APPENDIX
1. Letter from Margaret Hodge, MP,
Minister of State for Lifelong Learning and Higher Education,
to the Chairman of the Committee
I think that we had a good and thorough discussion
of the HE White Paper when we met on 10 February. I was pleased
to have had the opportunity to debate with you the issues surrounding
this complex and often challenging area of policy. This letter
contains further information on the issues I promised to write
to you about. I have also included detail of one or two other
areas on which I felt it would be helpful to provide more detail
in the light of our discussion.
POSTCODE PREMIUM
I was asked which postcodes qualify for the
premium and whether the Committee could have that information.
Unfortunately, we are not in a position to offer you this information.
The software which the HEFCE uses for the postcodes is a commercial
package, and under the terms of HEFCE's licensing agreement with
the provider, they are not able to make generally available the
information on which postcodes are classified as having low participation.
I have, however, asked Sir Howard Newby to write to you to see
whether he can help.
PROPORTION OF
STUDENTS GETTING
THE FULL
£1,000 HE GRANT
We also discussed the arrangements for the new
grant. In the Secretary of State's Statement to the House on Higher
Education on 22 January he said that 30% of students would benefit
in full from the new Higher Education Grant of £1,000, available
for those whose income was below £10,000. We have since received
more up-to-date data which indicated that within the 30% of students
to be supported, we may be able to afford to raise the threshold
for the full grant higher than the proposed £10,000. The
revised data are currently being checked and validated. The Secretary
of State has said that he will make a further statement to the
House when this has been completed.
EU STUDENTS
The Committee also asked me about collecting
debt repayment for EU students, and I answered that EU students
were already paying off loans. I would like to make it clear that
I was thinking of UK students who subsequently go and live abroad—including
in the EU—for whom there is a system to ensure that loans
are paid directly to the Student Loans Company. Students coming
to study in the UK from the EU are not eligible for maintenance
loans, but we may, for example, be able to build on the current
system for students living outside the UK, and for EU students
who may be eligible for loans for fees.
FUNDING GAP
There was extensive discussion with the Committee
about the size of the notional "funding gap". I wanted
to set down some reasons why it is difficult to put a single and
definitive figure on this.
The "funding gap" is very much a subjective
idea, rather than a scientific calculation—it represents
the difference in funding between where we are now, and where
Higher Education Institutions aspire to be. The size of the gap
depends on what exactly their aspirations are. If we aspire to
have a system that matches the best in the world, then commentators
would agree that there is a "gap" of some kind—how
much of one depending on exactly what the outcomes are that we
want, and how fast our competitors move. I fully agree with the
Committee that it is important for us to have clear goals in terms
of our spending, and identifying the gap to be filled was crucial
to the thinking behind our spending review settlement. The "funding
gap" for the Government's vision of the future, as set out
in the White Paper, is therefore filled between now and 2006 by
the Spending Review Settlement—which allows us to fund the
components that make up our particular vision.
But beyond 2008 we think that it is important
that institutions themselves have the freedom to make choices
about how much funding they need in order to meet their own particular
aspirations. And so from 2006 we are giving them the ability to
make a wider range of choices about how they fund their activities—so
that they are both identifying and filling their own particular
"gaps". And the White Paper is clear that for the longer
term, our top institutions will only be able to compete with the
best in the world by building up independent endowment funds.
FEE DEFERRAL
THROUGH BONDS
I offered to send the Committee a note on the
difficulties associated with funding fee deferral through an issue
of bonds. There are two possibilities.
First, the Government might themselves issue
bonds secured against the future income stream from deferred fees.
This would be on-balance-sheet, and would form part of public
sector net borrowing (PSNB)—a significant disadvantage as
student loans themselves are not currently scored in the National
Accounts. Funding fee deferral through issuance of a special Government
bond would also be likely to increase the cost of raising the
necessary finance. It would be possible for Government to issue
new debt to fund the additional costs of deferred fees but this
would be through the normal process of gilt issuance and would
not be hypothecated to HE fees.
Second, universities themselves might consider
issuing bonds against the future income stream from students.
This puts the matter into the hands of universities whilst making
sure that students could still defer fees. However, there are
potentially significant difficulties that universities would face
in raising finance through bond issuance in commercial markets.
Bond issuance would be expensive and uncertainties would include
the lack of precedent and subsequent uncertainty over credit ratings
of HE Institutions. And while university managers are accustomed
to dealing with a financially complex operation, they are mostly
unlikely to be experienced in the kind of finance and risks associated
with bond issuance,
Moreover, HE institutions would not be able
to offer firm guarantees about students' future income and this
would exacerbate any concerns over institutions' credit or default
risk. Concerns over default risk would be reduced if markets believed
there was an implicit guarantee from Government (i.e. that Government
would stand behind any institution that defaulted). However, even
if this belief were priced into the bond it would still be likely
that the costs of raising finance would be more expensive than
raising equivalent finance through government bond issuance.
Having looked at both these possibilities, we
decided that the issuance of bonds was not worth pursuing further
because the gains from a Government issue of bonds were not clear,
and the disadvantages of asking universities to make their own
issue were evident.
FOUNDATION DEGREES
In view of the Committee's concerns, I thought
it would be helpful to add to what I said on Foundation Degrees.
We regard these degrees, while still quite new, as a very important
route to creating the skilled workforce this country needs, giving
people a valuable chance to pursue a work-focused qualification
developed in partnership with employers. We want the bulk of expansion
in this Spending Review period to come through these degrees.
This is absolutely not about creating any kind of divide in education—we
want Foundation Degrees to be a valuable route through learning
and an important qualification that people from all backgrounds
will see as a work-focused alternative to traditional honours
degrees. We want the Foundation Degree to become a qualification
in its own right.
Originally, there were restrictions on the timescale
for progression from Foundation Degrees onto an honours degree—specifically,
it was a requirement that progression had to take place within
one and a third years of completing the Foundation Degree. This
did not sit well with the idea that people should regard these
degrees as qualifications in their own right, or with our wish
to make higher education something that is flexible enough to
meet different individuals' learning needs. We are therefore giving
universities increased flexibility locally about the arrangements
for progression to an honours degree.
This change is not about preventing anyone moving
from a Foundation Degree to an honours degree. All those who achieve
a Foundation Degree should still receive full credit for that
work, if they go on to take third year modules. We are clear that
it is important that there is an articulation between Foundation
Degrees and honours degrees for those with the desire and ability
to benefit. But this change will give both students and institutions
the flexibility they must have if they are to meet individual
learning and skills needs.
3 March 2003
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