Examination of Witnesses (Questions 320
WEDNESDAY 22 MAY 2002
320. What do you think about them?
(Professor Floud) We accept that the analysis is logical
and that he is making a series of valuable points about the current
system, but once you get on to the solutions that are being advocated,
I suppose our overall feeling is that it is not as simple as he
is suggesting. We believe, for example, that Nick Barr underplays
the debt-aversion demonstrated by many students, and underplays
particularly the debt-aversion of the extra students who we have
to recruit if we are to reach the 50 per cent participation target.
Going back to the Chairman's question, we have to think in terms
not just of the current situation, but how you will move from
a 40 per cent participation to a 50 per cent participation rate.
He underplays that particular issue and he suggestsand
we accept that this is very much part of the proposalthat
part of the benefit of charging a market rate of interest would
321. I understand that it is not a market rate
(Professor Floud) It depends what you mean by "market".
322. He asks for something around 4 per cent
and the Government says that it would be 8.5 per cent.
(Professor Floud) As I understand his proposal, it
is that the rate of interest that we would be charged is the rate
at which the Government is able to borrow, and together with an
uplift for inflation.
Mr Shaw: He suggests that this would release
some further £800 million extra a year on quality and access,
and the point you are making about him laying down the idea of
debt-aversionhe would say, in answer to that, "absolutely
not; we are releasing this money so that we can provide additional
financial support to poorer students to combat that". The
only real evidence we have in terms of whether additional money
will recruit and retain is the educational maintenance allowances
in further education. The early response to that suggests that
that works. Here was a radical proposal: lots of people, perhaps
including yourself, have lined up, saying, "you cannot do
this; you cannot do that". Universities UK want an additional
£9 billion out of a comprehensive spending review. I do not
know whether that includes student finance, but you can quickly
see any additional money drying up. There is your £9 billion
and additional money for public sector workers. Where are students
going to be? Do you think there is going to be a whole heap of
extra cash, or is it just a different way of cutting the cake?
How long do we sit around pondering this, if someone comes up
with something radical, or do you think we should do a bit of
Chairman: Professor Floud, Jonathan is saying
you are not being radical enough.
323. There is a lot of tinkering.
(Professor Floud) My real question is, exactly how
radical the scheme that Nick Barr is proposing really is. It clearly
is radical in terms of changing from a zero rate of interest to
a real rate of interest, and that is accepted. However, the question
is how you design the student support mechanisms which this money
would be used for. There is nothing in the Barr report about that
kind of mechanism. I accept that it would provide additional funding,
but it might have disincentive effects. It is accepted that unless
you gave substantial remissions for low income earners, like teachers
and nurses and so on, then you would have a situation in which
people in those situations would be building up larger and larger
and larger debts. That is not likely to have a great incentive
324. Professor, you could do an awful lot with
£800 million extra a year. You could say that you have a
real shortage of teachers and nurses and you will write off that
bit of the debt. It is not just a question of saying it is difficult
or that you are not sure who is getting what. Universities UK
could have a wonderful debate and there could be all sorts of
creativity as to how you would use that money, surely?
(Professor Floud) It would certainly be possible to
use that money to subsidise particular groups within the community,
which is what he is suggesting. The point we are making is that
whatever scheme you devise, it has to take account of the debt-aversion
and disincentive effects which might be created by people believing
that they were going to have an even bigger debt than they do
at the moment.
325. Is that your principal objection?
(Professor Floud) That issue of how to get over to
people that there will be all these exemptions, is the problem
at the moment. We know that there are a lot of exemptions at the
moment, but people do not believe that there are. The Barr scheme
does not deal with that problem at all. He rightly says that we
need more information. We all know how difficult it has proved
to provide that information or see that it is absorbed. The second
difficulty is that if you have a scheme that says a rate of interest
will not be charged to nurses or teachers, that does not deal
with the big problem, which is that people often, when they are
going into university at the age of 18, if we are talking about
traditional students, do not know what their career is going to
be. The problem of assessing the degree of risk and the amount
of loans that they are likely to have will still remain. We constantly
underestimate the extent to which the new students from social
classes C, D and E, are risking so much more than, if I can put
it this way, my children, or possibly most children of Members
326. We have not established that debt-aversion
is stopping people. We do not know that. Baroness Warwick told
us that the numbers are holding up. There is a lot of anecdotal
information around. One of the important points that was put to
us as part of the Barr/Crawford proposal was that one of the problems
we have at the moment is that students do not just incur debt
through their loans; increasingly they are incurring debt through
credit cards, et cetera, which charge commercial rates.
Part of the proposal by Barr/Crawford was that they would get
more money because the current amounts do not meet their living
needs, but at a much lower rate of interest because it would be
at the cost to the Government of borrowing. Overall, they would
be paying back at a lower ratealthough it may be a large
amountand that would get away from some of the large figures
we are hearing of which are not all about student loan debt but
are about commercial debt. Having spoken again to one person who
was a student who had student debt, she said that she had various
debts and went for one of these deals that roll all your debts
into one without looking at the actual costs and the rates of
interest. Part of the Barr/Crawford proposal is that it should
be done through this system at a lower rate, which is not the
commercial rate, at the cost to the Government, and that that
would be better. How do you respond to that?
(Professor Floud) I can see the attractiveness of
that. It would be a subsidy. It is a subsidy just as much as if
you provide loans at the Government borrowing rate. It is not
as big a subsidy, but it is equally a subsidy as in the current
system. There would be advantages in that for many students, but
it does not deal with the question of the long-term debt that
they are building up and the long-term disincentive effects of
that. It is not so much the extra interest that they are paying;
it is the build-up of the debt as they have low incomes, perhaps
in the early stages of their career, and then
327. What the Committee wants to know is this.
You start from the base that there is an enormous subsidy to one
section of the population through the present system. At least
the Barr/Crawford proposals tackle that and shift that on to a
fairer basis. Is there anything in the proposals that you are
putting into the inquiry that will also address what many people
believe is an unfair subsidy who can afford to pay something towards
their higher education?
(Professor Floud) We are proposing of course is that
there should be a simple grant scheme, so that people from low-income
families should have that certainty when they apply, not all the
uncertainty about what their future income is likely to be. There
will be a certainty that because they have a low income at this
moment, they will have a grant to carry them through university.
That seems to me to be a simpler and less risky system for them
than the Barr/Crawford proposals, in so far as they are worked
out, which I do not think they properly are.
328. How much? What sort of grant do you think
(Baroness Warwick of Undercliffe) The grant that we
proposed in our submission was equivalent to the current loan
that is available; and that would be £4,000.
329. The £4,000 grant as opposed to a loan,
but we know that the average student costs for a year is £10,000;
so that is another £6,000 they are going to have to borrow.
It is tinkering, is it not? That is what we were advised last
week by Margaret Hodge. We can check the transcript. On average,
that is what students spend every year.
(Professor Floud) I am sorry, that is a figure I do
330. That would be sufficient to maintain a
student in a year.
(Baroness Warwick of Undercliffe) The point we are
trying to make is, I think, a simple one. For those in the lowest
socio-economic groups, there is growing evidence that the perception
of debt and the reality of debt as well that they anticipate is
sufficient to make them question whether higher education is for
them, irrespective of the benefits. Maybe we need to do more to
get across those benefits irrespective of the benefits in the
long term. We have tried to devise a scheme that for those people,
highly targeted, there will be a grant, as opposed to a complicated
system of hardship allowances and so on. We have gone on to say
that for everybody else, because we believe that students should
make a contribution to their tuition because of the advantages
they get from their higher education, they should make that contribution
on a means-tested basis. Whether or not you do that through a
subsidised loan, a heavily subsidised loan or whatever, has to
be judged on the basis of whether or not that scheme, the Barr
scheme or various others that have been proposed, will act as
a further disincentive to those students. That is how we would
judge it. We believe students ought to make a contribution, and
therefore that is the proposal we made to the Department; but
we certainly think that a simple straightforward grant scheme
to the very worst off is better than going into a complicated
system of hardship allowances.
331. How would that be funded? If poorer students
are to be given grants, where will the money come from?
(Professor Green) One way is of rolling up all the
complicated support schemes we have at the moment and putting
them into a simple grant instead of having multiple schemes for
which they have to apply and work out. If we roll it upI
think it is part of the £4,000 calculation of what that would
add up to.
332. So that meets the cost.
(Professor Green) Yes. Can I just make the point that
we are in danger of losing, which is that one of the things we
have had to address is what we need to do to the existing scheme
to make it work better. Also, we have tried to bear in mindand
this is really the focus on debt and the potential disincentiveis
that if we are to deliver the 50 per cent target, we know that
we can only do that by going to a different constituency. That
is the area where there is difficulty in terms of the current
arrangements. We have tried to find ways of addressing that as
well. One of the simplest ways is in terms of how information
is provided about the risks associated with entering into higher
education and how the liability of debt is likely to occur, and
the likelihood of employment at the end of it in terms of trying
to minimise the concern and lack of information for those who
might not otherwise have gone into higher education. That is a
different set of arguments from how you improve the existing system
and how you may move money around in the existing system with
333. With regard to the £4,000 means-tested
grant, did you put a figure in the submission or do you have views
as to what level of income a family would have to be earning,
either not to qualify or to qualify for the grant, to attract
the type of people into higher education that you perceive are
being put off?
(Baroness Warwick of Undercliffe) No, we do not. We
stress the level of benefit. We do not address that per se
in money terms. We suggest ways in which the very worst off might
be identified through the various welfare benefits; but we have
not put a figure on it. Can I go back to the other point, because
we are approaching this on the basisand this may have been
what has bedevilled all the discussionon the basis that
this is going to be a resource mutual change. Nick Barr is assuming
that because you change the rate of interest subsidy, that that
will release resources currently paid by Government, but not increasing
the amount of resource available. It seems to me that if one is
going to radically change the system, within the current constraints
that the Government has imposed, i.e. that we stick with the current
fee level, and that that is not changed, then it is very difficult
to see a solution, even the Barr solution, which is cost-neutral.
Jeff Ennis: You have suggested some form of
higher education maintenance and building on the success of that
post-16. Is that the case? What would have to be the differences,
or would there be a need for differences and more flexibility
in higher EMA than at present?
334. Is it an EMA?
(Professor Green) We certainly have not called it
that but it is the same principle behind it. You give an assurance
and confidence to people at the point of entry rather than at
the point when they commit themselves and then find out if they
can afford to go. Certainly, the principles behind it are the
same, and it gives them a fresh start. I wonder whether it is
enough. You asked a question, Chairman, about evidence, and all
the evidence is that in terms of retention, if you could get people
to survive the first year, then you have a greater chance of them
surviving later on. Certainly, that principle does underpin what
we are pressing here.
335. I do not think Mr Ennis is suggesting it
is at the same level.
(Professor Green) No, I said it was the principle
336. There is a suggestion of a move towards
EMA in higher education. It does sound as though you are moving
to that position.
(Professor Green) The principles behind it are the
same in terms of giving that security up front to people so they
know exactly what cash is available for the first year.
337. In supporting that principle, do we need
to improve the model it is based on to cater for higher education
students, or do we need to change it slightly; or is it basically
the same model?
(Professor Green) We have not looked at that as an
issue. I have to pass on that one.
338. I am bothered about the totality of debt,
and part of that debt is credit card debt, which is an increasing
proportion of everybody's daily lives. Credit card debt has to
be paid as you go, so that will have a disproportionate effect
on students. I thought that the Barr/Crawford approach looked
at the holistic thing and gave a lump of money so that people
could live through the piece. I am bothered with that. If you
have got to pay credit card debt as you go and you get up to £3,000
and you get another card and another £3,000, which is what
is happening in realitythat makes the Barr/Crawford proposal
very attractive. You would have a lump of money; you could live
reasonably well and perhaps top it up, whereas your approach of
£4,000you cannot live on £4,000 and you have
to top that up in some way, and that will be either with credit
card or a lot of work. You say in your evidence that if a student
works, it can have a detrimental effectalthough that is
anecdotal. That is definite. If you use a credit card, that is
the most expensive way, barring a loan shark. Does that not support
the Barr/Crawford approach?
(Professor Green) I return to the point that if we
are dealing with the target groups rather than the existing groups,
the evidence so far is that the perception of debt is a disincentive
339. Numbers are holding up. Diane Green says
(Professor Green) We are trying to reach out and increase
the numbers. That is why I said that we must be very clear about
the difference between the existing cohort that we have now and
the ones that we want to reach out to. We are concerned that whatever
we do in terms of tidying up the existing arrangements does not
act as a disincentive to those who want to do it now. We do not
have hard evidence but we do know that some of the target groups
are debt-averse. Certainly, in terms of the ethnic minority students,
they will not enter into debt. We know that for a fact, and there
is a problem there. Our proposal is that you get over that problem,
because it is not about debtit is a grant in terms of getting
them into higher education. It will not cover all their spending
needs, and no-one is suggesting that, but at least it will give
them a platform on which they can do the calculation rationally
as to whether or not they are prepared to go over and above that
and enter into any further debt. There is a clear platform. The
Barr proposals do not do that; it is still a debt and that is
the major worry we have.
(Professor Floud) I am puzzled by the argument that
the Barr/Crawford proposals would enable people not to have credit
card debts, because that is another subsidy. It should not be
presented as a "no subsidy" situation. If you are going
to replace borrowing from Barclays or Visa by borrowing from the
public purse, that is a subsidy, so that many of the principal
objections that Barr has to the current situation would apply
equally in that situation.