify the measure by reference to cost savings, and he talked a lot about the RAB charge. Of course, he talked about a RAB charge of 28%, which was subsequently amended to 30%.

At the time, many of us questioned the Government’s assumptions. Most notably, the Higher Education Policy Institute—now led by the former special adviser to the then Minister, the right hon. Member for Havant—argued that the Government had significantly underestimated the RAB charge, and published its own analysis suggesting that it would be about 40%.

When the Select Committee questioned the Secretary of State in October 2012, soon after the introduction of the new system, he was very quick to defend the RAB charge assessment. He refuted HEPI:

“We do not accept that they are right… We had the HEPI view put to us two years ago, when we were thinking of the current changes, so we are aware. But they are an outlier in this whole debate.”

At least in one respect, he was right and HEPI was wrong—not because it overestimated the charge, but because it underestimated it.

We now know that the Government have assessed the RAB charge at 45% and, in an exchange in the Select Committee last year, BIS acknowledged that it is modelling a RAB charge of more than 50%. That is important because once it exceeds 48.6% the new system will cost more than the system it replaced. The new system, introduced in response to the Browne review, was supposed to last for a generation, but after less than three years, it is broken.

The RAB charge is only one part of the problem. In the debate back in 2010, the Deputy Prime Minister desperately tried to save some face on the fees issue by saying that one of the new system’s benefits would be the introduction of loans for part-time students. He said that it was an important initiative and a progressive development, but he did not say that it would be linked to an increase in fees. It has contributed to a 50% fall in the number of part-time students between 2010-11 and 2013-14, according to Higher Education Funding Council for England analysis.

There was also a miscalculation of how fees for full-time students would be set. The assurances given to the House back then have proved worthless. In particular, I remember that the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) sought reassurances that fees of £9,000 would be exceptional. The Business Secretary gave him a clear pledge, saying that he would not allow another

“migration of all universities to the top of the range”.—[Official Report, 9 December 2010; Vol. 520, c. 547.]

Where did we end up? We saw precisely such a migration. Far from being exceptional, £9,000 became the norm, because universities needed to cover their costs, as they told the Government they would.

The Government’s objective was to create a market of fees set between £6,000 and £9,000. Rather than universities meeting their costs, the Government somehow expected them to set their fees in order of perceived quality, presumably with Oxbridge at the top and the rest neatly ranking themselves below. When that did not work, they started tinkering with the controls on student numbers. More recently, they have made an unfunded commitment to lift those controls altogether.

When the Chancellor announced that policy, he suggested that it would be funded from the sale of the income-contingent loan book. As it has become clear that the sale of the loan book is unachievable, the report asks how the Government will fund the expansion of student numbers—however desirable that objective might be—without creating a further £5.5 billion black hole in the Department’s books. Of course, there is already a smaller, but significant, black hole of some £650 million on loans and grants to students in private colleges. That is because of a lack of Department control, which the Select Committee has consistently raised.

There are other issues. Although it is not part of the report, we should not forget the way in which the Home Office’s approach to international students is limiting our ability to maximise university income and the wider economic benefits of a growing worldwide market, preferring to let our competitors benefit by increasing their market share, as the United States, Canada and Australia are doing. I particularly congratulate the right hon. Member for Havant on his comments about the further Home Office proposals that seemed to appear before Christmas but are now retreating.

Where do we go from here? We clearly need to look at alternatives to the current system, and that was the conclusion of the Higher Education Commission inquiry into the sustainability of the current funding model which, as the Chair of the BIS Committee pointed out, was co-led by Conservative peer Lord Norton of Louth. The inquiry involved Members of both Houses from all main parties and experts from the sector and from business. Over nine months they considered the risks to sustainability for student numbers, students, institutions and government, and concluded that it was

“the cumulative impact of these risks that is most concerning. The current funding system represents the worst of both worlds. We have created a system where everybody feels like they are getting a bad deal. This is not sustainable”.

The report went on to argue that we must look at alternatives. The first of those is tweaking the current system, which I guess is probably closest to the Minister’s thinking. I would therefore be grateful if when winding up the debate he answered three questions. First, there will be growing and understandable pressure from universities for an increase in fees. He suggested soon after taking his job that he did not accept that there was a case for increasing fees during the next Parliament, but is that still his view? Secondly, some top universities argue, as they always have done, for a substantial increase in the fee cap—I think the latest argument from the vice-chancellor of Oxford is for a cap of £16,000 a year. Does the Minister rule out any such increase? Thirdly, some have argued that the RAB charge could be reduced by lowering the salary threshold for repayments or increasing interest rates. Will he rule out any such changes?

The Higher Education Commission report offers six options. There are clearly more, and my right hon. Friend the Member for Southampton, Itchen (Mr Denham) made a convincing argument for a different approach. The commission’s second option is one that many of us have supported for years and has been mentioned in the debate, which is that of breaking with income-contingent loans and moving to a more progressive model that replaces fees with a graduate tax.

Although it does not endorse any of the options, the commission highlights the work of London Economics in providing strong evidence to back a graduate tax. That would break the link between the cost of tuition and repayments from students, moving to a graduate contribution that we all accept and that would be based on ability to pay and not on what a student needs to borrow to get through university. The right hon. Member for Havant will know that the modelling by London Economics is specific in the percentages it proposes for different levels of income and the period for which such a model might work. We would need to consider hypothecation and seek a system that covers all tertiary students, addresses the problems with undergraduate maintenance costs, establishes viable support for postgraduate taught courses, which risk becoming the new barrier to social mobility, and deals with issues of transition and historic debt. Those challenges have to be faced because we need a system that is fair and sustainable, and that is why the report calls for, and why we need, a comprehensive review.