CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 885-vi

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Business, Innovation and Skills Committee

The Future of higher education

Tuesday 17 May 2011

PROFESSOR LORRAINE DEARDEN, PROFESSOR NICHOLAS BARR AND DR GAVAN CONLON

CARL GILLEARD, MATTHEW JAFFA AND OLIVER TANT

Evidence heard in Public Questions 472 – 550

Oral Evidence

Taken before the Business, Innovation and Skills Select Committee

on Tuesday 17 May 2011

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Rebecca Harris

Margot James

Dan Jarvis

Simon Kirby

Mr David Ward

Nadhim Zahawi

________________

Examination of Witnesses

Witnesses: Professor Lorraine Dearden, Institute for Fiscal Studies, Professor Nicholas Barr, Professor of Public Economics, London School of Economics, and Dr Gavan Conlon, London Economics, gave evidence.

Chair: I welcome and thank you for agreeing to speak to the Committee. What I always say when we have a panel in front of us is, obviously, when answering a question do not feel an obligation to repeat what one member may have said if you feel that that member has covered the points you wish to make. Equally, if there is a question directed to any one member of the panel and you feel that there is an issue that you must take up, feel free to do so. Before we come into the formal part of the questions, will you give your name and the organisation that you represent for voice transcription purposes?

Dr Conlon: My name is Gavan Conlon, and I am a partner at London Economics.

Professor Dearden: My name is Lorraine Dearden and I am based at the Institute for Fiscal Studies and also the Institute of Education.

Professor Barr: Nicholas Barr; I am a Professor of Public Economics at the LSE.

Q472 Chair: I will start with a general question. That it is general does not mean that I want a huge long answer, so if you could respond as briefly as possible: what do you think universities are for?

Professor Barr: I can give a short answer. They are there for the pursuit of knowledge for its own sake and for the transmission of important values. That has always been the case and it still is the case. What is new is that, increasingly over the past 50 years, they are now also there as an important element in people’s life chances and in national economic performance.

Chair: Do any other members wish to add to that?

Professor Dearden: No.

Q473 Chair: Excellent, I think you have summarised it unusually succinctly, if I may say so. Can I just come on to the next question? An argument is often put that universities and their students make a significant contribution to both regional and local economies. Do you think that the reforms that are being proposed will impact on their capacity to do that?

Professor Barr: This is a terribly academic answer: it depends what the reforms are going to be. If the reforms as they come out allow some universities to expand at the expense of others, that could be damaging to some regional universities. On the other hand, if expansion of total student numbers is possible, so that some universities could expand but regional universities could still largely retain numbers, then that would not be a problem. I think a crucial thing is whether numbers are fixed or not. If they are, then there could be a problem.

Professor Dearden: I think it is just too early to tell. As Nick said, it really depends on a lot of factors, which we are going to have to wait and see the impact of.

Dr Conlon: I think Professor Barr is correct when he says it all depends. The fact that some regional universities might have fewer substitutes, less competition, in a local area, means some regional universities might actually perform quite well as a result of these reforms, depending on how the reforms look. Where there is greater competition in large urban areas, we might see some universities suffer to a greater extent than in the regions, but it all depends.

Q474 Chair: This specific question is to Dr Conlon. In your paper, Fair, Progressive and Good Value?, the paper you published with million+, you say that Government proposals are "not progressive" because most graduates will pay more than under the current system. Is that not really the point of the reforms-that graduates should contribute more?

Dr Conlon: I think so. It is very difficult to answer the question of whether the proposals are progressive. It is certainly the case that the current Government proposals are more progressive than those proposed and put forward by Lord Browne. However, if we look at the situation of how the current proposals change the amount of repayments, or the cost of university for students and graduates compared with the current system, I do not believe that the current proposals are progressive.

I think there are two very important points. The first point is that a lot of analysis has just looked at graduate earnings, and I think what has not happened is a detailed analysis of what happens to graduates with different levels of earnings depending on their household income when they enter university. The cost of university under the current proposals hugely depends on current household income. We have done an analysis where we have illustrated that, once you combine all of the subsidies, grants and tuition fees, compared with the current system students from average-income households who go on to earn above average earnings pay more than students from higher-income households. I do not believe that the current proposals are progressive across the piece. I think individuals from middle-income households who go on to earn above average earnings will end up paying more compared with current high-income graduates. Progressiveness is a difficult thing to pin down.

Q475 Chair: This is back to the squeezed middle income argument.

Dr Conlon: That is somebody else’s phrase. It is certainly the case that, if you wanted to define progressiveness as whether the wealthiest or the graduates going on to earn the most pay more for their education than graduates who earn the least, then yes the system is progressive. That is when you are comparing individuals from the very top of income distribution with individuals at the very bottom and when you essentially ignore their origins, their household income. But if you undertake a more sophisticated analysis, I do not think it is an open and closed question.

Q476 Mr Binley: We have had evidence to suggest that the setting of ever-increasing targets, up to 50%, has never been supported by a real view of how university education should be funded. The latter has never been properly tackled during the whole of the growth period. I have read your paper and found it very interesting. I wonder how you might advise us that we should advise the Government on how it should be funded to make it more progressive, if, as you say, it is not as progressive as you would want it to be.

Dr Conlon: If the question is progressiveness, then there are more progressive approaches than those that are currently suggested. I will await the criticism from Professor Barr, but I think the option of a graduate tax is certainly more progressive than the proposals that have been put forward. It is also much more transparent and straightforward to implement. I believe that one of the reasons why a graduate tax was not properly considered was that essentially it is expensive in the short term in terms of the budget deficit. However, I think the advantages outweigh the disadvantages.

I also think that even despite the additional cost that might be incurred by the state in funding the graduate tax in the short term, the rates of return associated with higher education-the additional income tax, VAT and National Insurance payments that are accrued by the Exchequer as a result of having graduates-far outweigh any short-terms costs associated with an alternative mechanism such as graduate tax. Even though it is expensive in the short term, certainly the benefits outweigh the costs.

Chair: Professor Barr, I can see you are itching to get in on this debate.

Professor Barr: To set the thing in a broader context, first of all under the current arrangements the interest subsidy on student loans is unbelievably regressive. The major beneficiaries are successful professionals in mid-career. That part of the reforms unambiguously makes things more progressive than the current system. Second point, of course progressivity within higher education is important, and we should take it seriously, but people who get to higher education are by and large those who have made it. I would rather see progressiveness not over 18-plus, but nought-plus. All the evidence shows the real drive to widen participation should come earlier in the system. In a way one could say, "These heavy subsidies for higher education are taking money that I think ought to be spent, to some extent, more on nursery education."

As regards graduate tax, I have no ideological problem with it, but there are deep practical problems. First, graduate tax is irredeemably public funding. You are not going to get private finance until the cumulative repayments of graduates is greater than the outgoings from the Treasury. Secondly, the Treasury continues to control the funding envelope for higher education; it is a closed system, which means the capacity for expansion is limited. Thirdly, that mutes competitive incentives, and my view is that you need competition between universities; it benefits students and quality. Finally, with a loan the individual takes out a contract, and that can be enforced where people are working abroad. A graduate tax can only be imposed on people who are UK taxpayers. Anyone who comes from the EU will not pay, and you cannot collect from any Brits who have studied here but then go to work abroad either. These are deeply practical issues that worry me, not the ideological ones.

Professor Dearden: I think there are a couple of further things. I think some of the complications in the middle relate to how the loans system has been implemented. With very simple tweaks to the loan system, i.e. adopting Lord Browne’s idea of a universal loan, you could get rid of a lot of those perversities. In effect, with a £9,000 fee you have a graduate tax for well over 50% of people, but you lose all the advantages that Nick mentioned.

Q477 Chair: Going back to the comment made by Professor Barr about a loan being enforceable abroad, I am not altogether clear how much easier it is to enforce payments of a loan from somebody abroad than it is a graduate tax.

Professor Barr: If I go and work in America and have no income in the UK, I am not liable for UK tax, and hence not liable for a graduate tax. Whereas if I have a loan and I have an individual contract with the Student Loans Company, then the Student Loans Company can and will pursue me to the United States and will enforce repayment. I am not saying that the system is perfect, but a graduate tax is 100% imperfect in that particular respect.

Q478 Chair: I certainly accept the first part of your answer. I am not sure that the economics of enforceability would back up the second argument you make. Maybe that is somewhere where more research needs to be done.

Dr Conlon: I would agree with that. I think what Professor Dearden says about removing the hump in the loan system will remove a lot of the perversities in the current system. We absolutely would all agree on that. In terms of the contractual arrangements, the difference between a graduate tax and the current loan system, there is a number of Parliamentary questions and responses that have been tabled asking what proportion of loans that have been taken out by EU students have been repaid or are in repayment, and for what proportion of these loans the Students Loans Company has been able to identify the borrower. The numbers are pretty low. I do not think that the current system is being in any way successful in recouping fee loans from foreign students.

You made another point about a graduate tax removing competition. If you look at the current system, or at the current proposals with the £9,000 fee cap, I do not think there is going to be that much competition in the current market, especially if individual institutions have caps. There is not that much competition. The fundamental mechanism of the market is that if one institution raises fees, or raises its price, then the threat of students moving to another institution will mitigate those price increases. However, under the current system, as far as I am aware, institutions who may charge a lower fee have their individual student numbers capped and will not be able to take those extra students that might be deterred from attending another institution. The threat of competition does not really exist under the current proposals. I am not sure that a graduate tax would be better or worse given the current state of competition.

Professor Barr: It is true that the collection of loan repayments abroad is not good. It is true that the current proposals do not do as much as they should for strengthening competition. Both of those features can and should be fixed. A graduate tax institutionalises both problems by design.

Chair: Professor Dearden, do you wish to add to that?

Professor Dearden: No. I completely agree with what Professor Barr says.

Q479 Chair: I think we have had a pretty comprehensive debate on that. Getting back to the issue I raised earlier, what do you think needs to be done to maximise universities’ abilities to contribute to economic growth, and not just regional or local in this context?

Professor Barr: This is a very imperfect answer, not least because I do not understand where growth comes from, and I do not think anybody understands where growth comes from. I think I would come back to competition. Giving universities quite a lot of freedom to compete, within a sensible structure of well designed loans, etcetera, will give incentives to innovation. I think that if it is genuine competition and-broadening out the discussion, if you look at research funding as well-if research funding encourages universities not just all to do fundamental research but rewards a whole range of different research including local research, I think you are then going to get an even more vibrant and diverse system than we have. I think it is through diversity, competition and innovation that one maximises the chances of universities contributing to growth. I cannot think of a specific mechanism for doing that because growth and innovation are sort of magic, at least on my reading of what economics understands today.

Professor Dearden: I do not think it is just research. I think that it is education across the board. That is very important.

Professor Barr: Yes, I agree.

Dr Conlon: I would say of the current proposals, where there is a suggested 80% reduction in HEFCE teaching funding, even if that was replaced pound for pound by loan income through tuition fee loans, the economic uncertainty that some universities would be faced with is one potential negative outcome associated with the proposals. I think it is very difficult for higher education institutions to keep undertaking the good work that they do, and they do generally do very good, high-quality teaching and research, certainly in many institutions. I think removing HEFCE teaching funding places universities under extreme strain and uncertainty in some cases. I do not think that will assist in driving economic growth or human capital formation.

Professor Barr: I completely agree. The taxpayer should contribute to the extent that higher education creates benefits to society over and above those to the individual. We cannot measure those external benefits, but all the qualitative arguments say they are very real. Getting rid of teaching grant for the arts, humanities and social sciences was a very bad move. It means something is not getting a subsidy that it ought to be getting. For efficiency reasons, that will reduce demand either in terms of student numbers or in terms of quality. I completely agree; it is one of the worst aspects of the proposals.

Q480 Chair: Do you know of any research that effectively correlates economies with a high number of graduates to economies with high levels of economic growth?

Professor Dearden: There is a literature out there. It is hard to do robust empirical evidence showing this. There is some empirical research out there of varying quality. The literature is all over the place. I am very out of date on the latest state of this literature.

Professor Barr: There is an OECD study that shows a link between spending on higher education and economic growth. The problem is that it is not just the quantity of money that you spend but the way you spend it. America spends shedloads of money on health care, but their health is worse than that of Britain, which spends a lot less. It is how it is spent as well. I agree with Lorraine; it is very difficult to be definitive.

Q481 Mr Ward: I am interested in the comments from Professor Barr to do with these external benefits. It touches on what you just said: these lead to "a more productive and occupationally adaptable workforce, and harder-to-quantify benefits around better parenting, increased civic engagement and tolerance of different views." Doesn’t that just go to any money spent on educating individuals, whether they are in universities or not?

Professor Barr: Yes, but it is true also of higher education. I think there is good evidence that graduates of higher education are more involved in civil society. We know that disadvantage gets transmitted down the generations. If you educate people, particularly women, that will have all sorts of benefits for children. Then there are the narrow economic benefits: because I can read, you can send be an e-mail and then that raises your productivity. I agree that is true at all levels of education, but it is true of higher education as well.

Q482 Mr Ward: The vast majority of people that I know who work in the voluntary community sector, and many of the toughest areas of my constituency, never stayed on at school and certainly have never ever been inside a university in their lives, yet they make a massive contribution.

Professor Barr: I am absolutely not saying that it is only graduates who do that. All I am saying is that it increases the likelihood that people will be involved in those sorts of activities.

Q483 Nadhim Zahawi: Professor Barr, you talked about not knowing where growth comes from. One thing we do know is there are 4.8 million small and medium-sized businesses in the country, and you would wager a pretty good bet that a good proportion of the growth would come through that sector. Do you think we do enough in terms of our universities working with the SME sector to understand the needs better? Some of the things we hear in this Committee is that the graduates that we are pumping out do not have the skill sets for the jobs that we have and are creating in the economy.

Professor Barr: If you have a system of centrally planned, publicly funded higher education, universities will look at you and say, "We do not do things that way." If you put us in a competitive situation, where students or graduates of the university do not get jobs because we are doing things in the old way, they will face competitive incentives to listen to small and medium-sized enterprises and adjust accordingly. I think the answer is to liberalise the sector, create incentives such that students vote with their feet and money follows. I am not talking about an unregulated market; it needs lot of regulation, but more competition will give universities an incentive to get down off their high horse and interact more with businesses.

Q484 Nadhim Zahawi: That brings me on nicely to my next question. We know that the Government wants to increase the number of private higher education providers in the sector. What effect do you think that will have on the sector and its financial sustainability, and are any safeguards needed? I think you alluded to the fact that safeguards need to be put in place so that you do not have unfettered competition, but do you think that is a good thing?

Professor Barr: I do not think that the distinction between public and private should matter. You should have a diverse competitive system of higher education together with a well designed loan system and robust quality assurance that should apply to all higher education institutions, public or private. Assuming there is robust quality assurance, I would welcome creating a level playing field for private providers because it does strengthen competition.

Q485 Nadhim Zahawi: Does the rest of the panel agree with that view?

Dr Conlon: I would just say that there are many countries, for instance the United States, with public and private higher education institutions. They work in tandem. As long as there is appropriate regulation and quality assurance, there is no reason why a private sector provider should not be able to compete alongside a public sector provider.

Q486 Nadhim Zahawi: Do you think it is possible to have a real market in higher education when universities have full control over who they will teach?

Professor Barr: Nobody who has ever thought sensibly about higher education has ever advocated a free market. If you say to universities, "Accept as many students as you like and the taxpayer will pay," that is giving universities a licence to print money. Even universities have not suggested that. There needs to be at least three sets of constraints on the freedoms of universities. One is minimum qualifications for entry into higher education. The second is quality assurance, which needs to be robust. The third is, and this gets into more technical detail, my own feeling is that, if universities are asked to pay a university-specific insurance premium to cover at least part of the loss of the loans of their graduates, that also faces universities with a stiff dose of reality. I think the combination of those three would allow competition but not give universities a licence to print money.

Dr Conlon: I would agree with two of those points, the second about quality assurance and the first point. On the third point about universities having to undertake some of the costs of the non-repayment of the loans of their graduates, I think we would have to tread very carefully with that. It is clearly the case that universities would have an incentive to cherry pick the graduates that they would believe, for whatever reason, are most likely to repay their loans, so therefore they would potentially have the least liability going forward. If I was a university, that would be completely rational behaviour. You would be selecting on factors that may not be related to merit. I would tread very carefully on that last point; you are selecting on household income, essentially, as a proxy for future earnings.

Professor Barr: I agree, and in other things I have written I have said that if the loss on loans falls on the taxpayer, the Treasury has an incentive to constrain student numbers. If the loss on loans does not fall on the taxpayer, you can then relax student numbers. The question is, where should that loss fall? Elsewhere, with Neil Shephard, I have argued that some of it should be paid by the cohort of gradates on a national basis. For universities that charge higher fees, one should think about a university-specific premium. Universities should face only part of the cost for exactly the reasons that Dr Conlon set out.

Q487 Nadhim Zahawi: I am going to ask you, and this is the $64,000 question, can you anticipate what effect the reforms will have on participation in higher education, and do you think it is better for the economy to spend more on higher education and have more graduates or to keep the higher education bill down? What do you recommend as the best balance between investment by Government, students and graduates, and other private sector providers: charities, social enterprises and so on? What you cannot do is say to me, "We have to wait and see." You have to stick your reputation on the line.

Professor Dearden: Raising fees will impact on participation, but if it is accompanied by grants and loans then that will offset that. We have never seen changes of this magnitude before. Estimating the impact is very difficult. I expect that these reforms will have some impact on participation.

Nadhim Zahawi: Positive or negative?

Professor Dearden: It will have a negative impact on participation, but by what order I am not sure.

Q488 Chair: I think it is fair to say that there has been an emerging argument from witnesses that we have had before the Committee that the provision of bursaries and fee waivers is less effective in determining applications than engagement at an earlier level, which I think is broadly the position of Professor Barr.

Professor Dearden: Yes.

Chair: Are you contradicting that? Would you like to elaborate further?

Professor Dearden: No, I am saying everything else being level-the overall package of returns. I mean we saw it before. Increasing grants and loans, and giving loans that mean you pay nothing upfront almost stops the negative impact on participation but not quite, but it is very small amounts. But we have never seen changes of this magnitude.

Q489 Nadhim Zahawi: You still think it would be negative?

Professor Dearden: Yes, but it could be a very small negative. We have no idea.

Chair: You just raised the point that we have not seen changes of this magnitude before. Do not worry, Nadhim. I will bring you back in to conclude your line of questioning, but I have got Brian and Margot who want to come in quickly. M ake it brief.

Q490 Mr Binley: I am particularly interested in this, because we have received evidence that this will continue to be sizeably a sellers’ market.

Professor Barr: Yes.

Q491 Mr Binley: Can I ask, yes or no, whether you agree or do not agree with that view?

Professor Barr: My short answer to the previous question is that tragically there will be no effect. There will not be more places. The balance between Government and the taxpayer will not change. The savings from raising the interest rate on student loans, which was the right move, is being gobbled up by raising the threshold at which repayments start too much. So the system remains expensive, the balance between Government and taxpayer does not change very much, and therefore the resources that should have been used to widen participation, particularly through earlier interventions, are not there. I agree with Lorraine; there is a negative effect, but roughly that will be offset by a positive effect because there is still excess demand for higher education. My guess is that a chance to do something real for quality and participation is being lost, and I find that very sad.

Chair: That is a pretty dramatic argument.

Q492 Margot James: I should mention that I am a Governor of the London School of Economics and an ex-student of your good self. I wanted to follow up on Professor Dearden’s comments about participation and the fact that you believe that this magnitude of change will have an adverse effect on participation. Did I get that right?

Professor Dearden: I am just saying, if you look at it with everything else held constant, that will probably be the impact. Look at what we have done with the other reforms: if you hold everything else constant, then raising fees, changing nothing else, will have a negative impact. But everything else is not remaining constant. That is the problem. As Nick said, if you do not raise the number of funded places, if you put restrictions on everything else-

Margot James: I accept those, yes.

Professor Dearden: If you increase fees, with everything else remaining equal, it will reduce demand. If you increase the generosity of loans that pay those fees, then it has an offsetting effect.

Q493 Margot James: I appreciate that you did not give a black and white answer, and I accept those caveats. I wanted to explore the issue of participation at different types of university. Under the last Government we saw a huge widening of participation at the newer universities and very little change, if anything a negative change, at the Russell Group universities. Do you think that the change in fees, with all the other changes that perhaps offset their negative impact on participation, will have an even worse effect in the distribution of students who want to go to the newer universities, because they are perhaps closer to home and therefore lower cost, versus students from poorer backgrounds who want to go to the Russell Group universities?

Professor Barr: I would say no, it will not make a difference.

Professor Dearden: No, I cannot see that it would make any difference.

Dr Conlon: In pure economic terms, we have looked at the impact of the current proposals compared with what is currently in place. Students from households in the bottom 30% of the income distribution are essentially unaffected by these proposals. Because the proposals that are being put in place are now so complex, the issue is now a real informational one. I know that students find it very difficult to assess the quality of an institution and the quality of the degree that they are going to receive. At the moment, a lot of the signalling that is taking place in the market is through price and branding, which are not perfect proxies for quality. Probably one of the biggest determinants of students making the right choice is about recommendations, information, proper and complete information in the marketplace; that will assist students in making the right decision for them. The complexity of the proposed system is such that students will probably make the wrong decision. It is almost unintelligible.

Q494 Nadhim Zahawi: I was just going to push Dr Conlon on an answer to the impact question and whether he thinks it will be positive or negative.

Dr Conlon: In terms of the impact on participation, the work that the IFS has done and Professor Dearden has undertaken in the past on the impact of the changes to fees, grants and loans is excellent work. She has indicated that the increase in fees will reduce the quantity demanded. It will only be partially offset by the introduction of increased loans, so there will be an effect.

Professor Dearden: But it is very small. We have never seen changes this big before, so it is impossible to predict what will happen in the future.

Dr Conlon: I think there is a second issue and this is to do with foreign students. There are tens of thousands of students from the EU coming to the UK every year to study in UK higher education institutions. By raising fees by this order of magnitude, if we assume that foreign or EU students have more substitutes, i.e. they can study in their own country or in various other countries, certainly we will see an impact on the demand for higher education amongst foreign students, even if there are associated fee loans. I think this will adversely affect educational exports-the value of the UK educational sector. Right now we are undertaking a piece of work for the Department for Business, Innovation and Skills on the value of education exports. We modelled what we think the effect of fee increases will be.

On your other questions about whether the economy can essentially absorb more graduates, if you look at the rates of return to the individual from degree-level qualifications, the rates of return and the individual lifetime benefit associated with higher education qualification attainment have remained relatively constant over the last decade or 15 years. With the increase in supply of graduates from new universities, we have not seen this massive erosion of the graduate premium; it has held up. It sort of implies to me that there has been an equal shift in demand for graduates. The economy can absorb graduates. Businesses complain about not having a qualified workforce. They have responded over the last 15 years by employing more and more graduates. I do not think there is an issue there.

The third question you asked was about the balance of funding. At the moment I think most people would agree that the balance between the Exchequer funding of higher education and private or individual funding of higher education is unequal. The Exchequer contributes approximately £6.5 billion per year to get a cohort of students through the system in terms of fee loans, subsidies, and so on. Students essentially pay very little. There will be very few people who would argue that students should not contribute more and the Exchequer should contribute less. The question is how exactly do we implement that? There is a range of alternatives. We can tighten up the loan system; we can try to make it more progressive-there is a whole range of options. I think the problem is that the approach that is taken, where teaching funding is being reduced by 80%, essentially makes many of the changes to the current fees and loans system pretty trivial compared with the 80% reduction in funding. That is a long answer to three questions, apologies.

Q495 Chair: Before I move on to Rebecca, can I pick up you up on one point? You said the economy has the ability to absorb graduates and yet-I am quoting from an Observer article on Sunday-"graduates face the bleakest employment prospects for years. The unemployment rate has doubled from 10% to 20% in the past three years. An estimated 55% of this year’s graduates will fail to land a job that requires a degree." How do you reconcile the point that you made with those statistics?

Dr Conlon: That is absolutely true. I cannot comment on the specific figures, but graduates are facing a hard time at the moment. I think we all know that the accumulation of additional qualifications will set you in better stead in the labour market going forward. The recession will end, the economy will recover, and graduates will become more needed. It is a short-term effect.

Professor Dearden: And it is relative to what they would have done if they had not got a degree.

Dr Conlon: They would be in a worse situation if they did not have a degree.

Q496 Nadhim Zahawi: Just one further question on postgraduate provision. We know from the Smith Review that it provides a significant income stream for higher education institutions. How do you think the reforms will impact on postgraduate provision and participation?

Professor Barr: It seems to me incredible that we do not have a good loans system for UK postgraduate students, and this was one thing that Browne got wrong. It seems to me that that is the biggest constraint and the reforms do not address it.

Chair: Any further contribution on that?

Dr Conlon: I think there will be a negative effect on postgraduate qualification attainment. I believe there will be fewer undergraduates coming through the system, and that will have a knock-on effect on postgraduates.

Q497 Mr Binley: For the record, can I just confirm, is that the general view in the sector? Do you all believe that the comment made by Professor Barr-that this was the major error-is the general view of the sector?

Dr Conlon: No, I would disagree with that.

Professor Barr: I did not say it was the major error; there was a whole series of errors.

Mr Binley: A major error.

Professor Barr: That was as regards postgraduate students.

Professor Dearden: Did he have scope to look at that?

Mr Binley: I do not think he did.

Professor Dearden: I am not sure.

Mr Binley: I am not sure either, but it is an important thing you said.

Professor Barr: The report said postgraduates are well looked after. There is no case for it, and I just think that is wrong.

Dr Conlon: I would disagree with that. I think if you have a limited envelope of resources, we had the argument earlier on about whether you should invest in higher, secondary or primary education. If I had to make a choice between investing in undergraduate education and postgraduate education, I would invest in undergraduate education. I do not think postgraduate education or postgraduate loans are where we should devote scarce resources.

Professor Barr: If we design loans right, postgraduate students will repay close to 100% of what they borrow. It is a cash flow issue but not a long-term fiscal cost issue. I do not disagree on where the subsidies should go.

Chair: This is a fascinating debate and I think we can probably run for a long time, but I do need to get on because we have got other questions.

Q498 Rebecca Harris: I wanted to ask you firstly for your thoughts on whether the Government, HEFCE and OFFA have got the balance right in terms of where the funding is going to be coming from for widening participation and access?

Professor Barr: My view is that the loan, which goes largely to the mainly middle-class students in higher education, will continue to be a fiscal black hole, and that is gobbling up resources that I think should be spent earlier in the system. I am happy to amplify that.

Professor Dearden: The increase in fees means there is an increase in the taxpayer contribution to higher education, everything else being equal, because of the subsidised loans, as Professor Barr has said. This reform involves a small increase in the taxpayer contribution, and with higher fees the taxpayer contribution goes up. If you really want to impact on widening participation, research that I have been involved in shows that you have really got to change things in secondary schooling. That is where the biggest barrier is.

Q499 Rebecca Harris: Professor Barr, you submitted quite a lot about that and have quite strong views on the way it should be pursued. Do you want an opportunity to say any more on that?

Professor Barr: If you look at the evidence, if you take 100 young people whose parents are professionals and 100 whose parents are manual workers, in 2002 81 of the first group went to university, 15 of the other. If you then say we do not just look at 100 and 100, but look at people with good A-Levels, it is roughly 90 and 90, which says if people get decent A-Levels, then the socio-economic gradient in participation almost entirely disappears. Then you have to say, what are the things that stop people getting good A-Levels? It is mainly leaving school at 16, usually for reasons that go back a lot earlier. Then you have to start asking about early child development, the quality of primary education; you have to start thinking about information raising aspirations, getting universities on the radar scope of 12-year-olds. "Why bother to get decent GCSEs in order to go on to A-Level if university is for them and not for me?" That then gets you into territory that economics does not have much to say about, but where there is a huge amount of evidence that that is where you crack the problem of participation much more than what you do in terms of grants and things like that. I am not against grants and bursaries, but that is the tail; the dog happens much earlier.

Professor Dearden: That is based on research that I have done. It is absolutely true.

Q500 Margot James: Just a quick question following on from what you said, Professor Barr. Would you agree that the choice of A-Level subjects that are not considered appropriate qualifications for Russell Group universities is a key contributory factor as to why children from lower socio-economic backgrounds do not get into the top universities?

Professor Barr: There I agree with something that Martin Harris always stresses: the quality of advice that is given to 13- and 14-year-olds about subject choice is critical. It is raising aspirations but it is also good information. Choice of A-Level subjects is absolutely fundamental and it needs to be addressed.

Professor Dearden: Even earlier with GCSE subjects. There has been a huge switch in the portfolio of GCSE subjects. A report that my colleagues at the ISF have just done for the DfE shows that there has been a quite substantial shift in the portfolio, probably just driven by school league tables.

Q501 Rebecca Harris: I was just talking about advice, but I want to move on to how prospective students should judge whether a course represents good value for money. I know Dr Conlon has already said that currently getting information on how to judge that is pretty unintelligible; we touched on that. I just wanted to ask the panel what they thought about how a prospective student should judge the quality of a course and the value for money.

Dr Conlon: In advance or upon completion of the course?

Rebecca Harris: In advance of choosing a course.

Professor Dearden: It is very difficult and it is very complicated. One of the good things about this system is that students are insured; if they get the choice wrong, if they do badly, then they do not pay for the full cost, but that does not answer your question. It is very complicated.

Professor Barr: The way I think of it is, what would a bright 15-year-old ask? Will it be fun? Will I be well taught? Will I get a good job? Will it be fun? There are plenty of good university guides comparing nightlife in Nottingham with nightlife in Leeds. Will I be well taught? I am a hardliner on that. Universities are already required to have student questionnaires evaluating the quality of the teaching they get. It should be mandatory to put those on universities’ external websites, together with the answers to questions on contact hours, average class size, faculty or graduate student class teachers, the amount of written work, etcetera. That starts to answer the question, will I be well taught? Will I get a good job? Again, require universities to put on their websites what happens to their graduates. I think that answers the sorts of questions that I think an intelligent young person would want answered. I mean there are universities where I hear consistent complaints about low contact hours. If that were on the website, students would vote with their feet, things would change, so I think that would be the practical way I would tackle it.

Q502 Mr Ward: The value for money argument only comes into play, surely, if someone can afford to go to university-if the family can afford to put them through, or the Government puts in place measures to allow that affordability for those from low-income families. Otherwise it does not matter whether it is wonderful value for money if they literally cannot afford to study.

Professor Barr: It is essential in any well designed system that higher education is free to the student. It is the graduate who should make the repayment. So the loan has to be large enough that when someone turns up at university, the Student Loans Company pays their fees, the Student Loans Company squirts enough money into their bank account to pay for their living costs so it is free for the student, and that is absolutely essential for the reasons that you allude to.

Q503 Rebecca Harris: You are saying then at the moment it is not possible to make a really strong choice on value for money. There is not information there at the moment.

Professor Barr: Information could and should be improved.

Q504 Rebecca Harris: The fact that there is some competition in the system may actually mean that just comes about-the universities do that themselves, do you think? You said it should be mandated.

Professor Barr: It should be mandated and it should be audited, because if it is mandatory then universities will have incentives to shape things a bit. Just as with credit cards, when we get our credit card bills it is always the same way of calculating the interest rate by law to create comparability. Similarly, for data that universities put on their website there should be a set of definitions, and things should be audited.

Dr Conlon: The one point about information is the more information that is mandated and audited the better. Students will make better decisions. There is one source of information that many students and schools lack. There are many schools where the teachers in the schools have not attended Russell Group institutions, and do not know the lie of the land and the way, the means or the tricks of applying to specific institutions. I think there are certainly some schools near where I live that send students essentially to the local university because that is their only experience. That is their experience, that is their peers’ experience, or their peers’ families, and that is also their teachers’ experience. They do not know what a two-day interview session in Oxford or Cambridge will be like, so they cannot advise their students how to prepare for it. And this point about information, it is both public information in the form of proper assessment of teaching and contact hours, etcetera, but it is also to do with more informal information provision within individual schools.

Q505 Rebecca Harris: How should we be addressing that?

Professor Barr: Let me be radical. Come up with a bit of research money so that an institution like the Institute for Fiscal Studies could put together an expert system. It is university advice on a CD. It just starts by asking you basic questions, and depending on the answers, it branches out into further questions. Maybe it has been tried, but I would love to see that.

Professor Dearden: At the moment colleagues of yours at the LSE, Sandra McNally and Gill Wyness, are going into schools and have set up a randomised controlled trial around what sort of information you can provide to kids. I do not know about it, but their approach has had to change. They thought providing this information online would be a good way for kids to be able to find out more information about school, but they could monitor the hits that they had on the website and it was very low, so they went into these poor schools and tried to give kids better information, but they did not log on to the website. There are some things going on.

Q506 Mr Ward: Aren’t we really just talking about life experiences of teachers? So the same could be applied to the manufacturing industry and the business world generally. So it is not just the Russell Group that they maybe have limited experience of; it is experiences other than their own.

Professor Dearden: Yes.

Professor Barr: You have peripatetic music teachers. Maybe one should have peripatetic university advisors who could improve the information of teachers as well as pupils. It would be a small start, but that could be doable.

Professor Dearden: That is my biggest problem with the final HE funding system that has come up. It is very, very complex. More information and less complexity, and making it easy for teachers to convey this information to kids, are very important.

Q507 Chair: I think I am right in saying there is a consensus on this?

Dr Conlon: Absolutely, yes.

Q508 Rebecca Harris: Everyone has been telling us that the new student financial regimes are complex and confusing. Could you do a favour for politicians and explain the new student finance system in a 20-second, user-friendly sound bite? Professor Barr made a marvellous one explaining what university is for, so I am quite optimistic that you might be able to.

Professor Barr: The sound bite that I have trying for years to sell to the Department is, "Students get it free; it is graduates who repay." And the second one is, "It is a payroll deduction, not credit card debt."

Chair: That is interesting.

Q509 Rebecca Harris: Any other pitches?

Professor Dearden: Effectively, for over half of students it is a 9% increase in your tax rate for 30 years. If you come from a poor family, the upfront cost is effectively zero.

Dr Conlon: I could not provide a sound bite in 20 seconds on this.

Q510 Rebecca Harris: One last question is that the Government has recently launched a new website to try to explain the financial support available to students. Have any of you looked at it and do you have views on it?

Dr Conlon: For a piece of work we were undertaking for BIS last year on student support arrangements in 15 different countries, we looked at the DirectGov website to get a handle on some of the subtleties associated with the student loan system, and the information was incorrect. We rang up Student Finance England, and the information they provided was incorrect. I believe many people who are actually administering the system do not fully understand it, especially when you have cross-nation movements between Wales and England, England and Scotland, Scotland and Northern Ireland, etcetera. I have not been on to the website, but previous experience has not been positive.

Professor Dearden: I have not been on to the website.

Professor Barr: I have not, but I heard the other day for the first time an advertisement on the radio aimed at students, and my wife, who was sitting next to me, said, "About time," but it was said with a great deal of venom. Since loans were introduced, you cannot overstate the awfulness with which the system has been explained to the public. You hear mothers ringing in to phone-in programmes saying, "I am a single parent mother. I have got three daughters. I cannot afford to pay £9,000 per year for each of my daughters." They do not have to. There is a huge gap there that needs to be filled. The website is a start, advertisements are very important, but a big publicity campaign is needed.

Professor Dearden: But make it easy for students to access the system. Why introduce this complicated means-tested loan? You could come up with an almost equivalent system, having a universal loan that does not need any administration.

Professor Barr: If you have an interest subsidy, loans are expensive so you have to means test it. If you raise the threshold so that loans are expensive, you have to means test it. Design the loan right and let everybody have a full loan. It is very simple.

Professor Dearden: And do all the means testing through the grant system.

Q511 Mr Binley: Your simplicity would not help the bureaucrats, by the way, but that is another matter altogether. Can I proceed to ask about comments made by the Minister of State last week. He was quickly slapped down, but I thought he raised an important discussion point: allowing employers and charities to buy university places that are off quota and would not place any burden on the public purse. What do you think about that proposal, even though it does not seem to be on the cards?

Professor Barr: They had that system, maybe they still do, in Australia, and the phrase was "thick but rich".

Mr Binley: You have described me beautifully.

Professor Barr: The argument was that thick but rich kids can buy their way into the system. I think if you want to set numbers free, which we should, there are much better ways of doing it, like university-specific insurance. I think it was politically inept, but also the wrong way to achieve a desirable objective.

Q512 Mr Binley: The point I am trying to get at is that my reaction to many of the people we have seen from the educational establishment is that they have not been very robust. They are not willing to think out of the box. I liked it when you said, "Let me be radical for a change." I just think that we need to instil a much more radical approach to education, and maybe the educational establishment needs to look to itself as to whether it should be providing more of that radicalism.

Professor Barr: People always love competition for other people but not for themselves. That is true throughout industry, not just higher education. What universities really want is a return to the ‘60s, where they got huge amounts of taxpayer money, no questions asked. I think they need to be forced into a situation where they are facing real competition. I have lived through this. Until 1980, universities got taxpayer support for foreign students, and we lost that overnight. That did not matter for universities that only had three foreign students, but for LSE, with a third of our students from overseas going back to the interwar period, we were suddenly dropped right in it. And guess what? It worked; we improved what we did for students. We faced genuine competitive incentives, and it did much more than any bureaucrats beating up on us.

Professor Dearden: I think the National Scholarship Fund needs to be looked at again, because of the universities having to fund the first year of anybody on free school meals and stuff. There are some perverse incentives of the current system, whereby universities who take a high proportion of kids with free school meals will have to pay more again.

Mr Binley: We will take note of that. I am grateful for both of those responses.

Q513 Nadhim Zahawi: Professor Barr, on the thick but rich comment-

Mr Binley: It is not true, by the way.

Chair: Self-evidently so.

Nadhim Zahawi: Back to your point about trying to focus more resource on students at an earlier stage in their life. If you have got companies like KPMG doing this, and you have social enterprises or charities, what is wrong with those sorts of charities engaged in this process? The "thick" bit of your argument would not stand up, because you are not asking universities to lower their intake qualification requirement, and therefore if you open up to off quota, maybe we can begin to address some of those access issues because some charities may choose to focus solely on that particular group of people, that cohort, and take them all the way through.

Professor Barr: If what you are describing is a situation where I cannot become an off-quota student at Oxford just because my dad can afford to pay, but only because KPMG or a charity is prepared to support me, then the "thick but rich" does not apply. Then the social inequity does not apply, and it would not be a large effect. I think it would be small but beneficial. But then if you want to set numbers free, you should be doing other things as well.

Professor Dearden: And it depends on whether it is funding additional places or squeezing out places as well.

Q514 Nadhim Zahawi: Well the whole idea of off quota is that they would be additional.

Professor Dearden: Okay, but that is crucial as well-that it is truly additional.

Q515 Mr Binley: Should the Government, perhaps through HEFCE or OFFA, have greater powers to intervene in individual institutions’ fee levels?

Dr Conlon: Yes.

Professor Barr: No.

Dr Conlon: I think one of the biggest issues in the current proposals is that there has to be some degree of pretty strong regulation. I think whoever the regulator ends up being, they have to be properly staffed and resourced, but I think you have to have the ability to impose appropriate sanctions if they believe that the organisation in question is not undertaking what they said they would undertake, or agreed to undertake. I think there has to be a very strong regulation, and potentially there has to be penalties and sanctions, as with any other regulated industry.

Professor Dearden: I am going to come in somewhere in between. I think a lot of the problems over the fees that are being charged are because there has just been a straight cut in the teaching grant-a flat rate grant. If you had designed it better and provided some subsidy for all courses and related it to the fees charged, then you would have had a much wider variety in the fees charged, and not the incentives for everybody just to charge the maximum. I think Gavan’s comments are partly driven by the way that the HEFCE grant has been cut.

Dr Conlon: If an institution is told it can charge anywhere between £6,000 and £9,000, and they have just lost 80% of HEFCE teaching funding, of course institutions are going to charge £7,000 to £8,000 or higher. I think the surprising point initially was that institutions that might not be perceived as being high quality were charging £9,000, but given the fact that many institutions, for example modern universities, lost a greater proportion of their teaching funding because they have a greater proportion of Band C and Band D subjects, they were forced to raise their fees even higher than would otherwise be the case. I think there are real issues, and this is where the regulator comes in, about institutions charging maximum fees in subjects where they still receive substantial Exchequer funding. I think for an institution that still receives the lion’s share of Band A or Band B funding and still charges the £9,000, those price increases may not reflect the cost of provision in those specific courses.

Q516 Chair: I think in fairness, Professor Barr demurred from the others, and I will give you a few seconds in your normal, concise and brief way to sum up your position before I go on to the other issues.

Professor Barr: I was answering the specific question about whether there should be powers in respect of fees of individual institutions. There is a hugely powerful case for having a fees cap. What should be done at the level of individual institutions is quality assurance. Institutions should be free to set whatever fees they like, but there should be robust quality assurance, and the design of the loan should not have the crazy incentives the current system has to give everybody an incentive to go to £9,000. Design the loan system right, let institutions set their own fees, and have robust quality assurance.

Chair: Five minutes now on alternative funding mechanisms. We have already had the graduate tax versus loan debate, so I do not want to go over that again.

Q517 Margot James: Lord Browne rejects the idea of private business making more of a direct contribution to higher education. I think the argument was that private business will be paying graduates higher wages and that is indirectly their contribution. Do you agree, or do you think private business should make more of a direct contribution?

Professor Barr: 100 years ago jobs, like marriages, were for life, and it made sense for employers to invest in the skills of their employees. Today with portfolio careers, my incentive as an employer is to hire trained people but hope that someone else will pay for them to be trained. I think most of the repayments of loans should be from the graduate, and my contribution as an employer is through wages rather than through expecting businesses to come up with a lot of money to train somebody who will then be poached by competitors.

Q518 Chair: I assume you are not advocating portfolio marriages.

Professor Barr: No, absolutely not. No.

Q519 Chair: Any other comments?

Dr Conlon: No.

Q520 Simon Kirby: If I may, I will ask one question and wrap it up with that if I can. We have heard some very interesting things this morning, and some suggestions as to how the system could be improved. To finish, could I ask each of you what advice you would give to the Government as to what it should put in its higher education White Paper? In succinct and practical terms, can you wrap up the advice you have given us this morning?

Professor Barr: If I am allowed one thing, it would be to freeze the £21,000 loan threshold in nominal terms, so that over time the real threshold will fall and start to bring loan design back into balance. If I am allowed a second thing it would be off-quota students where universities pay a university-specific insurance premium. If I were dictator in some peculiar parallel universe there would be more things I would do, but in the realms of what is realistic those are the two that I would push for.

Professor Dearden: I would have a universal maintenance loan and have all the progressivity through the grant system to reduce the complexity and the administrative burden, but I disagree with Nick about freezing the £21,000 in nominal terms, because for each successive cohort, it will become less progressive. I would uprate it with inflation or earnings, but to save money set it at a lower level.

Dr Conlon: There are three things I would say. Do not cut the HEFCE teaching funding by 80% because that is simply excessive. Number two, I would say the system of student support has to be simplified. It is infinitely too complex. The third thing is, for the first time after the oversights in 2006, part-time students have been treated more fairly than was previously the case. I think that is highly advantageous. I think that should be a very strong component of any proposals. I think there is significant positive associated benefit from that in terms of encouraging people to study part time. People who are on full-time routes can switch to the part-time routes; currently they just drop out. I think it adds a lot of flexibility to the system.

Chair: Thank you. I am conscious that we have had to rather hurry the final part of our inquiry. Do feel free to submit a written response to any question that you would like to add to, or indeed to any question that we did not ask but you feel that we should have asked. And of course if we in retrospect think there is anything we need to ask you that we did not, we will write to you. The different perspectives that you brought to these considerations were very helpful and illuminating. Thank you very much.

Examination of Witnesses

Witnesses: Carl Gilleard, Chief Executive, Association of Graduate Recruiters, Matthew Jaffa, Deputy Head of Policy, Federation of Small Businesses, and Oliver Tant, Head of Audit at KPMG, gave evidence.

Chair: Good morning, and welcome. I am sure you got a flavour of the questions while you were sitting there. Can I just reiterate what I say to all panels? You are going be asked a series of questions. Do not feel under an obligation to comment on all of the questions if you feel that an adequate response that covers your particular views and perspective has been given by another member of the panel. Before we start with the questions, please say who you are and what organisation you are representing for voice transcription purposes.

Carl Gilleard: Good morning, I am Carl Gilleard, the Chief Executive of the Association of Graduate Recruiters.

Matthew Jaffa: Matthew Jaffa, Deputy Head of Policy at the Federation of Small Businesses.

Oliver Tant: Oliver Tant, UK Head of Audit from KPMG.

Q521 Chair: Thank you. Again, I will start with a general question to get your perspectives and set the discussion within a framework. What do you think universities are for?

Matthew Jaffa: From the business perspective, universities are there to provide a platform for businesses to take on talented, analytical thinkers to take businesses forward. In the past it has perhaps not been geared so much to small businesses, but the value of graduates is as important to small businesses as it is to any large business.

Carl Gilleard: Doing my homework for this morning, I picked up a quote from an American educator that, "The outsiders want students trained for their first job, and the academic insiders want the student educated for 50 years of self-fulfilment, and the trouble is that students want both." I am on the side of the students; I think it is a combination of both.

Oliver Tant: From our perspective, I think we would like to see rounded individuals developed both in terms of their educational ability and broader pastoral care. The university system is capable of supporting that, and that makes a difference to us as employers.

Q522 Chair: There is an oft-repeated complaint I get from employers about softer skills, the employability skills. What do you think is the best way to teach them, and whose responsibility should it be to do that?

Matthew Jaffa: It does not just lie necessarily with higher education, but stems throughout a person’s education, including teachers and parents. It is the knock-on effect, and at every stage it is giving the learner the tools that an employer is looking for. A degree is important in this day and age, but it is also necessary to have a willingness to learn, determination to succeed, punctuality, customer awareness skills and communication skills. All these skills set you up for your first day in the job. And from that point on it is the employer who will say, "Right, you have those skills. Let me train you in what you need to succeed in this job for yourself and the competitiveness of the business."

Carl Gilleard: I think that employability skills should be embedded in the curriculum. I have visited a lot of universities and seen a lot of initiatives around employability, and the ones that impressed me the most are embedded in the curriculum. That requires buy-in from the institutional management, and in the last decade I have noticed a sea change in attitudes in universities from vice-chancellors down. So embed them in the curriculum, involve the academic staff as well as the careers and support staff in helping the individuals to develop their employability, but emphasise right from the start that ultimately it is the individual’s responsibility. What we should be doing here is helping individuals to take control of their own learning, their career and their life.

A lot of work that has been done on skills development in universities has actually been about skills for the 20th century, and we need to think what will happen in the future; we should be developing skills amongst our young talent for the 21st century. That takes into account globalisation and continuing technological change in the world of work. As a US labour statistics agency has said, graduates today are going to have maybe four, five or six careers, not jobs, by the time they come to the end of their working life. It is impossible for any of us to second guess what those careers are going to be. 10 years ago did any of us really imagine the kind of jobs that are being developed today? It is a fast-changing world, so we do not want to go down a very narrow vocational route where we are simply giving individuals skills that are almost already redundant.

Q523 Dan Jarvis: How are the employability skills you expect graduates to demonstrate different from those that you would expect from someone who left school at 18?

Carl Gilleard: I do not think they really are different. When we try to look to the future, post-Browne and the White Paper, I am not sure what proportion of young people will opt to go to university or go into a training programme, an apprenticeship, or straight into a job, but they are all going to have to face that scenario that I painted a few minutes ago of uncertainty and rapid change, so I think we need to make sure that all young people develop those skills. If they are going into a job at 18, I think there is more of a responsibility on the employer to help those individuals develop those skills, but equally there is a role for schools as well. Effective education and careers information and guidance is important for employability, and that is a process that has to begin in schools.

Q524 Mr Binley: Before I came to this place, I was a businessman, and still consider myself to be so. I interview quite a lot of graduates. I think the real concerns that many of our employing businesses have is the very basic, almost primary education skills that you would expect to have that you do not see. It is enormously frustrating. Skills like reasonable English-grammar and actual, sensible spelling. Skills such as numeracy and literacy, reasonable manners, presentation, which we used to understand from the way the world was. I am an old-fashioned guy-you can tell that by what I am saying to you. There is nothing that disturbs an interviewing employer more than the lack of that level of skills. How do we deal with that?

Matthew Jaffa: From our perspective, the demographic in micro-businesses, what you just said is exactly what our members have been telling us for years. They feel that they are not the ones who should have to pick up the shortfall in the education system. Small businesses get labelled with this tag that they do not train. They do train informally, but they do not want to be training in literacy and numeracy skills because that is going backwards. They want the person to have those skills from the first day they start, and then they can start to look at ways to integrate that person into the business and teach them skills further down the line. Succession planning is a long step, but for that to happen they do not want to be in a position where they have to go two to three years backwards in the skill cycle.

Oliver Tant: I think we are blessed with the opportunity to recruit lots of very capable individuals from higher education establishments. We find that there is an ample pool of people that possess the sort of skills you are referring to. Part of the challenge for us is to recognise that the world is becoming increasingly more complex, and we need to broaden the basic thinking patterns of the people that we recruit into our profession. We need greater levels of lateral thinking ability and life experience amongst the people we recruit. We need to recognise that we are now a global player operating in a global industry, and we are competing with organisations that may be located in very different parts of the world, where the skill sets may be different. We need to make sure we have people who can stand up to the challenges of competing in that environment.

Mr Binley: Many of your customers will be experiencing the difficulties that I have just outlined, and it is relevant to you in those terms.

Q525 Dan Jarvis: In the light of the points my colleague has just made, do you think there is a tendency amongst some employers to advertise jobs as graduate jobs or as requiring degree-level qualifications in order to attract the type of person who is more likely to have those basic skills?

Carl Gilleard: My livelihood is based in graduate recruitment, and if I had to define what a graduate job was today I might struggle. There are jobs where a degree is a prerequirement for all kinds of reasons-maybe the professional institute requires that-but there are also lots of jobs that graduates enter that do not necessarily require a degree but to which graduates bring added value. I think the edges have been blurred and are becoming increasingly so. I am an employer as well; I have been recruiting people for the past 30 years, and whenever we have gone into a recession I have had graduates applying for jobs that would require a basic five GCSEs. I have never been turned off recruiting those graduates because I think they bring added value to the organisation. I do not expect them to stay in those jobs indefinitely, but while they are with us, we are getting extra work out of them. They bring freshness and a different way of thinking to the organisation.

We have done some research called Adding Value Beyond Measure with Anthony Hesketh from Lancaster University, and by working on case studies with employers, he found the speed to value of graduates is much faster than non-graduates. They start to give you a return much more quickly. I took it upon myself to encourage those individuals to start thinking beyond the job they were doing, and as soon as the economy started to improve they moved on. I think that is something a lot of graduates have to accept.

These days when you go to university you cannot expect that after three years you will come out with a half decent degree and walk straight into a job. Those days have gone, so we need to get the message across from day one that you need to develop these very basic skills. You have to compete in the workforce. In AGR’s membership, in 2010 there were 69 applications for every graduate-level vacancy. That is the first time that a lot of young people have been in a competitive situation. Of those, 67 or 68 are not going to get the job, and if you see the quality of some of the applications, the way that some people present themselves, it is not surprising. We need get across that, when you go to university, it is no passport into a guaranteed job of your choice. There are lots of things that you have to develop, and indeed the majority will start in non-graduate jobs, but over time should be moving towards that graduate job if they have developed those employability skills around managing their own career and their own learning.

Q526 Dan Jarvis: Do you think a move towards more part-time and module-based provision of higher education means that we will need to rethink what we mean by a degree?

Matthew Jaffa: From our perspective, for a considerable amount of time we have been advocating that micro-businesses need bite-sized, short chunks of learning that are relevant to the business and can give you that balance between being in education and business. At whatever level of education, courses have been full time, unbalanced and unnecessary for the needs of micro-businesses. We would welcome anything that can make it more tangible to what a micro-business needs, particularly in terms of part-time learning. Again this is something that is very much up for discussion, but we would welcome that move and that shift towards more bite-sized chunks of learning.

Oliver Tant: As a profession we have been used to bite-sized chunks of learning in the context of acquiring accountancy qualifications. One of the features of our school leavers’ programme, and the discussions that we have had with the three universities that formed the platform for it, is that we have been able to develop a degree course that meets both the needs of the student and our business. It involves part-time learning during the course of their sixyear contract with us. Over a four-year period they have two months away from the business in the first three years for their degree qualification, and then in the fourth year a nine-month period away. That suits our business very well, and in conjunction with the way we have managed the accreditation that they gain from that learning in relation to their accountancy qualifications, leads to a very effective six-year learning programme that delivers both a degree and the accounting qualification.

Q527 Dan Jarvis: I want to return to Mr Gilleard’s earlier point about some graduates’ inability to project themselves at interview. How well do you think most graduates identify and articulate the employability skills they have? And do you think some students are unable to map the employment skills that they have gained at university across into the working environment?

Carl Gilleard: Yes. There are some students who get it very quickly. They stand out at recruitment fairs and assessment centres. They have self-confidence, self-awareness, self-efficacy, and a head start over graduates who have not spent sufficient time during their studies reflecting on what they have learnt, and how to use and articulate that learning. That is why employers ask candidates what they will bring to them. A classic example is an employer will say, "Have you had any work experience?" Very, very few students graduate today without having worked at some stage, so the opening line, "Well, I have only…" is enough to turn me off. They have got it wrong from the start. They should say, "Yes, I have. I have worked in the Students Union Bar and I have picked up all of these skills." When they get into that mode of thinking, because they have reflected on what they have done, they are away.

I think there is a responsibility on university staff to help students who struggle with that. No one should get to the end of a £9,000 a year course fee for three years without somebody having said, "Just a minute, you are heading for oblivion here. Those 69 other candidates are going to beat you to it. It is time you pulled your socks up." They might 18, they might be 19, they might be 29, but they still need that metaphorical clip around the ear occasionally to get them to see that life at university is not an end in itself. It is a process that leads on, and some young people are not getting the best returns from their investment. I feel passionately about this, to the extent that I wrote a book with a colleague called If Only I Had Known. I insisted on If Only I Had Known as the title, because of the number of occasions that graduates used that as an excuse when they were in a recruitment process. Sorry, it is too late to use it as an excuse then; it is something that should have been dealt with much earlier.

Q528 Dan Jarvis: Have you seen any evidence of grade inflation in graduates’ degree classifications?

Carl Gilleard: I am sorry to come in again, but I think the degree classification is not a perfect selection tool. Most employers will use the degree classification as a means of reducing the numbers of candidates, but we all know that it is not a standard. A 2:1 from one university is not the same as a 2:1 from another university, and a 2:1 in one degree from one university is not the same as a 2:1 in another degree from the same university, so it is a fairly crude tool. A lot of work has been done over the last four or five years by Professor Bob Burgess’s group looking at the Higher Education Achievement Report. I hope that will be picked up in the White Paper because I think we need more information on the journey that the student has travelled in their time at university. To think that three years of higher education can be reflected in a set of letters after a name in a system that was created 200 or 300 years ago is not good enough for me.

Q529 Dan Jarvis: If it is a crude tool, and I am sure you are right, what methods can you use to identify the best graduates from a pool of applicants?

Carl Gilleard: Employers use a whole range of tests online, including psychometric tests. I was talking to a major employer last week about FE college degrees, and she said, "I don’t care where they get the degree from, If they have a 2:1 we will take them to the next stage, and then we will trust our own selection processes to find the ones who have got the potential, ability, skills and knowledge that we require to take them to the next stage." In this country over the last 20 to 30 years we have developed some very sophisticated assessment tools.

Oliver Tant: I would reinforce that point. We have an online application process; we set academic standards that we require through that. As an aside, it is worth noting that we have applicants from over 540 universities applying to KPMG, and we employ each year on a regular basis applicants from roughly 80, so we have a very diverse group coming from a broad range of universities from within the UK and beyond. Our assessment process involves online application, where the graduate is given some indication of the academic and broader standards that we require, and we then set online verbal and numeracy tests for the candidates to undertake. This results in a process whereby we can distinguish and take forward to interview the candidates that apply online. We interview and then go through an assessment process with a series of tests, psychometric and others, in order to assess those candidates that we eventually offer a job to. It is a relatively well developed and considerable programme to make the judgments about which candidates to bring in.

Matthew Jaffa: Those comments by my two colleagues emphasise the problem and the competitive disadvantage that small businesses have. A small business will not have a clue about psychometric tests or these other things because they do not necessarily have HR departments. They are very small, they do it all themselves, so they will not know how to advertise flexibly or how to advertise part-time roles for graduates. From that perspective they are at a competitive disadvantage against, for example, KPMG and other larger businesses who have this at their disposal and probably get a wider pool of higher-level candidates, while small businesses tend to take on lower-skilled individuals.

Q530 Dan Jarvis: Mr Tant, you said that you receive a range of applications from a broad range of academic institutions. Do you place any weight on an application from a particular institution?

Oliver Tant: That is not a feature. We look at the academic standards that the individual achieves. We are looking for either a 2:1 or a projected 2:1 at the point of time that they go through our process, together with the equivalent of an A and two Bs at A-Level, and two Bs in English and maths at GCSE. Then we are looking at a variety of other skills, which we assess through that process. We recruit from a very broad range of universities, and just for your information, those that in our case rank amongst the highest are universities like Nottingham, Warwick, Manchester, Bristol and the LSE, but we recruit from over 80 universities across the country and beyond.

Q531 Mr Binley: I am great admirer of your school leavers’ programme, and I think we need more of that sort of radical thinking from business and industry generally. Who decides who is admitted to the school leavers’ programme? Is it your company or is the university?

Oliver Tant: KPMG are responsible for recruiting, so we use the type of process that I outlined earlier with the school leavers’ programme, and we basically sought candidates. Durham, Exeter and Birmingham Universities will then see the candidates that we are proposing and have a right of refusal if they see fit, but that is not expected to be part of the process in the vast majority of cases.

Q532 Mr Binley: If I may ask a question that has been raised on a number of occasions during this particular inquiry, is there a danger that the generosity of the KPMG package might create a social divide on campus between those students who are getting paid quite well on sponsored courses and their peers? Do you have any experience of friction in that respect?

Oliver Tant: Well firstly, the school leavers that we will be sending to university will be spending 10 months working for us, with the incumbent costs associated with living in a major metropolis and being able to fund the working environment that they are going to form part of, i.e. living standards, etcetera; so to suggest that they are going to spend most of their time at university on the £20,000 package that we are offering them is clearly not appropriate as a benchmark for comparison with their peers whilst they are at university. I hope that our programme is going to be immensely attractive and that will encourage some of the best students to look to join the profession. I think it is vitally important that professions like ours have access to the best people in the country, because we perform a major role on behalf of UK plc.

Q533 Mr Binley: And do you track and mentor?

Oliver Tant: Part of the reason for choosing the universities-Durham was very instrumental in our thinking on this matter-is the fact that they have very sophisticated pastoral care programmes, which we also dovetail with in the context of the overall support that we are providing for school leavers that join us under this programme.

Q534 Rebecca Harris: As we know, Lord Browne specifically rejected the idea of private business contributing directly to higher education. Any views on that?

Oliver Tant: For a variety of reasons we very clearly believe that our engagement is a good thing. KPMG is basically competing on a global stage; with the types of services that we are providing being provided by organisations the world over, we are competing in an international market. We need a broad range of skills amongst the people that we employ. We need to make sure that we have access to a very diverse group of people who demonstrate different ways of addressing issues and problems. We feel that recruiting from a variety of different sources will add to the range of skills and the diversity of the recruitment programme that we adopt and the type of people we recruit.

The six-year programme that we have put in place is essentially per hour a programme that results in equivalent cost to us as employing somebody post-graduation to join the business, so there is no cost disadvantage to us operating this programme, but it offers us those individuals under a six-year contract rather than purely under a three-year contract. We have an increasing need for a higher level of skills and experience within our professional workforce as some of the more routine activities that the younger ones undertake are being replaced by either greater technology applications that are capable of undertaking some of those activities, or by the ability to access resources from different sources outwith our UK business. From a business perspective this suits us enormously, let alone, hopefully, the advantage of offering an opportunity to groups of individuals who may find it more difficult through the traditional graduate route to get to a career in accountancy this programme provides. We think it is a very positive initiative, and to our advantage.

Matthew Jaffa: I concur with what Professor Nicholas Barr said in the last session, that for small employers it is not their job to get involved in terms of the financing aspect, but it is their job to pay a decent wage and provide the opportunity for the graduate when they start in a business. We are highly supportive of graduate internships after the degree is finished, and that is where we feel the small business angle is on this particular issue.

Carl Gilleard: I was quite surprised by what Nick Barr said. He said it was my job as an employer to pay the wages, but there are training and development costs, and those employers that run graduate programmes would invest at least quarter of a million pounds in salary and training costs over a five-year period in each of the individuals they have recruited. I think that is right. Employers do not take the finished article from university; they expect to have to contribute towards further development. If someone is on an accountancy course, there are the recruitment costs, which are not cheap. Just the screening process and assessment centres for 70 candidates is really quite expensive. Then there are all the onboarding activities. Once they are in-house, there are costs for setting up mentoring. There are costs of going on professional training courses and the salaries. In five years, it is not difficult to reach those sums. Those figures were not mine; they came from an academic institution when we were doing the research on Adding Value Beyond Measure. Employers make a very heavy investment in graduates when they recruit them. That is why they take great care in their recruitment processes and have spent a lot of time developing tools that enable them to eliminate as much of the risk in the recruitment process as possible.

Q535 Rebecca Harris: Going back to the role of the employer in university, whether it is financial support or what have you, would you go so far as to suggest that it would be a good idea for employers to have a greater role in designing university courses in the first instance?

Carl Gilleard: For some courses, yes. A modern university should engage with employers as much as it possibly can. Curriculum design is one element, as is inviting guest lecturers in. A lot of my members, possibly KPMG, will go on campus and run skills sessions, covering some of the points that Mr Jarvis raised about the skills that need to be developed. There are recruitment fairs, careers events. We have talked about internship; businesses and universities could work together to set up work experience opportunities. There are lots of ways that employers can engage with universities. There are some really good practice examples out there, but in all honesty I think we have a long way to go, for example, to make sure that we have enough quality work experience places for all those students who would benefit from them.

The figure for internships is 63%, I think. Certainly about two-thirds of my members offer internships, but some of them are only able to offer small numbers. Now the demand for internships is increasing significantly. I have a son at university. He applied for an internship with a major oil company recently, and he was told that there were 5,000 candidates for 100 places. He was not successful, but it was a whole day’s recruitment process just for an eight-week placement, so you can start to see how the costs actually build up. A lot of students-coming back to how you make yourself more employable-have worked out that having relevant work experience or having been on an internship is a huge advantage when it comes to applying for a job.

Q536 Chair: Before we go on, can I just tease out an issue? I think earlier you implied that universities needed to approach the employer. That seems to be a rather one-sided approach. Is that normally the case, or is there an issue about business being reluctant to engage with academia for a whole variety of reasons? If so, what are those reasons?

Oliver Tant: We at KPMG are a people-driven business. We do not have a factory full of machines. We have 10,500 people in our workforce in the UK, and the development of our people is clearly a critical part of the value that we can provide to our clients and the communities that we form part of. Our whole interest is in reaching out to our people both whilst they work for us and actually once they leave us, because sometimes they come back, but also extending back to their university or pre-university education. We have as part of the school leavers’ programme an advanced outreach programme to ensure that we are encouraging and developing the individuals who are most likely to join those programmes and join us to develop in the right way. I think it is incumbent upon the employer to get involved both at school and university level. Our school leavers’ programme and the degrees that will be awarded to those people participating on those programmes have been designed by the university, by KPMG and by the accountancy institutes in conjunction with one another to make sure that end up with the right university degrees to suit both the academic and subsequent vocational qualifications of the individuals who are on the programme.

Matthew Jaffa: I think from the small business perspective there is quite a lot of work that gets done in terms of education-business partnerships, but only up to about 19. I think in this country we lack that integration between small businesses and university, and that is because it is perceived that small businesses and graduates do not go together. We need to dispel that myth. We need much greater awareness and build up education-business partnerships, not just from 14 to 19 but 14 upwards, to ensure that small businesses can get involved.

Q537 Mr Binley: In an age where jobs are increasingly difficult to come by, entrepreneurialism and the ability to go out on your own grow as a possibility. So what work is being done there? I do not hear anywhere near as much I would like to about entrepreneurialism in schools, and I do not know whether it happens in universities either.

Oliver Tant: We would identify entrepreneurialism as one of the skill sets that we believe greater work could be undertaken on. It is certainly one of the skill sets that we are finding most difficult to obtain in some of the individuals who approach us for interviews. I would add to that the capacity to think creatively, adaptability, and the ability to form relationships. Client relationships are clearly very important, and the ability to extricate information is very important in a business like ours. There are definite soft skill sets that we believe work needs to be done on in the context of both the graduate and school population.

Q538 Rebecca Harris: Where do you think the balance should lie between designing higher education courses that meet business’ needs and scholarship for scholarship’s sake? In the context of the changes happening in our education funding it is quite fundamental-the degree to which people are looking to make sure they are employable as well as excelling at university.

Carl Gilleard: A glib answer, but I would like to see them both have equal weighting.

Matthew Jaffa: No comment on that.

Oliver Tant: I have no comment either.

Q539 Mr Binley: You were sitting there, gentlemen, when I asked a question relating to David Willetts’ statement last week about Government proposals to allow employers and charities to buy university places which are off quota and do not place any burden on the public purse. I think ideas of that nature are worth considering, quite frankly, but I noted he was slapped down rather quickly. What do you think about that?

Matthew Jaffa: I am probably going to plead the fifth on this one. It is not something we have pursued in the FSB, but we are always open to innovative solutions, so it is something that is definitely worth considering but not something we take a position on at the moment.

Q540 Mr Binley: I saw you wanted to respond to the entrepreneurial thing in schools and universities, which directly impacts upon you.

Matthew Jaffa: It does. In the statistics we have seen that about half of young people have considered setting up a business, but only about 7% do so, so there is a major disconnect here. The FSB support self-employment and making it part of education of all ages to encourage people to start up their own business, but again, it would mean businesses going into schools, colleges and universities to instil the message and, on the education side, making it possible for businesses to come in. That is why education-business partnerships are key, and we need to create them across the spectrum. With the new Local Enterprise Partnerships being set up, and growth hubs, we would advocate that it is a key issue that should be addressed within that particular area.

Q541 Mr Binley: Thank you very much. I am grateful for that for the record. Mr Tant, your response to my earlier question?

Oliver Tant: We obviously are off quota, but on the basis that our course is part time and a closed scheme, which the universities are able to organise, and with an employer, we think the type of scheme that we have developed will have resonance across a far wider group of professional organisations, and we will see it replicated in a number of instances elsewhere, both within the accounting profession and beyond. I know from speaking to accountancy institutes that other firms within the accountancy profession have already expressed considerable interest in what we have done, and we have had a whole series of professional bodies come to talk to us about the programme with a view to trying to replicate similar things within their professional environment.

Carl Gilleard: I was out of the country last week getting a nice suntan. One of the key challenges facing higher education, not just in the UK but in many other countries, is affordability. I think the pressures are such that we ought to have an open mind and to at least consider any suggestions that are put forward for finding alternative sources of revenue.

Q542 Margot James: A question for Mr Gilleard. In your manifesto you talk about the need to shift the focus back from quantity of graduates to quality of graduates. What in your view would be the best way to do this?

Carl Gilleard: With the UK higher education system, I have mentioned affordability and it is difficult to sometimes have the best of everything. If it comes to making a choice we must ensure that the quality of higher education is maintained: a) to protect the reputation of UK higher education, which is now operating in a competitively global market; b) for the benefit of those students who invest in higher education so that they get the best deal out of their investment; and c) so that employers are getting graduates who are employable and bring the kind of skills and attitudes that employers require in the 21st century.

In an ideal world we would have both the quality and the quantity. The manifesto had eight points in it, several of which were interlinked. One of those was to remove the cap on fees, so that you bring more income into higher education. Secondly, we would look at quality assurance in higher education, ensuring that courses all meet minimum standards. Thirdly, in a more competitive market, the students, through raised expectations, would drive up standards and improve quality. I still believe that. I think higher education will find its relationship with students will change in the coming years, and one of the reasons why we supported removing the cap was precisely that-to get the students to drive this agenda. I think there are many reasons there.

Also we have noticed that now there is a lot more transparency about what you actually get when you enrol on a particular course, so students will know what the contact hours will be. I have heard mention of a contract-that was in our submission to Lord Browne-like a service level agreement between the institution and the individual. All of that will help to drive up quality. We heard a question earlier about whether employers go to particular universities. Very few recruit from particular universities, but they do target particular universities. The universities they target are the ones that they have had the best response from previously and have built up a reputation for quality over the years. So the whole change in the environment of higher education is going to help drive up standards-at least I hope it is.

Q543 Margot James: What impact do you think the reforms will have on student numbers over the next five to 10 years?

Carl Gilleard: I was expecting that question, and I cannot give you an answer. I think we are in a situation that I have never experienced. I worked in education for many years before I went into recruitment. I think next year will be really interesting. I do not think, with due respect, the Government has got the message across clearly enough about how the fee system works. There is an awful lot of confusion. I watch and listen to the media and I hear potential students saying things that are clearly inaccurate. The messages have not got across. It is very complex and difficult to understand.

In my personal life I happen to be of an age where lots of people I know have children who are in school or going to university. I am finding I am getting asked questions by middle-class parents-not poor parents-whether it is still worth going to university. I think the next year is going to be very difficult. My hope is that it will be similar to what happened when fees were first introduced. There was a lot of concern that that was the end of higher education as we know it. It was pushed through in a White Paper, it happened, and actually applications increased. I think we may have a couple of years when numbers start to fall. We have seen a big growth of applications this year, people trying to get in under the wire, but in three, four years’ time perhaps it will level out, as long as those who are in higher education feel that they are getting the value for money. One of the biggest influences over young people’s decision making are other young people, and if those who are in university do not believe that they are getting what they expected to get from higher education, then that will create a whole set of challenges for the next generation.

Q544 Margot James: To come back on the question of the complexity of the fees system and how the message has not got across, we heard exactly the same message from the first panel this morning. Do you think that the National Union of Students campaign, which has been given an enormous about of media coverage, is partly responsible for all of that misinformation? Could it have backfired in any way? Could it be putting off the very students that it purports to want to encourage to attend university?

Carl Gilleard: I do not think I could possibly comment.

Q545 Margot James: Okay, if no one wants to comment on that. I deliberately did not make the question too political, I hope. I understand that the AGR recommended to the Browne Review that companies and businesses should be encouraged to provide bursaries and other sorts of support to encourage students from low-income backgrounds. As we have got an employer on the panel, can I ask you, Mr Tant, whether your programme has any element of encouraging wider participation within it?

Oliver Tant: It has a very strong element, and indeed one of the motivations for wanting to do it was to reach out to communities who might otherwise not appear on our doorstep through the graduate recruitment programme. We have a number of targeted schools that we identified as an early part of the programme, which initially were schools around our main offices, but are now spread across the UK. The criteria for determining those schools were based on the degree to which they met the national average around free school meal quotients, and we have reached out to those schools with a more intense campaign, looking to target individuals that are coming from those institutions rather than the broader population. We are monitoring that quite carefully. Obviously for legal reasons we cannot show any particular preference to one group or another, but part of the purpose of the programme is to embrace and capture a community of people who we believe have the skills to make a phenomenal contribution to our profession, our business and the broader UK economy, and who might not otherwise find their way into the profession through the existing channels.

Q546 Chair: I applaud what you are doing, but why are you doing it?

Oliver Tant: You may recall I said that our business is basically a business that thrives on the thinking processes and patterns of the people that we have within our organisation. Our belief is that the greater the diversity of people we have, the greater the breadth of thinking that we will have within the organisation. That is to some extent determined by the nature of the experiences that they have had before they join us. One factor will be the type of background and educational experience they have had before they joined. We believe that will be broadening the scope and nature of the individuals who join our profession, and thereby enhancing the breadth of skills and thinking patterns that they will deploy on our behalf as we move forward.

Q547 Margot James: My last question is to all of the panel: are there any other ways that business could be encouraged to follow the excellent example set by Mr Tant’s firm?

Matthew Jaffa: In terms of our members, they have already been sold in terms of the benefits of apprenticeships for their business; but in terms of graduates and internships, that is still a hard sell, particularly for micro-businesses. A recent scheme that was scrapped by BIS to create 8,500 internship places relied on co-funding between HEFCE and business as well, and this was for businesses that had never thought about becoming employers of interns. About 25% go on to employ them full time after the internship. An area that we are championing is that this particular pot of funding was minimal, but at the same time it bought benefits to the Exchequer through more taxation once that employer took on that person full time afterwards. We have pushed David Willetts in particular, but we would inquire as to why that particular pot of funding has been scrapped when it was so beneficial to small businesses.

Oliver Tant: I know you are going to say I would say this, because clearly it affects our business, but we do believe that the sort of scheme that we have put forward and which has been very successful in the context of the level of interest that it has attracted from young people is something that should be encouraged more broadly. Clearly some sort of incentive programme around the responsibility that we are taking on in terms of cost for the replacement university education-maybe by some form of tax break-might encourage more people at the margins to contemplate this type of scheme.

Mr Ward: I think you have anticipated very well the next couple of questions. I almost feel I should have been on the panel, because you talked very much, Carl, about the good practice that is out there. I was at a university that for 20 years has had, and still has, full-time, 48-week, paid placements in industry, has industrialists on exam boards, designing of course, and has personal transferable skills and personal development modules. So there is good practice out there. It is maybe a Russell Group focus that we have been looking at rather than the old polys, which are doing much in terms of enterprise and employment skills. I have got that off my chest.

Carl Gilleard: I am an ex-poly myself.

Margot James: Are all the polys now universities?

Q548 Mr Ward: Many, yes-well, not all. The first question was about the scheme that you referred to, which I think came to an end in March of this year , but it leads us on to the issue of incentives, possibly through tax breaks for businesses, which may be of more benefit to small business-just the issue of tax breaks and financial incentives.

Matthew Jaffa: From our perspective, although tax breaks can be beneficial, they are quite convoluted and complex to understand for a micro-business. Incentives, such as the ones that were available during the graduate internship scheme for small businesses were very simple to understand: co-financing between HEFCE and the small business, 50% to 50%, and it brought benefits to the Exchequer by reduced benefits payments and producing jobs at the end of it. So it has greater economic benefits than just simply providing easy money for small businesses. That is not what it is, and we would not be advocating just throwing money at a problem, but where there are definite incentives and it can bring jobs, which is the important thing and the key economic driver to growth, we should be incentivising that. We would make the plea that that scheme should be brought back into university thinking and business thinking.

Q549 Mr Ward: I would assume you would welcome tax breaks, but obviously it washes its face, in your view, as a good investment.

Oliver Tant: We have clearly undertaken the initiative on the basis that we believe it is beneficial for our organisation, for the people we employ and the communities that we serve, but obviously we believe that there is an advantage to this scheme being replicated more widely, and one way to encourage that would be for some sort of incentive process based around the appropriate employment of individuals through these types of schemes.

Q550 Mr Ward: The final question is to do with the White Paper. As you probably heard in the previous session, what are the three key things that you would like to see in the Government’s Higher Education White Paper?

Matthew Jaffa: From our perspective, the key one would be to bring back the graduate internship scheme for small businesses, or some form of that incentivisation of smaller employers. Secondly, knowledge transfer partnerships: these offer businesses great opportunities, but small businesses are not aware of them, and those who do take up maybe specialised graduates to come into their business are concerned with things like intellectual property and losing their intellectual property to the university. So raising awareness of knowledge transfer partnerships, but also making sure that small businesses are protected in terms of IP and copyright.

Oliver Tant: Two things. First, I mentioned that we are in a global market and so are UK universities, and I think any proposals need to be considered in that context-that they are competing on a global stage. Clearly we do not receive applications from 540 universities in the UK; there is a large number of applicants from overseas. I would also encourage anything, and I would sort of react slightly against Lord Browne’s advice, which encourages private business to engage in and take on some responsibilities for developing the educational platform within the UK for the benefit of our commercial enterprise.

Carl Gilleard: The first would be greater flexibility in provision, with adequate financial support for students. Innovative approaches to learning, as well. I really think one size does not fit all. Why do the vast majority of students have to go on to three-year, full-time degrees? The employability agenda we mentioned, and some incentivisation or encouragement for more placements for students in employment. If I can have a fourth one-I mentioned this much earlier, but I think it is fundamental to getting the formula right-a much greater emphasis, as Lord Browne actually suggested, on a professionalisation of careers guidance services in the UK.

Chair: Thank you. I will repeat what you no doubt heard me say to the other panel. If you feel there is anything that you would wish to add to any of the replies that you have given today, please feel free to send them to us. And similarly, if you feel there is a question that we should have asked but did not, and you would like to respond to, then please feel free to submit that as well. Thank you very much. That will be very helpful in our deliberations.

Prepared 6th June 2011