Select Committee on Education and Skills Minutes of Evidence


Examination of Witnesses (Questions 160 - 180)

WEDNESDAY 24 APRIL 2002

DR NICHOLAS BARR AND MR IAIN CRAWFORD

  160. But the previous Government lost the election, surely?
  (Dr Barr) But not because of the loan scheme.
  (Mr Crawford) Absolutely not. It is an important point. There was an all-party consensus that this had been a very good thing to do.

  161. A second thing then, and this is following on Paul's questions really. I accept the logic of your argument completely, but the virtue of your argument is that three-quarters of a billion pounds, on current figures, will be released for targeting. Now I just want to pursue the implications of the other strand of your argument, that tuition fees should be rolled up within the loan system, and that what you call flexible fees, and what other people would call top-up fees, should be encouraged. To what extent would this three-quarters of a billion, or 35 per cent deadweight, be gobbled up by the extension of flexible fees, and would we not see an increasing proportion of this deadweight be taken up by the decisions of universities and colleges, such as yours, to increase their fees dramatically from the current £1,050 a year?
  (Mr Crawford) If I can pick up this one point, briefly, then leave this one to Nick. There is a difference between top-up fees and flexible fees.

  162. What is the difference?
  (Mr Crawford) You have now reached a point where there is no supply side problem, there are as many university places now as there is demand. Flexibility could indicate prices going down as well as up, because there will be competition for students, if there is a shortage of students for the places. So top-up fees were discussed in terms, if you like, of the élite, including our institution, simply because what these institutions are paid to provide a student education is substantially less than cost. However, if there is going to be a competition for, let us say, the non-research-based institutions, and there is going to be a shortage of student numbers, I think you could very easily see flexibility both ways in pricing. So I think the situation has gone beyond the debate of top-up fees that you perhaps were referring to at the beginning.

  163. Okay; but there are two other issues there, are there not? One is the question of the research-based universities' capacity to recruit infinite numbers of students from overseas, it is not just the competition within the British market; and the other is the question of the proportion of the fee that the student is expected to pay, because the rough proportion of over 25 per cent of the average notional fee could equally be changed, could it not? Under your model, people would not be expected to pay their £1,050 or £1,075, they will be expected to pay 100 per cent of the actual fee; let us tease that out a little bit?
  (Dr Barr) There is a very strong case for a taxpayer tuition subsidy for all students, for all time; some of it should be paid for by the taxpayer, because higher education has growth benefits, benefits not just to the individual. But, in addition, going to university benefits the individual student. Therefore it is right that he, or she, should make a contribution; whether 25 per cent of the average cost is the right figure or not one could have a protracted debate about. Our point is the following, that having one fee for all universities is central planning that works badly. With a mass system, we want diversity, there is diversity of mission, which is enormously important, higher tuition fees are necessary to arrest quality decline, higher tuition fees are also necessary because—I hope the Chairman, as an LSE governor—will not criticise me for saying this, universities like LSE could do more to stand on our own feet, if we could charge somewhat higher fees, freeing up resources for access universities that have more expensive teaching costs because they have more remedial teaching. So another reason for flexible fees is to prevent crowding out. Now, just to come back to your point about the loan; sorry, two points. First of all, we are against big-bang deregulation of fees, we favour flexible fees, we would like to see a move in that direction but phased over time. Second point; if loans are properly designed, they have very small fiscal costs, in which case there is no problem about extending loans to cover those additional tuition fees.

  164. This is the heart of my problem then. So what you are saying is that it is in the design of the loan scheme that you will be able to accommodate the implications of the research universities increasing their fee?
  (Dr Barr) If you want to promote access and quality, it is our view that higher education should be free at the point of use; that was one of the important things that Cubie achieved in Scotland, that students do not have to pay a penny up front, that is enormously important, but that means that the loan has to be large enough to cover living costs and tuition fees, and certainly we support that unambiguously.

  165. But then, if you are saying that the issue of flexible fees is dealt with by increasing the size of the loan, how does that then not become a deterrent to students from low-income families, in the first place? And how do we still enable students from low-income families to go to Oxbridge, LSE, Imperial, UCL, and so on?
  (Dr Barr) By not taking the current huge amount of taxpayer money and spraying it indiscriminately over all students, but taking it and giving it to those students to whom we want to give additional help. So that, again, it is the same targeting argument, that, of course, there should be scholarships. Everybody talks about scholarships, but where does the money come from; our argument is, a lot of it comes, £800 million, just like that, simply by charging a rational interest rate on student loans.

  166. Finally, in the Daily Mail's frame of thinking, you are not only clobbering middle-classes by doing away with their interest-free loans but you are clobbering them by making them pay the full cost of their fees at the élite universities?
  (Mr Crawford) Not the full cost.

  167. But a move in that direction?
  (Mr Crawford) At the moment, most of the research-based universities, particularly the LSE, as your Chairman will be well aware, are teaching undergraduates, British Government-funded, undergraduate students; it costs us more than we are paid to do it. This is not sustainable, in the long run. The School itself has, yes, a large number of overseas students, but mainly on the post-graduate side, but if the LSE had not been able to do that then the quality for all of the students, including the Government-funded UK students, would have declined rapidly.

Chairman

  168. Is it not the case that, if you take an international comparison, families, reasonably well-off families anyway, pay less as a percentage towards their children's higher education than in most other countries, it is a very small percentage here?
  (Dr Barr) That is right. But, to answer your question, yes, we are saying middle-class students should, on average, pay more, but they need to be clear that the way they make their graduate contribution is in the form of an income-contingent repayment, which is like a tax except it is paid only by people who go to university, and it is not for the rest of their life, it is for only a limited duration. Therefore it is not a big impediment, but, yes, they will pay more, and they should pay more; and I think that is an absolutely defensible case to make to promote access and quality. Otherwise, you are saying to the middle-class, "You are saying it is right that the truck-driver should pay for the degree of the Old Etonian;" now Old Etonians might say that, but there is no reason why we have to go along with it.
  (Mr Crawford) You have already paid the price for this. Institutions like the LSE have not expanded their undergraduate numbers, so people are already not going to those institutions, because of this pricing mechanism.

Valerie Davey

  169. Following on from there, they do not really end up with a range of fee costs, and, again, students looking and saying, "That's more expensive, I can't go there." It is simplistic, I know, for me to say that, but that is the perception, from, again, this perception idea, that it is too expensive, it is too expensive at the moment to go to certain universities because the living costs are greater. Now, with all these different ingredients in the costs, you again phase out, you are going to get at Oxford and Cambridge even more people (a) who have got money, mainly, yes, who have got money, it will be entry by income again?
  (Mr Crawford) We have an entirely centrally-planned system. British higher education, up until certainly the last change of Government, was the perhaps classic example of central planning left, since the fall of the Berlin wall. Universities work on a centrally-fixed price, at that time they had target numbers, and they were fined enormously for failing by a single digit, if they went over the target number. Two important changes, the most important changes since this Government came to power, I think, are the move to income-contingent loans, which has massively improved the condition of the loans side of it, and the fact that we have now reached a point where, for the first time in history, there are at least as many places in aggregate as there are people who want them. But we have still got some of the worst elements of that, and I think there are a number of ways that price flexibility will work, other than as you described. For example, there are a lot of mature students in the system, there are a lot of people coming back into higher education, having been in the workplace; they do not necessarily all want to spend three years, with long vacations. Some institutions, I suspect, will appeal to different parts of the market and do accelerated degrees with shorter vacations, if this was allowed; it does not work at the moment because we are all paid per student per annum. So there has to be a flexibility not just in the pricing. Then we think you will find that a very bright student might decide to do an accelerated undergraduate degree at one of the less élite institutions and give themselves a bit more time perhaps to go and do a Masters at another institution. I think that diversity would spring up; all sorts of different ways of delivering what we are delivering will come about. Now that we have actually got to the point where universities are going to have to compete for students, in a way that they have never had to do before, I think you will find all sorts of imaginative variations will come. And I think universities themselves will be trying to persuade the funding bodies and Government to let them deliver the packages in ways that they have not been doing so far. At the moment, you have got the conventional three-year course, long holidays, or you have got the OU, and not a lot in-between.

  170. I have got no problem with that, I agree, and I think this Committee has done a lot of work now in HE, and the need for flexibility, the need for students to study a year, work a year, study a year, a whole range of things can come in. But if there is no understanding of a unit cost per student which the Government is actually paying, we, as taxpayers—it just so happens I have identical twins, one of whom went to university and one who did not, and you can imagine the debate that goes on in our household as a result of that. So I have understood a lot of these arguments and I take them on board, but I still think that, the perception for many people of the difference in the cost of these courses, why should I, as a taxpayer, pay for a student at a university where it is twice as expensive, and it will be twice as expensive, eventually, at some and not the others, if we are not careful, why should I, as a taxpayer, be contributing to that?
  (Dr Barr) Your concern is, will the more costly universities deter students from poor backgrounds. At the moment, the major deterrent is loans are too small, students perceive high headline costs, but it is the worst of all worlds, they see £10,000 debt and that deters them, because they do not understand income-contingency, but they still do not have enough to live off, so they are forced onto expensive credit card debt, and working long hours to earn money, etc. If you move to a rational model where loans do not have to be rationed, then you can say to students, and this is a critical perception point, "Go to university, it will be free at the point of use, you won't pay a penny up front, go to Oxford, to go LSE, go to your local university, whichever, you'll sign a bit of paper, you'll get your degree, and once your earnings cross a certain point you will pay and add on to your income tax for a period of years; and if you don't earn very much you wont repay very much." It is, from that point of view, entirely performance-related, "If you do well you'll repay more; if you don't do well, you wont repay." There is virtually no risk for the student in this, it is a one-way bet, if they do badly they do not repay. But that only works if you can say to students, "It's free at the point of use;" that means loans have to cover living costs and tuition fees.

  Valerie Davey: But I the taxpayer, that was the other side of the argument, why should I have to pay, if it had been my other daughter, why am I paying for this youngster, or this older person, to take a degree at that university, rather than get the basic tuition to do the job, which in the longer term will give them as good an income?

  Chairman: And, of course, if your daughter became an apprentice and never had any taxpayer subsidy at all,—

  Valerie Davey: Interestingly enough, they are both earning the same.

Chairman

  171. Interesting.
  (Dr Barr) The technical literature is not fully definitive on this, but I think most experts agree, if you go to Oxford or Cambridge or LSE or Imperial or University College London, yes, they will charge higher tuition fees, but most of the additional benefit is for the student, rather than social benefit; it is not clear that the teaching side of LSE contributes more to national economic performance than the teaching side of other types of university. That is another argument for saying flexible fees paid for by an additional loan entitlement; so, for example, if we stick with the 25 per cent, average teaching cost £4,000, taxpayer subsidy per student £3,000, any tuition fee above £3,000—£4,000, £5,000, £6,000—is covered by the loan entitlement, in which case, the taxpayer pays the same for a student at the University of East London as at Oxford, and the rest is done through the loan.

Jeff Ennis

  172. I think, obviously, the Committee seems to have a problem with this flexible fees system, Chair, which I think I have. Going back to Mr Crawford's earlier comments about the fact that the fees can go up as well as down, depending on the actual higher education establishment, will it not be perceived as an admission, if a higher education institution reduced its fees, by the students, that it was delivering a second-class higher education course? Will not that be the actual perception that people come out with, particularly people in the press, for example?
  (Mr Crawford) People in the press, or, indeed, and perhaps more importantly, employers. We cannot, I think, pretend that all of our higher education institutions are the same. If you go to graduate fairs and look which graduates certain employers are looking for, the labour market already makes such distinctions. And, indeed, interestingly, when the first announcement of the £1,000 fee came out, there was one of the new universities actually suggested coming in at under the £1,000, and they were heavily slapped down by the then Secretary of State for that. I think the reality of some universities not being able to fill all of the places they have currently got will, under such a regime, rapidly be reflected in price competition. I see no reason why higher education is incapable of entering into price competition, like everyone else. Now that you have got a surplus of places over students, there will be movements of price down as well as up, inevitably.
  (Dr Barr) Can I just very briefly follow on from that. If we look at clothes, cars, food, all sorts of quality variations, the important thing is that consumers and employers know what is going on, we know that Volvos might be better than Fords, some restaurants are better than others, people make choices. So long as they are well-informed choices, so long as students know what they are doing when they make choices, as employers already increasingly know, I think it is right and proper that there should be a range of different institutions. The press might say "higher quality, lower quality," I do not think of it that way; there is life of the mind type higher education, there is vocational type higher education, they are different, one is not better than the other, there is a range. And I think price would be part of that; and so long as there is good information about the outcomes of different degrees, where students go on to get jobs, etc., I do not think that there is a problem about that.

  173. But is not your system, Dr Barr, in danger of making too wide a choice for the consumer, by having all these variations, and what have you?
  (Dr Barr) No. We are saying, fees should be liberalised, but gradually, not big-bang, not the sky is the limit; supposing they were allowed to be sort of within a band and the band could be widened over time, as experience grows. So I am not saying the Government should have no role whatever on fees: we are just saying the role should not be one fee entirely determined and the same for all universities; universities should have some freedom, and we could then discuss how much that should be, initially, and how rapidly it should widen.
  (Mr Crawford) And the differences would not be just quality, there would be, as I said earlier, different ways of delivering it, different sorts of time-frames. OU to Oxford, there is a lot of room for variation within these extreme points that we are not exploring now.
  (Dr Barr) To make one point very clear, we are, both of us, totally opposed to total, instant fee deregulation, that would be very silly.

Mr Chaytor

  174. Leaving aside the issue of the fact that Ford actually took over Volvo, and what the implications of that might be, is not there a contradiction in your argument, that, on the one hand, you are arguing for greater fee flexibility, but by rolling up the tuition fee within the loan scheme you are disguising, from the students' point of view and the parents' point of view, the implications of that fee flexibility, because it will become less of an issue as the fee is to be paid over 25 years?
  (Dr Barr) We are saying, the fee at LSE will be £6,000, and that is explicit and open, but we are also saying, the way the loan is designed, you will repay that in full, but only if you do well enough in terms of your earnings.

  175. Yes, exactly, but by repaying it over the 25-year period then it becomes less of an issue in terms of consumer choice, because the sharp implications of consumer choice are disguised over a longer period of time?
  (Dr Barr) I think people should be able to make choices and those choices should be empowered by the financial capacity to make those choices, as ours are when we take out a mortgage to buy a house, which is an area where markets work well; but degrees are more risky than houses, therefore you need to give borrowers more protection than you do to homeowners, therefore income-contingent. But it is not hiding it, it is saying it is a fee of £6,000—

Chairman

  176. Dr Barr, the fact is though, you can have your two cases totally distinct, you can have your new form of student loan distinct from changing it into a flexible fee structure?
  (Dr Barr) Separate arguments.

  177. Are you saying though that the Government, by an inappropriate choice, in 1998, has wasted £700 million a year, and what is the total cost of that, by spending money on the wrong people?
  (Dr Barr) It is an easy calculation. Look at the total amount of money that the Student Loans Company has disbursed to students since 1990, because it was a problem with the old system as well; about 35 per cent of all that money has disappeared, mainly to the benefit of successful professionals in mid career.

Mr Baron

  178. Very briefly, can I just ask, is not the simplest way of approaching this, and being slightly devil's advocate here, and that is, in order to target help to those that most need it, every family has to put in an income tax form, in this country, and simply graduate the help that is given to children depending on your income tax bracket? And it would seem that then the risk with regard to whether one institution is more expensive than any other would be borne by that particular family may be a consideration, without having to look for necessarily choice of the individuals concerned. I sense that there is just a little bit too much complication here, and that a lot of money has been wasted in the past. What are your thoughts on that?
  (Dr Barr) We are saying, first of all, taking 35 per cent of the money and giving it to the wrong people is daft, it should be targeted. The question then is, what is the most effective way of targeting. Now parental income is a rather blunt weapon. It may be that some of the money should be spent on grants tested on parental or spouse income; but there are a lot of students who are poor whose parents are not necessarily poor. Therefore, I would be against using your model as the only way of targeting assistance on student support; it might well be possible for some students, but I think you need to give discretion to headteachers, you need to give incentives to universities to recruit students from poorer backgrounds. So the "how" of targeting, and this is back to Paul Holmes's point, the devil is in the detail, targeting to promote access is difficult, the determinants of exclusion are complex. Anyone who says targeting is easy, I think, is wrong; one therefore needs a range of mechanisms and scope for experimentation. Your mechanism, as a sort of base mechanism, might well work, but I would be against it if it were the only one.
  (Mr Crawford) A very brief point now on this. One of the effects of the student loan being so heavily subsidised is that it is rationed, it is rationed in two ways; it has a ceiling on it, which means, basically, it is not enough for anybody to actually survive on, but, equally, it brings you to the parental means-testing mechanism, in the first place. Now I have always thought that that was an anomaly, because 18 year olds are classified as independent adults for virtually everything else in society. I am not convinced that parental means-testing should carry on. If your loans are not being subsidised by the taxpayer, why not give them to all students, take them out of the parental means-testing; there are bad things that happen from parental means-testing, there are some parents who should pay but do not, there are some parents who do pay but put on such strings as to where you go, what you study, etc. I think that the beauty of income-contingency is, effectively, you are means-testing the outcome, the student repays according to their financial success and they are the beneficiaries of higher education. I would like to move as far away from parental means-testing as possible at that stage, albeit I would rather see a large chunk of this three-quarters of a billion, or whatever it is, targeted back at the school end for poor families, when they are still dependants, when they do need parental encouragement, not just financial but simply to stick in at school and make the best of it; that is where I think the parental, the family wealth needs to be taken into account. I would far rather take away the subsidy and allow any undergraduate free access to the student loan system, without means-testing at all, there is no reason to means-test it at that stage.

  179. I take on board what you have said there, but is there not a danger, and are we not seeing it now, that, despite the fact that we are trying to backload the loan, as it presently operates, it is still discouraging students from poorer backgrounds to take up the system, as we have seen from the mistargeting of the funds?
  (Dr Barr) That is partly, as I said, that people do not understand; there needs to be a lot more information. To come back to the general point about access, to oversimplify, there are two groups of students, those who are well-informed and those who are not. Those who are well-informed and understand income-contingent loan entitlement, they know what they are doing when they go into higher education, these are the mainly middle-class students. Students who are not well-informed, there is financial exclusion, there are information causes of exclusion, you need to target the resources to help those. As I have said, the mechanisms for targeting, one needs a range, one needs both. In both cases, one needs to have lots of information, so students understand what is going on, and the way you get the resources for access is by eliminating the interest subsidy; and I would be interested in whether the NUS is prepared to defend continuing subsidies for successful professionals in mid career.

Chairman

  180. I am afraid we have to end it there. Can I say thank you very much, Professor Barr and Dr Crawford, it has been a very good session, and I hope you will be available for any further information we need to seek over the next couple of weeks?
  (Dr Barr) With pleasure.

  Chairman: Thank you very much; thanks for your attendance.





 
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