Examination of Witness (Questions 80-99)
MONDAY 10 FEBRUARY 2003
MARGARET HODGE
MBE, MP
80. Given our experience in this Committee of
the sort of figures we have had from your Department over a number
of inquiries, including the individual learning accounts, if push
comes to shove this Committee will take the Nick Crawford figures
against the Department's any day. That is telling you.
(Margaret Hodge) That is telling us. I hope, Chairman,
you will let us have a look at these figures so at least we can
have a view on whether or not.
81. Minister, you have answered the question
in the negative to our Report.
(Margaret Hodge) Let me go back the to the principle,
I was going to come back to the issues of principle. I do not
recognise those figures, I have to put that on the record, and
I would like the opportunity to examine them to see where Nick
Barr, Ian Crawford and we disagree. Second, and I think more important
than that, is that I just do disagree with you about the issue
of charging interest rates being a progressive policy. Those who
benefit from high interest rates are those who are able to pay
back their loans fastest and they tend to be the ones who will
earn most quickly. By having a zero real interest rate policy
we are actually supporting the very people that I would have thought
this Committee would want to support, those who will tend to come
out as graduates on lower incomes, women who will have career
breaks and others who will perhaps work in the voluntary sector
or elsewhere where over their life time their earnings will be
lower than if they go into the City. I think having a real zero
real interest rate policy is a progressive policy and charging
graduates real interest on their loans would have been a regressive
option.
Chairman: Minister, I have to say that
it is not very progressive for the 50% that are not going into
higher education, the Government is not offering them 0%.
Ms Munn
82. On this point, what you said to us in your
response to the Report is that it is important to distinguish
between the family income background of the student before and
while undergoing higher education on the one hand and the income
earned by the student after graduation on the other. You are saying
that much of the commentary on this issue confuses these two points.
I think that, with respect, happens in the response as well. The
point that we were making, and is being made now, is that the
problem about zero rates interest for everybody is that there
are students who are in a position because of their family background
who do not need to take out loans and who do take out loans and
invest them in something like a higher rate ISA, they put their
money in there and they benefit from that because they do not
need the money in the first place. I agree with you that when
you look further along as to whether the graduate does better
or not clearly there is a benefit, and this was a criticism that
had concerned me in the early part of it, for people who are not
earning as high they could end up paying more. I have not worked
the figures out or know about it, could that not be dealt with
by having a cap on how much people pay back at some point rather
than giving everybody access to loans at preferential rates which,
whether we like it or not, some people will use to benefit from
who do not need that money at all, whereas the money that is being
spent in terms of the subsidy there could be spent on increasing
the £1,000 or doing something else about access. That is
the issue.
(Margaret Hodge) Let me come back on that. Both Clare
Callendar's work and I think if I am right the MORI work demonstrates
that those that tend to have the highest loans tend to be those
from the lowest income backgrounds, so the relationship is not
quite the one that you put.
Chairman
83. Come on, Minister, the figure zoomed up
to 78% of people who could take the loan out taking the loan out.
They were the figures you gave the Committee.
(Margaret Hodge) If you look at the size of the debt,
the size of the debt when people leave university on which you
would propose that we charge a real interest rate that debt tends
to be higher from lower income backgrounds than from middle-class
backgrounds, that tends to be the case. I put it to you that if
you really want to ensure a more targeted approach round loans
the more appropriate way of doing that would be through means
testing the loan. We do already means test the loan and indeed
for those from a family background of £40,000 plus they only
get 75% of the loan, they are only eligible for 75% of the loan.
There is an argument against that, which the Secretary of State
feels very strongly about, that actually we ought to be treating
our 18 year olds as independent people. He would very much want
to move towards a situation where that means testing on parental
income became something of the past. In fact one of the features
of our current settlement which moves us in that direction is
getting rid of up-front tuition fees because that removes the
parents from the equation of having to contribute towards the
cost of their children's higher education. There are some difficult
issues in that area. Chairman, I think on the whole it would be
wrong to put a real interest rate on the loan. You could argue,
although I would not share it with you, that we could have gone
further on means testing eligibility for the loan and that might
have been a better targeted way of getting at those people that
you believe are exploiting the relatively cheap loans that are
on offer through the student loans.
Chairman: There is no `relatively', it
is cheapest loan in the market, 0%.
Mr Chaytor
84. Minister, surely the more effective way
of targeting lower earning graduates, leaving aside the means
testing of the loan at the point of entrance, would have been
to raise the threshold for repayment to, as the Committee recommended,
average earnings. The Government has raised the threshold for
repayment, had you raised it to the level of average earnings
that would have been a far more effective way of supporting lower
earning graduates than simply having a blanket 0% interest rate
which works, as Meg has said, a subsidy to the children of parents
like myself who are quids in because they immediately put their
loan into an ISA, and this happening across the country.
(Margaret Hodge) These are all the choices that we
could have made. There are arguments that we engaged in on the
pros and cons of each of the individual choices, they all have
to be met, every choice has a cost and had we raised the threshold
from £10,000 to £15,000 there would have been an additional
cost to the Treasury of lost income over a period.
85. Surely not. My question is here is a choice
that would not have had a price because it is simply a redistribution
within the existing amount money that already been spent.
(Margaret Hodge) Where I disagree with the Committee,
and I think we are going to have to agree to differ on this one,
I think a real interest rate levied on the student loan would
have been regressive, particularly for women, particularly to
lower paid people who tend to earn less over their lifetime because
they may be working in the voluntary sector or indeed the public
sector. I also think we have spent a lot of time this afternoon
talking about the fear of debt being an inhibitor to access and
participation. If we had chosen to charge a real or a greater
interest rate than the zero interest rate that would have added
to the debt burden and might have been yet another factor inhibiting
access and participation. What I say to you is these are all choices.
Within the context of the overall financial settlement we had
to make choices, I think the ones we made have put a fair funding
pack on the table which will support access and participation
and not be over-burdensome to the State and allow a solid investment
in the highest education sector itself.
86. What we are trying to do as a Committee
is to be helpful to the Department and to you, Minister, to help
you evaluate what you put into your choices of the White Paper
will deliver the aspiration and vision that you start off with.
That is why we are asking these questions because there is some
concern that perhaps the aspirations will not be met by some of
the choices you have made and they could be refined before this
becomes solid policy.
(Margaret Hodge) These are always questions of judgment.
Paul Holmes
87. One of the concerns in the Committee into
the inquiry it is doing on secondary education at the moment has
been the apparent lack of an evidence base to back up the introduction
of specialist schools. You said that this is an evidence-based
policy and it would just be interesting to look at some of the
evidence that you are using for this. For example, you said can
you see the Nick Barr figures that were given to the Committee,
one of the things about the Committee's deliberations is that
all their evidence is public and everyone can look at it, but
we cannot see what evidence you have based your decisions on.
You have a 105 page document that talks about the whole future
of higher education, expansion, research, teaching, international
competition, the academic pay gap, capital deficits and you are
saying to us that you cannot give us any financial figures that
you based this document. If you are concerned about Mickey Mouse
degrees, is this not a Mickey Mouse document, there is no financial
costings to it at all?
(Margaret Hodge) I am sorry if you think it is a Mickey
Mouse document, I do not, I think it is a pretty radical document
with a lot of very positive proposals in it which will put higher
education on a pretty firm base to meet the aspirations we have
for it in the new Millennium. We see higher education as having
an utterly central role both in building a prosperous economy
and in promoting a more inclusive society, which are the dual
ambitions of this Government. What you asked me for, and what
I said I was not willing to share with you, was a finite figure
for what we saw as the specific gap in funding. I gave you, I
thought, an honest explanation of some of the difficulties in
being too specific about that. However, we do believe there is
a great gap. We think, although we have managed a 34% real terms
increase since we have been in government to deal with the 36%
real terms cut we inherited, that is still not enough to ensure
higher education can be globally competitive, and that we can
provide the quality of teaching which our young students deserve.
88. So there is a great gap but you cannot say
what it is or how much the Government is going to need to bridge
the differential—
(Margaret Hodge) We will have to see. It is very difficult.
Maybe you can answer it better than I can. It is very difficult
to know, for example, what level we will have to put up academic
salaries, particularly in the areas where we are particularly
competitive, research, which will help us to both recruit and
keep the best academics in the UK. That is a difficult figure
to quantify.
89. To return to the second question which I
think we need to pursue further, you were asking Mark Simmonds
had he talked to lots of young people about what puts them off
going to university. Well, I certainly have, because for 12 years
before the last election I was head of a sixth form in two comprehensive
schools and I have talked to hundreds and hundreds and hundreds
of Year 10, 11, 12, 13 pupils about staying on for A-levels and
then going on to university, and as I have often said since I
entered Parliament it was very apparent from 1997 on, when tuition
fees were introduced and grants were scrapped, how much more difficult
it was to get kids from the lower socio-economic backgrounds,
from families where no one had ever stayed on into A-levels, like
I was in 1975, to go on to university, but that was always dismissed
as anecdotal. You have mentioned one of the aspects of Clare Callendar's
research which has been published from the South Bank University
and the Open University, and one of the findings from that was,
which was not anecdotal but a hard piece of research, that of
the school leavers they surveyed who did not go into higher education,
63% cited the debts generated from studying, or the fear of those
debts, as being their main reason for not going into higher education.
There is other hard research like that which is emerging now.
Liverpool City Council as part of their Excellence in Cities have
researched all of their sixth formers and their intentions about
university and they found of the inner city sixth formers a very
similar figure to Clare Callendar and they were saying that the
fear of debt was the thing which was putting them off going to
university.
(Margaret Hodge) Let me say a number of things to
you. I have said this to the Committee before, I wish it were
true that in the days when there were no tuition fees charged
and there was access to full grants we were really good at ensuring
opportunities for working class kids to go into university. We
were not. The very stark evidence of the growth in the class gap
between A, B, C1 and C2, D and E who have gone into university,
and the fact that has grown in the last four years, is a terrible
indictment of us all, whether we are teachers, career advisers,
policy makers or funders. That is why I have always challenged
that assertion that debt was the key factor, and that is why I
think prior attainment and aspirations are such an important ingredient
in ensuring better working class participation in higher education.
The second thing to say is that Clare Callendar did one piece
of research and what she actually looked at was a pretty small
group of people who were still in FE. She actually looked at more
in FE than schools, so in a sense there was a bias already there
because we know participation into HE from FE is less than from
schools, so she was looking at a pretty biased group of young
people and she did not look at a huge group. What she looked at
was intentions, not actions. Interestingly enough, we are doing
some evidence-based work from the Youth Cohort Survey, which I
am sure we would be happy to share with you, looking at 17 year
olds and their intentions and then 18 year olds and what they
actually do. When that comes out, we will have a much better understanding
of what determines people's individual choices at the end of their
school years, which I think will be better than that piece of
research. The other thing which I thought was interesting about
her research was some of the attitudes on debt. For example, `Is
it okay to be in debt if you pay it off?' Yes said 59%. So there
appears to be a greater acceptance than you or I might have imagined.
Only 14% said no. `Debt is a normal part of today's lifestyle?'
Yes said 47%, no said 18%. Those are two important issues. Then
if you look at the factors which even she identified in her research,
they fit in very well with other research, and you see that the
main reason that the 10% who get the A-levels but do not go on
to university—because we know that nine out of ten do—is
they want to go out and earn money. That is the key driver of
their behaviour. That is what we have to change.
90. And encouraging that group to go to university
is going to be helped by raising the average student debt from
£900 to £1,500 to over £21,000 if they are going
to go to a good university? I am quoting the Secretary of State's
words from his statement to Parliament.
(Margaret Hodge) Hang on a minute. I am interested
in what you yourselves would do. By getting rid of the upfront
fee, as I have said before this afternoon, that has led to an
increasing debt. Were we wrong to get rid of the upfront fee?
91. You have tried to correct your initial mistake
made in 1997. Just because you are correcting one mistake it does
not mean you are not making further ones.
(Margaret Hodge) Well—
92. With respect, you are here to answer the
questions, not me.
(Margaret Hodge) I hope I am here to engage in a debate
with you on the issues, although of course I am happy to answer
your questions. What I am putting to you is that one policy which
I think you will support, which is getting rid of the upfront
fees, of itself means you add to the loan that people take out
and therefore the debt they incur. Then, if you look at those
figures which were around what the Secretary of State was placing
on the agenda, they were almost the worst case scenario. If you
look at students from low income backgrounds, by the time you
have had regard to the fee remission, to the grants and the bursary,
their debt will be far less than that he put forward as an honest
view of what could be the worst case scenario.
Paul Holmes: With respect, I am looking
at what the different alternatives might be for paying this cost
and who pays it, and I am sure you must have done lots of evidence-based
research but I am sure you will not share it with us.
Chairman: Now you are answering your
own questions!
Paul Holmes
93. I am sure you must have done research into
other methods of paying this off. For example, what is your research
on, if it was through a graduate tax, how many years gap is there
before it starts to be repaid in income tax by graduates? How
could you cover that by, say, issuing a student bond? What is
your research on the average graduate who earns £400,000
more than the average non-graduate, how much extra tax do they
already pay on that £400,000? Have you done research on progressive
income tax? Can you share all those things with the Select Committee?
(Margaret Hodge) You have mentioned Cubie and the
Scottish system a number of times, and we did look at the Scottish
system and there are certain features of the Scottish system we
did not like, which is why we have chosen not to implement them
in England. The fact they looked at student support in isolation
was not good, and what we have done is look at student support
in the round of funding higher education. The fact that in Scotland
80% of the loan is means tested is a feature we would not like
to emulate here in England. The fact that the grant is in substitution
of the loan is another feature we would not want to emulate here
in England. I think the slight dishonesty in Scotland in saying
they have got rid of fees when in fact the endowment is the payment
of fees, admittedly at a different level—
94. Cubie would disagree with you completely.
(Margaret Hodge)—is terminological rather than
real. Did we look at the graduate tax as an alternative? Yes,
we did, we spent quite a lot of time looking at the graduate tax
and I am happy to share with you why we decided not to go down
that route. The reasons are many and let me take you through some
of them. The first thing is that one of the things we were trying
to do in tackling the problem in the round was to get more investment
into our higher education institutions. To do that through a graduate
tax would have required hypothecation of the money which was raised
from graduates as their contribution towards the cost of their
tuition. That would need to be hypothecated direct to universities,
and that proved not to be possible and that was an important factor
we had regard to. Secondly, if you have a graduate tax it is far
more difficult to target your support funds directly on those
who need them most. Everyone would have access to grants, you
would not have the system of bursaries that we are talking about,
and that we felt was not the best use of public money to ensure
that we widened participation. A third and very important feature
is that currently the loan system is considered below the line
for public expenditure purposes. If you convert those loans into
grants, which you would have to do under the graduate tax option,
it inevitably goes above the line and then counts against the
public sector borrowing requirement and becomes horrendously expensive
and squeezes out other expenditure—
95. Exactly on that point—
(Margaret Hodge) Let me go on—
96. You are not answering the question I asked
you. It was like when you said to—
(Margaret Hodge) You asked me to explain my—
97. What I was asking you to do was to share
with the Committee and the public the figures and statistics and
research you based your decision on. I was not asking you what
your decisions were, we know what they were, I was asking you
what was the evidence and research which you based all these decisions
on. When you answered Andrew Turner's question by saying that
the Tory Government's record was awful—I agree with you,
it was—it did not answer the question which was, where are
the evidence base and the costings which underpin this document,
and you are not willing to provide them.
(Margaret Hodge) Can you tell me what evidence base
is missing?
98. What is the funding gap which needs to be
filled? You have not told us. What are the costings of the alternatives,
such as the graduate income tax, the student bond, and all the
other things which I have asked you about four separate times?
(Margaret Hodge) I have tried to explain—
99. You are telling me what your decisions were,
you are not saying—
(Margaret Hodge)— what led us to take one decision
rather than another.
Paul Holmes: You are not telling us what
the figures are.
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