Select Committee on Education and Skills Minutes of Evidence

Examination of Witness (Questions 219 - 239)

MONDAY 13 MAY 2002



  219. Can I welcome the Minister to our deliberations yet again. It is a pleasure, as ever, to see a former Chairman of this Committee being scrutinised and I understand that if all goes well tomorrow we are going to have a change of name from "Select" to "Scrutiny" Committees. Minister, we want to get as much out of this as we possibly can. We know that you and the Department and the Treasury and Number Ten have been working on this for some time. Would you like to say something briefly to open up the discussion or do you want to go straight into questions?

  (Margaret Hodge) I would be quite happy, Chairman, to go straight into questions. When I last came and gave evidence to you I did say that we had embarked on a review. We are now well into it and we beaver away hoping to come out with a sustainable solution which will ensure that we can meet our higher education target of having 50 per cent of under 30 year olds in higher education by 2010 without debt and the fear of debt being a deterrent to that target.

  220. There is a view about that, that if you had stuck to what everyone had understood to be your timetable you would get something out at the end of January and then that timetable started slipping. In January, if you had come through with three or four sensible ways of ameliorating the situation, particularly for students from poor backgrounds, then people would have said, "That is fine. There have been teething troubles with the thing. It has been shifted around a bit. It has been attended to", and you might have had a reasonable level of contentment at that time. Because it has gone on for so much longer and the predictions are that July is the earliest we are going to see your report, people are thinking that that is a long time to come out with something that plays around at the edges. We will be anticipating some pretty fundamental reforms of what was introduced post Dearing. Are we right to have that expectation?
  (Margaret Hodge) It may not surprise you, but I am not going to tell you exactly what you can expect at the end of this exercise. What I will say to you is that it has been a complex exercise which we have undertaken thoroughly and probably when we embarked on it we were not quite as aware of the enormous variations that you can look at in developing a student support scheme which lasts. We will be discussing one or two schemes in detail, I imagine, as we go along tonight. It all seems pretty straightforward when you start, and then you start thinking through what will that mean in practice, who will benefit from this, who will lose, what does that do in relation to where our ambitions for higher education take us over time, and it just takes time. Because I thought, Chairman, that you might ask me this question, I looked back at previous reviews that had been undertaken by various governments on student support and I remember one which you will recall that the previous Government undertook before it introduced its changes in higher education. At that time the now Foreign Secretary was then Opposition spokesperson on education and I will quote from what he said in the House of Commons in 1989 on the then review which was: "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 whilst he was in office so as to pass the poisoned chalice to his luckless successor." What that quote made me think is that obviously previous people who have got into the detail of a review understand the complexity of it, but equally, unlike previous Secretaries of State of previous governments, neither this Secretary of State nor this team are avoiding engaging in debate on the issue.

  221. That is most instructive. A lot of people out there are saying that it was you who said January, so come on. This was not started off as a root and branch reform of the system but perhaps it is. How regularly do you and your cross-departmental group meet?
  (Margaret Hodge) Pretty regularly. We are doing a thorough job, Chairman, and you would feel angry if we came forward with a solution to the issue that was not something which was sustainable over time, certainly to see us through to at least ensure that we meet our target.

  222. I am going to push you on this. "Pretty regularly" is pretty vague. Is it every week, every month? Is it at ministerial level or is there some group working at civil servant level? How often is it?
  (Margaret Hodge) I have not got dates in my diary every week to see us forward into the future. We meet as and when we need to when further work has been completed. There are meetings both at official level, as you would expect, across government, quite rightly, and there are meetings within the department and there are meetings across departments. Meetings take place as and when.

  223. Do you chair these meetings?
  (Margaret Hodge) Some of the meetings I chair, yes.

  224. Who chairs the others?
  (Margaret Hodge) It depends. Some of the meetings are clearly chaired by the Secretary of State in that she has overall responsibility for the policy.

  225. They are never chaired by anyone from the Treasury or No. 10?
  (Margaret Hodge) No.

  226. They are always chaired by the department?
  (Margaret Hodge) They are always chaired by us, yes.

  227. In terms of the range of inquiries you are making how much participation has there been in this inquiry? We find in this Committee as we are looking for new evidence that two things strike us. One is the difficulty of actually firmly putting your hand on the evidence that, for example, fewer children from working class backgrounds are coming into higher education post-1998; and secondly, the rival claims are both about that and about the possible way forward. There are not many of them. The number of people you could list, such as Claire Callender and Iain Crawford and Nick Barr from the LSE, Wendy Piatt from IPPR, is quite a restricted little group that are presenting the evidence. Are you finding the difficulty that we are finding?
  (Margaret Hodge) I think there are plenty of views around and there is a whole range of ways in which you can determine the heart of what the review is about, which is the appropriate balance between what the student and their family pay and what the state should pay towards the support for students during their time in higher education. There is a huge range of options and the trick is not thinking of them but doing the very detailed work to ensure that when you go for a new scheme there is not an unintended consequence that we then regret one or two years down the line. The people you have talked to I have also talked to, but there are representations made by, for example, student bodies, the NUS and others. There are representations coming from various universities, higher education institutions, further education colleges and their representative bodies, Universities UK, who I believe want to give evidence to you, so what you have talked about is some individuals who have made it the focus of their research. There are plenty of other people who have thought about it and whom we have listened to.

  228. Is there independent research going on in the department?
  (Margaret Hodge) We always have a lot of independent research going on in the department. Because I thought you might ask me this I have here a list of seven bits of research going on which are relevant to this and we are planning five more.[1]

  229. You are the Minister responsible for this area. Since the new arrangements came in post-Dearing and post the role of David Blunkett as Secretary of State, since those great changes in student finance, has there been a worrying drop in the number of young people coming from less privileged backgrounds? Is there hard evidence that young people from the poorer backgrounds have been put off by the new arrangements?
  (Margaret Hodge) I think I would answer that by saying that what we are trying to do is proactive work to ensure that as we reach that 2010 target we really see a change in the socio-economic composition of those who go to university. What is quite extraordinary, and I have said this in a number of arena about participation in higher education, is that, despite the massive expansion since the days when you and I went to university, there has been no change in the socio-economic composition of people who go there. If I can quote some figures at you which are quite interesting. In 1960, out of the top three groups—if you divide them into A/B/C1 and then C2/D/E—27 per cent went to university and only four per cent of the three lower groups went to university, so there was a gap then of 23 per cent. If you look at the 2000 figures, 48 per cent of those in the top three groups go and now 18 per cent in the bottom three groups go, so you could say that that gap has increased if you look at it that way. You can look at the issue in different ways and I will give you a more optimistic view. If you look at those who go into higher education, five years ago, in 1995, 26 per cent of them came from C2/D/E; now in 2000 we are up one per cent to 27 per cent. Nevertheless, even if you take that more optimistic take on the figures, what has happened is that we have seen growth in participation without any change in opportunity for young people from lower income backgrounds. Our purpose must be not just to expand numbers to meet the skills agenda but also from the social exclusion agenda to ensure that there is real opportunity across all socio-economic groups. It is because of that that we are undertaking the review, to ensure that debt and the fear of debt are not inhibitors. The evidence is not clear as to the extent to which it is an inhibitor. I said to you last time that equally important are prior attainment and raising aspiration levels. But we are beginning to get quite a lot of anecdotal evidence both from universities and from student groups, from those at the coal face, saying that debt and the fear of debt is an inhibitor, particularly for working class young people. Claire Callender's work says a bit of that. Then we have this other research that says that six out of ten agreed with the statement that "some of my friends were put off going to university because of the cost". It is not great, you can equally mount an argument in the opposite direction, but it is enough to worry and concern us. We have to make sure that we have got that right. You would not like us to come in two or three years' time and say to you, "We are doing brilliantly. We are getting very close to our 50 per cent target" and yet it is still middle class people who are accessing it. If you are only at 48 per cent of middle class people you could easily get to 2010 without making any dent whatsoever into that social imbalance.

  Chairman: We come back to the fact that the social structure of the United Kingdom over those years has changed and those two lower social classes have shrunk quite dramatically as people have moved up.

Ms Munn

  230. I am very interested in that point about whether debt is an inhibitor or not. If, at the end of this, we found out that debt was not an inhibitor at all, does that mean that we could be doing this work on student loans and looking at this issue and actually we do not really address what is inhibiting people from lower classes going to university?
  (Margaret Hodge) The answer is no because we have a three-pronged strategy to tackle the fact that people from lower income groups are not going to university. One is to raise their prior attainment levels and that is the whole of the secondary school agenda for 14-19-year olds, and tackling the staying on rates at 16, all that stuff that we have been going on about. Two is this business about raising aspirations, getting young people to aim higher. We have got this really worrying evidence that 44 per cent of people in these lower income groups never hear about university as an option for them whilst they are at school, which suggests that not just their families and their friends but also their teachers and their career advisers are not getting them to aim higher, so the Excellence Challenge programme, all the work we are doing there to raise the aspirations and to work with things like the Connexions service and the parents, is important. Three is the issue of debt. We feel that there is probably enough evidence that those from very low income backgrounds are more debt averse than others so that, although we know that higher education is a good investment because of your lifelong earnings and your job opportunities and all those things, there is still that fear in the lower socio-economic groups that it does put people off. Again, the evidence that Claire Callender has put together also demonstrates that debt is increasing, partly because the loans are generous and people are taking them out, but also debt among the lowest socio-economic group is increasing more than for others. There are some worries there and I would rather be proactive and do something to prevent us regretting in two or three years' time that we got it wrong.

  231. So are you saying that in terms of the review your prime objective in whatever comes out of it is a system which supports the objective of getting more people, however that is measured, from those lower income groups into university?
  (Margaret Hodge) Yes. The prime objective is to achieve the 2010 target and to achieve it in a way whereby we get a better spread of people from varying backgrounds into higher education.

Mr Simmonds

  232. Minister, if I understand you correctly, whilst the evidence is confusing about whether the current system is having an impact on encouraging or discouraging potential students from going on to higher and further education, is it your view that the Government's ambition to have 50 per cent of people in higher education by 2010 is adding complication to resolving and finding a solution to the problem because of the numbers that are going to be involved?
  (Margaret Hodge) No. I am very comfortable with that target and I think it is an appropriate target for these reasons. First, all the work that we have done around labour market predictions in the future demonstrates that out of the 1.7, 1.8 million jobs that are likely to emerge over the next decade, 80 per cent of those, eight out of ten, will require the sorts of skills and qualifications that you can only get through an experience in higher education. It may not be the experience perhaps that you had. It may not be the traditional honours degree. It could well be a much more vocation focused foundation degree or some other sort of qualification. There is a spread. We also know that a one per cent increase in participation leads to about a half per cent increase in GDP which is about four billion. There are two very strong economic arguments for us pursuing that target. It is an ambitious target, it is a tough target, it is an appropriate target, and then of course there is the other side of that coin, which is the social inclusion agenda which we have dealt with.

  233. I understand that and I think that is logical, but is it complicating the structures of finding a solution to the problem because of the numbers that are involved? I understand why you have done it.
  (Margaret Hodge) Is it complicating? It is a part of our agenda for achieving a target, an ambition, that we set ourselves in our manifesto.

Mr Shaw

  234. Minister, you have said that it is difficult to have any hard evidence as to whether the loans are putting off young people from working class backgrounds going into higher education. You say that on the one hand there is the Callender evidence and there is some anecdotal evidence but equally you can account for that as well in terms of the number of statistics you have quoted that it has hardly shifted. There is one pilot that is taking place at the moment where we will be able to gather real evidence of young people staying on in education and that is with the educational maintenance allowances. That is actually happening at the moment. The early research shows that it is sometimes seven per cent recruitment and, vitally, retention. We know that the key springboard to higher education is further education. I think some 43 per cent go on. One of the key things, is it not, is getting it on the radar of those youngsters and getting it on the radar is the first route to further education? You agree with that?
  (Margaret Hodge) Yes.

  235. You said that loans are generous and more people are taking them up. Are they too generous in terms of the interest subsidy, and also are they not big enough because we know that the debt is around £10,000 but a lot of that is credit card debt which is the worst type of debt? Are they too generous in terms of the subsidy that we are paying and are they not big enough?
  (Margaret Hodge) I knew you had taken evidence from Nick Barr and Iain Crawford, so I focused a bit of my thinking in preparing for this evening around those issues. This is a very good example of where it is easy to come to a quick answer without having thought through some of the implications properly. The fact that we do not charge real interest on the loans that we give to students of course is a subsidy to all students, but thinking that charging real interest would be redistributive and would be benefiting people from low income backgrounds at the expense of those from middle income backgrounds I think is questionable and I would like to take you through some of that argument. In my view, if you go down that road too far—and again it is a thing we are thinking about; we have not ruled it out; these are the problems that we are having to think about—those who benefit least from charging real interest would pay most. Let me take you through the argument.


  236. Let us get clear, Minister, what real interest means because the media have a habit of transferring this from what the Government borrow at to commercial rates of interest. To be fair to Nick Barr and Iain Crawford, that is not the argument they make.
  (Margaret Hodge) No. The Government borrows at varying rates of interest, as you know, Chairman. The rate that they talk about is actually six per cent which is the discount rate that the Treasury currently use. Interestingly enough, if you take the current regime, that is one of the difficulties with the current mortgages running now. It is six per cent plus the 2.3 per cent that we currently levy to keep the real value of the debt, so in fact what you would be charging would be 8.3 per cent under the Barr/Crawford scheme. The discount rate from the Treasury is six per cent. You have to keep the real value of the debt and currently inflation is running at about 2.3 per cent.

Mr Shaw

  237. That is the view of the department, is it?
  (Margaret Hodge) I think that is the view. I think Barr and Crawford would concur on that 8.3 per cent. Let us take that as an instance. If you take that, when at the moment you are borrowing for your mortgage at five per cent or thereabouts, a middle class family would immediately think that it is cheaper to add a bit to your mortgage and lend it on to your children than would a lower income family who may be in social housing and who may not have access to a mortgage. That is the first unfairness. Let me take another unfairness. One of the misunderstandings from Nick Barr and Iain Crawford is that under the old mortgage loan scheme you only paid for 25 years and that was it. Under our new income contingent scheme you carry on paying until you are 65 or die or become a permanently disabled person. Unless that happens you carry on paying it. There is not a stop which, as I understand it, certainly with the documents I have seen on this, was what they suggested to you there was. You do carry on paying. Let me take some examples and we will let you have them in detail if you are interested in pursuing that. Take somebody who borrows £10,000 and they are a low income person. We have divided them up into deciles. Take the second decile. They currently pay back, with 2.3 per cent to keep the real value, £12,700. It takes them 14 years to pay that back. This is a low income person. If you add in six per cent they would actually pay in cash terms not £12,700 but £28,300. Let me just finish this point because it is very important. If you then add in that it is a woman who takes a career break for five years, she would pay back in cash terms £59,000. From currently paying back £12,700, with the six per cent it goes to £28,300, add in the career break and it is up to £59,000. These are cash figures and I can give it to you in real terms. That is what they pay back. Take somebody on a high income, and we have taken somebody in the eighth decile. They currently pay back, if they pay back fast, £11,000. If they pay back the six per cent interest they pay back £14,100. If they take a career break they pay £16,800. The difference between the high earner and the low earner without a career break is double, from £14,100 to £28,300, and the difference between the high earner and the low earner, assuming a career break, takes £16,800 to £59,000, which is getting on for four times as much. What is described by Nick Barr and Iain Crawford as being a progressive system is not quite as progressive when you start digging down into the details. I have talked about career breaks. There are other issues of course which come in.

  238. You say it is the difference between £14,100 and £28,300, but it is the type of loans or the type of debt that young people find themselves in. This average of £10,000 is not just the maintenance or fees. It is also the credit card debts because clearly the loans are not sufficient to maintain young people at university. They quoted us that the average graduate would pay in income tax and national insurance contributions some £800,000 over the course of a 40-year career. That starts putting those sums into perspective but at the moment the loans do not assist young people at the time in terms of being able to maintain an existence without this very large credit card debt. You are nodding your head, Minister.
  (Margaret Hodge) What I do not agree about is that, if we are concerned particularly that people from lower income backgrounds should participate, what they care about is the totality of their debt. I think the other implication—

  239. It is not just in terms of totality. It is not just the size of the debt.
  (Margaret Hodge) It is.

1   Appendix 8, Ev. 22. Back

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