Examination of Witness (Questions 260
MONDAY 13 MAY 2002
260. The universities' perception is that they
want to vary those fees. They see a market there which they want
to exploit. What is the government's attitude?
(Margaret Hodge) That has been an argument that has
been around in the sector for a decade and is constantly being
raised with us. To the extent that we are looking at everything,
we are looking at that.
261. In FE, students pay those fees and the
majority of them pay the full fee. How far in any sense has the
review body looked at further education?
(Margaret Hodge) The review body is looking at higher
education and student funding there but, in my responsibility
for life long learning in higher education, I am looking, together
with my colleagues, across the whole support for students, across
the whole age span. Students in FE aged 14 to 19 will not be paying
fees. What you are talking about is a contribution to fees from
adult students and that varies. It is not consistent across the
whole sector. There are anomalies there. We know that over 40
per cent of those students who we want to get into HE are now
in FE. We have to ensure that we get the right incentives there
to meet both the economic objectives of wider participation and
the social inclusion objectives.
262. What is the percentage of 18 to 21 year
old students who do pay the fees?
(Margaret Hodge) The last figure we got for last year
was 42 per cent pay no fees and about between a third and 40 per
cent pay full fees.
We have not yet got this year's figures.
263. One of the reasons that such a large proportion
of students are so comparatively cheerful could be because they
are spending too much money on drink. You have recently accused
them of spending money on drink, new trainers, going to the pictures
and things like that. What do you conclude from that? Is it that
the level of the loan is too high or that they are borrowing too
much from banks or the credit card companies?
(Margaret Hodge) I was simply putting a question which
I hope the Committee will accept is a legitimate question. If,
out of the Unite MORI poll, we know that students on average are
spending £25 a week on drink, that is £1,000 a year
if my arithmetic serves me right, whilst nobody wants to interfere
with lifestyle choices, least of all memy children go potty
when I dois it appropriate that there should be state support
to those life choices? That is all. Going back to some of Jonathan
Shaw's questioning, if students choose to spend money in certain
ways, we have to be clear about the areas which we as a government
and we as taxpayers are willing to put support into.
264. Do you think there is an argument for increasing
the level of the total amount of the loan?
(Margaret Hodge) There is an argument. Again, you
have to think about the balance between what the state puts into
the system and what the student and the family puts into the system.
We have to look at all the issues that the Chairman raised: how
we see student funding in relation to other priorities across
HE, FE and the wider education agenda.
265. Is there an argument for rolling the tuition
fee up into the loan or do you rule that out completely?
(Margaret Hodge) We are looking at a huge range of
options. They all have different impact as to who they benefit
and disbenefit. They all have different costs, savings, and we
have just got to get the balance right.
266. On the tuition fee specifically, would
you accept that the banding of the tuition feethe fact
that there are just three bands, essentially, zero being a fee
or a full fee
(Margaret Hodge) No; it is means tested. It is gradual.
267. The fact that people who pay the full fee
start to pay the full fee at comparatively modest levels of household
income, 35,000; whereas people whose household income is 350,000
still pay the same amount of full fee. Do you think there is an
argument for increasing the income band so that payment of the
fee becomes more progressive?
(Margaret Hodge) There is an argument. You can look
at these endless options. I would simply draw to your attention
that, as far as we know from current data, 37 per cent of all
students have an income of less than 10,000. That includes independent,
mature students as well as younger students.
268. They have a family income or their personal
(Margaret Hodge) No. It depends. It is the parent
with whom they live.
269. £10,000 a year?
(Margaret Hodge) 10,000 or less. The higher you put
it up the income scale, the more people you bring in.
270. My question was not related to families
whose incomes are 35,000 a year. It is the argument about council
tax bands. You reach a point and then it stops. With tuition fees,
you reach a point and then it stops. Would you not accept that
that is inherently unprogressive?
(Margaret Hodge) That is always a problem with means
testing, where you put the cut off point. That is an issue. I
was simply trying to say that the higher up you take it along
the income scale the greater the cohort of students, both young
and mature, dependent and independent, that you bring into the
frame. You are then back into an affordability issue.
271. Earlier, you mentioned your visit to the
United States and your admiration for some of the aspects of the
American system. One of the characteristics is the ability of
universities to set their own fees. Have you ruled out completely
an introduction of top up fees?
(Margaret Hodge) You will have seen the letter that
we sent to HEFCE this year and the letter that we sent in the
last three years. It is an issue that has been put onto the agenda
by a whole range of people, so we keep it on the agenda.
272. That is not ruled out in terms of this
(Margaret Hodge) Nothing is ruled out. I have to keep
coming back to that.
273. That makes you sound as though you are
a ship, floating on the ocean with no compass, no bearings and
you do not know where you are going to, Minister. How do you have
this ship on any course at all if you have no parameters, no guidance
or no priorities?
(Margaret Hodge) I think you are being somewhat unfair
on me because I have given you the parameters quite clearly. The
parameters are the 2010 target, our desire to grow numbers and
extend social inclusion. We are looking at all this issue in the
context of the broader expenditure issues. Within that, you would
be the first to criticise me if I did not look at all options
to ensure that I was not closing a door which might support our
274. If nothing is ruled out and nothing is
ruled in, I will adopt a different line of questioning. Coming
back to the question of subsidised rates of interest, you disparaged
the argument that there ought to be a reconsideration of interest
subsidy by quoting the figures of six per cent and 2.3 per cent
on top of that. Is it not the case that there is an infinite range
of possibilities about the level of the interest rate? It is not
a question of either the 2.3 per cent at the moment or the 8.3
per cent that you were quoting. It is entirely a political choice
as to what the level of interest rates should be. Is it not also
the case that if the scheme was redesigned to go back to a mortgage
type loan, rather than an income contingent type loan, that would
deal with your objections to higher interest rates impacting more
on lower earners through their lifetime?
(Margaret Hodge) I hope I was not disparaging the
argument. What I was attempting to do was to use that as an illustration
of the complexity of the argument. Of course there is a whole
range of interest rates that we could look at but the lower the
interest rate the less the addition that you get into your costing.
Can I just correct something else for you to have on the record,
Chairman? I do not know where this figure of 42 per cent came
from that we spend on student support. My officials will correct
me if I am wrong because I am doing this off the top of my head
but I think it is 35 per cent which is the amount we spend on
student support. That is based on OECD 1998 figures. In the 1998
figures we were still under the old regime. At that point part
of the student support was money that we were putting into LEAs
for them to pay their contribution into universities, so the actual
proportion of the HE budget that goes on student support is 23
per cent against an OECD average of 16 or 17 per cent. I just
want to put that correct on the record so that we know we are
measuring like with like.
275. Is it not possible therefore that you could
construct a system that establishes an interest rate somewhere
above 2.3 per cent?
(Margaret Hodge) Yes.
276. And a method of repayment that would redistribute
the burden of subsidy to those who can most afford it during their
(Margaret Hodge) The lower the interest rate charged
the more it then becomes a "subsidy" and the less you
can raise to redistribute, which is an essential part of the schemes
devised by Nick Barr and Iain Crawford. Of course you can play
around with it. Those are some of the variations that clearly
we are looking at. The only other thing I would say is that I
think it would be regressive to go back to the mortgage scheme
that the previous government had in place because once you reach
the threshold where you have to start paying you have just got
to pay it off. It is like a mortgage where you have to pay it
off so that the years when your bills are highest because you
have had a couple of kids and your partner may not be working
or working part-time are going to be the time when your repayment
will be biggest, whereas this is entirely income related.
277. It is possible to negotiate payment where
there is a mortgage as it would be on a student loan.
(Margaret Hodge) Of course. You can do all those things.
278. Minister, will you come directly back to
David? What he is pushing you on is saying are you seriously considering
and are you having a degree of difficulty with the Treasury on
introducing a higher interest rate which some of us believe might
be a quite easy way to move to a graduate tax, or have you discounted
a graduate tax in any form?
(Margaret Hodge) We have not discounted anything,
as I keep saying; we would not. All I was trying to put to the
Committee was that what may seem like a straightforward solution
is rather more complicated. Let me just add one further complication
to the agenda. Once we start charging real interest you come into
consumer credit legislation which means that you have within 12
days, if a debtor asks, to tell them how much they owe and how
much more they need to pay. Our current income contingent scheme
means that you collect through Inland Revenue. Inland Revenue
only tell you at the end of the year what you have paid so we
would have to come out of the Inland Revenue scheme and then immediately
what would happen would be that people would default more.
279. We are not suggesting a commercial rate
of interest. We are just floating the argument that there could
be a different rate of interest. Minister, I will not ask you
if you are considering a graduate tax because you say that nothing
is ruled in and nothing is ruled out. Could you tell us what the
arguments are against a graduate tax?
(Margaret Hodge) The reason I chose, rightly or wrongly,
to hone in on the argument about interest rates was that in a
sense you have been I think, as I have read who has come to see
you and the way you are thinking, focusing your considerations
on that and all I wanted to say to you was that it is really a
bit more complicated than it seems at first sight. There are arguments
for and against absolutely everything and going into them is a
little bit like the Chancellor going into every tax that he could
or could not raise in a budget and it would certainly keep us
here for ever.
3 Note by witness: According to the latest
available data (SFR 08/2002 Table 2c: Distribution of fee support:
academic year 2000-01 (provisional) 42% of all students pay no
fees while 39% pay the full fee contribution. Data are not available
for 18-21 year old students only. Back