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Mr. Jack Straw (Blackburn) : Even though teachers are, on the Government's evidence, much more poorly paid than comparable graduates, graduates going into teaching will still be above the point of the income level that would allow them to defer payments. It is clear from that that loans will act as a further disincentive against recruitment into the teaching profession. Is the Secretary of State proposing that new teachers should be let off from their loan contributions?

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Mr. MacGregor : I shall have a word to say about exactly where we intend to put the figure on incomes. Teachers will be in no different a position from others. It is worth bearing in mind that some students are topping up their income while at university or teacher training college through loans. We are proposing a loan scheme that will be much easier to repay and will not be dependent on commercial rates of interest.

Dame Elaine Kellett-Bowman (Lancaster) : I have been listening with the utmost care to what my right hon. Friend is saying, and I am in favour of a top-up loan scheme. However, I am anxious about those who take up long courses, such as doctors and vets. So far, my right hon. Friend has not referred to that, but it is a matter of considerable importance and, when we are trying to raise the health of the population, we need more doctors.

Mr. MacGregor : Some of these matters will be debated when we have the Bill and we shall not be able, during my opening speech, to deal with them all. However, I do not think that it is possible to exempt any groups of students, and it has to be borne in mind that many of the groups about which we are talking will be in higher-income categories. The individual rate at which they will have to repay will be the same as for everybody else, but it may mean longer periods of repayment for those who have incurred larger loans.

In his statement on 19 June, my predecessor, my right hon. Friend the Member for Mole Valley set out the Government's view on the repayment system. He said that repayment would be deferred when a graduate's income fell below given levels in relation to the average national income. I now come to the point. We have now concluded that repayment should be deferred altogether if the borrower's income is less than 85 per cent. of the national average. This basis for deferment will be built into the arrangements now being developed. I shall later say something about alternative schemes, and show that that is a more favourable position on income than the alternative schemes that are being advocated.

Mr. Straw : The Secretary of State has said nothing new about the point at which deferral operates. That will not help new teachers. How will he help new teachers overcome the burden of loan debt?

Mr. MacGregor : I have said that people with that level of income, whether they are teachers or anybody else, will have to make repayments. We are not making exceptions for any class or profession. As I know that many others wish to speak in the debate, I shall not give way again. The hon. Gentleman can make his points in his own speech.

I shall now report on recent developments on the scheme. Over the summer, steady progress has been made in regular meetings between my officials and representatives of the committee of London and Scottish bankers. A cost- effective and practical scheme is taking shape. Management consultants have placed advertisements to recruit personnel to senior executive posts in the company. I shall come to the point raised by the right hon. Member for Chesterfield (Mr. Benn). The CLSB has decided--on the basis of advice from management consultants--that the loans administration company should be located in Glasgow. I hope that hon. Members representing Scottish constituencies will be pleased. Negotiations are under way to secure premises. Negotiations are well in hand for the

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establishment of the necessary computer systems. This is good, positive progress. I should make it quite clear that Parliament has approved the costs of the preparatory through a Supplementary Estimate this summer, that no initial contracts with suppliers and prospective senior management will prejudice the rights of this House in regard to matters requiring its approval ; and the full-term contracts for personnel, premises and systems will be signed only after the Royal Assent to the Act.

I believe that it was right that, as has already been announced, the administration should be handled by the financial sector and that various financial institutions should have the opportunity to play a full part in the scheme. They can provide a quicker and more personal service. They have skill in handling personal loans. They have experience in advising individuals on financial matters and they have nationwide branch networks. Students will be able to walk into high street and campus branches, discuss their loan requirements and gain ready access to the loans to which they will be entitled. My right hon. Friend told the House in June that preparatory work had indicated that start-up costs for the loans scheme would range from £8.3 million to £11.5 million. He said that annual operating costs would range from £10.4 million to £14 million. Our opponents and those with axes to grind continue to suggest that actual costs will be far higher. Naturally I cannot comment on the figures until the Government's negotiations with the financial institutions, and the financial institutions' negotiations with suppliers of goods and services for the scheme, are concluded. At that stage I will of course report on the outcome in detail to the House.

Mr. Benn : Will the right hon. Gentleman give way?

Mr. MacGregor : I hope that the right hon. Gentleman will forgive me if I do not give way, because I have given way a lot. If he wants to make his points, he can do so in his own speech, and my hon. Friend the Under- Secretary will reply.

Mr. Benn : The right hon. Gentleman should listen to a comment on the point that he has made.

Mr. MacGregor : The right hon. Gentleman may get an opportunity to make his point, but many hon. Members wish to speak in the debate.

Mr. Andrew F. Bennett : On a point of order, Mr. Deputy Speaker. Will you draw to the attention of the Secretary of State that the idea of debates is that there should be an interchange of ideas, rather than hon. Members delivering monologues? Surely it is reasonable for the Secretary of State to give way.

Mr. Deputy Speaker (Mr. Harold Walker) : The hon. Gentleman knows that that is not a point of order. I remind him and the House that a large number of right hon. and hon. Members wish to take part in the debate. I hope that we can get on.

Mr. MacGregor : I sense that some people feel that I have been generous in giving way already.

There are those, I know, who suggest that, rather than a loans scheme or this particular loans scheme, we should introduce a graduate tax as in Labour Australia--or work through national insurance contributions. Some proponents of those ideas sit on Labour Benches.

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In our view, the tax on graduates is not the answer. The Government's policy is to simplify the tax system, not to complicate it. We have been in the business of reducing the number of taxes, not adding to them or inventing new ones. A graduate with a loan to repay knows that the period of repayment will last for only a defined period, and it could be quite short. If a graduate tax were to be a permanent feature of his life on top of a progressive income tax system, that prospect really would threaten to inhibit access to higher education. If it were to be for a limited period, the complications and bureaucratic burden would start to pile up. Above all, my objections are more than just the practical ones. A graduate tax would be unfair because it would not distinguish between those who had benefited from public funds and those who had not ; nor would it relate pro rata to the extent to which they had benefited. It would singularly lack that benefit of culture and attitude which a loans scheme has, of encouraging students to see their higher education as an investment that they are making in themselves for themselves.

A variation on the theme is that the loan should be paid through tax. I have two objections to that. It is using the tax system for a purpose--the recovery of debts--for which it is not intended ; that is establishing a new principle and a dangerous precedent. In addition, the administrative consequences of any form of graduate tax for both employers and the Inland Revenue would be extremely burdensome. Many of the same considerations apply to repayment through national insurance contributions. I know that such an approach is advocated by eminent experts at the London School of Economics, one of whom I know extremely well and who is a friend of mine.

Mr. Straw : Does he agree with the scheme?

Mr. MacGregor : I am entitled to say that there are some features that I think are right and which he has not taken fully into account.

The experts recognise the need to increase the resources available to students, the need to encourage those who have not traditionally benefited from higher education to gain access to it, and the need to relieve the general taxpayer of the burden of paying for these developments. They recognise all of that, but they propose to charge real interest on the loan. That would penalise graduates, who will be protected by the Government's scheme under which repayments can be deferred for those who take time off work, for example, to raise a family, or for those whose earnings are low. Moreover, repayment would begin at far lower levels of earnings under a national insurance contribution scheme and would last much longer. Those are two crucial factors for students. The advocates of such a scheme seek to give a relatively better flavour to their own proposition by attributing wholly unrealistic administrative costs to our scheme. Nor is it right to imagine that using national insurance contributions is a simple alternative. It is not. Again, it would be inconsistent with the purposes for which the national insurance system operates. The administrative burden would be heavy and unwelcome to employers and others, especially the small and medium-sized companies. I am assured that any repayments system using NI could not be introduced before 1992 or 1993.

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But I come back again to the fundamental reason why the Government's scheme is preferable to some of those put forward by our critics. We believe that students should make an investment in their higher education. They should decide, as responsible individuals, how much they want to borrow. They should know at the outset how they will repay their loan and how long it will take. They should borrow money from a clearly identified lender and repay their loan to that lender. In short, we wish to encourage self-reliance and individual responsibility among students. We believe that our scheme fully meets that important objective. They will not get any of those things from a graduate tax.

I turn to the public expenditure implications. The hon. Member for Oxford, East (Mr. Smith) tried to make great play yesterday of the cost of the scheme. Let me make our position plain, dissect his analysis and try to find out what point he was trying to make--what his position is. We have of course made no secret of the figures. There was nothing new in the facts in his press release yesterday that was reported in the newspapers. What was new and revealing about the Labour party was the interpretation that he tried to give to them. The point that he tried to headline--that the initial outlay of Treasury money, as he put it, will not be recouped until the year 2026--was based on his assumptions, and, of course, he chose all the most difficult that he could find. Based on more realistic assumptions, including an 80 per cent. take-up, the public sector borrowing requirement starts to show benefits from about the year 2002-03. And there is a net cumulative saving,--that is paying back all the earlier additional expenditure--some 10 years later : a very different outcome from the hon. Gentleman's figures.

That, however, is not the major issue. For I grant the hon. Member for Oxford, East that there is a higher cost in earlier years. It is in the nature of a loan that it takes some time for the money to come back, but in due course there will be substantial annual savings for the taxpayer, and there will have been a permanent shift in the costs to the taxpayer of our support system, and in its value for money, as well as the non-financial benefits which I have already stressed several times today.

It need not necessarily be that way. The fact that the scheme is initially costly--that the costs exceed the savings in housing and other benefits and from the freezing of the grant--is because we are increasing the total amount of money made available to students. That there is calculated to be a substantial cumulative total before significant total annual repayments are received is because we are making significant additional investment in student support. As a result, the great majority of students will be net gainers from the scheme.

On the basis of this spring's survey of student income and expenditure, which will be published shortly, we estimate that in 1990-91 students would have been able to claim on average some £175 in benefits. Not all are eligible ; we estimate that the average benefit receipt of those entitled would have been about £300. The loan facility--£420 in most cases --will outweigh those benefit receipts. I hope that my hon. Friends will note that parents' contributions will stop escalating in 1990-91. That is relief for parents from that year on.

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So what is the complaint of the hon. Member for Oxford, East? Is it that we have been too generous in providing the additional support to the year 2002 of some £667 million, which he so criticises? Is it that we should reduce the levels of support--that we have been too generous? Is he saying that we should tighten the conditions for deferrals and that we ought to insist on no defaults? He criticises the potential costs of these, too. If the hon. Gentleman claims that he would do it all by grants, let him reflect that that would be a bad deal for parents in the 1990s and an even worse deal for parents and taxpayers generally thereafter.

How would the Labour party finance the expansion? What are its costings? I am sure that we shall not get any answers to those questions today. If the hon. Member for Oxford, East were to proceed by grants alone he would saddle parents and taxpayers generally with unsustainable and unfair burdens for decades to come. More likely--indeed almost certainly--he would make it impossible to finance the increased demand for student places over the period with which we are concerned. That is why I ask how the Labour party would propose to finance the expansion. I wonder whether we shall get any answers to that question today. I suspect that we shall not, because it is typical of the Labour party that it does not know. It is a hallmark of its backwardness that it rejects a solution that in so many other countries is seen simply as sensible.

I have outlined the powerful reasons for introducing the loan scheme and the advantages of it. We are pressing ahead with its preparation. We have parliamentary approval for the costs of the preparatory work. We are making steady progress, working closely with the representatives of the committee of London and Scottish clearing bankers. We shall bring forward the necessary legislation at the earliest opportunity. I am keen that more resources should be available to students next autumn, 1990. Top-up loans will achieve that objective. I commend the proposals to the House.

10.27 pm

Mr. Jack Straw (Blackburn) : The Government's proposals for student loans are fatally and fundamentally flawed. Loans will place a mortgage on knowledge, a debt charge on skills. The scheme will increase the burden on the taxpayer, not reduce it. At the same time, loans will not improve students' incomes. Instead they will cut them. The Government say that loans will increase participation in higher education by the least well off in our society. The scheme is, however, bound to deter such people. We know that the scheme is flawed ; the country knows that it is flawed. Even the Government know that it is flawed. It is holed below the waterline even before it is launched.

We did not have one piece of new information from the Secretary of State this morning, despite the 11 months that have passed since the previous Secretary of State announced the scheme. The review of student finance on which the scheme was based was promised in 1986 to be completed in a year. Instead the review took two and a half years. The previous Secretary of State promised an early debate, but he dodged for all he was worth to avoid any debate while he was in office so as to pass the poisoned chalice to his luckless successor. The House should have little sympathy for the new Secretary of State. Instead of using the opportunity which his accession to new office gave him of quietly abandoning

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the wilder excesses of his predecessor, he has ploughed on without any proper consideration of the merits of the scheme, with that arrogant, contemptuous disregard for the opinions of the House that is the hallmark of the Government.

Why else did the Secretary of State authorise that an advertisement for the managing director of the student loans company be placed in The Sunday Times a week ago, before the House had had a chance to consider or to discuss the scheme? Only a Secretary of State who was determined to ensure that he was completely deaf to hon. Members' representations would have taken such a provocative step. The Secretary of State has said that he has already announced that he will ignore what is said in the House. He told the

vice-chancellors three weeks ago that he was "pressing ahead with implementation." How strangely that fits with the promise by the previous Secretary of State, who said that the review would be a "consultation document Surely that is what the House and the country would expect. Surely I am not expected to hold a review under a Government Minister and to slap the result on the table and say That is that'."--[ Official Report, 18 June 1986 ; Vol. 99, c. 1063.]

That, however, is exactly what this Secretary of State has done. It is a great pity that the right hon. Gentleman has not listened to some of the wiser counsel from his own Benches. The hon. Member for Leeds, North-West (Dr. Hampson) is quoted this morning in The Times Higher Educational Supplement as saying :

"We are potentially into another poll tax scenario in which MPs welcome the principle of loans without waking up until it is too late for the practical repercusions."

What so exposes the intellectual inconsistency, the administrative incoherence and the financial ineptitude of the scheme is not the test that we would set for the scheme, but the objectives laid down for it by the Government. The scheme fails on every count. First, there is the simple, stark, preposterous truth that a scheme originally intended to save money to reduce the burden on the taxpayer will in fact cost more money from now until well into the 21st century. The principal justification for student loans has always been that they would cost the public purse less than any system of student grants. That is why, over the years, there have been repeated references to the alleged generosity of the British system. "We have the most generous system of student support in the western world", the right hon. Member for Mole Valley (Mr. Baker) often used to say--an assertion repeated this morning by the present Secretary of State. His predecessor did not just imply that student support should be cut ; he spelt it out explicitly. "We are reducing the burden of student support on the taxpayer", he said. A Conservative Central Office brief underlined that, and stated : "There is a limit to the number of students the taxpayer can support : especially when other important demands on the Treasury, such as the care of the elderly and the disabled, are considered."

Mr. Edward Leigh (Gainsborough and Horncastle) : On the point about cost, will the hon. Gentleman commit a future Labour Government to increasing student grants to a level commensurate with what students would receive under the top-up scheme? Will he explain what would be the implications for taxation and what would be the cost?

Mr. Straw : The Labour party's position on student support is made absolutely clear in our policy review

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document. We shall maintain the grant system. It does not lie in the mouth of any supporter of the Government's scheme to complain about Labour party policy, because, although the income to most students will be cut under the loan scheme, the cost to the taxpayer will be more than it is for the grant system. Conservative Members do not understand the scheme and have not accepted the advice of the hon. Member for Leeds, North-West to take account of those facts. Mr. Leigh rose --

Mr. Straw : No, I shall not give way as I am about to deal with the hon. Gentleman's points.

It is true that the real income of most students will be cut by the introduction of the loan scheme--something to which I shall return later. Students' incomes will be hit by the scheme, especially those from lower income homes. What makes such cuts in students' incomes so gratuitous and so wilful is the fact that, far from saving the taxpayer money, the scheme will cost more than the grant system from now until at least 2015 and probably 2026. The additional expenditure will, however, produce no discernible social or economic benefits ; instead it will disappear into a black hole of vast administrative expenses and enormous default and deferral costs.

Annex E to the White Paper admitted that the scheme could not start to show annual savings until 2002, nor break even until 2013. As ever with a document from the hand of the right hon. Member for Mole Valley, the annex told only half the truth. Those calculations did not include the cost of the so-called access funds of £15 million a year, nor take account of the cost of administration.

Thanks, however, to relentless and assiduous questioning by my hon. Friend the Member for Oxford, East (Mr. Smith), a clearer picture now emerges. There is no point in the Secretary of State complaining about my hon. Friend's figures, because they are the right hon. Gentleman's figures. On 80 per cent. take-up, no cumulative saving will arise until 2014--

The Parliamentary Under-Secretary of State for Education and Science (Mr. Robert Jackson) : Will the hon. Gentleman explain the difference between current saving and cumulative saving and say when, under the Labour party's proposals, there would be any savings at all?

Mr. Straw : Surely the Minister knows the difference between current savings and cumulative savings. Current savings arise year by year. According to the Government, current savings will not arise until 2002, and cumulative savings will not arise until 2014.

Mr. Jackson : Deal with the issue.

Mr. Straw : I shall indeed deal with the issue of the Labour party's position. We believe that the major part of the cost of higher education needs to be borne by the taxpayer, and we do not resile from that. We are not in favour of pouring money down the drain, into the pockets of financiers or randomly into the pockets of those who default on loans--

Mr. MacGregor rose--

Mr. Straw : No, I am about to ask the right hon. Gentleman a question, which he can then answer. He said that higher education cannot realistically expect a greater share of public expenditure. In fact, the greatest share of

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public expenditure on higher education goes not on student maintenance but on tuition costs. Currently, more than twice the amount spent on maintenance is spent on tuition costs, and those tuition costs are met by the state. Are we to conclude from the right hon. Gentleman's statement that the whole of the future expansion of higher education, tuition costs as well as maintenance, is now to be financed not by the taxpayer but by the private individual?

Mr. MacGregor : My hon. Friend the Under-Secretary of State will deal with that point--[ Hon. Members :-- "Answer the question."] This is not Question Time-- [Interruption.] We will deal with the point, but I do not wish to make a long intervention now. I stood up only to ask the hon. Gentleman a question--[ Hon. Members :-- Answer the question."] We will. Is the hon. Gentleman saying that the Labour party opposes the scheme's proposals for deferral for those on low incomes or not earning anything at all? Is the Labour party also opposing the scheme's proposals on defaults?

Mr. Straw : Of course, I am not saying that, within the awfulness of the scheme, we are opposing deferral. The Secretary of State said that this was not Question Time, and it obviously is not answer time. I have raised a central issue and it is no good the Secretary of State dodging it or relying upon his acolyte, the Under-Secretary. It is a central question about the future course of public expenditure on higher education. It is absolutely critical.

The major cost of higher education is tuition. The right hon. Gentleman said that he is sticking to his predecessor's plans to double the number of students in higher education over the next 25 years. He also said that higher education could expect no greater share of public expenditure in future than it has now. Am I right in saying, therefore, that that must mean that the whole cost of not only maintenance but tuition will be borne by the private individual?

Mr. MacGregor : My hon. Friend the Under-Secretary will answer that point.

Mr. Straw : No, answer it now.

Mr. MacGregor : No, my hon. Friend will answer it when he replies.-- [Hon. Members :-- "Answer, answer."]

Mr. Straw : I shall abandon my speech if the Secretary of State is prepared to answer that question-- [Hon. Members :-- "Answer, answer."] What is the answer? How can the right hon. Gentleman leave the answer until the end of the debate? That cannot possibly be right. I see that he is being passed a piece of paper-- [Hon. Members :-- "Answer, answer."]

Mr. MacGregor : This matter has nothing to do with our debate today, which is why I did not deal with it in my speech. Nevertheless, I shall make it clear that we are proposing loans to top up maintenance grants. I know that currently there is a debate in the Committee of Vice-Chancellors and Principals of the Universities of the United Kingdom about the funding of higher education in the 1990s, including full cost fees. It is clear that that debate has a long way to go, and I am sure that we are all interested in it, including the hon. Gentleman.

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Today we are debating the proposal for an important new means of support for students, and that is a scheme for loans to top up maintenance grants. We have no plans to introduce fees paid by students.

Mr. Straw : The right hon. Gentleman gives the House half an answer. If there are no plans to introduce tuition fees, his earlier statement that higher education cannot realistically expect a bigger share of public expenditure is completely inconsistent to the point of mendacity with his pledge to double student numbers. One cannot expand higher education, double student numbers, and claim that students will not be charged the full cost of tuition, while at the same time claiming that public expenditure on higher education will not increase. As a former Treasury Minister, the Secretary of State must recognise the impossibility of doing so.

On 80 per cent. of take-up, there will be no cumulative savings until 2014.

Mr. Jackson : The hon. Gentleman is on weak ground.

Mr. Straw : The Under-Secretary of State suggests that I am on weak ground, but it took 10 minutes and a lot of wriggling by right hon. and hon. Members on the Government Front Bench to provide half an answer from the Secretary of State as to the Government's future plans for higher education. No wonder that it was decided to dodge that topic and keep it for the Minister's winding-up speech, when no Opposition Member could possibly take it up.

The Secretary of State should have glanced behind him to see the incredulous faces of some Conservative Members when he stated that public expenditure had nothing to do with the question of tuition fees. It has everything to do with it. The Secretary of State claims that he wants to increase access to higher education, but not only sticks loans on students but also the full cost of their tuition. How the devil does he expect students, except those from the wealthiest homes, to finance their own higher education?

The lack of cumulative savings until at least 2014, and probably not until 2026, arises because of the scale of the interest rate subsidy, and administration, deferral and defaults costs. I asked the Under-Secretary of State a question about his assumptions as to the interest rate subsidy built into annex E. He replied : "The costings set out in annex E of Com. 520 are expressed in constant prices, and are accordingly not affected by interest rate assumptions."--[ Official Report, 19 October 1989 ; Vol. 158, col. 185. ] If that is true for the costings, it is not true of the scheme. Even if the costings are expressed in terms of constant prices, the difference between the nil real interest rate that will be charged to the student and the cost to the state of the money that the loans agency borrows will be variable, depending on the overall real interest rate in the economy. When the Under-Secretary of State replies, perhaps he can say more about the assumptions made in that respect. Is it expected that the real interest rate will remain at its present level of 8 per cent.--or that it will be, say, 5 per cent?

What is to be made of the statement on page 10 of the Price Waterhouse report that the amount borrowed should be spread over the London inter-bank rate, which suggests that the interest charged on the money brought into the books of the agency will be higher still than the

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minimum lending rate? Answers must be given to those questions as they fundamentally affect the further costings omitted from the White Paper.

The anticipated administration costs are all based on the Price Waterhouse report, which was produced in just three weeks--an impossibly short time in which to give the matter serious study. Key data about take-up and repayments were not independently calculated but were provided by the Department of Education and Science. The Secretary of State received a further report from Price Waterhouse a month ago, and I regard it as an insult to the House that he refused to put that report before the House in anticipation of today's debate.

On 19 June, the former Secretary of State's immediate predecessor told the House that start-up costs would be between £8 million and £11.5 million, and the annual operating costs between £10.5 million and £14 million. Again, those figures were downright misleading. They did not include debt collection agency fees, the depreciation of start-up costs, marketing and publicity, university administration costs, and other costs to the Department of Education and Science. When just some of them are included, operating costs rise to between £14.5 million and £20 million. Although the Department denies this, those costs will rise again as the number of debtors increases. The extent of deferrals and defaults anticipated by the Department is staggering. On 24 July, in a written answer, the Under-Secretary of State, the hon. Member for Wantage (Mr. Jackson), estimated that 41,600 people will default and that there will be 336,000 deferrals. That means that the total number of students claiming deferral or defaulting will exceed those making repayments. Half the 250 staff to be sited at the loan agency in Glasgow will be engaged in nothing but default chasing ; and no doubt an outside army of debt collectors, credit agencies and bailiffs will also be employed.

The official line that the scheme is designed to save the taxpayer money was repeated four weeks ago in the Secretary of State's speech to the vice- chancellors' and principals' conference at Leeds. He stated that

"it reduces the dependence on the ability of the taxpayer as a means of finding the extra resources."

I am sorry that the right hon. Gentleman has been lured into such a trap by either his officials or the Under-Secretary of State. The right hon. Member for Mole Valley--and I am glad to see his parliamentary private secretary, the hon. Member for Bury, North (Mr. Burt) in the Chamber--may have little shame, but he recognises an impossible case when one stares him in the face. He tried to make an impossible case last November. In the space of four minutes he said of the loan scheme :

"The net cost of the scheme to the Treasury will be £850 million so there will be an increase in Government expenditure."

But, later he said :

"We are reducing the burden on taxpayers."--[ Official Report, 9 November 1988 ; Vol. 140, c. 307, 309.]

One month later, my hon. Friend the Member for Leeds, Central (Mr. Fatchett) put those two inconsistent statements to the present Secretary of State for Education and Science, and asked about the cost of the scheme to the taxpayer. The right hon. Gentleman replied :

"The proposal is not meant to cut the amount of money spent on higher education but to increase it."--[ Official Report, 20 December 1988 ; Vol. 144, c. 277.]

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That statement is completely at variance with the earlier comments made by the right hon. Member for Mole Valley.

On the most conservative basis, the scheme will cost the taxpayer at least £1 billion over the next 10 years. That money will be squandered on moneylenders, bureaucrats and defaulters and could be far better spent on restoring the value of student grants and on paying for the expansion of higher education to which the Government are apparently committed.

I turn to the crucial matter of access to higher education. Before the war, higher education was largely the preserve of the well-off. Hundreds of thousands of young people were denied a fair chance of higher education because their families had insufficient incomes. The present system of student grants was developed at the end of the war and finally became established in the early 1960s to ensure that the experience of pre-war days, when individuals were denied their life chances because of their family backgrounds, would never be repeated. Some millions of people today owe their education and livelihoods to the chances that the grant system offered them. I happen to be among them. Many Conservative Members are in the same position, and it is to their shame that they are now to pull up the ladder of opportunity behind them and to deny others the opportunities that they themselves enjoyed.

In 1985-86, the Conservative-controlled Select Committee on Education and Science inquired into the awards system. Paragraph 8 of the Committee's report remarked :

"Without the award system, it is unlikely that the expansion of universities and polytechnics over the past two decades could have taken place. It has provided the means for extending the educational opportunities of the nation as a whole and has widened the base from which the most skilled manpower of the nation may be drawn. In the view of the Committee an award system, analogous to the grants system introduced in 1962, will continue to be essential in the years ahead if national requirements are to be met."

The report added that the grants system had encouraged access by a wider range of social groups.

Mr. Alistair Burt (Bury, North) : The hon. Gentleman, with his high moral tone, is getting into his stride, but, if his argument were valid, no other country in which there is a mixed system of grants and loans would have a higher proportion of students from lower socio-economic classes than this country, which is patently untrue. There is no evidence that such is the case. Rather, the record of such countries is better than ours. How can the hon. Gentleman possibly sustain his moral tone on access when there is support for the Government's figures?

Mr. Straw : If that claim is nonsense, it is the nonsense of those of the hon. Gentleman's right hon. and hon. Friends who were members of that Select Committee on Education and Science. I do not recall the hon. Gentleman telling them at the time that it was nonsense. I shall deal shortly with international comparisons, but one of the characteristics of British society that makes it different from those of Japan, the United States and western Europe is that it is far more class-ridden and, above all, has a far more divided system of secondary education. The blocks on working class schoolchildren achieving higher education are far greater in this country than in others. Significantly, as the hon. Member for Southwark and

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Bermondsey (Mr. Hughes) has said, other countries are moving in the direction of a grants system, not away from it.

The conclusion of the Select Committee is borne out by the facts. The White Paper reports that participation in higher education by children with fathers in manual occupations more than doubled under the operation of the present grant system, from 3.2 per cent. in 1962 to 6.9 per cent. in 1985. The House of Commons Library's statistical section looked at the same data from the last general household survey for me. Those with fathers characterised as "unskilled manual" make up 5 per cent. of those aged between 40 and 49 who received higher education 25 to 30 years ago. The comparable figure is 13 per cent. of those aged 30 to 39 and 16 per cent. of those in their twenties. Taken together, these data confirm the conclusion of the Select Committee which examined the operation of the grants system during the past 30 years, and suggest that the progress made over those three decades has fallen back in the 1980s.

Other figures show that the proportion of candidates with fathers in manual occupations accepted for university has declined from 22 per cent. in 1979 to just over 19 per cent. in 1988. In the same period, the real value of the grant was cut by 20 per cent. It is hard to avoid the conclusion that these two factors--a decline in working-class participation and a decline in the value of the grant--are linked. In other words, access is related to income. We believe that, and so does the Secretary of State.

The Secretary of State has claimed here today that, somehow, loans will lead to increased access. Let us briefly examine how that could possibly be achieved. There is one key figure about which there can be no argument : 30 per cent. of all students receive a full grant, either because they are independent of parents or because, as is the case with 27 per cent. of them, their parents' income is so low that even the Government say that those parents should not pay towards their children's maintenance. Those students will be hit immediately by the cut in housing benefit, which has already been cut once and is to be cut again. They have been hit by the decline in the real value of grants, and they will be hit by the poll tax-- students in Scotland have already been hit by it. Now those students will be hit by the freeze in the real value of the grant.

Students with the greatest need and the least resources will lose the most when loans are introduced. There is no conceivable way in which this scheme can possibly encourage access to education. The only students who will benefit are those who come from wealthy homes, who will be able to swap the expensive credit that they get on their credit cards with the cheap credit that they will get under this scheme.

The scheme will restrict access and distort the labour market. Access to medical and dentistry schools will become the privilege of the well off even more than it is today, as my hon. Friend the Member for Newham, South (Mr. Spearing) has said.

Recruitment to teaching will be damaged still further. There will be a special effect in Scotland. The Secretary of State made something of the fact that 250 jobs will be created in Scotland. I have yet to meet a Scot who does not think that if there is that kind of money available it should be put into expanding the Scottish education system and

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not wasted on a debt collection agency, whether in Glasgow or anywhere else. It is significant that there is no Scottish Minister here today to take account of the way in which Scottish education will be disproportionately hit by this scheme.

The Secretary of State relies on international comparisons in support of loans. He could name no other country where Ministers are so incompetent as to introduce such a scheme. He knows that New Zealand tried to introduce a similar scheme but had to abandon it because the banks would not co- operate. He also said nothing about the fact that Britain's higher education is cost effective. We have lower wastage rates. We produce graduates in a much shorter time than do other countries because our students do not have to worry about where the next penny will come from. In the United States, students with loans drop out at three times the rate of those with grants or wealthy parents. Grants produce efficiency. Countries which have loans have a higher drop-out rate and longer degree courses. Countries with loans are now moving away from them because of the hardship and restricted access to education that they produce. That is what is happening in West Germany and Sweden.

Even the financial institutions are decidedly lukewarm about the scheme. University chancellors and polytechnic directors do not support the scheme, and precious few Conservative Members support it. The students and polytechnic teachers do not support it of course, and the banks do not support it.

The Secretary of State could give us no further details about arrangements between the banks, this agency and himself. I wrote to the right hon. Gentleman last week about the indemnity that banks are demanding as a price for proceeding with the loans scheme. The banks have rightly demanded-- although we oppose it--an indemnity against a change in Government. There will be a change in 1991, and we will not operate this scheme. The banks have also demanded an indemnity against a change of policy by this Government. Would the Secretary of State like to say anything about that? It is a most extraordinary arrangement. The banks bear no financial risk under this scheme ; they are just fronting up a disguised quango. I am grateful to my hon. Friend the Member for Fife, Central (Mr. McLeish) who has drawn my attention to page 10 of the Price Waterhouse report, which says that the financial institutions will require a return for the remaining risk.

"Essentially this is not a financial risk but a risk that their reputation could be impaired by their involvement".

Perhaps the Secretary of State, or the man who has been feeding him his lines--the Under-Secretary of State--could say a word about this embarrassment. I agree that the banks will be embarrassed and that that is why they want nothing to do with the scheme. There will be not a Midland bank, Access or Visa student loan scheme, but the London and Scottish clearing banks scheme, and no one has ever heard of that. It is not an organisation that is talked about in student unions.

It is to front up this scheme and it is so deeply embarrassed about its involvement that it wants some compensation, which it says can be obtained by putting a spread on recurring expenses or a spread over the London inter -bank rate on the funding. The Under-Secretary of State had better say a word about this.

The loans scheme is so bad that it is difficult to work out why Ministers have pursued it. The only credible

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