Examination of Witnesses (Questions 160
WEDNESDAY 24 APRIL 2002
160. But the previous Government lost the election,
(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
(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 becauseI hope the Chairman, as an LSE governorwill
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
(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.
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
(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
(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.
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 taxpayersit 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.
(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, £6,000is
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.
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
(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.
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
(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
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.
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
(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.
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
(Dr Barr) With pleasure.
Chairman: Thank you very much; thanks for your