Examination of Witness (Questions 240
MONDAY 13 MAY 2002
240. It is the interest on that debt. Minister,
if you are looking to buy a car you will shop round for the best
(Margaret Hodge) Ah, I see what you mean.
241. You will shop round for the best interest
rates. You might end up with a £28,000 debt but that in terms
of repayment might be better than the £10,000 or the credit
card debt that you have got and be easier to pay back because
it is a lower interest rate.
(Margaret Hodge) I fear that what you are actually
suggesting is that we should further subsidise the interest rates
for students so that the debt is low, which I am suggesting to
242. No, I am not.
(Margaret Hodge) You are because the alternative
243. I am putting the argument forward that
we heard last week from Barr and Crawford that it is about the
status of the loan and the interest that the people pay in terms
of the overall debt. What they were arguing was that in order
that we are going to assist students more, if we take the idea
that there is not going to be more money coming into student finance
given that 43 per cent of higher education funding is on student
finance so we are going to have to raise taxes for more student
finance, how are we going to get more money for poorer students
out of the same pile? How are we going to cut it differently?
(Margaret Hodge) The presumption on which all that
is predicated is that the only way in which students survive in
the present framework is by them all taking out massive credit
card debt and I do not accept that premise.
244. Minister, to be fair to the Crawford/Barr
argument, that was not actually what they were arguing. They were
arguing, as Jonathan started to argue, that the alternative is
that if a student is not able to borrow sufficient an amount of
money two things happen. They have to work, which detracts from
their study, which can be a very expensive drain on their resources
in many ways, or they can go into credit card debt. That is the
case that was being made.
(Margaret Hodge) I do not accept the juxtaposition
that you are putting. First of all, I do not think that working
whilst you are a student in higher education need be detrimental.
It depends on the number of hours worked. The Barclays Report
shows that on average they are working 11 to 14 hours a week.
If you look at young people in FE colleges and schools, we have
about the same proportion doing part time jobs in the FE sectorand
nobody raises an issue around thatas we have of students
in higher education also doing part time work. Secondly, the value
of the grant, despite what the NUS I understand said to you last
week, has gone up eight per cent in cash terms and one per cent
in real terms since we brought it in. We do not have the evidence
in the analysis that we have both from the student income and
expenditure survey and from the MORI/- Unite survey to suggest
that a combination of loans, working, support from parentsand
lots of students do get support from parentsmeans that
there is not enough in the student's pocket to have a pretty good
standard and quality of life whilst they are studying. Every student
feels hard up but what they feel and what in reality they have
to pay for may be two slightly different things.
245. I was very pleased to hear you say earlier
on that your review does seem to be looking at providing more
facilities for students from low socio-economic backgrounds. When
you introduced the reforms in 1998 I was head of a sixth form
and over the four years I saw evidence of students from poorer
backgrounds failing to go to university because of those reforms.
If you are moving to providing better support for that type of
student, that is good but how do you square the circle? If you
are going to put more money into students from poorer socio-economic
groups, the money has to come from somewhere. If you are not going
to go down the Crawford/Barr line of charging the other students
more interest and fees etc., presumably it has therefore got to
come from general taxation but the Treasury are not keen on that
so where will the extra money come from under your review for
the poorer students?
(Margaret Hodge) You have to await the outcome of
the review to see what conclusion we come to.
246. Paul Holmes makes a fair point that you
have not answered yet because it has not been put to you squarely.
When you were Chairman of this Committee four years ago when these
reforms took place, did you imagine that the system that the new
Labour government introduced would work out to be a very large
subsidy to middle class, professional families rather than what
many people had anticipated coming out of Dearing and a new Labour
government that would have been less subsidy to those people who
could afford and more subsidy to those people who could not afford?
(Margaret Hodge) I am happy to provide you with further
examples. I will just show you New Zealand.
247. Before we get to New Zealand, we are going
to throw Hungary at you in a moment.
(Margaret Hodge) Do, because I think it is another
interesting example where the proposals that were put on the table
were not accepted by the Hungarian government.
248. Do you believe that the system we introduced
as a Labour government after the last election as a result of
our interpretation of what we took out of the Dearing recommendations
has been a subsidy to people who could well afford to pay something
towards their children's higher education or not?
(Margaret Hodge) If you start thinking that the answer
to student support is simply to raise real interest rates on student
loans, you are in danger of hitting those very students whose
interests you most want to protect.
249. The fact of the matter is: is the system
that was introduced a very large subsidy to people who can afford?
I am not asking you whether other things run from that. Is it
the case? I think we have you on record as believing this when
you sat in this chair.
(Margaret Hodge) One of the key reforms that David
Blunkett and Tessa Blackstone introduced which I supported was
a tuition fee, which is only paid by those who can afford it.
It is means tested.
250. If you listen to Lord Dearing, he will
say the government got it wrong because it abolished maintenance
grants and introduced inflation only interest rates which were
a massive subsidy to the very people who did not need it.
(Margaret Hodge) I think those reforms that we introduced
started ensuring that those who were able to pay contributed.
To say the tuition fee does not count misses half the point. To
the extent that university is still largely enjoyed by the middle
classes rather than people from low income backgrounds, it must
be true that any subsidy that we put in through the taxpayer goes
to middle class people. To that extent it is true but remember
that what we are asking people to do is, when they graduate, to
pay back on an income contingent basis. For example, eligibility
to the loan is determined according to income. You only get the
last 25 per cent of the loan depending on the income of your parents.
I am not evading this. I think you are trying to make too simplistic
a conclusion of what is very complex.
251. I am not making any simplistic conclusion.
I am just asking whether you believe that that was a subsidy for
people who could afford or not. One of the vice-chancellors who
gave evidence to this Committee pointed outas you know,
there is an argument that higher education staff are not well
paidthat his staff paid more for the creche on the university
premises, for their pre-school child to attend that creche, than
middle class parents had to pay for their students to be at university.
That puts it in perspective, in a sense.
(Margaret Hodge) You have to also remember where we
were moving from. The loan system that had been introduced in
the previous government was a system which had no real interest
on it. A decision could have been taken at that time to levy the
real interest on the loans. To the extent that there are more
middle class people at university, that would have been charging
more middle class people more for going to university. What I
have tried to say in response to some of the arguments that Nick
Barr and Ian Crawford put forward is it is just not as simple
as that. If you think interest charges are an easy answer, you
hit those very people you most want to help.
252. Can we erase Nick Barr and Ian Crawford's
names from the record for the moment? This is one bit of evidence
we want to take up with you. That is why I have been asking you
the fundamentals. If we do not get the fundamentals right and
if you do not get the fundamentals right in your working party,
what are you really after? What is going to come? If you do not
know what you are after, this is never going to report, is it?
What are you after in terms of this report? What would bring a
smile to your face when the report is published and everyone loves
it and it is a great success?
(Margaret Hodge) If we had a sustainable system in
place which ensured that nobody was put off going to university
because of debt and the fear of debt.
253. If you are going to put more money into
students from poor backgrounds, whether through grants or scrapping
tuition fees or whatever, the money has to come from somewhere.
Are the only two options that you are looking at to get that money
in higher repayments from students from wealthy backgrounds or
from general taxation or is there some other equation that you
have discovered in there for consideration?
(Margaret Hodge) It is an issue of the balance between
what students and their families pay and what the taxpayer pays.
254. So far, we have been concentrating on the
financial and social background of potential students coming into
the system. When they come out the other end and start repaying,
you said in a preparatory note for this meeting, "A fundamental
principle of our 1998 reforms and one in which we still firmly
believe is that it is right that those who benefit from higher
education should contribute towards its cost." I can agree
with a lot of that. If you are a lawyer like Cherie Blair earning
a quarter of a million a year, you ought to pay more back. If
you are an MP, you ought to pay more back. Some people would say
that income tax is a fair way of doing that. What about those
students who go into professions which benefit society and tend
to be lower paid, like nurses or social workers or teachers? Under
the present system, they are paying back the same basic loan as
a highly paid lawyer, accountant or whatever. Are you going to
address that at all in the repayment system?
(Margaret Hodge) We already have that in the Bill
that is in the House of Lords at present. When that Bill becomes
an Act, there will be a facility within it to ensure that those
who go into teaching in shortage subjects will get support for
the repayment of their loans. There is nothing in any system that
will prevent you discriminating in favour of particular groups
in society who you want to encourage. The private sector do it
255. You are saying the principle is that those
who benefit from higher education should contribute towards its
(Margaret Hodge) Yes.
256. Society benefits from the higher education
of certain groups of graduates who put a lot back into society
and do not get the same monetary rewards as many of their friends
in university would. That is more than just a small number of
teachers in shortage subjects. I would suggest that teachers in
history or English, which are not shortage subjects, put just
as much into society as a teacher of maths does. Under the partial
system you are talking about, they are not going to get any assistance.
(Margaret Hodge) You are at the heart of the issue.
How do you get the balance right between the contribution of the
individual, their families and the state? We can argue about that
and that is the sort of debate we are engaged in. Secondly, it
is still true that the graduate premium is probably healthier
in the UK than it is elsewhere. It is still the case, despite
the expansion in numbers, that you earn over your lifetime £400,000
more if you are a graduate, on average, than if you are not. Of
course there are exceptions to that but your average earnings
will be 35 per cent more than a non-graduate. You are right that
it is an issue of balance. You are right that there may be areas
where the public sector will wish to intervene. We must not forget
that there is still a big graduate premium. I went to the States
recently to look at some of their universities and I think there
is a different attitude there, between the States and ourselves,
where the students see it much more as an investment in their
future; whereas here in the UK we still see it as a cost. That
is an attitudinal difference which we need to reflect on.
257. I accept that on average graduates do better
and have more enjoyable jobs, but there is a huge variation from
the graduate nurse to the graduate lawyer in their earnings over
their lifetime. Is the review looking at a more systematic way
of addressing that than just rewarding a few teachers of shortage
(Margaret Hodge) We have to look at the balance. Within
the distribution of the average there will be some who, for all
sorts of reasons, either the choice of career or career breaks
or whatever, will find it more difficult to pay back. Hence my
concern about going too far down the road about interest rates.
There is no reason in any scheme you devise why you cannot have
258. There is one part of the balance which
you have not addressed which gives this Committee concern. You
mentioned the student who gains the benefit from the education
and his family. You mentioned the taxpayer. There is also another
category and that is the universities themselves. There is no
doubt that in the real world if there are large, extra resources
put into student support many people fear that that money will
no longer flow into what people think of as a priority and that
is university pay. There are very real demands and shortages in
university skills as teachers and researchers, so university teaching
and university research, and another thing you are responsible
for: universities in their capacity to lead regeneration in cities
and regions. There is this other, very worrying voice coming to
this Committee to say that, whatever they do, do not let them
take away from the essential quality of our higher education by
depriving us of the resources to do the job properly anyway.
(Margaret Hodge) It is because we are very conscious
of the competing demands on our resources that we are looking
at the student support review in the context of the wider expenditure
review on both higher education and education in the round or
demands on education within our department. When we came in, in
1997, we inherited a generation of under-funding in the higher
education sector. It amazes me how well the sector stood up, despite
that 36 per cent cut in per unit funding over ten years until
we started turning it round. We spend something like 6.8 per cent
less on research today than we did 15 years ago or thereabouts.
All those things are really worrying aspects; and yet we have
kept our numbers up; we have kept our retention rate up; we are
doing jolly well on research internationally; we have done a lot
of innovative work about engaging with the local community. The
QAA exercise shows that teaching standards are high. It has survived
very well in a generation of under-investment. We have now to
tackle some of those structural difficulties that the sector faces,
whether it is pay, research, infrastructure, engagement in the
local community, whether it is growing the sector to respond to
our 2010 target. We have to see the student support review in
that broader context and then see HE in the broader context of
education spend across the whole department. Those are very tough
decisions that the Secretary of State will have to take.
259. Can we move on to the area of fees? If
you are looking to the variables that you already have, perception
again is important. So many young people do not realise that 50
per cent possibly now pay no fees. The other 50 per cent, it seems
to me, do not realise, many of them, that they are getting a good
deal. In other words, this is only a quarter of the cost. This
perception that £1,200 is the feeone of our vice-chancellors
in the south west put it very succinctly when saying that it is
nothing compared to the school fees which many parents have been
paying up to now. How is the government considering the fee element,
particularly given the comments we just heard from the chair,
that what universities would like to do would be to have variability
in that respect? They want to see variation between universities
at fee level. Can you give us any background as to the thinking
which the review is taking on fees?
(Margaret Hodge) You are absolutely right to say that
students do not understand that, even if they pay the current
contribution to their fee, it is not the whole cost of their tuition
in university, taken as an average cost. If you get into things
like medicine, it is much higher. There is a huge amount of work
to do when we have completed the student support review to get
a proper understanding amongst students, parents and the wider
community about the real costs and who contributes. I completely
take that point. Before we get too gloomy, may I quote some of
the stats from the MORI Unite poll? It is not ours; it was done
by an independent organisation. Not all is gloom and doom out
there. 96 per cent of those questioned thought university was
worthwhile. 90 per cent thought it was a good investment. 86 per
cent had a favourable impression of their higher education. 88
per cent were happy. 86 per cent were optimistic. These are not
bad figures. Only 10 per cent thought of dropping out for financial
Let us build on that optimism which many students feel about their
experience in higher education, although I totally accept what
Valerie Davey said, which is that we have to get a better understanding
of what the contribution to student fees really is.
2 The Student Income and Expenditure Survey for 1998-99. Back