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Sir Robert Smith (West Aberdeenshire and Kincardine): The hon. Gentleman seems to have missed the past 20 years--the cuts in the 1980s when the Conservative Government declared that there were too many students in universities, and the expansion that was declared to be market driven, only for the Government to discover that students were not studying what they wanted them to study; so they introduced quotas, then targets, then capping, then expansion again. They destroyed the whole structure of our higher education. We would have been in a far better state if they had not been so manic in their change of policies every year.

Mr. St. Aubyn: I cannot help noticing that those Liberal Democrats who have spoken so far are passionately against the Government's proposals. It will be interesting to see whether their leader resigns from his Cabinet Committee as a result. Is this yet another example of Liberal Democrats saying one thing while they do something completely different?

Mr. Lembit Öpik (Montgomeryshire): Will the hon. Gentleman give way?

Mr. St. Aubyn: No, I shall not give way again for a while.

In Britain, almost twice as many go through the tertiary education system as in France, Germany and Italy. Not only is our system efficient, but it delivers results. Across the G7 economies, the proportion of gross domestic product put into research and development is an average of 2.1 per cent. In Britain it is 2.2 per cent.--1.5 times the proportion in Canada, nearly twice the proportion in Italy, and nearly the same as the proportion in France, Germany, Japan and the United States. Of course we want to be at the top of the league, but we are in there and we have a highly respectable place in it.

If there is a problem in the jewel that we passed on on 2 May, it is one of success. As has been acknowledged by representatives of all the parties who have spoken today, the Conservative Government widened access. It is that increase in access which has created the immediate problem of funding, which the Dearing report puts at £350 million a year.

The student loan book is growing at the rate of nearly £1 billion a year. Had the Government simply spent a short time working out how to unlock the value in that student loan book, they could have solved the immediate funding crisis at a single stroke and avoided this rush into a hasty judgment. They could have avoided tens of thousands having to give up their gap year and many more tens of thousands having a gap this year, next year and every year. As a result of the Government's actions, people will be deterred from entering further and higher education.

Mr. Willis: The hon. Gentleman alludes to an important issue which goes back to yesterday's debate. The sale of the student loan portfolio for this year of £1.6 billion and for next year of £1.5 billion, to which the hon. Gentleman correctly referred, was the Conservative

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Government's policy. This Government picked up the legislation and got it through the House because it was in the tax and spend plans.

Mr. St. Aubyn: The hon. Gentleman is completely off beam because we are talking about the growth in the loan book, not the sale of the old loan book.

The Government propose to raise the typical graduate's debt on leaving university from an average of around £5,000 to £10,000, or even, in areas such as I represent, possibly as much as £15,000. Unlike the Conservative Government's changes to the system, which were phased in over a long period, the Government propose to introduce their changes at a stroke.

It is surely a measure of the mistake that the Government are making that they have created an enormous flaw in the system. There must be such a flaw when a student leaves university with a debt of £15,000 around his shoulders and yet the value of that debt in the Government's hands, whether it is retained on their books or sold to some third party, or whether they undertake accounting tricks, is not much more than £5,000 or £5,500. That is fundamentally a flaw and a mistake in what the Government are doing.

That flaw arises because, without thinking the matter through, the Government have chosen to allow the system that they inherited, which was designed for low levels of student loan, to grow into a mammoth system which lends a great deal of money but produces very little for the Government's coffers. It is rather as if a business decided to resolve a cash flow crisis by trebling its prices while at the same time giving such generous credit terms that its cash flow worsened. How little confidence we would have in such a business and how little confidence the House should have in such a Government.

Had the Government made some modest changes to overcome the immediate funding crisis, they would have had the time that they need. The Government need time. They need time to explain to us how they will control the level of fees. Dearing is specific about that. He proposes that an independent body, involving the institutes of higher education, should be persuaded before any change in the proportion of fees was approved. The Government propose such a change by a resolution of the House in which they have a vast majority.

As we have already seen, Labour Members have proved to have no conscience, changing their minds when they hear the buzzer of the Minister without Portfolio on their little machines, and dropping their opposition to tuition fees in one fell stroke. No doubt they would drop their opposition to changes in those fees if required to do so by the Treasury. Moreover, if students are to contribute more to the cost of their education, time is needed so that they benefit more.

The other major weakness of the proposals is that future benefits, such as quality assurance, will require time. We should help rural students to get an education that will cost them a great deal more, and we should try to change attitudes among those in their ninth and 10th years at school, because that is when attitudes must be changed if we are to encourage them to gain access to the system when they leave the sixth form. All those benefits will take time to feed through. The haste in which the Government want to implement their new policy will

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deny us the time that is needed. It is a mistaken policy and will do great damage to the system of higher education that the Government inherited on 2 May.

5.40 pm

Ms Margaret Hodge (Barking): The speech that we have just heard from the hon. Member for Guildford (Mr. St. Aubyn) shows the depths to which the Conservative party has sunk since the election. The Conservative Government set up the Dearing inquiry because they had created a funding crisis in higher education. Conservative Members now want to wash their hands and walk away. It seems that they are even more shameless in opposition than they were in government, or, as with Europe, that they have abandoned pragmatic good sense for the wilder extremes of knee-jerk opposition.

Let us consider the facts. It was the Conservative Government, not the new Labour Government, who left universities expecting a £3 billion hole in their funding by 2000. It was under the Conservative Government that vice-chancellors saw their per capita funding cut by a quarter since 1989. The new Government inherited a situation in which the universities are short of money and academic standards are threatened, in which students are poverty-stricken and ever more are dropping out, and in which expansion has been halted just when consensus had developed around the importance of education and training.

The current student finance arrangements are a mess, and everybody knows it. They have evolved through piecemeal change and through compromises with vested interests. The idea that there ever was a golden age of free higher education for all is a sham. Nothing has ever been done to help either part-time or mature students, whose numbers have tripled since 1980, who often come from the lowest-income households and for whom we want to improve access. They have always contributed to their higher education.

The Conservative Government expanded student numbers, but they failed to put in place either the funding or the necessary student finance arrangements. They tried to build a higher education system for the next century without pausing to lay the foundations. Their student loans system has been dogged by problems. Repayments are not related to income, so they hit poor graduates hardest.

When the facade began to disintegrate, what did the Conservative Government do? They froze expansion and ducked the difficult questions. They passed the buck to Dearing before the election, and have now disowned his recommendations.

Mr. St. Aubyn: Will the hon. Lady give way?

Ms Hodge: No, I will not, because of the shortage of time.

I cannot believe that the public will be fooled by the Conservative party's unprincipled scrabbling for votes. Labour Members are prepared to face the hard facts. In the long run, the taxpayer cannot meet the spiralling costs of a mass higher education system. We are spending more than £6 billion a year on higher education, yet it is not enough. I congratulate my right hon. Friend the Secretary of State on finding an extra £165 million this year. It is

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much needed, and the previous regime would never even have tried to help. In the long term, a more fundamental approach is required.

The Government have had the courage to grasp the nettle. Not only are they putting into effect their manifesto pledge on student maintenance, but they have had the courage to implement the Dearing recommendations and introduce tuition fees. They are putting in place a sensible system for funding higher education that is sustainable in the longer term. It will allow us to expand and extend participation to reach the target set by Ron Dearing in his report. That target is affordable, and will protect the quality standards that we value in our higher education institutions.

Income-contingent loans will mean fairer repayments for graduates. Payment will be based on ability to pay. The scare stories about higher levels of debt are misleading. Pay-back will be spread over a much longer period, and graduates will repay only when they can afford to do so. No student or parent will have to face up-front costs that are higher than those under the present system. Students from low-income families will not have to pay anything towards their fees.

I believe that the Government's proposals achieve the necessary balance between finding more money for post-18 education and protecting access. Although it is right that, to improve access, those from low-income families should not have to pay tuition fees, it is also right and fair that those who benefit from a university education should contribute towards costs.

Let us consider the difference between the position of graduates and that of non-graduates. In 1996-97, unemployment among graduates stood at 4 per cent., whereas unemployment among non-graduates was 8.2 per cent. Gross weekly earnings of non-graduates were £237, whereas graduates earned about £457 a week: a massive £220 difference.

I have one question for those who support the current system, or who advocate a return to the days of full grants. Is the money really being spent where it is most needed? The answer must be no. Fewer than 10 per cent. of university students currently come from a background where parents are unskilled or partly skilled, whereas two out of three come from the top two socio-economic class backgrounds. The current system ensures free education only for those who are already achievers, the majority of whom come from better-off families. That is unfair, inefficient and indefensible.

For too long, further education has remained the poor relation in the tertiary sector. Further education is vital if we are to make a learning society a reality. Two thirds of those who continue in post-18 education do so in further education colleges. A quarter of FE students pay their own fees, and most receive no financial support from the state for maintenance. We need to strike a new balance between higher and further education: one that recognises the importance of the FE sector, and that offers FE students a fair deal.

I urge my right hon. Friends the Chancellor of the Exchequer and the Secretary of State for Education and Employment to consider two further issues. The first is the means by which graduate repayments are collected. One of the reasons why the current student loans system

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has been such a disaster is the bureaucracy involved in recouping the loans. It would be much simpler if repayments were collected through either the national insurance or the tax system. That would make it easier to track graduates, and would cut bureaucracy. It would also make the loans more secure.

Like other hon. Members who have participated in the debate, I want a change in the way in which student loans are dealt with in the public accounts. The current system treats grants and loans as the same, which is nonsense. It is true that student loans have to be funded initially by the Treasury, so they should come within the public sector borrowing requirement. But that is not straightforward Government spending. As Bill Robinson, the former Treasury official and adviser to the Treasury Select Committee and to a former Chancellor, said in evidence to the Select Committee on Education and Employment, not all lending is necessarily spending.

The Government will recoup a large percentage of this debt. Over time, only the interest subsidy and the bad debt will have to be met by the public purse. Most modelling suggests that most Government lending will be recouped. It therefore seems common sense that not all lending should be classified as spending for spending control total purposes.

That may seem an esoteric point, but it is not. If the accounts could be changed, it would allow the Government greater flexibility. It would allow them to use the money that they know that they will recoup to expand access and improve standards. I hope that my right hon. Friends will be able to examine that issue, which could do much to alleviate the short-term funding crisis facing universities.

The Government have been left to pick up the pieces that were left by the Conservative party. My right hon. Friends should be congratulated on the way in which they have responded to the Dearing report. In a few short months, they have tackled the problems that the Tories left to fester for years. The challenge for the Government was to reform the system to increase equity, provide the resources--

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