Examination of Witnesses (Questions 820-839)
Thursday 12 June 2003
MR PHIL
WILLIS MP AND
BARONESS SHARP
OF GUILDFORD
Q820 Chairman: Can I welcome Phil
Willis and Baroness Sharp. Phil was a distinguished member of
this Committee—slightly before I became the Chair but I
think you had served under two Chairs, was it, Phil, or was it
just Margaret Hodge?
Mr Willis: No, two, and Malcolm
Wicks.
Q821 Chairman: Thank you very much
for helping the Committee by coming before us. You know we are
writing up at this moment our response to the Government's Higher
Education White Paper, and in order to get it as comprehensive
as we could we decided that we would like to hear from you and
be able to ask you a few questions about Liberal Democrat policy
as it is very distinctive from the Government's, and Her Majesty's
Opposition has also changed its position on the fundamental area
of student finance, but really today is asking you about the Liberal
Democrat position and how that will impact on the future of higher
education. In a sense we are not here to put you in the hot seat
or to start a party political fight; we just want to improve our
capacity for writing a good report. Do you want briefly to say
anything to start off?
Mr Willis: Briefly, Chair. First
of all, can we thank you personally but also the Committee for
the opportunity to come along and share some of our views and
we do so in the spirit of which your invitation has been offered.
Baroness Sharp has been leading for the party our review of higher
education, and I think it is important, rather than just simply
having a "yahboo" reaction to the Government's White
Paper, that all political parties take that challenge up that
the government has laid down and say how we are going to address
some of the very key issues which need to be addressed. Quality,
Diversity and Choice was a document which we sent to the Committee.
Just to give you the status of that document, it is a working
document in progress and is certainly not the completed response
to the Government's White Paper, nor in fact is it a detailed
response as far as our own policy is concerned. We are changing
as a result of consultation and, indeed, like the government's
response to the White Paper we hope that as a result of the consultation
many things will change, and certainly we expect things to change
too. I gave the Committee Clerk a new paragraph 6 last night which
is our response as a result of looking at some of the Government's
proposals particularly on the funding of the £1,000 grant,
and I will come back to that in a second. We are delighted as
a party that you, Chairman, decided to take up this issue with
the Select Committee of post-16 student support, and we want to
emphasise our support for your view, and indeed the government's
view, that unless we sort out post-16 staying on rates and incentivising
students staying on beyond 16 then the rest of what we are doing
is, quite frankly, fairly meaningless. It is important that ultimately
we get a good solution from that and we believe the Government
is well on its way to financing good solutions there. It is wrong,
however, to simply look at student support in isolation from the
higher education product. We agreed with the Government that it
is not just the student support system that needs to be reorganised:
we need to change the way in which higher education is offered
and the way in which it is delivered, and to have a higher education
system fit for purpose is right at the heart of what the Liberal
Democrats are currently trying to do. We therefore have examined
what we want from our higher education system, how it can be delivered,
how it should be paid for, and, crucially, who should pay for
it. In our proposals we have sought to introduce a far more flexible
higher education product that reflects the 21st century rather
than the 20th century. If you have had an opportunity to read
Quality, Diversity and Choice it is a product based on
a modular unit accreditation system akin to that of Open University
and, indeed, as offered in most American universities where credit
accumulation has been the norm now for nearly fifty years. We
believe that a new product must recognise that the majority of
future students will study part time and not full time: that they
will study incrementally—not just simply because of cost
but convenience too: that increasingly students will want to earn
and learn: that increasingly they will access part or all of their
education via the internet: and increasingly they will take up
different segments of time to complete their studies. One of the
criticisms which I hope your Committee will address in the White
Paper is that it does nothing to address that new model of delivering
higher education to a totally different market than existed perhaps
ten or twenty years ago. Inevitably who pays for it will be significant
and we, like Professor Barr's article in The Guardian this
morning, do find it offensive to say you can increase participation
by reducing student numbers to the level of 36 or 38% which we
had ten years ago. We accept the principal findings of Universities
UK's document, and indeed the government's proposals, that higher
education needs greater resources and we have tried within our
proposals to make up to £2 billion available to the higher
education system, although final figures will depend on the outcome
of our restructuring proposals. The money would be raised, and
we are the only party which is actively proposing this, not through
a student tax but through a progressive income tax with a 50%
rate on incomes over £100,000, and we would use that money
to meet all the costs of the debt proposals which is £350
million, the abolition of the existing tuition fee income of £430
million, to deal with the new higher grant of £300 million
which we want to introduce which would leave around about £800
million to fund key priorities of building maintenance, IT support,
libraries, etc. We accept the overwhelming evidence presented
to your Committee and to the government that access to higher
education is significantly affected by the fear of debt, and we
accept too that the White Paper does seek to address this issue
by the partial restoration of grants up to £1,000. We wish
to go further and to match what students get in Scotland of £2,100
though, as we have announced today, we do not believe that the
endowment process in Scotland should be replicated in England,
and you might want to ask about that later. We would scrap the
existing tuition fee and we would legislate to prevent universities
charging top-up fees for all the reasons which the government
gave during the passage of the Teacher and Higher Education Act
in 1998. So we believe, then, that higher education is an entitlement
to all students who achieve the necessary standards for access;
we believe that tuition in principle should be free at the point
of delivery paid for by the State; that maintenance is a variable
cost and should largely be met by students and their families
with the aid of income contingent loans, and that access should
be incentivised through maintenance allowances to support students
from less affluent backgrounds.
Q822 Chairman: Baroness Sharp, I
did not mention that you are also a very active of the Parliamentary
University Group.
Mr Willis: And a distinguished
academic.
Q823 Chairman: Of course, from the
London School of Economics.
Baroness Sharp of Guildford: And
the University of Sussex.
Q824 Chairman: Moving onto the questions,
Phil, in one sense there has been very much agreement on the main
Dearing principles, that of the three main contributors to higher
education there should be a balance between society through taxation
from employers and from those who benefit from higher education.
How do your proposals fit into that in terms of getting the balance
right?
Mr Willis: We would not disagree
with Dearing's proposals in 1997 in terms of that balance between
government individuals and employers. If we take employers first,
what Dearing found a great deal of difficulty with was how you
lock employers into paying their share. I know that Dearing did
consider at one time a levy on graduates in the workplace and
that was rejected, and we as a party would reject that too, because
I think it is difficult to levy; it would be seen as a tax on
jobs; and it would be a disincentive for employers to use graduates.
Q825 Chairman: What if it was done
a different way, if there was a levy on any company over a certain
size obviously that did not reach their target in terms of a percentage
of their turnover devoted to research and development? This is
another way that some people have suggested—that a percentage
of that company's turnover would either be exempt up to that percentage
of investment in R&D or, if you were not up to that, then
you paid into a levy that was distributed to universities for
research and development?
Mr Willis: I think that is an
attractive proposition on the surface, Chairman, but it is one
that when you look more closely you would find it incredibly difficult
to legislate for. You would have to decide what size of company
would fall into that bracket and also it pre-supposes that those
companies who do not employ graduates do not get the benefits
from, if you like, graduate education in its broader sense from
society. What interests me most about that question is that when
we have looked at the skills strategy which is emerging and which
will be produced in July now, I understand, not the end of this
month—
Q826 Chairman: I am told it has slipped
by a week.
Mr Willis: I think if it has been
improved we do not mind that—but I think it is a real issue
that we have to address throughout the whole of, if you like,
the skills issue. We as a party looked very carefully, indeed
it was our policy up until 2001, to have a training levy imposed
and we dropped that because we did think that was going to be
a tax on jobs and we do not want that. Dearing came to the conclusion
ultimately that you have to incentivise employers into the training
market and what the skills strategy hopefully will do is give
those incentives particularly to small and medium sized companies
to invest not simply in graduates but throughout their work force.
Interesting statistics from the work force study demonstrate that
most companies invest something like five times as much in a graduate
employee as in non graduate employees: they already get a fairly
good, if you like, deal.
Q827 Chairman: But what about the
Dearing three-legged stool? If we take income tax and the taxpayer
for granted, what about the person that gets the advantage of
five extra years' education?
Mr Willis: Well, fundamentally
this is where we part company with the government, and indeed
the Conservative position, and perhaps even your own Committee's
view. First of all, we have to accept that students who stay on
to do their three, four or five years do lose earnings during
that time. Secondly, we reject, and indeed your Committee has
not taken any evidence which shows, that the so-called graduate
premium bandied about during the White Paper exists and will exist
when we have over 50% of students as graduates. We also reject,
as was clearly identified at the No 11 briefing two weeks ago,
that even students going to the so-called Russell Group only have
something like a £22,000 graduate premium during their working
lifetime, so we have to be sceptical about the additional benefits
purely to those graduates. But our response is quite simple: that
if the government is right—and I think overall they clearly
are, that graduates earn perhaps 17% on average more—then
they pay more tax, and that is right and proper, and our belief
is that the more people earn the more they should contribute to
the general welfare of society which includes education. With
respect, David Beckham might not be a graduate but he is one of
the most highly paid individuals, but without highly paid graduates
who are able to mend his foot when it gets broken, or look after
his money—and, indeed, design his wife's clothes—he
would be all the poorer, so everybody gains from having well-trained,
highly-educated graduates within our society.
Baroness Sharp of Guildford: Also,
if I might say so, it is rather tough on young graduates who are
at the lower end of the earning bracket to be charged what is
a very high marginal rate of tax. With the repayment system, there
is a 9% marginal rate of extra income tax on those earning £15,000
plus. It is quite tough; you want to catch them when they are
earning rather more. There is also the question of why those of
us who benefited from a very much more generous regime of free
tuition fees and grants for residential accommodation should pay
nothing at all.
Q828 Ms Munn: I want to pick up one
issue which is slightly to the side of this: I am interested to
hear you saying that you accept the issue of maintenance loans
and them being income contingent. One of the big arguments that
Nick Barr puts forward, and you have already mentioned him this
morning, is that part of the problem we have is the way people
perceive the money that they have borrowed, and they see it as
a debt. Given the importance of getting more people into higher
education, do you agree that it is important to portray it differently
and to look at it, as he says, not as a total global sum, a debt,
which can get scary but to look at it more as a payroll deduction—obviously
you are arguing about the level of that but to look at it more
as a payroll deduction—and if you do agree with that will
you be going out to try to sell that as part of your policy?
Mr Willis: Do I call you Meg?
Ms Munn: Yes that, is fine.
Q829 Chairman: Amongst colleagues,
I think first names are fine.
Mr Willis: I have a great deal
of admiration for Nick Barr's work because I think it is thorough
and he makes you think about many of the issues we perhaps do
not want to address. There is an initial attraction to his proposals
which he gave to one of the earlier Select Committee's findings
and which he partially repeats in The Guardian this morning
that if the state is going to subsidise loans significantly then,
if we could use that subsidy in some other way, we could incentivise
even more students to go or give them larger loans or grants,
and there is some credence in that. Where I disagree fundamentally
with Nick Barr is that simply relabelling what undoubtedly is
a debt and is likely under the government's proposals to be a
huge debt somehow, by putting it as a payroll contribution which
changes the identity of that in the minds of the students themselves,
is quite frankly farcical. Whilst I would be delighted to sell,
and hopefully always will sell, higher education irrespective
of the costs as something which is worthwhile and I have never
ever tried to do other than that to put students off going to
university, I do believe that students who finish university with
debts of £21 or more thousand as is proposed by the White
Paper will regard that as a debt irrespective of how it is dressed
up. The second flaw in Nick Barr's argument, if I might say so,
is the financial institutions themselves, and it would be interesting
if your Committee had had the time to deal with the financial
markets and the financial institutions to see how they would regard
a student leaving university with debts of £21,000 because
getting credit, getting mortgages and investing in pensions are
all taken into consideration in terms of a student's creditworthiness.
I have spoken to financial institutions to try and persuade them
of the argument in terms of the benefit of Nick Barr's proposal
but in reality, if they are lending money, they are lending it
against a person's creditworthiness, and I have seen nothing yet
which persuades me that the debt which students leave university
with will be regarded as anything other than debt by financial
institutions or by students themselves.
Q830 Ms Munn: All I am concerned
about, and at this point leave aside the wider arguments of the
merits of Nick Barr, is if we say to students, and Charles Clark
quoted that £21,000 was the top, "You are going to have
£21,000 worth of debt", then there is the risk for the
poorer students that that is off-putting. If you say to somebody,
"When you are earning this amount so much will come off your
pay, and that will stop at a certain point", that is significantly
different, and it is like they are going to go out and get a mortgage
of £100,000 which is five times what you said. Do you not
accept there is a benefit to putting it across in that way?
Mr Willis: Of course, I would
accept that there is a benefit, and all of us if we are honest
around this Committee room dress up whatever we think is our message
in the finest clothes we can find. I would not disagree with that.
But in reality our policy is totally at odds with what you are
saying and what Nick Barr is saying: that we feel that, in terms
of funding higher education, the principle should be you do it
through progressive taxation and you do that because it means
that those who have the greatest ability to contribute do so,
rather than when they are students who in that crucial period
between leaving university and the next ten years when they are
taking on a job, taking on mortgage payments, perhaps getting
married or having a partnership and children where expenses are
very tight indeed, which is when they are going to be hammered
most. The other thing Nick Barr has not explained, and I would
be delighted if somebody could explain it to me because I have
not seen the figures, is that if you add a 3% real interest rate
to bring it up to the public sector borrowing levels, what happens
to those students who take career breaks? What happens to women
having time out having children? Does the interest rate rack up
at the same time because, if you are so doing, then the actual
debt will accelerate at an enormous rate particularly after five
years?
Baroness Sharp of Guildford: It
would be easier to consider it in terms of just something that
you pay back over time if it were a much lower rate. The 9% repayment
rate is very high for those on low salary levels. So we looked
at the solution of a graduate tax of 2% but the problem is that
you find that with a loan of that size you do not pay it back.
It takes an absolute age to pay it back at something like 2% because
it is accumulating also even at a rate of interest matching the
2% rate of inflation. We also came to the conclusion looking at
this that it effectively became a 2% premium on income tax over
the whole of a person's life, and you might just as well make
it into income tax. But we wanted it to be on higher rates of
income tax rather than on general rates of income tax.
Q831 Mr Turner: Phil, on the graduate
premium you gave a figure of 17% as the average and in your paper
you acknowledge, as anyone would, that the earnings gains are
not equally distributed. You also expressed scepticism about what
would happen if you got a 50% participation rate. Do you have
any more feel for how many people are not benefiting in pure financial
terms from going to university and who those people are?
Mr Willis: That is an interesting
question and much of the analysis which has been done talks about
broad categories of students. What we found interesting when we
looked at this question was, for instance, art students; that
students who studied a range of arts and social sciences at university,
including the Russell Group, did not achieve the sorts of graduate
premiums and even had a less or equal premium to students who
left with Level 3 qualifications, so I think we have to be very
careful about applying across a whole group of students either
from a particular type of university or, indeed, from universities
generally, that there is an average premium which can be applied
to the norm because clearly it does not. The other groups which
you have to look at, which I am sure the Committee has done, is
people working within the public sector particularly people within
the Health Services where now if you look, for instance, at a
group of people who are the laboratory technicians who are doing
cervical smears and things of that nature within our hospital
service, often are graduates but often are getting derisory low
pay so I think we have to be careful about applying those premiums.
My argument is, and I think most people accept this, that the
more graduates you have the less you can have as a premium.
Q832 Mr Turner: Could you name, perhaps
afterwards, any research that supports the assertions you make?
Mr Willis: We are quite happy
to let the Committee have a note on the research we have used
to form those conclusions.
Baroness Sharp of Guildford: I
do think that there is a difference between the average and the
marginal here. As far as this is concerned, there are some graduates
such as those from LSE who go into the City who get an enormous
premium, and others at the margin who get almost no premium, or
even a negative premium on what they do.
Q833 Jonathan Shaw: You have said
in your paper that you do not share the Government's anxiety to
raise the age or the participation rate for 50% of 19 to 30-year-olds
because you believe that this will evolve.
Mr Willis: Yes.
Q834 Jonathan Shaw: Evolve to what?
Mr Willis: Well, I think you have
answered the question because we rejected the 50% target because
I think most of the Committee would recognise that this was a
target which was set by Tony Blair without any particular evidence
as to why it was 50%, why it should not have been 50% or why it
should not have been more. It was an arbitrary target which was
set. David shakes his head and no doubt he will give me chapter
and verse as to the huge amount of evidence which went into producing
this target. My response to you is that when you actually look
around the first world and you actually look at European participation
rates in higher education and US and Canadian participation, they
are higher than ours. They are not only higher than ours, but
they are higher than the target which the Government has set partly
because they have different ways of looking at higher education
and different ways of delivering higher education, but I do not
believe that we should be high-bound by any specific targets.
I think the students who achieve or adults who achieve a Level
3 qualification or its equivalent and who have the capacity and
ability to benefit from higher education should not be denied
access to it by an arbitrary target either higher or lower than
the current levels that we have. Where I would agree with the
Prime Minister is that he is absolutely right in saying that in
the 21st Century Britain will only succeed, certainly economically,
but I think socially as well, by harnessing human capital and
that means making sure that more people are educated to a much
higher level.
Q835 Jonathan Shaw: So the sky is
the limit then. What we are trying to understand from you this
morning is in terms of the credibility of the policies you are
putting forward and that is about how you are going to pay for
those. You cannot simply say that there is not going to be any
cap or that the sky is the limit without saying how you are going
to do it. Your 50%, your tax, how far does it go? How far does
the additional taxation that you are proposing go in terms of
the number of students or have you not done that calculation?
It is a reasonable question, is it not? How many students can
you get? Can you get 52%, 53%? When will you need to raise more
taxation?
Baroness Sharp of Guildford: What
we have done at the moment has been to look over a three-year
period. We are assuming is that the current full-time equivalent
number of students is 1.1 million at the moment. And those are
full-time equivalents. Of these, about 800,000 are full-time students
and the rest are part-time students working in different ways.
We are looking at both full-time and part-time. What we are assuming
is that our current proposals will pick up both and that the cost
will be at a level of roughly £2 billion, which half of that
is the 50% rate of income tax on those earning over £100,000,
now yields, which is about £4.5 billion. Of that, we would
anticipate immediately approximately £2 billion going into
the higher education field. That will more than cover the cost
of providing the fee element within higher education. In fact
the precise cost is something like £450 million to replace
the current £1,100 fees. For the remaining students we have
costed out at probably somewhere in the region of an extra £500
million, so that you are looking at somewhere at the moment, if
we tot up those figures initially, of about £1.3 billion,
but leaving some leeway for the future.
Mr Willis: I think it is an academic
question. It is an interesting question, but an academic question
in the sense that what we are presuming, and I think it is what
the Government has presumed within its White Paper, is that the
current method of delivering higher education will be on a post-Robbins
model or even a post-1992 new universities model which is predicated
on a three-year boarding school-type graduate programme. I fundamentally
believe that that is not the way in which we will see the expansion
of higher education in this millennium.
Q836 Mr Chaytor: In your document
you give the cost of reimbursing universities for the loss of
tuition fees in the current financial year as £436 million.
Mr Willis: Yes.
Q837 Mr Chaytor: In your Party Leader's
speech of June 4 he said it is £700 million. Can you explain
the difference?
Mr Willis: Well, I am here to
talk about our document. What the Leader said, I will give you
again a written reply as to where he got that particular figure
from.
Q838 Mr Chaytor: In your document
you say that the cost of restoring the grants would be £280
million and that was with the Scottish endowment repayment.
Mr Willis: Yes.
Q839 Mr Chaytor: In the supplementary
document which you have circulated where you say that the agenda
has moved on and now you are not going for the Scottish endowment
repayment and fully funding the £2,000 grant, you estimate
the cost as £300 million, so it was £280 million when
students were paying £2,000 back, so how can it be only £300
million when it is fully funded?
Mr Willis: That is a valid question
and my apologies for not having a clear answer to that in the
documentation. Going back to the 2001 election in which—
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