Select Committee on Education and Skills Minutes of Evidence


Examination of Witnesses (Questions 340 - 360)

WEDNESDAY 22 MAY 2002

BARONESS WARWICK OF UNDERCLIFFE, PROFESSOR RODERICK FLOUD AND PROFESSOR DIANA GREEN

Chairman

  340. If you look at the Government's four aims, the third is that all students should have access to sufficient financial support throughout their years in higher education. Barr argues that students can borrow anything they like for the full cost—whatever they want—to stop them working too many hours in bars, or whatever they do. At the end, there is a payment that is only triggered at a particular point in time at a particular income level, which will change over the years. They are saying that here is a rate of interest that is not at the exorbitant levels of the credit card or commercial world, or at some of the rates of interest that my poorer constituents pay when they borrow from unscrupulous lenders; but here is a level that is not a very high subsidy; indeed, it is a subsidy to the people who most need it, not the people who least need it.
  (Professor Floud) I am making a very simple point, perhaps as a quasi economist.

  341. You are a very distinguished economic historian—you know that!
  (Professor Floud) If you use public funds to provide a lower than market rate of interest, that is itself a subsidy.

Mr Shaw

  342. Is the idea not attractive to you that you could release some £800 million because next year the student loan company will lend £2.5 billion, and by putting a small rate of interest, the Government lending rate, according to the Barr proposals that will release £800 million? Surely, you can sit down and work out some fantastic scheme for that in terms of quality and access? You have more money. Under your proposals, there will not be a whole lot of extra money for support, in terms of universities being able to support students from poor backgrounds, which we know costs a lot more money than students from traditional backgrounds. This deals with both of those things. You are coming up with objections that it is a subsidy and therefore the proposals are contradictory, and it does not deal with debt-averse students. You could come up with quite an attractive programme. I am suggesting that your objections are fairly week. I would have thought that you would be a bit more robust and have stronger arguments, or you just do not want to look at it.
  (Professor Floud) Of course we are not saying we do not want to look at it. We are pointing out that it is perhaps not as simple as the proposal suggests. One of the things that economic history does teach you about is that government legislation often produces unintended consequences, and all we are suggesting is that in order to judge whether the scheme would be better than the one we are proposing, you would have to design the subsidy system that is implied. It is no good saying "you could give £800 million in subsidies"; you have to design a system and then see what the potential costs and benefits and hidden attractions and disincentives would be before you could come up with that. I agree that it is worthwhile thing to do, and we are quite happy to continue looking at that in those terms. All I am really saying is that it may not be as simple as you are suggesting.

Paul Holmes

  343. From the people who have been giving us evidence, a consensus seems to be emerging. Margaret Hodge seemed to indicate last week that we may return to giving students from poorer backgrounds a full and free grant, like we did in the mythical age when I went to university. However, the majority of students will need to pay more, perhaps through higher interest rates. There seems to me to a problem with that. One is that those who are paying tuition fees pay them while they are at university and still studying, and they have not got any money. Those that are paying loans, possibly with much higher interest rates in the future, will start repaying those loans as soon as they begin work, long before they reach average earnings, right at the start of their career. I talked to some students this morning about this. Why not switch completely to graduate tax, whereby you pay a higher income tax as a graduate? It is totally related to your ability to pay; you only pay it when you are earning, and the well-paid lawyer or university vice-chancellor or Member of Parliament pays more than the low-paid graduate.
  (Professor Floud) The obvious difficulty about the introduction of graduate tax is what you do in the transitional period. I do not think anybody has really solved that particular problem. What you are really suggesting, particularly when you move towards 50 per cent participation, is that you simply add it to income tax. That is the simplest way of doing it. However, here you get into the realm of politics. You can design schemes of this kind, but are they potentially politically acceptable, or do they conflict with policies made by political parties at general elections? I think one can design schemes, all of which are variants on graduate tax and income tax, or something like that. We will advise government, and it is for government to decide how they raise the money and how much the public subsidy should be. We will tell them what the consequences might be if the scheme was introduced.

  344. There are problems with graduate tax. Someone might say that politically we should not increase the tax at all. The other point is that the gap for a few years and the different teams of experts will tell you it is four years or ten years—but for a while there is a gap between money going into a more generous student support system and the money starting to come back from graduates starting to earn money. If you could do it economically and politically, what would your observations be on whether a graduate tax is a fairer and income-related way of students paying back the cost of their higher education, and the benefits that they get from it, as compared to fees and loans, which are paid up-front, before they are earning money and before they even reach average earnings?
  (Professor Floud) I think that essentially we can only give a personal opinion on that. My answer personally is that I think that is a fairer and simpler system, but that is not Universities UK's position. We have been dealing with the current situation, constrained by all kinds of pledges and decisions about how large the tuition fee should be and so on, and we are trying to simplify the system in order to achieve the objectives the government has set for higher education over the next eight years.
  (Baroness Warwick of Undercliffe) If Universities UK were to take a position on graduate tax, it would have to be on the basis that resources for universities were not themselves diminished as a result of that because of the extra cost to student support. Our dilemma is that the needs of the universities, as expressed in our submission to SR2002 in overall terms, are very substantial indeed. We are conscious for the need to attract students who have not previously thought that higher education was for them, and that is cost-intensive. It is cost-intensive to ensure that they receive the quality of education that we believe they deserve. We do not want to see second-class education for second-class students. All of these are resource questions for universities, and it would be quite intolerable if we were to produce a solution for student support that was at the expense of decent provision while students are at university.

Chairman

  345. There might be people, looking at the submission and profile of Universities UK, who say that that might have been a bit timid. You are a trade association and have to keep 140 members happy. You, Professor Floud, said "in my personal opinion". Can we get, not from Baroness Warwick but from Professor Green and yourself, the difference between what you believe, as heads of institutions that are at the cutting edge of this whole problem of widening the participation, and what the Universities UK position is?
  (Professor Floud) It is a bit difficult to ask the President of Universities UK—

  346. You just gave it. I am only asking you because you offered the opinion.
  (Professor Floud) Yes. As I said—I can talk from a personal perspective at the moment, from London Guildhall University, or as it will be from 1 August, London Metropolitan University, which will certainly be at the cutting edge of widening participation in London. The great difficulty we face in dealing with, for example, the Bangladeshi population, the Turkish population and the Somali population in London is the complexity of the current schemes combined, in some cases with religious objections to debt and in other cases just low income objections to debt. That is why I personally would be in favour of a considerably more generous grant scheme than we currently have at the moment, and that would be a good public investment in the long run.
  (Professor Green) I would agree with that. I can only give a personal view of the extent to which my institution has quite successfully widened participation and manages to retain past students. As Baroness Warwick said, it would not make any sense to move to what I regard as a much simpler system of graduate tax, if the cost of so doing were to deprive the institutions of the additional funds they needed to support students who report in to the institution. That is the dilemma we face, and that is why we may come over as being slightly timid; we have been trying to work within the existing assumptions.

Valerie Davey

  347. At the present time, 90 per cent of the tuition fees are paid by the Government, so that is a huge subsidy, a huge investment. Is there an area there that you would like to see changed?
  (Professor Green) I would have to distinguish between my own personal view and the view of Universities UK.

  348. Give us both.
  (Professor Green) Our line is that there is no single support for what I call differentiated tuition fees. We have worked within the system—

  349. Top-up fees.
  (Professor Green) That is the language that is used, but I think it is more accurate to talk about differentiated tuition fees because there is no reason why some institutions might want to charge less rather than more. To argue about top-up sends a particular kind of message, so I prefer to use "differentiation". Universities UK has worked within the current system of assumptions, and Government policy at the moment is that there should not be any top-up or differentiation fees.

Chairman

  350. I think that was a commitment of the former Secretary of State while he was Secretary of State. I have not heard anything so strong and positive from the Government since then.
  (Professor Green) Our proposals were on the basis of current policy, so we have worked on the assumption that differentiated fees are not available. There are some institutions within Universities UK that would support differentiated fees, and they would put forward an argument on that basis, in terms of differences in their market position and the provision that they offer. There are others within Universities UK who feel that in terms of a fair and equitable higher education system, that would not be appropriate. If we are successful in widening participation, you would end up with a situation that those people could not afford to pay high rates of fees and would be constrained in their choice as to where they attended higher education.

Valerie Davey

  351. Differentiated fees would hardly simplify the system.
  (Professor Green) Absolutely.

  352. That is not exactly the argument that I was trying to lead you into. Differentiated fees raise a very important issue and one which, to my horror, and I think to some people at the last session with Margaret Hodge was either ruled in or out. There is a big issue there, but I am more interested in what percentage of the totality of the fee the Government ought to be paying. In other words, is there an argument for asking those who can afford it to pay a higher percentage than a quarter, on average, of the fee that they are contributing to a superb quality of education in this country?
  (Professor Green) The answer may be "yes". It may be more helpful to think of the total cost of entry into higher education, of which tuition fees is only a part. Part of the difficulty we have all got ourselves into is the confusion that there has been about the tuition fee and the debt associated with that, and the total indebtedness in terms of entry into higher education. As part of the package, if any new system were associated with means-testing against the total cost of higher education, including tuition fees, then the answer could be different. There is no specific fee.
  (Baroness Warwick of Undercliffe) The answer is, clearly, that there is no reason why the students should not be paying a greater proportion of tuition fee. We have not taken the position of what proportion that should be. We argue that there is considerable benefit to the student, and there is also benefit to the community and to the country, and that therefore the Government should be making a contribution. We have not chosen to draw a line on what that proportion of contribution should be. We keep coming back to the point that if one is looking at the amount of resource that students have while they are at university or in higher education, the issue of the tuition fee has been rolled up with the issue of the cost of their maintenance. Trying to disentangle those to get a fair look at what it is sensible for students to contribute for their tuition has been quite problematic because the whole argument has been about maintenance. I do not think that we would quarrel at all with the proposition that students ought to be paying a greater proportion of their tuition fee, but what that proportion should be is a matter, obviously, for political debate; but because it is caught up with the overall cost to the student and the overall amount of debt, those of us who represent institutions have been concerned not to add to that debt burden until we are quite sure that it is not acting as a disincentive, because we are aware that the Government's key target for higher education is increasing participation among the lower socio-economic groups.

  353. That is where it is a matter of perception, is it not, because those are the very people who are not paying any fee at all? I am very interested in this element, which if we can get the perception right, does not affect those people coming in, in increasing numbers I trust, from lower socio-economic groups. It is the people who could afford it, who might be well asked to pay more towards the actual fee of what they are getting. The other group that we are not considering in the whole of this is the 50 per cent who do not go to university; and they are paying the tax, as they are working, in low income jobs perhaps, depending what they are doing, towards the people who are getting this huge subsidy from Government on the fee element. I think you are right in saying that to disentangle this now is not easy, but I certainly think we should do it. It would appear, on both counts, whether it is differential funding or increasing the percentage of the fee, that Universities UK has not got a universal united front.

Chairman

  354. What is wrong, given the problems you have seen, which Professor Green articulated very succinctly—here is the next 10 per cent; it is going to be more difficult—with you, wearing hobnail boots, going into Whitehall and saying to Margaret Hodge, or more importantly the Treasury: "Here is a deal: we will have grants for the poorest groups means-tested, and we will have increased fees, again means-tested, so you have a bigger income into higher education and you target you poorer students"? Why is Universities UK not wearing hobnail boots and suggesting that?
  (Baroness Warwick of Undercliffe) That is exactly what we have suggested, in the sense that the proposals we have put to Government covered a range of options that they might consider as part of this review. What we have not got is the political steer that says that the resources will be made available, or the shift in resources will occur, in order to deliver that. We are awaiting that from the Government's review. We have put our views into Government.
  (Professor Floud) We have to constantly come back to the fact that we believe that at the moment the entire higher education system is significantly under-funded, and that the addition—although we certainly believe in the desirability of a move to 50 per cent—the addition of that extra target will make the system, unless there is some change, so under-funded as to be completely non-viable. That is our primary responsibility, to ensure that our institutions are properly funded in order to do the job that society and students want us to do. At the moment, we do not believe that we have an adequate infrastructure; we do not believe we are able to pay our staff sufficiently and we do not believe we have the books and equipment that are required to deliver the system as it should be delivered. We start with the assumption, and that is the basis of our spending review submission, that there needs to be a very substantial additional sum of money. I know that it may be seen as a cop-out, but I do not think it is: the division of that cost between different sources of funding, between public and private funding, is essentially a political decision and a matter for the Government. We will advise Government and work with Government. We will try to forecast the consequences of any decision, but it is a matter for them.

Paul Holmes

  355. On the question of tuition fees, you said earlier that you want to make sure that if there is an improved deal for students, the universities do not lose out on funding. Were the universities and the students the victims of a fairly cynical contract in 1997, whereby the Government said they were going to introduce tuition fees for students, which would mean more money going into higher education, yet the amount of money going to higher education per student fell in the next three or four years?
  (Professor Floud) We still have discussions with the Funding council in England about this year's settlement. We accept that the situation over the last four years has been approximate stability in the funding per student, as compared with the previous situation of very, very substantial falls in funding per student. So the situation has got better; we simply believe that partly because of the backlog and the consequences of that long-term decline in funding, the current level of funding for both teaching and research—and, unusually, that is the first time that word has been mentioned today—the totality of funding is simply insufficient to properly provide for the system as it is at the moment.

  356. If student fees went up to £3,000, what guarantee would you have? Would that be extra money into the university, rather than Government just cutting the money it provides?
  (Professor Floud) None at all, which is where I come back to my point that it is a political decision. Since I do not think anybody has suggested that you would have some kind of hypothecated tax, then there could be no guarantee that such additional resources would add to the totality of the resources that we have.

  357. You have still got the problem that you have to say to students, "because you are going to earn a lot more in your future working life, you will therefore pay £2,000-£3,000 tuition fees, even though you are not paying a penny at the moment". How do you square that circle?
  (Professor Green) We have to distinguish between the existing system and the students you want to bring in to higher education—and it is important not to loose that point; and the extent to which already we are on a low base, under-funded, and have not got the ability to invest in the future. That is particularly important because it costs more to support the kind of student that we need to bring in, and so we have a concern about how we are able to deliver that, if something is not done about the general under-funding in higher education.

Chairman

  358. In response to Paul Holmes's question directly, have you had more money or less money, or exactly the same money, since 1997?
  (Professor Green) I have had less. It depends, as ever with statistics, on how the information is presented; but in terms of the increasing amounts of funding that I have had from the Higher Education Funding Council coming in for earmarked purposes—so that is less into general funding—if I look at what is going into supporting general teaching, which is the question, I guess the amount has gone down.

  359. In terms of the sector.
  (Baroness Warwick of Undercliffe) The overall amount of public support per student has remained stable. It has not gone down as it had done in previous years, but it has not increased.

  360. You are saying that here is a government that wants to go from 40 per cent to 50 per cent participation, and to do that, you have to have funding; you cannot do it without.
  (Professor Green) We cannot fund at the margin.
  (Professor Floud) We will be publishing it shortly, but we have just conducted a research project that shows that the additional costs of supporting widening participation of students is probably of the order of 35 per cent, which is significantly higher even than your Committee recommended when it last discussed that particular subject. There is increasing evidence that it is mainly retaining students—not recruiting, although recruiting is more expensive—from lower social classes. I draw your attention also to a very interesting paper that has just been published by the Council for Industry and Higher Education, which looks at the relationship between employment and success between university experience and employment and social class. Overcoming those kinds of barriers is and will be very, very expensive, and that is the basis for much of our submission.

  Chairman: Thank you very much. We could have gone on for another hour, I am sure, and gone into research and other aspects, but we wanted to focus our questions pretty specifically on government discussions, so thank you very much for your evidence. We had noted the 35 per cent in a speech by Baroness Warwick in another place.





 
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