Select Committee on Education and Skills Minutes of Evidence

Examination of Witness (Questions 260 - 279)

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.[3] We have not yet got this year's figures.

Mr Chaytor

  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 me—my children go potty when I do—is 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 fee—the 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 income?
  (Margaret Hodge) No. It depends. It is the parent with whom they live.

Mr Shaw

  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.

Mr Chaytor

  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 review?
  (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 objective.

Mr Chaytor

  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 working lifetimes?
  (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.

Mr Chaytor

  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

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