Select Committee on Education and Employment First Special Report


Third Report: The Dearing Report: some funding issues (HC 241-I)

Third Report:    The Dearing Report: some funding issues (HC 241-I)
Published:  10 December


Government Reply:  Fourth Special Report, Session 1997-98 (HC 557)
Published:  19 February 1998

Government Response

Further Government Action

1. Because the issue is so important, in the New Year we intend to start an inquiry into participation in all post­16 education, covering higher education, further education and continuing adult education.



2. We expect the necessary detailed information on the new arrangements for student finance to be made available as soon as possible, for the benefit of those who are planning to enter higher education in the near future and their families. We intend to monitor the detailed arrangements for the scheme as they become clear.

The Department has produced a range of information material about the arrangements for students, their parents and others.

Advertisements were placed in the national press and radio aimed directly at such students themselves. Posters were also sent to schools, colleges, universities and career services for their use in advertising the existence of the information leaflets and telephone helpline.

In January 1998, the Department published its Progress Report on New Student Support Arrangements in Higher Education from 1998/99.

Later this month, the Department's annual guide to financial support for higher education students will be published.

The Department continues to produce student support information for prospective students, their parents, other advisers and administrators. Written material has recently been supplemented by a comprehensive student support website.

3. We welcome the Secretary of State's announcement of an extra £165m for higher and further education for 1998-9 and his subsequent announcement in November of an additional £83 million for further education. We believe there is a case for the Government to grant additional support for higher education in 1999-2000, as it did for 1998-99. Higher education should not have to face an efficiency saving of more than one per cent in 1999-2000.

We are glad that the Committee welcomes this additional funding.

We note the Committee's views about further support for higher education in 1999-2000. The level of funding for 1999-2000 is being considered as part of the Government's comprehensive expenditure review.

As a result of the 1998 Comprehensive Spending Review, the HE Sector received an additional £320 million for 1999-00 and a further £260 million was allocated for 2000-01. This allowed the Department to implement the Dearing recommendation on efficiency for a further year.

As a result of the Year 2000 Spending Review, in November 2000, (building upon earlier announcements since July) we announced a total of £412 million extra funding for 2001-02 and a further £268m and £298m for 2002-03 and 2003-04 respectively. This means that the planned unit of funding for students will rise for the first time since 1986 and that further expansion will be fully funded.

4. However, fee income is not taxation, and in our view, the proceeds from the tuition fee scheme should not be diverted from improving higher and further education.

Ministers have made it clear that savings for the new higher education funding system will be used to improve quality, standards and opportunities for all in further and higher education.

Nothing to add to original response

5. We urge the Secretary of State to ensure that any such move is resisted strongly.

As above

As above

6. We welcome this decision of the Government. We recommend that the Government accept the recommendation in the Dearing Report that the Inland Revenue be used as the principal route for the collection of loan repayments.

The Government has accepted the Dearing Committee's recommendation that the Inland Revenue should be used as the principal route for the collection of income contingent loan repayments.

Regulations for the repayment of student loans through the tax system have been approved by Parliament and came into force on 1 April 2000.

7. We support the recommendation in the Dearing Report that an independent committee review any proposal to increase the proportion of tuition costs paid by students. However, we believe it should also review any increase in the actual amount of the fee, with the exception of uprating in line with inflation. Any increase in the proportion of tuition costs, or the amount of the fee, should be subject to a debate on an affirmative resolution in both Houses of Parliament, on the lines proposed in the Dearing Report. We would also expect the Secretary of State of the day to be prepared to appear before this Committee (or its successor) to defend any such proposal.

The Government accepts the need for safeguards to limit increases in the level of tuition fees for students. But the Government does not set fee levels itself: it has always been for higher education institutions to charge tuition fees, and they will continue to do so in future.

Either the Secretary of State must be satisfied that the proposed increase is no more than the rate of inflation or draft regulations must be approved by affirmative resolution in both Houses.

Nothing to add to original response

8. The Government should make it clear as soon as possible whether it intends to stick to the £1,000 fee or to "peg" the fee contribution at 25 per cent of the course cost.

The Government believes that it would be unnecessarily bureaucratic to set up an independent committee to review any proposal either to increase the proportion of tuition costs paid by students or to increase the actual amount of the fee beyond up-rating in line with inflation.

The Government believes that the current provisions sought in the Teaching and Higher Education Bill strike an appropriate balance between offering students safeguards against excessive increases in their contributions towards tuition costs, maintaining university autonomy and allowing the Government flexibility to increase both grants and student contributions by, say, slightly more than inflation it that seems sensible and Parliament agrees. The Secretary of State would be willing to appear before the Education and Employment Committee (or its successor) to defend any proposed increase within his control.

The Teaching and Higher Education Act was given Royal Assent on 16 July 1998.

9. We welcome the assurance given by the Secretary of State and urge him to take any necessary steps to ensure that graduates are not discriminated against in applying for mortgages on the grounds that they are paying off student loans.

The Government is concerned to ensure that there is no discrimination against graduates with student loans when applying for mortgages. It will keep the situation under review but, for the reasons set out below, does not believe that any action is needed at this stage.

There is no evidence to suggest that graduates with outstanding student loans are discriminated against when applying for mortgages. The Government does though continue to keep the situation under review.

10. The impression has been formed that a simple accounting change could be made which would generate more money for higher education. However, having examined the evidence, we do not think that this is the case.

The Department and HM Treasury are considering the treatment of student loans in the public accounts alongside the Government's comprehensive expenditure review.

The Government agrees with the Committee's view that the treatment of student loans should reflect the fact that they are a form of investment. Since financial year 1998-99 expenditure on student loans has accordingly been budgeted on a resource rather than a cash basis. The only elements of expenditure which score against the Department's Expenditure Limit are therefore the costs of the interest subsidy on outstanding loans, and of non-repayment due to cancellation of the loan on policy grounds, or default on the part of the borrower. However, student loans will continue to appear in cash terms in Supply Estimates and Appropriation Accounts until April 2001, when Government moves from cash accounting to full resource accounting and budgeting. Student loans will then appear on the Department's balance sheet as an investment, though with provision for default and for the subsidies implicit in the loan. These changes implement the Committee's recommendation.

11. We recommend that the Government change the treatment of student loans for public expenditure purposes to reflect the fact that such spending is a form of investment, and that much of it will be repaid.

As above

As above

12. We will take further evidence on the issue in the New Year, and will seek comment in advance from interested parties.


Does not require any comment

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