Select Committee on Education and Skills Minutes of Evidence

Examination of Witness (Questions 240 - 259)

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 interest rate.
  (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 you—

  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 sector—and nobody raises an issue around that—as 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 parents—and lots of students do get support from parents—means 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.

Paul Holmes

  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 out—as you know, there is an argument that higher education staff are not well paid—that 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.

Paul Holmes

  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 now.

  255. You are saying the principle is that those who benefit from higher education should contribute towards its cost?
  (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 subjects?
  (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 exceptions.


  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.

Valerie Davey

  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 fee—one 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 reasons.[2] 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

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