Members present:

Mr Barry Sheerman, in the Chair
Mr David Chayter
Valerie Davey
Paul Holmes
Mr Kerry Pollard
Mr Jonathan Shaw


MARGARET HODGE, MP, Minister of State for Lifelong Learning and Higher Education, examined.


  1. Minister, welcome to the last of our ministerial meetings in the current round in relation to baseline assessment, which will enable us to carry out a performance review. However, your colleague, John Healey, is due to return in January. I am not sure whether we have interviewed you in this room before.
  2. (Margaret Hodge) I have been interviewed in this building, but the room was not like this one.

  3. The problem is that the acoustics are poor and people seated at the back can become restless because they cannot hear. Sian Jones is our new clerk; she is certainly new since you were Chairman of the Committee. She will be piloting us to Los Angeles so we hope we shall all arrive safely. You have such an interesting range of responsibilities. Were you disappointed by the autumn statement? If there was a mention of education it went by me. It seemed to me that in the first four years the Government placed an emphasis on education and in the autumn statement there was an enormous amount of emphasis on health, but education appeared to be yesterday's fashion.
  4. (Margaret Hodge) I do not think that that is true. Thank you for having me back and it is good to see a couple of new Members on the Committee whom I have not seen before. Education is not on the back-burner. We received some money from the pre-Budget report specifically to try to tackle some of the work on development issues. It is very important to try to encourage more professional development in the work place. That is a 40 million to 50 million programme. I believe that that will lead to some decent pilots about how to incentivise individuals.

  5. Did you say 40 million to 50 million?
  6. (Margaret Hodge) Yes, 40 million to 50 million. We need to incentivise individuals and employers to release people into professional development training. We have a commitment, as you know, in this Parliament to increase the proportion of GDP that is to be spent on education and I look forward to that commitment being met over the period of this Government. We have the White Paper and a major education Bill that will set the framework for developing our policies around secondary education and improving standards. They will enable us to do something in which I am engaged, the 14 to 19 year-olds phase in education, and linking that into further and higher education. As we are building up to a comprehensive spending review, I am sure that there will be a pretty strong bid for resources from the Chancellor in that spending review. I look forward to that being smiled upon in the negotiations in which we engage in the spring and through to July.

  7. Is there anything else in general terms that you would like to say about your brief to the Committee before we get down to specific issues?
  8. (Margaret Hodge) It is an incredibly exciting and challenging brief. In the first term of the Labour Government we properly focussed on what was my previous brief, which was getting early years provision on to the agenda and establishing a framework for expanding nursery education and early years childcare. We also focussed on primary schools. All the indicators show that the work that we did then has paid dividends. There are real improvements in early years provision and in primary schools. Nowhere is the problem more evident than in my own constituency. Interestingly enough in relation to my current brief, it is a constituency that has the lowest percentage of adults with higher education degrees than any other constituency in the country. I come to the job with that constituency experience. The second term is about raising standards in secondary education, and tackling the staying-on rates, which I am sure Stephen Timms has talked to you about and which is one of the most difficult but crucial problems that we face as a government. We have to turn around the haemorrhaging of people who leave full-time training and education at the age of 16. Investing in further education for all sorts of purposes, not just to provide good 16 to 19 year-old education, but also there are the workforce development issues and the basic skills that we have never tackled before. Then we want to move on to meeting our ambitious target of ensuring that by 2010 50 per cent of young people under 30 will have the opportunity of a high quality higher education experience. It is very challenging; there are lots of complex and difficult problems, but the focus will be around that. If you reflect on the ministerial briefs, it is interesting that if we leave aside the Secretary of State who is responsible for everything, among the rest of us all bar one have joint responsibilities in various areas around the secondary school onwards into further and higher education phases of learning and teaching.

  9. That is very interesting. It leads me to my first specific question. Since you have been in your present post, two things have happened in terms of higher education. You have said there is a big emphasis on FE and keeping people in the system, so that enough qualified people go to university and higher education. There seems to be some confusion in the public's mind and in my mind about just what happened when the cross-department review into student finance was initiated. Almost rather quietly there was the outcome of the announcement of a fundamental review of higher education as well. It seemed that the department was bound by No. 10, by the famous Labour Party Conference speech from the Prime Minister. The item went into the speech twice and was taken out twice and then it was put in a third time, and it was raising the expectations on something radical happening in relation to student finance. Then the Treasury was not happy. It was not happy about graduate taxes. What on earth was going on? Can you tell us what was going on?
  10. (Margaret Hodge) After all your years in politics, Chairman, you do not necessarily believe everything that you read in every single newspaper every day. It was not bounced. We have been engaged on this together with colleagues across government. I think that is quite right. I do not think that there is anything insidious in that. If you are carrying out a fundamental review of student finance, it is common sense that you work together with colleagues in the Treasury and in No. 10. The reason for doing that is two or three fold. Let me deal with the factors that influence us. We have this manifesto commitment that by 2010 50 per cent of young people will have the opportunity of participating in higher education. You and I know that up to now higher education has become a sort of right for the middle classes and is still a privilege for people in lower socio-economic groups. The challenge in meeting that target of 2010 is to open up opportunities, particularly for people from lower socio-economic groupings to go into higher education. There is growing evidence that debt and fear of debt is particularly inhibiting young people from low-income families which have no prior experience of higher education from entering higher education. That is one key reason.

  11. When we conducted our own investigation, we found it difficult to identify firm evidence that that was the case. We also note that most young people who have the relevant qualifications to get into university are coming in anyway.
  12. (Margaret Hodge) We know that most young people who have the qualifications get in. The socio-economic bias comes in at the age of 16. It affects those who leave school at 16. I agree with that. That is why every time I talk about it I say that prior attainment levels are as important as student funding. Indeed, aspiration is also important. There are three factors that affect this: aspiration, prior attainment, and fear of debt. There is growing evidence - it is not 100 per cent certain - coming from too many quarters that suggests that student debt is inhibiting young people from low-income families from participating in higher education. We have access to quite a lot of research. The sort of thing we find is that even where about a third say that debt puts them off, those from lower-income groups doing perhaps HNDs and HNCs will be more put off than others. We need to tackle this problem before it becomes a real issue inhibiting progress, rather than waiting for it to become so evident an issue that it is too late to do anything about it. Another point is that I have always felt that the reforms that were introduced by David Blunkett and Tessa Blackstone were extremely brave. As you know, I chaired a review into that when I sat in your seat, Chairman. I believe that it is right to say that those who benefit from the opportunities that they receive from the higher education experience should contribute towards it. No one denies that principle, which I believe is well established and which is now accepted by everybody right across the board. The NUS congress accept that there should be a contribution from students and their families towards the cost of higher education. That principle has been established. Whether we have the balance right and whether we have the timing of that contribution right are issues that we are now investigating. I believe that it is completely appropriate that a couple of years into the system, when the evidence is coming through, that we should reflect on whether we have that right, particularly as we want to get to the target.

  13. On getting the balance right, the fear in the university community that we are picking up as a Committee is that there are tremendous priorities in higher education. People are concerned about the levels of pay, of attracting good people to stay on to do research, and to stay in the teaching profession in higher education. Many people are concerned about the general level of pay. People are also concerned that money flowing into higher education and research must be maintained. We are not America and there will be more private sector finance coming in, we hope. We are not like America and the Government has to maintain the levels if we are to have world-class institutions. Your remit is interesting because you and I know that the regeneration capacity of universities is enormous. The fear is that if we lurch back to spending a greater percentage of our GDP on student support, as we did in the past - twice as much as our competitor countries - then you take money away from those other aspirational targets. That is the real concern that you lurch back on little evidence to start paying a great deal of money to people who should contribute to their own higher education.
  14. (Margaret Hodge) I notice that there are no Conservative Members present on the Committee this morning. The legacy that we inherited was severe under-funding of the higher education sector. A tribute to the higher education sector is that despite massive cuts in spending that it experienced over that generation - 36 per cent cut in unit funding for students - it has survived with an incredibly strong and healthy position. Given the retention rates, graduation rates and how we are punching below our weight on research, even retention of academics and even the growth of postgraduates, the situation is not bad. There is a whole range of issues in which we need to invest over time, so that we can maintain our higher education sector as a key player in the global higher education world. I am absolutely clear on that. We are bearing that in mind as we put together a package of proposals that will form our part of the CSR bid. Having said that, it is equally important, if we are to develop the skills that we need in the economy and to provide the inclusive society which we want to build, that we ensure access to higher education for people from lower socio-economic groups. We have to get that right as well. They are complementary and not competing demands. I recognise that they are in an environment where we need a lot of money to go into the higher education sector in all sorts of ways: higher education, further education, working in the local community, teaching infrastructure, retaining the best of the academics in the UK and retaining the research capacity. There are many key issues that we have to consider. We are thinking imaginatively and laterally about how we can deal with some of those.

    Chairman: We shall come back to the profound review on higher education later, but now I shall bring in some of my colleagues.

    Mr Pollard

  15. Referring to the 50 per cent by 2010, the manifesto says that standards will be improved whereas the department talks of maintaining standards. Is there a difference?
  16. (Margaret Hodge) No. I had not picked that up. In my view you continuously strive to improve standards. That has to be a basic tenet of our approach to every phase in education.

  17. Is that a washing down and not an acceptance of less funding in the future?
  18. (Margaret Hodge) One of the tributes to HE is that standards have not been watered-down, although funding has been cut by 36 per cent on the unit funding. We are determined to maintain and enhance standards.

  19. It was a slip then?
  20. (Margaret Hodge) I do not know where that came from. I do not think that that was deliberate in any way.

    Mr Shaw

  21. I have a couple of questions on the review. The review followed quickly on the heels of the announcement regarding student finance. Was that the Treasury saying, "Right, we shall give you some extra money; universities need to sort themselves out; we are not happy with their productivity", and so on? That is often the way and the Treasury do not want to give you something for nothing. If we have to find the money now that the Prime Minister has made the statement , will you come back to show us what you are going to do to improve the productivity of universities. Is that the way it went? This came out of the blue.
  22. (Margaret Hodge) Which review are you talking about?

  23. The review of higher education.
  24. (Margaret Hodge) Let me just comment on the idea that there is conflict between us, the Treasury and No. 10. If we are to be effective in getting joined up working across Government, working across departments is absolutely essential. I find it slightly odd - if I dare say so, Chairman - that where one works across Government very well, immediately it is portrayed as somehow the DfES is being dominated by No. 10, No. 11 or whoever. It just is not like that.


  25. If you take student finance, and you take faith schools, both of them were fashions that came out of No. 10 and were bounced on your department.
  26. (Margaret Hodge) The finance review comes out of our commitment to a target of 50 per cent. It comes out of a realisation that there may be teething problems with the system in place. We have to ensure that we have the detail right. That is felt across Government. To be honest, the faith schools was an idea that emerged in the old DfEE when we started turning our minds to how we could raise the quality and standards in secondary schools and looking at the record of church schools in the league tables. Also the Church of England came to us saying that while they had a considerable number of primary schools as church schools, they wanted to expand their secondary schools. I would not accept that, but be that as it may. I come back to where the review came from. I think it is now a good time to sit back and reflect on what we want higher education to look like in 10 years' time. We have come through this generation of under-funding. We are at a point where the role of higher education in our society is emerging and changing. The purpose of the review is to enable us to sit back and to think where we want HE to be in 10 years' time and in the context of that wider review I hope that we can make a sensible bid for resources over the next spending review period and beyond it. We are looking extremely radically at the relationship between higher education institutions and the rest of the education sector. We know that in the past higher education institutions have been pretty independent of each other and the rest of the education sector. If we are serious about "cradle to grave" provision, raising skills standards, and so on, that is an important area at which to look. We are looking at the role of research and we where we want to be globally. We are also looking at the role we want research to play in regional communities and regional economies. We are looking at quality and how we can enhance that, not just in research but also in teaching. If we are to extend participation it will be a different cohort of students coming into higher education, and therefore excellence in teaching will become ever more important. We are looking at the governance issues. They have not been looked at since I do not know when. Are they an inhibitor to enabling innovation to take place? Institutions need to be well and efficiently managed. We are looking at the relationship between HE and FE and at the settlement around higher education institutions. That is quite interesting, Chairman. The settlement has not changed in the past 40 years. A couple of smaller institutions have been absorbed into larger ones, but we have the same university settlement that we have had for decades. Is that appropriate for regional demand and to meet customer demand? I believe that it is a good time to sit back and to reflect on where we want to go and with that overview we can make a sensible decision.

    Mr Shaw

  27. Is the review cross-departmental?
  28. (Margaret Hodge) Is the review cross-departmental? Yes.

  29. Will you be consulting the stakeholders through this process?
  30. (Margaret Hodge) Yes.

  31. When do you expect to do that?
  32. (Margaret Hodge) As early as possible next year we shall produce a consultation report. Quite a lot of our thinking has already emerged into the public domain as we work through some of the issues; for example, in the letter that we put to HEFCE last week or the week before - the guidance letter for next year - we asked them to look at raising the cap on student numbers for two reasons. One is that it seems a bit perverse that we cap student numbers when we are trying to widen participation. Secondly, it will probably introduce a new form of competition, with learning at the centre, into higher education, and less planning than in the past. We want some thinking around that issue as to what that does in terms of the settlement of universities in the sector. We have to think about the regional offer to ensure that if we lift the cap and allow the market to flow rather more vigorously, that we retain some regional spread of universities.

    Paul Holmes

  33. In the review you talk about looking, for example, at excellence in teaching, especially as you expand the number of students who go into higher education. There is a pressure from some quarters to create elite universities to carry out all the research and a wider group of universities to do all the teaching. What is your position on that?
  34. (Margaret Hodge) One of the interesting reflections for me has been that in the past we have tended to presume that every university does it all. The way in which we have funded universities has forced them into the same missions. They receive money per student and money for competing in the research assessment exercise. One of the issues that we are grappling with in the fundamental review is to see how we can recognise diversity of admission, some focussing very much on research, some focussing globally and some nationally and perhaps some focussing on regional generation. It does not mean that each will do just one; they may do a couple of those. Some may focus on teaching and some on widening participation. There are all sorts of mission focusses that universities may choose to have. If we have those different missions, we then have to decide how to incentivise the system through funding to ensure that missions are properly funded and that people do not try to do the same. We have to recognise that not every university is the same as another. In the past it may have been a mistake to try to build a uniform higher education sector. It just is not like that.

  35. There seems to be a suggestion there that we may see a concentration of research in certain institutions.
  36. (Margaret Hodge) We have a concentration of research at the moment. My officials will correct me if I am wrong, but I believe that a third of the funding goes to four institutions. Seventy-five per cent of funding goes to 26 institutions. A pretence that there is not a concentration of resources is just wrong. At the moment every university has only those two budgets against which they can compete and bid.

  37. There are two factors. The more you go down that road and concentrate on certain areas - Oxford, Cambridge and London-
  38. (Margaret Hodge) I have not said that.

  39. That is where the concentration is already.
  40. (Margaret Hodge) I have not said that. I have been very careful. I said that we have to ensure that there is diversity of mission, that each is valued and that we try to incentivise to enable universities to fulfil their own unique mission. It is not putting more money into one at the expense of another.

  41. In the system there is a fear that there is already some concentration on the Oxford/Cambridge/London axis.
  42. (Margaret Hodge) What is the theory behind that?

  43. They tend to receive the concentration of research status at the moment. You appear to be talking about a system that formalises that more. As a graduate of two northern universities - York and Sheffield - I feel that there should be some redressing of that. There is also a fear in part of the university sector about the effect on academic staff. If you create that kind of situation, there is the argument that the better academic staff will want to go to the prestige research institutions and, therefore, they will not be in the teaching universities.
  44. (Margaret Hodge) Perhaps I may engage in a form of conversation on this point. I am not sure what you are suggesting is wrong. It must be right for UK plc that we fund appropriately research and that we fund well those research institutions that can compete globally so that they can compete on the international market, not just because we want the status but because of the economic growth and prosperity that emerges from excellent basic research. It must be right that we should fund that. Equally, it must be right in terms of our desire to raise the level of skills and promote inclusion that we should fund appropriately and well those institutions that excel in teaching. Some institutions will excel in both; some may choose to focus more particularly on one or two missions than another two. I would have thought that that diversity would be at the heart of Liberal Democrat thinking anyway. It is something that we need to support. We are thinking how to incentivise missions rather than presuming an uniformity of mission.

  45. If the diversity arises naturally within the system, that is fair enough. If, as people fear - a couple of years ago there was fear-
  46. (Margaret Hodge) I do not understand the question. I really do not understand. There was fear of what? There was fear because four of the universities received a third of the funding for research. Where is the fear? What are we supposed to do about that? Are we not to fund properly the excellent world-class research that exists in those four institutions?

  47. If you go down the road of putting all the research funding into the areas that are already successful - mostly in the Oxford/Cambridge/London axis in the south of England - then you are denying other areas the chance to expand into research.
  48. (Margaret Hodge) The whole purpose of the research assessment exercise has been to assess right across the institutions. I probably have the figure here. Something in excess of 25,000 submissions went into the current REA; 50,000 staff and 173 institutions. They have all competed on it. Interestingly, the last time around, all that competition still meant that a third of the money went to four institutions. Twenty-six institutions received 75 per cent of the money. It is right that the money should follow excellence in research. That must be right. We now have to find ways in which to fund excellence in teaching. Taking another element, there is what we may call applied research, which is knowledge transfer, developing spin-offs, taking ideas and developing them into products which lie behind the HEROBYC and higher education innovation fund streams. There are all kinds of ways in which we can incentivise universities to do what they are good at. It is crazy to fund them all equally to do what some are good at and some are not so good at.


  49. Members of this Committee may be worried that the system becomes more frozen. Over the past 20 years we have seen universities that one would not expect to start ratcheting up the research league if things had been left as they were. Off the top of my head I am thinking of Nottingham and Warwick which have made enormous strides in research. They are very entrepreneurial universities. Some of the more established in global brands have been seen as a bit lax in terms of management, drive, innovation and quality of research. In a sense, we are saying that there must be room for people to move up the league in research rather than feel that they are stuck in some middle league.
  50. (Margaret Hodge) I could not agree more. It is like football. You want the teams to go up and down in divisions one, two and three. I agree with that. I shall say two things about that. First, we have the dual funding streams: one through the research councils and the other through the research assessment exercise, which is one mechanism that enables one to do that. The second point is another way of looking at the fundamental review: that is how you can get better collaboration across institutions, which they have not been very good at, so that you can broaden the research capacity across the country by academics working together across institutions rather than working inside their own universities.

    Paul Holmes

  51. You mentioned the research assessment exercise that is published this week. When that was last done in 1996, one-third of the academics were judged as producing world-class research that would attract appropriate funding. This week, we understand that is to be 50 per cent. There are fears that there is not enough money in the pot to give all the people reaching the level the research funding that they would have received in 1996. Is there enough money in the pot to give everyone who has reached the standard that research funding, or will some have to be rationed?
  52. (Margaret Hodge) As you know, this is being considered, in the first instance, later this week by the Higher Education Funding Council. That organisation has its budget and it will have to live within that budget. We shall see what they decide over the coming weeks and months. We shall need to reflect on that in our research. Perhaps I can say something about research that is quite interesting. It is another area of under-funding. We spent 0.8 per cent of our GDP on publicly funded higher education research compared with an OECD average of 1.1 per cent. Just to catch up with France and Germany in terms of public funding of higher education research, we think it would cost somewhere in the region of 300 million. It would not all come out of the "penny" either.

  53. The budget for this year is fixed. If the number of academics achieving world-class research standards has gone up from one-third to one-half, the budget will not reflect that, so there will be some form of rationing and some people will miss out this time who would have got the money five years ago.
  54. (Margaret Hodge) The decision is one for the Higher Education Funding Council. The document will not be available until later this week. If there has been an improvement in the quality of research, hooray. People are managing the system better. We have to consider that and reflect on whether or not the right research assessment exercise is working appropriately. It is supposed to assess the relative quality of research. We shall have to reflect on that over the coming months.


  55. How much bigger is the HEFCE research budget compared with last time?
  56. (Margaret Hodge) This comprehensive spending review is something like 880 million. It is just under 1 billion.

  57. My colleague is asking whether it is a bigger pie than 50 per cent.
  58. (Margaret Hodge) We shall have to wait and see what is decided.

  59. I am referring to the overall budget. You allocate money to HEFCE. How much of a percentage increase is there? This is your chance to show that you are doing better than the previous administration.
  60. (Margaret Hodge) To be absolutely honest, I cannot remember. I think we are now about 858 million or 880 million. That is what the HEFCE document says. What it was before this spending review I cannot recall.

  61. Can you give us a note on that?
  62. (Margaret Hodge) I shall certainly give you a note.

  63. You said that in terms of the European average that was where we have to get to. We can judge you a little on this, can we not?
  64. (Margaret Hodge) On how much progress we have made?

  65. On how much progress you have made.
  66. (Margaret Hodge) I go back again to this comprehensive spending review. It is critical for the post-16 sector, both FE and HE.

    Mr Chayter

  67. I have one final question on the REA. The chairman appeared before the Committee on Monday of this week and he gave a strong indication that the trend towards concentration of research in a small number of universities would be intensified by this week's announcement. Do you see any tension between this trend and the importance of devolution? The thinking behind my question is that for 700 years the UK has been dominated by the Oxford/Cambridge/London triangle and some of us would like to see the Manchester/Leeds/Sheffield triangle come in. Other European countries are now understanding the importance of regional development and the universities are a driving force in terms of regional development. Do you see a tension between the concentration of research in the south east and the importance of devolution?
  68. (Margaret Hodge) I see those as complementary missions. That is why the fundamental review work is pretty important. In terms of UK plc it is very important that we fund the best research properly. If that leads to a concentration that is appropriate. I do not think that our concentration is any greater, for example, than in the US. I believe that you have visited many universities. Proportionally I believe that it is about the same. That is right. Equally, there is an important and growing role for the universities and their regional funds which the HEIF and HEROBYC third stream funding have begun to address. I think we need to ensure that that is properly embedded and funded to build that regional capacity. There is an obvious relationship between the two because you do not carry out research without turning it into developments. Cambridge is one of the most successful universities at converting its new technology and new concepts into ideas. Equally, it may be that some of the applied work that goes on under HEIF and HEROBYC funds will lead to "blue skies" research elsewhere. You cannot see them as discrete functions. If we get a concentration of research to compete globally, we have to have another incentive to ensure a regional spread.

  69. That implies some greater intervention to adjust the balance.
  70. (Margaret Hodge) It requires different incentives for funding.

  71. Coming on to student numbers, the manifesto refers to 50 per cent of young people progressing to higher education. In your opening remarks you referred to 50 per cent of young people having the opportunity to participate. What is the difference between the two?
  72. (Margaret Hodge) I do not think there is anything particularly magic about that. What does the manifesto say?

  73. Progressing to higher education.
  74. (Margaret Hodge) I think "participating" is better because you can progress to and not participate in.

  75. You said the "opportunity to participate". Someone with the necessary qualifications would have the opportunity to participate if there was a place, but they would not necessarily take up that place.
  76. (Margaret Hodge) No, "would participate".

  77. So it is numbers in universities.
  78. (Margaret Hodge) Numbers in universities.

  79. Not numbers with the appropriate qualifications?
  80. (Margaret Hodge) No.

  81. Would those be people on three-year degrees or how do you define participation?
  82. (Margaret Hodge) As you know, when the Secretary of State came to see the Committee he told you that it is one of the issues at which we are currently looking. We have to bottom out what we mean so that we can ensure that we know how many more we need to bring into the system to meet the manifesto objective and target. That has never been done before. No one has tried to measure it in this way before, so we need a base from which to make the measurement. The way we currently measure it is on the nature of the qualification and on the length of time studied. At the moment the measurement is over a year and the qualifications are not all three-year degrees. Some are HNDs, HNCs, foundation courses and other qualification which will count as higher education. We shall start from that base. We are looking at a number of qualifications that it seems that one can complete in less than a year, but they are of a nature that warrants them being higher education qualifications. They are courses in nursing, in law and in business and management; they are professional qualifications. We shall ask QCA to look at those to validate them to ensure that they are of an appropriate quality to justify an HE label. Those are the only other ones that we may bring into the definition.

  83. Does that not suggest that you are inflating the nature of certain qualifications to meet the target artificially?
  84. (Margaret Hodge) No. We have never had to have a baseline before. We are trying to get the right baseline from which to measure progress. All we have had before is the initial entry rate. That is the only thing we have ever measured. We are now trying to measure participation in higher education and we have to have a baseline against which to measure progress. I would be interested in the Committee's views on this. We do not have a preconceived view. It seems to us that there are these professional qualifications that I believe are valid HE qualifications. We need the QCA to do that objectively for us.

  85. Does it, therefore, follow that if the Government is to consider redefining the nature of HE qualifications, that 50 per cent of the target could be achieved without any increase at all?
  86. (Margaret Hodge) No. If we were fiddling the definition, we may be closer to the target. We are not in the business of fiddling the definition. We are in the business of establishing a strong baseline. I say to the Committee that there is a valid question to be asked in relation to professional qualifications in subjects like nursing, law and business and management that can be done in less than a year. I believe we should think about those in relation to our current baseline. It would not be up to us, but if the QCA validate them that is a pretty objective way of doing it.


  87. Would they be level three or level four?
  88. (Margaret Hodge) That is a good question. They would be beyond level three. That is a QCA issue. I would hate to prejudge that. Over the coming period, we shall look at this range of other qualifications to see whether they should be counted in the baseline or not.

    Mr Chayter

  89. You would accept that most parents and young people and those working in the higher education sector would assume that the target was intended to be met by increasing the number of graduates? You are saying that we are looking at a target that could be achieved without any increase in the number of graduates?
  90. (Margaret Hodge) No, I am not saying that at all. Equally, we hope to grow the number of people doing foundation degrees. We have only just launched them. Despite reports to the contrary, they have been pretty successful. There has been an 85 per cent take-up rate so far. Lots of them are part-time courses. If you look at how HE may change over the period, I believe that we shall see more part-time study rather than full-time study. There will be a growth of first degrees, a growth of HNDs and HNCs and foundation degrees and other professional qualifications. I think that is perfectly valid. Fifteen or 20 years ago nursing would not have been considered a higher education discipline for qualification. Now it is. Things move on.

  91. Within the overall target of 50 per cent, will there be subsidiary targets in relation to the number of students expected to have done three-year degrees or foundation degrees?
  92. (Margaret Hodge) No, we have not considered that.


  93. I would like to press the Minister on one point. Sir Michael Pechard came before this Committee at its final session before the election. When pushed to assess where the 50 per cent came from, for example, from international comparisons, from scientific surveys or was it just a nice, round, juicy number, we came close to the view that it was a nice, round, juicy number. Do you know from where the 50 per cent came? Who was responsible for that figure? It is a very tough target. If you look at it in detail, a lot of the people you are talking about are going through the system now and you have to bring them back into the system post the age of 21 or 22. It is a tough target. Forensically, do you know from where that figure came and do you consider it to be a realistic target?
  94. (Margaret Hodge) I do not know its origin. I think that it is an ambitious and realistic target. It is an important target, both in terms of economic growth and in terms of social inclusion. On the growth side, research carried out for the Skills Task Force showed that a 10 per cent increase in participation would lead to a 3.5 per cent rise in GDP. That is no mean improvement. Also out of the new jobs that will be created in the knowledge economy over the next decade, 1.7 million - 80 per cent - will require the kind of qualifications acquired through higher education. In terms of inclusion, we have been through the argument, but we have to make higher education something that is available for everyone. It is tough. It will depend to a large extent on our ability to deliver a much better staying-on rate and a better level of qualification rate. That is why working together through the 14 to 19 year-olds agenda that we are doing across the department is so crucial. We have to raise this prior attainment level. It is fascinating that we have just established the Excellence Challenge Programme, which is a 190 million programme which is about trying to change the culture and attitudes towards university. There is a shocking statistic that 40 per cent of young people from C2, D and E socio-economic groups do not hear about university as an option for them as they go through their compulsory school years. The Excellence Challenge Programme partly funds activities of universities into the schools and local communities, partly funds activities at the school level and partly funds an advertising campaign. There are four elements to it. When I go around the country talking to universities, to LEAs and to LSCs, really good stuff comes out about how students go into schools and make a difference; how bringing the kids into summer schools at universities is making a huge difference; how teaching staff at HEs and schools are finally beginning to talk to each other which is making a difference. We have not tried this before. We have never had a really concerted effort at raising aspirations. We shall have to do a lot of that kind of work over the coming period. It is 1 per cent per annum. It is about 0.5 per cent per annum over the current period.

    Chairman: We shall return to the subject of 14 to 19 year-olds, but we are pleased to hear that. Some of us who went to the US found that they were very professional, whereas some of the staff here, although well-meaning, are rather amateur. Universities are good at following the money. If there is good funding and if the approach is professional we would welcome that.

    Mr Chayter

  95. What happens beyond 2010?
  96. (Margaret Hodge) Onwards and upwards. I do not know.


  97. Presumably you will still be in the job?
  98. (Margaret Hodge) Absolutely. We shall have abolished age discrimination by then.

    Mr Chayter

  99. Would it not be better to establish a more modest target for 2010 and then progress after that? The young people going to university in 2010 are about to start their secondary education now.
  100. (Margaret Hodge) Targets are really difficult. You want to make them realistic and you want to make them ambitious. I think we have this one about right. Time will tell. We shall have to improve on our current performance. We shall have to improve on attainment levels at level three. We shall have to change aspirations. We shall have to get the funding right. We have to get all kinds of things right to make it happen.

  101. Therefore, you envisage a higher target for 2015?
  102. (Margaret Hodge) I do not have a clue.

  103. Would it not be sensible in 2003 or 2004 to have a target for 2015?
  104. (Margaret Hodge) Down the line of course one would have to revisit the target. Sitting in the year 2001, I am happy to look at 2010.


  105. Minister, I must push you on this. The target is ambitious at 50 per cent and you are full of enthusiasm for it. We have had the Learning and Skills Council appear before us. It is down-tuning its targets. That organisation told us that the target for young learners achieving level three qualifications was only rising from 85 per cent; those achieving a level two qualification, GCSEs and equivalent, by 2004 currently is 75 per cent.
  106. (Margaret Hodge) It is pretty ambitious.

  107. Fifty-five per cent receiving a level three qualification - A levels - by 2004. It is currently 51 per cent. That is only a 4 per cent increase. That seems to be timid. Does that timidity at the learning skills FE level square with the ambitious target of 50 per cent? Do they match up?
  108. (Margaret Hodge) The answer is yes, they do. There is joined-up work going on to ensure that what is feeding through the schools FE system is that those targets are appropriate to meeting the 2010 target. We are building that up. Coming back to a point made by David Chayter earlier, I should say that there are a million people in that cohort, 21 to 29 year-olds, who currently have a level three qualification, but who are not engaged in higher education. There is another cohort of people there whom we need to attract.

  109. It is said you could only get 10 per cent of your target out of that cohort.
  110. (Margaret Hodge) It is interesting that they are convinced of that. We shall see. It depends how successful we are, for example, on the foundation degrees and work-based learning. We shall try our hardest to maximise things.

    Mr Chayter

  111. On the numbers and the targets, earlier you were asked about quality and whether it is the maintenance of standards or the improvement of standards. How do you measure quality in HE?
  112. (Margaret Hodge) So far it has been measured by the Quality Assurance Agency. For the past seven or eight years they have gone around and carried out extremely detailed subject reviews. The sector appears to be incredibly bureaucratic and paper-chasing, but nevertheless every university to which I have spoken admits that having to participate in a quality assessment has improved the quality of their teaching. Now we have to look beyond that and see what systems should be put in place to encourage improvement in quality of teaching and to assess the quality objectively. I think we will come out with probably a mixture of things, partly incorporating student views, partly looking at the internal audits - and they will be assessed by the QAA - and partly looking at things like external examiners' views. Those are the sort of elements we are looking at.

    Chairman: Minister, we now want to move on to funding higher education.

    Mr Pollard

  113. Minister, the UK proportion of GDP spent on higher education is 1.1 per cent, the OECD average is 1.3 per cent and in the USA it is 2.3 per cent. Do you need to raise significantly the funding for higher education to achieve the 50 per cent and all the other ambitions that you outlined so well earlier on?
  114. (Margaret Hodge) Yes.

  115. How?
  116. (Margaret Hodge) We are under-funded at the moment, but, again, let us not under-play ourselves; we are incredibly successful in higher education. We have one of the best graduate rates, we have the second-best retention rate and we have maintained that despite the huge increase in the number of students; we do punch massively above our weight on research and we are an increasingly popular destination for international students. So there is a lot of good stuff out there. So, not adequately funded but there has been a lot of good stuff. How do we intend to do it? We will put together, I hope, a very credible package of proposals as part of our bid towards resources. Like all ministers who appear before you and every Select Committee, things are much tougher post-September 11 than they were before. We will have to see both what the position of the economy is and what the position on the distribution of public spending is, but we will do our level best to have a good package which will support our ambitions in higher education.

  117. You indicated the fact that we make better use of each pound that we spend, perhaps, than some of our competitors.
  118. (Margaret Hodge) I think so. To be honest, when I come to this sector - and I have been in the job now for five or six months - I have been surprised about how well we have done. Right across the public sector there are whole areas of the public sector which are suffering from under-funding. I think HE has stood up better against those challenges than many, many other areas of the public sector.


  119. Minister, you would admit there are concerns about retention and attracting new staff. In particular subjects you have to train to PhD level and beyond, and then retain them into the teaching profession. We have been heavily lobbied by the computer scientists in society who are desperately worried that there will be no staff coming through, being retained to teach the computer engineers and computer scientists for the future. That is a real concern not just in computer science but in a number of other areas. I am getting a little bit of a feeling of complacency. You say we punch above our weight and make better use of resources, but you can only push that so far when you look at OECD averages, which are significantly above us, and the Americans where twice the amount has been spent on higher education.
  120. (Margaret Hodge) I am not complacent. One of the manifesto commitments we had was to introduce golden hellos into HE around shortage subjects, and we will pursue that. I am very conscious of the relative salary levels in the UK and, for example, Australia and New Zealand and at professorial level in comparison with universities in the States. There is a gap. Equally, the other side of this coin is that when we ask the universities to produce evidence of their difficulties in recruitment and retention, they are pretty reluctant, if I may say so, Chairman, to actually put pen to paper and give us that hard evidence. What you tend to get is anecdotal evidence of "I have not got as many people to choose from", or "There was only one person really up to it", so you get a feel of a tightening of the labour market but you do not get the feel of the problems that face us in, again, other parts of the public sector, both in education and elsewhere.

  121. There is a concern that things might get tougher. If there was a decision, for example, as a result of your review of student finance, to get rid of the fee, the universities would lose that as a significant source of income. I think they said that would mean two-thirds of 650 million lost to university budgets. If that happened, would you guarantee to make the shortfall?
  122. (Margaret Hodge) Their figure, I think, is wrong.

  123. I am looking at colleagues, but I think it was 650 million.
  124. (Margaret Hodge) I think that figure is wrong. Anyway, given that only 50 per cent pay any fee and only a third pay a full fee, I think the current income from fees is about 400 million

  125. We have got it on our transcript. It is a lot of money for the universities to lose.
  126. (Margaret Hodge) We need to ensure that we have a proper balance between student contribution and state contribution. I come back to that, and I am equally conscious - and I know you are, Chairman - that we have to ensure we fund the higher education infrastructure as soundly as we want to fund individual students.

  127. Would you make up the shortfall?
  128. (Margaret Hodge) I am not sure. We will have to ensure that higher education institutions are properly funded. All I can do is come back to you with absolute honesty and say I think we have got a legacy of under-funding. We have to start tackling that. We will have to see where we go on the CSR.

  129. Why do you not knock on the Chancellor's door and say "We want a higher education tax dedicated to universities becoming really world-class"?
  130. (Margaret Hodge) There is a commitment in the manifesto, which we will be hoping to hold everybody to, on the proportion of GDP spent on education. That is probably the more appropriate way of doing it.

  131. Hoping or determined to?
  132. (Margaret Hodge) We will.

  133. "Hoping" sounds a bit flaky.
  134. (Margaret Hodge) Sorry. I am certainly not flaky.

    Valerie Davey

  135. Coming specifically to the review of student support, have you published the terms of reference for that review?
  136. (Margaret Hodge) I think we have said that we are looking at simplification of the system to see whether we need to give more up-front support to students, particularly those from lower socio-economic groupings, and we want to look at the issue of debt and fear of debt. Those are the key issues that we have set.

  137. Does it cover FE as well as HE?
  138. (Margaret Hodge) No.

  139. FE students are not included in this particular review?
  140. (Margaret Hodge) In this particular review, no, but we are looking at the position of support for FE students and, actually, all adult students in the context of the Comprehensive Spending Review. You will know that we have got the Educational Maintenance Allowance pilot going on in a third of the country, and we are waiting for the assessment of that to come through, but it is showing very positive results.

  141. So in joined up thinking, all of those are being accounted for within the department, even though that may not be within the review that you are initiating on student support for higher education?
  142. (Margaret Hodge) Yes.

  143. You yourself admitted that the present system is extremely complex and difficult to understand. When HEFCE were with us they said it was, in part, a matter of communications; that students did not understand the present system, let alone potentially any future changes. So are there aspects of the present system which you will specifically want to retain, and are there flaws with it that you are looking at specifically?
  144. (Margaret Hodge) I am not in a position to say what we are going to retain or not going to retain. Nothing is ruled in, nothing is ruled out. It is that sort of a situation. On the simplification issue, it is an incredibly complex issue and means-testing works in different ways for different pots of money. I think it is the result of trying to target resources very finely, which is a good principle to underpin your approach, but if you become too sophisticated in that it becomes too complicated for the individual to understand. So there are huge complexities around how you get this bit of money, that bit of money to support students with a family, for example, or even disabled students - all those allowances. We are going to look at trying to make it an easier system to comprehend. I do also think there are communications issues. We have got to make that better.

  145. Despite the targeting, would you agree that because of the minimal interest on loans, in fact, it is still the middle and wealthier classes who have done better by the present system?
  146. (Margaret Hodge) I think they would not think that, because they are all being asked to pay fees.

    Valerie Davey: A relatively low level of fee, when you take into account the fact that the Government is still funding 90 per cent of it. That is a communications issue as well, is it not? I have come across students who think they are paying the fee. There is a huge area of misunderstanding. Parents - I am sorry, I should be questioning you, not discussing my views.

    Chairman: We are all enjoying this.

    Valerie Davey

  147. Let me put it bluntly: parents who have paid independent school fees thinking paying the fee for higher education is wonderful. Let us be quite clear. To move on from there, however, the universities themselves need to have students. Everyone on this Committee - certainly the membership this morning - agrees that the target of the review is to ensure that a future system enables more youngsters from lower socio-economic groups. Is that an ultimate criteria for this review?
  148. (Margaret Hodge) That is a key criteria, yes.

  149. That is exactly where we are focussing.
  150. (Margaret Hodge) Yes.

    Valerie Davey: Thank you.


  151. We have some slight concerns. EMAs have become something of a totem (?), and I think it is the role of this Committee to look at things that become a fashion and a fad. We do hope the pilots are very closely looked at because HEFCE, who we interviewed on Monday, said they were very concerned. So we had one view coming out of the department saying there has been a 5 per cent increase in participation rates in EMA pilot areas, with HEFCE saying "Patchy, not sure, more difficult than that." The Committee would be very concerned. This is a large amount of Government expenditure, and will get much larger if it is rolled out as a national programme. We are very keen that we get it right. As you know, Minister, increasingly, the focus is shifting to 14-18. That is where we are losing so many talented young people. We hope EMAs are not going to be looked at in too rosier a glow; they have got to be part of a systematic evaluation of what really works for these people.
  152. (Margaret Hodge) I completely concur with that view. The only thing I would say to you is that looking at them they appear to be the most effective intervention we have discovered so far, not just to increase participation but, more importantly, to increase retention and retainment levels. We have got to wait for the research to come out, and they are expensive (and there is some dead-weight expenditure around them, so HEFCE is right and I think we would agree with that) but it is also very difficult to think of another tool that has been as effective.

  153. This Committee suggested one, Minister, as you know. We suggested very strongly in our Access report, earlier this year, that if it was linked with a much higher premium to universities who attracted young people from poorer postal code areas, that would have been (and I see your PPS smiling at this because he was part of the Committee) beneficial. A lot of the evidence we took said that if you moved it up to 20 per cent in real money, with EMAs on the one hand and the ability for universities to go down this supply chain on the other, that could be a much more effective tool in returns of getting a return on your investment.
  154. (Margaret Hodge) You need to incentivise universities to reach out in the way that they do in America and, traditionally, have not done in the UK, so that they actively go out and recruit and attract students from non-traditional backgrounds. You need incentives in schools for them to raise standards and aspirations, and you need incentives for individuals to keep them in full-time education and training.

  155. So you will be looking at our suggestions that came out of that report?
  156. (Margaret Hodge) I always look at all of your suggestions.

    Mr Shaw

  157. Minister, would it not be sensible to complete the review of the Educational Maintenance Allowance, understand that information, and then look at student support in higher education? Surely, the two should go together rather than being done separately. If you are going to achieve this 50 per cent target, I think this Committee has heard evidence it is going to come via FE. It seems to me that that, clearly, is where we need to target our resources. We have heard from HEFCE that once students get the necessary qualifications to get into university, then get into university they do. So surely these should be together. Are FE students, or kids at secondary modern schools in my constituency, going to get the crumbs after middle-class students have got a bit of extra money? Why not do it all together? If we are looking at 50 per cent then, surely, we need to look across the whole picture and identify where help is needed most in order to reach that target.
  158. (Margaret Hodge) The first thing to say is that prior attainment (?) is crucial, but we think that among the lower socio-economic groups there is fear of debt. So it is not just the prior attainment. The second thing is that we are looking, in the round, as part of the Comprehensive Spending Review. Every review has implications for other bits of the system, but we are clearly having regard to the funding for students in FE - as, indeed, we are for adult students, who we have not talked about - as we think about the general support for students. The third thing to say is 16-19 year-olds and the support they get is different. You cannot say it is the same thing. The EMA is 900 a year. As the Chairman and a number of us would know, that would not pay the accommodation costs in many universities. The other thing is that the EMA comes weekly, whereas the student has a lot of up-front payments. It is easy to say it should be 16 right through, but of course the 16-19 year-old still gets access to things like free prescriptions, which when you come to the student funding regime they are not eligible for except in very particular circumstances.

  159. But it is all money that you have got to argue with the Treasury over.
  160. (Margaret Hodge) Of course.

  161. What is going to best enable the department to meet its target? What is the best way to use the money that it gets from Treasury to reach that target?
  162. (Margaret Hodge) Not just in one pot. You are going to have to put in lots of pots. The balance between the pots will be reflected in the CRS bid and, we hope, in the final allocation.

    Valerie Davey

  163. Will this review also be cross-departmental, so that indeed the elements of social security are taken into account?
  164. (Margaret Hodge) Yes.


  165. What will you be saying to the Chancellor, or your other colleagues, about child allowance at 16-18?
  166. (Margaret Hodge) I think my view on that is the incentive has to go to the individual student. Why do a lot of working-class kids choose not to stay on? They want money in their pocket, they want to earn. They cannot wait to earn. Maybe their aspirations around jobs means that they do not need the qualifications, and they are scared of debt. I think there is a debt aversion issue around there. I think part of the incentives that you must have for 16-19 year-olds is money in the pocket of the student.

  167. Can I ask you one more thing in terms of where we are going? It does seem a bit odd that there has been a bit of a sea-change in the argument (I hope you can see this from the departmental perspective) but from where we are sitting there has been a distinct shift in the kind of level of discussion over this past short period since the Prime Minister's speech to the Labour Party Conference, where he emphasised this review into student finance. There has been much more emphasis and people are talking much more intensively about this FE sector. I have got a campaign in my own constituency at the moment, from the Huddersfield Technical College, that really does leap off the page when you look at the troubles that the FE sector is under in terms of much lower pay than comparable jobs in regular education establishments, such as comprehensive schools. There is real under-investment in terms of core funding in FE. Here is FE struggling - and it is the very sector you are going to be looking to to help you with your 50 per cent target. As Jonathan said, you are excluding that from the review, which is probably the most sensitive part of your overall package.
  168. (Margaret Hodge) We are not excluding the needs of the FE sector from our preparation for the Comprehensive Spending Review. We are not. What we are doing in the two reviews is we are having a fundamental look at what we want HE to look like. We had a fundamental review of FE in setting up the LSC. That has resulted in that structure. The student funding issue - and I have been over it before - is there because we think it is important to do it for 2010 and we think it is important to get it right having taken this very dramatic and very brave step of saying that we want ----

  169. What we are saying, Minister, is that probably it is your FE sector which is going to deliver on that, and you are obsessing a bit, in the department, about post-18 funding.
  170. (Margaret Hodge) No. Both the FE sector and the secondary school sector are going to play absolutely crucial roles in providing the young people with Level 3 qualifications to meet our target. Absolutely key. If you look at how we are plotting how we can get to the 2010 target, it does not start at 18, it does not start at 16, it goes back to 14.

  171. Minister, with great respect, you are giving us the impression of water-tight inquiries. One on student finance post-18, a water-tight one in terms of the broader review of higher education, and another one which is the spending review application. The worry is, if we have a review of student finance post-18 which takes a lot of resources, you will not have those to spend on FE which some of us think is emerging as the crucial area for government action.
  172. (Margaret Hodge) We have to get the balance right, Chairman. If I can say so, FE has, this year, had a 12 per cent increase in funding. Next year it is getting a 3 per cent increase. This is after an endless cut in funding in a Cinderella service under the previous government. Indeed, (and Val is the only one, I think, who was part of a Committee with me at the time) our very first study when I was in your position was to take a fundamental look at the FE sector, because it was so badly resourced and so badly funded. The evolution of the Learning and Skills Council and all we are doing about inspection and quality raising in the FE sector, I hope, will give you some assurance that FE is very much at the centre of our concerns in a way it has never been before. FE has always been the Cinderella service of education. What we are trying to do is lift it out of that to fulfil its proper role. You inevitably have to look at things in a discrete way and then you have to look at the relationship between them. What I can assure you of is that the team and the department is not losing sight of the relationship between these discrete reviews and the overall budget direction of where we want to get to. Honestly, we are not.

    Paul Holmes

  173. Is there a target date for when your review is going to be complete on student support?
  174. (Margaret Hodge) No, but we hope as soon as possible.

  175. In one sense I am a bit puzzled as to why you need to undertake an extensive review because there have been two very good reviews already in a quite recent period. Professor Rees gave us evidence on Monday afternoon about the review she has done for the Welsh Assembly and, of course, there is the review which has been implemented in Scotland. Both of those reviews, separately, have come up with more or less the same conclusions, that the present system of fees and loans is not working very well, it is a disincentive to poorer students and that it should be replaced in various ways, including students paying after they have begun work rather than while they are still students. Why do you need to undertake an extensive review when you have those two bodies of evidence already?
  176. (Margaret Hodge) I may be wrong on this but my feeling is that the Welsh review did not actually come out with a recommendation about how fees should be paid. What they did say was that it is right to have a contribution from the individual towards the cost of their higher education. So, I think what the Welsh review did more was to define what they saw as the problem rather than to come forward with real policy specifics.

  177. On Monday there was a clear recommendation that, in principle, it was better for students to pay when they are working. Indeed, Professor Rees went into the detail of saying they should not start repaying until they are earning 25,000 rather than 80 per cent of average earnings, which is the present level. That way you will be excluding the students who go into the lower-paid public professions but you would be getting the payment back from the more affluent students who go on into the more well-paid professions. One of the arguments behind the fees and loans system was that students who tend to benefit from being graduates and get better-paid jobs should, therefore, pay it back, which is fair enough, but surely it should be the students who do go into better-paid professions rather than ones in the public services.
  178. (Margaret Hodge) We are obviously looking at the Welsh review. I have not been to it for a few months but I saw it more as an analysis of what they saw was wrong rather than a detailed prescription of what we should put in its place. We are looking at that and the Scottish experience, although it is early days there.

  179. Will you be calling people like Professor Rees to talk to you about the research?
  180. (Margaret Hodge) No, we are not reviewing in that way; what we eventually hope to produce is a paper for consultation. I hope the Committee will have some input into our deliberations before we come to a final decision.


  181. The real argument, surely, is that the Labour Government in 1997 acted in haste in terms of the findings of the Dearing Report and got it rather wrong.
  182. (Margaret Hodge) It is always easy to be wise after the event. I think the brave action was to expect that students should make a contribution. What is so interesting is that that was 1998 and here we are, three years on, and nobody now challenges that principle. That was a pretty radical principle. Beyond that, whether the details were right, is what we are looking at in our review.

    Chairman: I am going to switch tack now, for a moment, because I want to make sure that my colleagues do not get discontented. David Chaytor is looking at the cost of the Learning And Skills Council administration.

    Mr Chaytor

  183. Minister, you have written to the Chief Executive of the Learning and Skills Council in the first annual grant letter, you announced an increase in funding of 500 million, you will know that 69 colleges are still in the weakest category of financial health, and you will know that there is a concern about the differential salary structures between staff in further education and the primary and secondary sector. Where is the 500 million going?
  184. (Margaret Hodge) There were 45 budget lines in last year's budget to the LSC going down into the FE colleges with 79 or something different budget heads. It was absolutely huge. What we have done is reduced it to 9 budget lines, within 4 main headings. If I can just go back to where we were before, two of the budget lines in the previous year's letter accounted for something like two-thirds of the LSC budget; 19 budget lines accounted for one per cent of the budget. So we have got rid of that sort of nonsense. As I recall the actual distribution between the broad heads, there is a greater focus, probably, on growth on the 16-19 than there is on the other, but the growth is spread across the four.

  185. Within the sector, although there have been percentage increases in funding in the last five years - very welcome increases - the unit funding per full-time student has barely changed. In fact, I think we are now back at the position we were in in 1995. Will this 500 million or a proportion of the 500 million increase the unit funding per FE student?
  186. (Margaret Hodge) We stopped the decline in the year-on-year efficiency saving and FE faced the same constraints that HE faced, if not worse. It depends how you define these things, and I do not know terribly useful definitions. What really matters is how much money goes into a college for them to spend on teaching and learning. Some of that may well go into capital investment or something like that, some will go into the standards fund for quality improvement and some will come out of that into teachers' pay initiatives as well to encourage individual development and reward excellence. What I am really concerned about is the totality of the amount of money a college gets, which will go up. It is a real terms increase of nearly 6 per cent for 02/03. So that will be reflected in the college's budget. Whether you define it in that very traditional way, I do not think is desperately helpful.

  187. There is a half a billion increase to the LSC on a budget of just over 7 billion.
  188. (Margaret Hodge) It is difficult to say because, remember, they are also getting the other funding, which distorts the figure a little bit this year.

  189. We would assume that given that sizeable percentage increase, there ought to be an increase in the unit funding per student, because if there is not then the money is not going directly to the front line.
  190. (Margaret Hodge) The money will go directly to the front line. I have not looked at a sort of exemplification of what it does in the traditional way of counting because I have never found that terribly useful. I genuinely think that what matters is the money that college heads get.

  191. You would accept the colleges are concerned about the way in which money has been ring-fenced and the way in which they have been prevented from increasing the unit funding.
  192. (Margaret Hodge) Quite. I do share that concern, which is why we have reduced the budget lines to nine. In the letter we sent to the LSC we also said that we expect them to reduce the budget lines down into the colleges. This is quite a radical shift for government. It will be interesting, and I hope you will observe it and hold us to account on it, but what we are doing is shifting from input control to giving institutions the flexibility to choose how they spend their money and then we are going to get much tighter on measuring their outcomes. I have to say, right across the LSC/FE sector that means they have got to get better at producing proper, up-to-date data and information, so that we can measure those outcomes properly. I am not 100 per cent certain I have got it completely right year one, but it is a radical change in the way that we are choosing to fund and access colleges.

  193. If we move on to the funding of the LSC itself, you will recall in the establishment of the LSC the Government claimed that there would be a saving of 50 million on the administration of the FEFC and the TECs. Has that saving of 50 million been achieved?
  194. (Margaret Hodge) Yes.

  195. I understand, also, that the LSC were arguing that there ought to be an increase in the funding for their administrative costs. Has that increase been awarded?
  196. (Margaret Hodge) Part of it has been awarded.

  197. Can you tell us how much has been awarded?
  198. (Margaret Hodge) 25 million. Even with that increase in additional admin costs there will still be more than 50 million saved in administration in comparison to the predecessor bodies. Can I say a little bit about the reason for the admin costs and how they are approaching it? It is always difficult to get the baseline right and we have probably got it wrong. What we did not have regard to, for example, was that the LSC has to pay VAT and the TECs did not - something that somebody should have spotted along the line but we did not. The other thing that has happened is that the LSC is going to have increased responsibilities, taking the funding for sixth forms and then, if the Bill that is currently before Parliament becomes law, a much stronger planning role in 16-19 provision. We have had to have regard to that. Most of the money is going down to the local LSCs, it does not sit in the centre, and in the letter that we sent to the LSC we have also made it absolutely clear that we hope this will enable us to get the baseline right and then we expect to bear down on those central administration costs over time.

  199. When the Chair and the Chief Executive of the LSC were before us the other week ----
  200. (Margaret Hodge) They wanted more?

  201. The Chief Executive was quite explicit that he felt there was a surplus of staffing within the local LSCs (this was the legacy of TUPE) and that, in time, this issue would be dealt with. So you will see from the Committee's point of view there is a paradox here that you are awarding an additional 25 million and the Chief Executive is saying to the Committee that is probably over-staffed (?)
  202. (Margaret Hodge) I am delighted he said that. I will look at the record of your proceedings to get confirmation of that statement, because that would be extremely helpful to me in the negotiations with him.


  203. You might also read another paragraph in which the Chairman expressed deep unhappiness - which we prised out of him - about the differential payment to A-level students in sixth forms compared to the equivalent student in FE. He went on the record as being very unhappy about that. I hope you will look at that, too.
  204. (Margaret Hodge) Yes. Let me come back on that. That is why I said we have tried to get the baseline right and then we will bear down. On the issue of the funding gap that exists between funding for 16-19-year-olds in FE and in sixth form colleges, and funding in schools, there is, again, a commitment in the manifesto to ensure that upward funding until we meet convergence, and that is informing, yet again, our thinking around budgets. That is the first thing to say. The second thing to say is that it is actually extremely complicated. I have had a number of Parliamentary questions on this issue, some of which are from Members round the table. The figures I gave in the answer to one PQ was that for sixth forms in schools the funding was 3,230 and in FE it is 3,420. On the face of it, that looks as if FE is better. One of the reasons for that is when you look at the FE figure it incorporates total public funding into FE, whereas if you look at the schools figure it is the delegated funding to schools, so it does not include the LEA funding, some of which will go to support the sixth formers in schools. So we have got to bottom out what the difference is, and we are doing that; we are trying to assess a real valid difference, and then we have got to, over time, see how we can address that, because we want 16-19 year-olds to have access to equally funded provision wherever they experience it, be it in a school, a college or a general FE college.

    Mr Chaytor

  205. We were saying, in terms of the budget, that the 188 million in 2001-02 has now been enhanced by the 25 million allocated in the grant letter.
  206. (Margaret Hodge) Yes.

  207. In terms of the widening responsibilities of the LSCs for 14-19, given the majority of staff in the local LSC were, by definition, inherited from the TECs, are you confident that the level of expertise in the local LSCs is sufficient to deal with its responsibilities for the college sector and for school sixth forms, and for the 14-16 age range?
  208. (Margaret Hodge) I think we should be happy with what the LSC has achieved so far. They have had a really complicated task. They have had the transfer of 10,000 staff from a variety of bodies from whom they inherited their responsibilities; they have had to get the money out to 417 colleges and to 2000 training providers. On the whole it has not gone with too many hiccups. I addressed the LSC's annual conference earlier this week, in which I said we have now really got to the end of the beginning and what we now need to see, as we now move forward, is that they start grasping that very important agenda that we have set around widening participation and enhancing standards - all those areas. I think they have got to, in some areas, build their expertise around some of those issues where it did not exist before. Can I say one thing? One thing that was born in quite controversial circumstances was this OFSTED/ALI - if you remember, the two inspectorates that were created under the new LSC. Coming to it and dealing very closely with both OFSTED and the Adult Learning Inspectorate, I think that is a system which is bedding down really well. There is very good experience coming in there, with putting very much the learner at the heart of the inspection process in a developmental and creative way, so that although they are finding in, perhaps, too many instances, not very satisfactory practice, the process of inspection itself is supporting the development of improvements, particularly in workplace learning and in the inspection of New Deal provision. When they go back there is a massive improvement. So there is expertise coming in at all sorts of angles - that is what I am really saying to you - as well as the LSC. Remember this with the LSC, which I am sure is something you get when you talk to local LSC and FE colleges, the LSC is there to steer not row. The expertise in terms of further education has to be at the principal level and within the institution and the LSC should, as with schools, intervene in inverse proportion to success. We have got to think of a new way of expressing that, but it is the right thing. When institutions are doing well let them get on with it.

  209. Are you confident that the LSCs are intervening in proportion to ----
  210. (Margaret Hodge) I think that is the sort of thing that has to develop. They have settled down, they have set up their organisation, they have got the money out when they had to and they have now set themselves some broad objectives and business plans - the normal sort of stuff - and now is the time to start delivering on those issues.

    Mr Shaw

  211. Minister, you have told us that you have given the LSCs 25 million more towards administration costs. Is that the first part of the 50 million we have heard about? Will there be any more money?
  212. (Margaret Hodge) No.

  213. There will be no more money?
  214. (Margaret Hodge) Not for administration. That is the settlement.

  215. Do you still think that 3 per cent of turnover represents good value for money?
  216. (Margaret Hodge) I think the arguments that they put forward on why they needed the extra 25 million were sound.

  217. What were they?
  218. (Margaret Hodge) They were the arguments I said to you: such as they inherited a liability for VAT that the TECs did not have; that we had actually got the baseline wrong and that the cost of some staff under TUPE was greater than we had assumed in assessing their original budget; that they had got additional responsibilities which we had given to them which were not reflected in the original administration. Equally, I am determined to bear down on administration costs over time. Now we have got the baseline right.

  219. So the baseline is 188 million?
  220. (Margaret Hodge) Plus the 25 million, so that is 213 million.

  221. What is the figure you expect in terms of percentage of turnover on administrative costs? One per cent? Two per cent?
  222. (Margaret Hodge) I have not got a view on that and I would not like to give you one. This is a new animal which has been in existence for nine months ----

  223. It is a new animal, Minister, but we were told by the Secretary of State at the time that there would be 50 million savings, and already there is an additional 25 million.
  224. (Margaret Hodge) There are. The expenditure under the old TECs and the FEFC was in the region of 270 to 280 million. The commitment given by Ministers at the time of the Bill that created the LSC was that we would save 50 million on central admin costs. Even with this additional 25 million we are saving more than the 50 million we promised.

  225. The FEFC, I understand, was much more efficient in terms of the amount spent on its administration costs; they spent 15 million on a 3.5 billion budget.
  226. (Margaret Hodge) I do not think that figure is right, but what we have to look at is the admin costs across both the FEFC and the TECs. Our best assessment of that is that it is in the region of 270 to 280 million.

  227. You can understand the concern. We do not want to see huge amounts spent on admin. You say it is a new beast, as it were, but what we do not want is it turning into a monster that breeds red tape.
  228. (Margaret Hodge) I agree. They promised a 25 per cent cut in bureaucracy and we join and support them in that endeavour.

    Paul Holmes

  229. On 12 November John Harwood, Chief Executive of the Learning and Skills Council, was giving evidence and we were asking him about administration costs. He was saying that 188 million (which has now been agreed) was good value and so forth. He never mentioned to us, on 12 November, that he had put in a bid to increase those administration costs, yet within a few days it was in the newspapers and he confirmed to the newspapers that that bid was in. What day did you receive the bid from John Harwood?
  230. (Margaret Hodge) I think that is the way of the world. We have been in discussions with him for sometime over the difficulties he is facing in financing the operation within the administration budget framework that we set him. It would have been inappropriate for him to have said anything because - surprise, surprise, as these things go - he wanted more and we settled on this figure of 25 million. He is a servant of government ----

  231. So he can be frank on the Today programme but not to the Select Committee?
  232. (Margaret Hodge) I think he was edited on the Today programme. We all went on and we all said about the same thing, it was just a little five-second clip that they chose.

  233. He was quite willing, within a few days, to admit he had a bid in, yet on 12 November he, effectively, seems to have misled this Committee when he was saying what good value the 188 million administration cost was.
  234. (Margaret Hodge) Can I be honest? I have not read the transcript of what he said, but from what you tell me of what he said, saying that 188 million was good value is not in conflict with saying "and I want more, please".

  235. He did not say to us "But I need more"; he totally failed to mention that, even though he knew that he was in negotiation and even though within a few days he was telling the newspapers "Yes, I have got a bid in for more money". That does appear to me to be misleading this Committee.
  236. (Margaret Hodge) I can understand that. There are negotiations over those sorts of budgets (ones that usually take place in confidence) and we announce them when we announce the letter. I think that is fair enough.

  237. Could I ask another question on the admin costs, which Jonathan has partly touched on already? John Healey, in answer to a Parliamentary question on 8 November, said that the figure he had just given was that the administration costs for the predecessors to the LSC were about 270 to 280 million, but the FEFC say that they only spent about 15 million administering their share of the budget and that the TECs spent about 150 million. That adds up to 165 million admin costs from the TECs and the FEFC. Where does the other 110 million appear from?
  238. (Margaret Hodge) I have not got the details here. I am really happy to bottom this out by letting the Committee have the way in which we calculate it.

  239. So you can give us a detailed write-down of what you say the FEFC spent and what the TECs spent and where the rest of the money comes from?
  240. (Margaret Hodge) If that will give you the confidence that it is above board, we will do that.

    Mr Pollard

  241. Can I change tack? Minister, Jowanka Jakubek is an intern working in my office from Warsaw University. She comes on the Erasmus Scheme, and I am really pleased about that. I wonder if you could say something about how we might encourage more students to come across here because they are then ambassadors for how we operate. The other thing is, she comes from Warsaw University, which is their equivalent of Cambridge, and goes to Middlesex University, which is not our equivalent to Cambridge. I know that is not your responsibility but I wonder if you could just say something about that.
  242. (Margaret Hodge) She comes because she comes from an EU country. I think the Erasmus scheme is great. What rather disturbs me is that for every two that come here to the UK only one goes abroad, and I am really keen, given the lack of propensity of our UK young people to learn languages, that we should have far more people spending a year abroad. I am looking at how we can encourage a higher take-up of the available facilities for our British students to go abroad.


  243. We are drawing to a close in this session. It would be wrong of this Committee not to, in the closing minutes, mention one area where we are deeply concerned, and you are the Minister for Lifelong Learning. There was a large lobby in this Parliamentary building yesterday by people who are losing their businesses and their income, and much else, because of the chaos over the ILAs. It did seem to us, in our interview where we spent nearly all the time with John Healey, your colleague, on ILAs, there was a - we thought - dismissal of the pain and, also, the undermining of the concept of lifelong learning amongst a lot of people that we are going to rely on over the years to come back into the system and to deliver their training and deliver very important training - IT training. The vast percentage are honest companies and honest people who have put together a business, some of them in the voluntary sector, some in the private sector. We were deeply unhappy about what we discovered in terms of what is occurring, both in terms of the accounting - the fact that they did not know how much it was costing, did not know the figures; nobody in the department knew how much money had been lost. On the one hand we were very worried about that and, on the other, we are very concerned about the businesses and the people who are being laid off and made redundant across the country, with a very - we thought - glib dismissal of any claim to compensation.
  244. (Margaret Hodge) I think right across the whole of the team, Chairman, this is the most difficult issue we have probably had to deal with since we became a team at the General Election. We are all taking it very seriously. John Healey, I think, is doing terrific work in trying to sort out the issues as they arise, and things are changing in relation to ILAs. It is extremely difficult. We share with you your concern, we share with you the concern that we should not, in sorting out the problems associated with ILAs, lose two things: first of all, the real enthusiasm for learning which has come out from the very high take-up (the 2.6 million people who put themselves forward for ILAs); we want to capture that and retain it and build on it. Secondly, we clearly will require the contribution from the private and voluntary training providers over the coming period. Nevertheless, you would have been the first to criticise us if when we started discovering problems with the way in which the ILA itself was running in the current regime we did not take strong and firm action to ensure that we got systems in place that we could properly account to you and Parliament for the money we have spent - and confidently account for that money. You would have been the first to criticise us if we had not done that. So it has been a really difficult situation. I know John is working incredibly hard at trying to sort it out, and it is causing pain to private providers, to the individuals who thought this was opening opportunities for them and to the broader economy.

  245. Minister, you are right that we would criticise you if you did not take speedy action when you knew something had gone wrong, but we also now are critical of the fact that people out there deserve, at the very least, some timetable very soon. Is ILA mark II coming back? We have had that promise from the Secretary of State and from John Healey. When is it coming back? What steps can the department, meanwhile, take to keep these people with good companies in business as far as they can? If they were told that they had a certain amount of time that they have to manage for before the new system comes on stream, I think even with the hardship that would bring there would still be some great relief amongst that community. I have to come back to this: you have just told us that because of TUPE all those staff in the TECs are being looked after, very comfortable lives, in the transition, although we know some of them are inappropriate and will have to be diverted into other occupations over time. So a nice comfortable scenario for the public service, but with the private sector you have got really good people losing their jobs. As a Committee we feel this is a worrying scenario.
  246. (Margaret Hodge) I do not think it is fair to juxtapose the two because you would also criticise us, Chairman, if we did not properly stick to the employment rights of individuals who find that their jobs have changed because we have decided to change structure. I do not think it is fair to juxtapose the two. We want to move forward as fast as we can. Equally, we want to make sure that we have a robust and appropriate replacement for the ILAs that will deliver the objectives we have for it. So we have not got a clear timetable yet, but we are moving as speedily as we can because we do not want to have a gap between the ending of the one scheme and the introduction of the new. The final thing I would say to you - and, like you, I have probably spent quite a bit of my life doing things in the voluntary sector and in the private sector - is that it is just one of the tough realities of life; if you are engaged in contracts (whether it is with a public body or anybody else) those contracts can go wrong. There has to be a limit to where the responsibility of the contractor - in this case the public sector - can elude their responsibility in picking up the undoubted difficulties that creates for a range of voluntary private providers. The best way forward is to get a new system up and running as fast as we can, and we are working on it.

  247. Minister, I have to say, I find that last part unacceptable, in that I would have thought there is a clear responsibility; the Department has got this wrong, and it is the Department's responsibility to get it right fast. Your teams should be working, burning the midnight oil through the night to get this done and to get some assurance out there, because I find this quite different from anything I have seen in the voluntary sector, which is for a government department to cancel a major programme overnight, putting a lot of people out of work, without coming through with some explanation as to why it went so badly wrong and how they are going to fix it. Getting it fixed is what I think this Committee would like to see happen very quickly.
  248. (Margaret Hodge) Absolutely. We need to have a replacement in place, but it has got to be robust, it has got to be sustainable and it has got to meet the objectives that we want of it. Where there is the potential for abuse or fraud, you have, if you are a public sector body, to act very swiftly to ensure that you close off any of those potentials as quickly as you can.

    Paul Holmes

  249. Speaking of the replacement for the ILAs, can you confirm, I understand that Bryan Sanderson, of the Learning and Skills Council, suggested that the Learning and Skills Council are working on a new version of the ILAs?
  250. (Margaret Hodge) I am sure that we will be working with them as a delivery company, as a new company.

  251. Also you were talking about contracts between Government and voluntary sector and private sector and so forth. Quite a number of the small training providers who were here last night are sacking staff or are on the verge of bankruptcy or having to say to their bank managers in terms of overdrafts, "Well, we don't know when we'll have a cashflow coming back again," and the bank manager is saying, "Well, that's it." A lot of them are very angry because they are saying that in terms of contracts they are actually owed money by your Department, all of which at the moment is frozen because the computer is down, the website is closed and so on, and their cashflow has gone midstream because they are owed money by your Department. They are talking about breach of contract. Do you have any comment on that?
  252. (Margaret Hodge) Obviously legitimate claims for money will need to be met.

  253. But they are sacking staff now, as of this week.
  254. (Margaret Hodge) Yes, but what would you far rather we did - that we left the system open to further opportunities for abuse and fraud?

  255. But how quickly will they get the money that is owed to them?
  256. (Margaret Hodge) As quickly as we can possibly ensure that we are paying those to whom we legitimately owe money, if appropriate money. Nobody is trying to pour money back just for its own sake. We just have to make sure there is no abuse and no potential for fraud.

  257. Can I clarify, did you confirm that the LSC are looking into a new form of ILA?
  258. (Margaret Hodge) We talked to the LSC. They have a group of people who are evolving some work on policy development and no doubt they will be looking into this. My understanding is that the work is being done within the Department.


  259. Minister, we have had a good, frank and open session.

(Margaret Hodge) Thank you. I look forward to coming back!

Chairman: Thank you very much for your contribution. I do not know whether you are a poacher or a gamekeeper these days, but thank you again.