MONDAY 10 FEBRUARY 2003

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Members present:

Mr Barry Sheerman, in the Chair
Mr David Chaytor
Jeff Ennis
Paul Holmes
Ms Meg Munn
Jonathan Shaw
Mr Mark Simmonds
Mr Andrew Turner

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Memorandum submitted by Department for Education and Skills

Examination of Witness

MARGARET HODGE MBE, a Member of the House, Minister of State for Lifelong Learning and Higher Education, examined.

Chairman

Minister, can I welcome you to our deliberations. It is a pleasure to see you again. It has been, we know, a rather hectic period for the ministerial team but you have certainly been in the lead on this recent White Paper, and in a sense we limbered up last week by having a seminar on higher education, and you are now our first witness in the present very short inquiry because we intend to "top up", dare I say it, our previous inquiry, and that we hope will be useful to the government and, if it is to be useful, we understand we are on a short time frame. Minister, I hope it is not quite a disagreement between us what "short" was in the last inquiry - we hurried with our last one --

(Margaret Hodge) I think you reminded me of the times I said we would publish the document and fortunately I had not promised to resign on the basis of not meeting the timetable! Can I start by saying "Thank you" to you because you have been incredibly tolerant, both in waiting for our response to your inquiry to student funding - and I hope that is with you - and also for ensuring I came at an appropriate time before the Committee when I had something to say rather than the usual "Wait and see". So thank you for your forbearance in those matters.

Thank you for that. You will recall that this Committee lost a day's debate on your response to our original inquiry, and I do hope that part of your influence and ours will bring back that debate so we can have a proper one at least in Westminster Hall on the White Paper and the two reports that we are going to be producing.

(Margaret Hodge) I certainly welcome that and probably both you and I can put that view to the powers that be that determine the business of the House.

Do you want to make an opening statement?

(Margaret Hodge) Not particularly. I think you have heard me bang on about it for ever!

We will go straight into questions then. Many people think that this recent White Paper is a very generous settlement for higher education - I think some ministers have described it as the most generous HE settlement ever - but in a sense does that not depend on who gets the money? What we have said in the three reports on Higher Education is that there is a balance between what monies flow into universities for teaching and research and other core activities, and it is very important to keep that balance right, and then what goes to student support. If there is an imbalance, and from the figures we have seen and from the White Paper it is not quite clear but presumably the Treasury has done its sums, and the figures are £7.5 billion in 2002-3 to almost £10 billion in 2005-6, how much of that is going to go into universities' core funding for any purposes and how much of that into student support?

(Margaret Hodge) If you look at the White Paper on page 19 we spell out in I hope a very open way the distribution of the additional resources. What I would say to you is that it is an 18 per cent real terms increase in funding for higher education across the piste, and if you now look back at what the Labour government has achieved since we have been in government we will over the period of our government have had a 34 per cent real terms increase in spending. If you compare that to the 36 per cent cut in unit funding that happened under the previous government, I think we have made good progress. Some will go into student support both to fund the support for the additional numbers that will go to higher education and to fund the grants that we are going to introduce from 2004-5, but the rest will go into the sector direct. I know one area where there have been particular issues raised - there is an increase in the per unit/per student funding for teaching over this period of 4 per cent in real terms if you cut out everything else - and I am cutting out the money we are spending on research and on some national projects like the Golden Hellos of the e-universities and the money we are having to put into funding pension settlements. So the real terms increase in teaching alone is 4 per cent, and I know there has been concern expressed by both Universities UK and others that that is not the case, but I can assure you it is.

There seem to be some rather fuzzy numbers here, because there are quite a few of these proposals that might not occur. There has been quite a history in the Department of allocating funds for specific courses - for example, science and technology - and while there has been supply for those courses, the demand has not been there so the money has never been used - or perhaps used for other purposes. But what about this area? A lot of the investment in your suggestion of the huge expansion of 43/50 per cent is mainly being taken up by foundation courses, yet there is quite a chequered history of foundation courses in terms of there being non degree courses being attractive to the people we represent and their children.

(Margaret Hodge) To give you two key answers to that question, firstly, we are encouraging much stronger, demand-led market forces of the whole determination of supply and higher education and we have done that over the last year or two, and the raising of the cap that was placed on student numbers by HEFCE, so that allows flexibility at institutional level to recruit up to 5 per cent above the cap. Secondly, we have said that we want the growth in additional student numbers to come out of foundation degrees. I think it is not right, if I may say so, to say that they have a chequered history because they are still a relatively new qualification. All I can say to you is that in the first year, when we first introduced the qualification, we exceeded the numbers taking the qualification that we had estimated, and the number we put in for the first year was to develop 40 prototypes. At present we reckon we have 12,000 students studying for foundation degrees, and I will be putting a lot of energy into this, and I do see it as a priority that we should ensure at both the institutional level in creating supply and at student level to create the demand that we expand those foundation degrees. Where they work they are absolutely brilliant and the best example which I would invite the Committee to go and look at - and, in fact, there are lots but there are probably two or three that I would invite you to look at - is the one at Kingston University where they developed a two-year foundation degree around service engineering for aeroplanes, and they have massively exceeded the demand for that degree. It is complete win/win for everybody involved - it is a win for the institution because they get the extra numbers; it is a win for the employers because they get the people with the appropriate skills to meet their skill shortages; and it is a win for the student because they know that if they go through the qualification and succeed they have in effect a passport to a job, so in areas such as that it has been extremely successful. Ravensbourne College is another one that has worked with Carlton Television to develop a foundation degree around the skills that are required in multimedia technology and those sorts of areas, so I have huge confidence. I would also say that in the public sector they are working very hard with a number of public service providers to develop foundation degrees. For example, the Health Service has given a commitment that anybody who has worked in the Health Service for more than five years will be entitled to continuous investment in training and education leading to a foundation degree, and we have seen quite a lot of foundation degrees emerging - most recently one in Southampton. We ourselves in the Department for Education and Skills are looking at foundation degrees in the early years field. Indeed, when I had that portfolio I played a part in developing that degree, and in the whole workforce re-organisation that is now taking place in schools, foundation degrees will be an important avenue for those that will be assistants in the classroom. I can go on and on - there are loads. The Ministry of Defence is also working closely with us to develop foundation degrees --

So they are going to be a great success.

(Margaret Hodge) We will have to work hard -

Let me put the question which is this: if they are a great success, you are going to get to the 50 per cent target. We are trying to extrapolate, and one of the things we are trying to extrapolate is whether there is going to be the money there? If everything that is suggested in the White Paper does come on-stream and is a success, do you get to the stage where there is quite a large funding gap?

(Margaret Hodge) We will have to put effort into ensuring that what is a new qualification does gain the confidence of both employers and students, so we have to establish the credibility of that new qualification and we will work hard to do so, and time will tell whether we have been successful. So far the indications are that we can be successful and it certainly meets the skill needs in the economy. Is there enough money? There is certainly enough money in the 2003-06 budget settlement to fund the expansion in numbers that we have laid out in our document - the money is there. We will then over the following settlement period see a more rapid expansion of numbers and we have always seen working towards that 50 per cent target as being towards the latter end of the ten-year period because whether or not students go on to higher education depends on whether or not they get prior qualifications, and that depends on our reforms of secondary education.

What about the gap between 2006, when your upfront fees disappear, and 2010 when some of the money will then start to be repaid?

(Margaret Hodge) From 2006, and that will be an issue for the next comprehensive spending review, the universities will get the income for the fees upfront, so the government will have to fund the repayment time that is lost, that is all. We will get the repayment after graduation but there will have to be a cash upfront payment to meet that government funding upfront, but because it is a loan it will be below the line in terms of PSBR accounting, as you know.

Mr Chaytor

Does that not depend on assumptions made about the number of universities who choose to raise the fee to £3,000?

(Margaret Hodge) No. From 2006 we will no longer be levying an upfront fee - we will abolish it, so whether or not universities then choose to vary their fees above the £1100, or by that time probably £1200 with inflation, that is up to them, but the additional upfront cost of that or upfront income for the university will be met by government.

And has the government made any assumptions about the numbers of universities that will levy the full £3,000?

(Margaret Hodge) No, because it is very difficult when you are opening up the market to variable fees to know how the market is going to respond to that.

What happens if they are proved not to be variable but all universities choose to operate as a cartel and they all raise them to £3,000?

(Margaret Hodge) We will clearly have to look at the issue of cartelisation because that is not what the intent of the policy is.

So it is within the power of each university to choose?

(Margaret Hodge) My own view is that early comments made by some vice chancellors will probably change over time as they begin to understand the impact of market pressures on demand, and I think this is just people at an early stage flying kites.

And in respect of the other dimension of the fees policy, the possibility of differential fees within universities, does the government have a view on the desirability or otherwise of that? Are there dangers there that you could anticipate if each individual course attracted a different fee within the same university?

(Margaret Hodge) Do we have a view? Not particularly. We have always thought that, if you are opening up the market a little bit through varying fees, there is bound to be a difference in the way the market responds over different subjects and different institutions, and I have always said in the past that there are some institutions which may well, because they are particularly popular in some subjects and are particularly good at delivering some courses, choose to vary their fees in some subjects.

Chairman

Minister, you have been stomping up and down the country talking to university students and vice chancellors. What have you been saying to them when, like Mr Chaytor, they say, "What is your argument about flexible fees or top-up fees?", and what are you picking up in terms of reaction?

(Margaret Hodge) It depends on the audience to whom I am talking, is the honest answer, Chairman, but what I am trying to talk about in the beginnings of our tour around university student unions and further regionally - indeed, I am starting in a couple of weeks talking to other stakeholders - is the context in which we approached our White Paper, our strategy document, and the legacy that we inherited and the lack of funding, the 36 per cent cut in unit funding; the challenges that face the higher education sector over the coming decade, particularly competing in a much more globally competitive higher education market; the ambitions we have for the higher education sector, and that is around delivering world-class research to retain our competitive edge there and provide the growth and productivity that we want in the economy; expanding numbers and widening participation and engaging in the local and regional economies - so I talk about all that - and then in that context we talk about how we are introducing a real massive raft of new policies right across all those areas in teaching, in research, in knowledge transfer, in how we are going to meet the 50 per cent target and in how we are going to widen access, and then student funding comes into that context. So far I have talked probably mainly to student unions and when I have talked to them there are some things they welcome - the introduction of grants for next year; the fact that we are raising the threshold when payments lock in from £10-15,000 which means payments become more affordable particularly for those on low income; the fact we have been able to maintain zero real interest charges on the loan, and that I think has been very welcome; the fact that we have abolished upfront fees has been welcomed by many, and we talk about the introduction of varied fees, which is probably the contentious issue when you talk to a student body. What I have found, and this is interesting, is that there is no unanimous view coming back on how best to square the circle that we have had to square between the investment in student funding and investment in universities and the various options that we have had on how to best determine the student support regime. There is no unanimity. Let me give you an instance: many people are as hostile to the graduate tax as those who would have preferred that as an option.

But this Committee was picking up, not only at the seminar last week but round the country, a group of people that feel that you have really failed to be dramatic enough on the one side or the other. On the one side people want you not to have ever introduced flexible top-up fees: on the other there is very strong opinion that we have heard that you have missed out on really giving universities the flexibility to increase their income for both research and teaching, because the £3,000 figure is far too low.

(Margaret Hodge) I have not met that, to be honest. I think on the whole the response I have met is that we have done a rather good job tackling some rather difficult issues, so I cannot say that we have failed to grasp the nettle. That is not an accusation I have met as I have gone around. Even on variable fees I meet a mixed response, even among the student body.

Paul Holmes

Following on from what David Chaytor said, he asked what would happen if all the universities wanted to charge top-up fees, and you said that the government does not envisage that they would do that. There is that dreaded word "target" looming there. What is the government's expectation on how many universities will charge differential fees? Is there a percentage? Is it regional? National?

(Margaret Hodge) I know you might find this difficult to believe but if you try to introduce a market into the issue of determining fee structures it is very difficult to predict how the market will respond, so we will have to wait and see. I think we are waiting as much as you to see how different institutions and different departments within institutions do respond to the new power that we will give to universities to vary their fees. We have not got a view in our head as to how that will go.

So it could be 5 per cent, it could be 95 per cent - we do not know.

(Margaret Hodge) We will have to wait and see. My own guess will be that it will be the more prestigious universities that will decide to vary their fees in the first instance - that would be my guess - but we will have to wait and see.

And will the access regulator be given the freedom to decide on this, or be given strict guidelines by the government to operate within?

(Margaret Hodge) We hope to put forward our consultation document on the access regulator pretty soon. We are working on that as a priority because we would like to see that in place well before we move into the situation where institutions are given the power to vary their fees, but the access regulator will not determine which institutions choose to vary their fees. It will be up to the institutions themselves or departments within the institutions to decide whether or not they would wish to vary the fee. The access regulator will then play a role where institutions wish to vary their fees upwards, and will have to satisfy himself or herself that the university or the department has got admission arrangements, bursary arrangements linking into local schools and colleges and so on which are appropriate to ensuring fair access if there are to be varied fees.

So as many universities or departments as want to could apply and say, "We would like to increase our fees", and the access regulator's only control will be to say, "Well, you do not have good enough access performance so therefore we will not let you", but that will be the only restriction?

(Margaret Hodge) Yes.

The whole point of the document here is to look at the future of higher education for some years to come in every respect - students, expansion of students, competing with world-class universities and so on. Presumably all the different calculations must be based on some sort of estimate of what is the gap in funding for the universities now and how is that gap going to be filled by the government or by top-up fees or business sponsorship over the next 5-10 years. What is the gap that you base your calculations on?

(Margaret Hodge) It is very difficult to be completely specific about the size of that gap because it depends on views you take around, for example, pay differentials that exist between here and the United States, and try as we might to home in, if I take that as an instance, on what was the gap in pay, it was very difficult to bottom that out, so there is a range of figures around. I think we can be pretty specific about the capital gap. There have been quite good studies done on the lack of capital investment both in teaching and research facilities and on the need for investment and maintenance. It is much more difficult to look at the revenue gap, and equally it is very difficult when you are talking in terms of gap, for example, to be totally specific about the additional costs of educating somebody from a disadvantaged background. HEFCE are raising that premium for teaching somebody from disadvantaged background we hope from 5-20 per cent, which I think fits in well with the deliberations that you had when you looked at this issue a couple of years back, Chairman, but is that enough? Only time will tell whether that meets the real additional costs both in teaching and support that are required to ensure that students from disadvantaged backgrounds do get a fair chance at university, so we have not been specific but for very good reasons.

You said you could be fairly specific on capital gap and less on other areas. Can you give the Committee the figures, specific or not, that you have worked on in producing in this document?

(Margaret Hodge) No. That is why I have said to you we have deliberately not used a figure on the gap although we have been clearly looking at areas like the issue of pay, like the additional costs of teaching, to try and ensure whether or not we have enough money. We have got Universities UK's own assessment of what the gap will be - that is one we have regard to - and we hope that we are making, over this comprehensive spending review period and with our proposals around in the introduction of variable fees, some real progress towards ensuring that we can put universities on a sound financial footing and give them some independence of funding from government as well which is another purpose. I am not going to give you, if that is what you are after, a figure for what we think the existing gap is because it is far too difficult and complex to calculate, and if the Committee has managed it I would like to look at that with interest.

Chairman: I promised Andrew Turner who is on a Standing Instruments Committee shortly that he could ask you a question slightly out of sync in terms of flow.

Mr Turner

I am tempted to take advantage and ask how on earth you think you can set up a policy which fills the gap if you do not know what the gap is?

(Margaret Hodge) We do know that the Conservatives cut spending --

Yes. I know that as well but could you answer the question and tell me what the gap is? You could not answer it in the chamber of the House, and you are now trying to convince us that you have filled the gap but you do not know how much the gap is. That is absurd.

(Margaret Hodge) No, I have not. I have said there are huge difficulties in putting forward a clear figure which would properly reflect the need for universities to pay market rates on their salaries and which might, for example, properly reflect the additional costs of teaching students from disadvantaged backgrounds, and I gave those as two examples. What I am clear about, and I will be delighted if you accept this, is that a 36 per cent cut in unit funding which the Conservative Government are responsible for left the universities in a dire funding state, and the further 6 per cent cut that the Conservative Party at that time proposed in university funding would have left us our universities in a totally perilous state, unable to compete globally and unable to meet the demands of students in this country.

Mr Turner: I am sure that does not answer the question --

Chairman: Ask another question then.

Mr Turner: I would like an answer to the question I have already asked.

Chairman: Put it another way or ask another question. I do not think it is enough just to say that it is not an answer.

Mr Turner: Do you think the response of the institutions to your comment about Mickey Mouse degrees was unfair or defensive?

Chairman

And why did you demonise Mickey Mouse? Why has it never happened to Daffy Duck or Bugs Bunny?

(Margaret Hodge) Most people understand it. The context in which I said that is something which I feel passionately is really important. There are some universities where the drop-out rates are just too high. On the whole, as a nation, we do well on drop-out rates. We have one of the lowest drop-out rates and the best completion rates among OECD comparative countries, but in some universities it is just too high. The last figures I saw for the University of North London had a drop-out rate of 45 per cent; East London University and Central Lancashire had a drop-out rate of 43 per cent. That is too high. Setting students up to fail is pretty unforgivable and that is really the context in which I was saying that. Now, why do students fail? The main reason from all the research we have seen is the course. It is not to do with the financial circumstances in which they find themselves; it is the nature of the course. So in that context, if you do not have a course of sufficient intellectual rigour with a clear purpose, it is a Mickey Mouse degree which should not be offered by a university.

Mr Turner

And your judgment is largely that it can be demonstrated by drop-out figures. Could you give some examples?

(Margaret Hodge) No, I am not prepared to. I know it is something that the Conservative government used to love doing - naming and shaming - but I am not prepared to. What I have said is that the criteria I would use would be, firstly, about the rigour of the content of the course and, secondly, about the purpose of the degree so it had a clear purpose. Universities themselves are pretty clear about which degrees they offer which do not have the appropriate figure and appropriate purpose. What I can reflect on is the drop-out rate.

Are you saying you are not clear or you are just, for some reason, prepared to conceal this information from the Committee?

(Margaret Hodge) No, I am not prepared to make my own personal judgment. I think this is a judgment that universities themselves must make.

So the Department does not have a view?

(Margaret Hodge) The Department does have a view on the importance of having courses that are of appropriate rigour and content and purpose, and that it will not set students up to fail and they can complete their studies, get their degree, and take with them the benefits that that degree offers.

So basically the Department has a view on those broad philosophical issues but it is not prepared to give advice, even to people who may be committing three years of their lives and a good deal of their money?

(Margaret Hodge) It would be inappropriate, as you well know, for us to interfere with the academic freedom of institutions to determine their own courses and set their own degrees - that is a pretty basic tenet of a university. What we are doing to deal with this problem is opening up universities to better public account, and I will give you two or three ways in which we are proposing to do that in the White Paper. Firstly, we are going to have this annual student survey which will be validated by the National Union of Students working together with HEFCE, and I think that will give students much better information on which to make a judgment of which university to go to and which course to follow. Secondly, we are going to publish external examiners' reports which has not been done before, which I think also will give a pretty strong take to potential applicants about the quality of a course and the content. Thirdly, there is the continuing QAA institutional assessment which we will proceed with. All that, plus allowing the market a rather stronger force to bear on which courses are on offer by raising them and raising the level on which student numbers are based, will give better information to students to make their judgments, but if you are asking me to intervene and tell universities which courses they should or should not offer, I think that would be an unacceptable intrusion on academic freedom.

That is why I was not asking you to do that.

(Margaret Hodge) You were actually, but never mind!

No. The record will show I did not ask that. What you seem to have done, then, is illustrated as some examples those universities which have a high drop-out rate. Can one conclude that those are Mickey Mouse universities?

(Margaret Hodge) That is not what I was saying.

Chairman

Minister, I think you know my own opinion of the comment you made, and I regretted that you used that phrase because a lot of other people have used the phrase and they tend to conjure up courses they particularly do not like. When we have looked at those courses, many of the courses that those people do not like are perfectly good courses with good intellectual content where the graduates graduate and get very good jobs - indeed, people are queuing up - and media studies is one which is much used and abused. The fact is that any of us can come up with prejudiced views of which courses would fit that particular silly name - and it is a silly name, Minister, you must admit. Let me push you a little further and go on to say that as we expand higher education and try to draw people from poor backgrounds in we are going to need a much tougher prospect, and when this Committee looked at retention what we found in terms of our research and the evidence that we took was that, although student debt played a role in putting students off from poorer backgrounds, the real key was that it needed to be the right course in the right institution in the right place, and very often it was not even the fact it was the wrong course; it was by clearing or not getting to the institution and the course they wanted that they got on to a course where they were poorly advised. So it was the quality of advice.

(Margaret Hodge) Firstly, I have interestingly enough always defended the media studies courses because they have a good record of employment after people have studied, so that is not a course that I have particularly questioned. Secondly, you are quite right to say that the advice and counselling that prospective students get before they embark on their course is very important and I agree, and I did say this in that particular speech, that, when it comes to clearing, trying to fill your numbers without giving appropriate advice and support to ensure that students do go on courses which suit their talents is a worry. Having said that, however, I still think it is the case, if you were to look at it, that there are some courses where the content is not of sufficient rigour and where the purpose is not sufficiently well-defined, and where after a year or so people will think, "What am I wasting my time on?"

Chairman: Perhaps this is a subject the Committee should look at in some depth.

Ms Munn

You have mentioned a number of times the market in higher education and you have talked about the White Paper encouraging market forces. Why do you want to do that?

(Margaret Hodge) I think the introduction of a regulated market in a higher education will ensure that the supply of courses meets the demand of students, and I think that is really important; it will drive up the quality of what is on offer in our universities; and over time it will lead to an increase in standard and output from those who go through our universities; also, as higher education becomes more globally competitive, it is important that within the nation state we maintain our competitive edge, and introduction of regulated market forces within United Kingdom higher education will support our global competitiveness.

I accept entirely that you are putting some regulation into it but is not one of the problems with markets that people with less money generally do less well because they have less to spend? One of the concerns we were discussing last week in the seminar is that, in spite of the very welcome reintroduction of some grants for poorer students and the back-ending of tuition fees, there is still a certain perception, and I was interested in your response to our earlier paper where you say: "We know from research that potential students from non traditional lower income backgrounds tend to be more deterred by the prospect of incurring debt". They are going to be looking at this and saying, "Okay, if I go to my local university then I can live at home which is going to reduce my outgoings; it is a course which is charging £1100 which I do not have to pay as opposed to one which is charging £3,000". Do you think you have done enough to encourage these students against the benefits which are very obviously there for the better off, middle-class students who are already going and who are going to be less put off by incurring higher debt?

(Margaret Hodge) I do not think any of us are running away from the fact that the issue of fear of debt and actuality of debt is a particularly important constraint on behaviour among students from lower income backgrounds - working class students. I put that in the context of saying that getting them to stay on in school and achieve higher and aim higher is as important, if not more important, so it is one of several factors which has led to our failure to enclose the social class gap in participation in higher education over the last 40-50 years - only one. That is the first point to make. Then, if you look at whether we have done enough, I think we have done one heck of a lot because we are introducing grants and you will remember those are on top of the loans, so for a student from a low income background they will get their whatever-it-is --

Chairman

A very low income background.

(Margaret Hodge) Well, the £1,000 grant will be available to 30 per cent of the cohort - well, actually, it is a bit less. Some grant will be available to 30 per cent of the cohort, I think that is the right way of putting it, so having a grant reintroduced for 30 per cent of the cohort is not bad, and remember it is on top of the loan. Secondly, getting rid of the upfront fee was a great inhibitor. It was another perception issue, really - it was perceived as an additional burden - and I think putting that at the end will help.

But you kept saying to this Committee on previous occasions that the upfront fee did not deter anyone. Consistently you said that an upfront fee did not deter anyone and you said the departments were comfortable with that and now, I do not know why, you are totally reversing yourself, Minister.

(Margaret Hodge) Chairman, I have always said, and I will reiterate it here this afternoon, I think the other factor is more important. I think the issue of prior attainment, getting people from a working background staying on at school, getting them to see that university is an option for them and not just for other people are the vital issues. What I do accept is that fear of debt is an additional factor in inhibiting the choices of young people who get the qualifications.

Chairman

You used to give examples of students drinking lots of beer, smoking cigarettes, you regaled this Committee with satellite tv and ---

(Margaret Hodge) Now it is mobile phones.

Can you see what a dramatic conversion this has been, Minister.

(Margaret Hodge) I would accept that it is a factor. I think the more recent research we have had has demonstrated that probably more forcefully.

So this is a research-based policy?

(Margaret Hodge) Our policy is always evidenced based. Just to come back to what students do with the income they have, that is different from how debt and the fear of debt inhibits access, inhibits choice and determines an individual's choices. Have we done enough? I think we have. The other thing I was going to say is the only argument that I think has some validity, and we have put our mind round, is whether variable fees will particularly inhibit those from low income backgrounds who, more than anybody else, have a fear of debt. I think my answer to you there would be that the mixture of the grant, not having the up-front fee and the introduction of bursaries by those universities that introduce variable fees will tackle that inhibitor. We have to be very careful as we implement this policy to ensure that we do not add an inhibitor in there. The other thing I would say to you is the Access Regulator, who will ensure not just that the admissions procedures ensure a fair and level playing field and will also expect institutions to achieve against their own ambitions, I think will support us in a once in a lifetime opportunity to break down the class gap in participation in higher education.

Ms Munn

I agree entirely that it is not the only indicator raising aspirations and doing a lot of other things to encourage people who had not considered going to university before which is important. It just seems to be very strong in terms of variable fees. If somebody says that you can go down the road to Leeds or Sheffield, or whatever, to somebody who lives in Jeff's patch then they will think about doing that - of course I would say that Sheffield is better anyway - instead of saying, okay, we can go to Oxford or Cambridge which, regardless of what we think, is a good idea. We know that there is a differentiated university system, we know that certain universities are seen as better than others - I would not encourage people to go there as opposed to going to Sheffield, obviously - but if we are saying that people from all backgrounds ought to have the same level of choice and variable fees if they do particular courses, for example medicine or dentistry, or whatever, costing more than something else, and people where perhaps nobody in their family has been to university before are thinking about it for the first time are they going to go for the local university and the cheaper courses rather than either a prestigious university or one that is further away or a more expensive course?

(Margaret Hodge) I think you have accepted in what you have said that there is a differentiated situation that we are dealing with. If you look at Cambridge as an instance, they actually take 9 per cent of their students from the lower 3 socio-economic classes as against their benchmark of 13 per cent, so they are not meeting their benchmark.

Chairman

Oxford?

(Margaret Hodge) Oxford take 10 per cent as compared to a benchmark of 13 per cent.

The London School of Economics?

(Margaret Hodge) They have met it this year, you will be pleased to hear, they take 16 per cent as against a benchmark of 16 per cent. These are the latest figures published in December 2002. Maybe it is your efforts that have paid off at the LSE, although if you look at the statistics the LSE was one that came out of HEFCE that did particularly well in the latest set of statistics. The legacy is one of social division in those that go to the more prestigious universities, will what we are doing worsen that? What I would say to you is that the mixture of additional funding we are giving to students from low income backgrounds and the introduction of the Access Regulator should ensure we do make some inroads in what has been a divided system for generations. Time will tell. You will have me back and test me on that.

Mr Simmonds

Minister, do you recognise that there are some potential students who will be deterred from entering university and going into higher education at whatever level because of the policy you are supporting today of increased student debt via top-up fees?

(Margaret Hodge) I think that is an interesting question. Getting rid of the up-front fee inevitably adds to the debt. The judgment we made was that the up-front fee was a greater inhibitor to access than increasing the debt. If you put the debt alongside the additional earnings, if you put it alongside the fact you are not charging interest rates and if you put it alongside the fact we are only charging in relation to income, so it is entirely income contingent, you only pay as you earn, I do not think it ought to be an inhibitor. The other thing I would say to you again is, as I said in answer to Meg Munn's question, the mixture of the new grants that we are introducing and the fact that we are carrying on with our fee remission scheme for the first £1,100 , the introduction of bursaries by those universities that will be charging variable fees, all that ought to ensure that the system encourages more working class students to go to our top universities. As you know, it is a passion that drives myself and the Secretary of State.

I am intrigued by that answer because what that says to me in code is that you do not think it will deter anybody from going.

(Margaret Hodge) I think I am saying something more positive than that.

If that is the case I would like to know, Minister, how many sixth forms you have gone to and spoken to about this. Certainly my experience in my constituency, and the experience of other members across all parties, is we are hearing completely contrary to what you are saying.

(Margaret Hodge) Well I am surprised. I must go and speak to the sixth forms that you speak to. I have spoken to a lot of sixth forms, indeed I have been round with the AimHigher campaign that talks to children in Year 9 and I have to say it is quite easy. We have a job to do to raise aspirations amongst young people from lower income backgrounds so that they see university as something for them, but I think the levers we are putting in place and programmes we are following have been pretty effective at doing that. I would suggest if you have not been on one you should go on one of the road show AimHigher days and see what it does to young kids. I have now been on 4 or 5 of those.

Minister, I am sure we all agree we want to raise aspirations, and I am representing a relatively socio-economic challenged rural constituency, and we want to do so just as much as those representing urban constituencies but what I am intrigued about is that you do not seem to have come across anybody in a sixth form you have spoken to who tells you they are deterred from going to university because they fear the level of debt will be increased because of the top- up fees that you are proposing. Have you never had that experience?

(Margaret Hodge) Have you really talked to young students of that age and see why they chose to come out of full-time training and education?

This is not a complex question to answer.

(Margaret Hodge) Have you really talked to young students as to why they choose to come out of full-time training and education? If you did do that you would find that things like earning money now is a much stronger reason for their coming out of full-time education now at 16 or 18 than the issue of debt. All of the evidence we have suggests that that is the case. Having said that I accept that fear of debt is one of the factors that could affect people's behaviour and people's choice. I believe that what we have put in place in terms of the new grants and the new student funding regime will allay that. I think if we go out and explain our policies well, which we certainly intend to do, that will cease to be an inhibitor.

There is no way that you would accept that a pupil in a secondary, modern sixth form who has ambition to go on to university, who may be the first person in their family to do so, will not be deterred from doing so because of the level of debt they will incur by going through that process?

(Margaret Hodge) It is a factor to which they will have regard but the other factors are more important. I do not know how often I have to say this to you. Let me put it to you another way, would you if you were in government introduce a system whereby higher education for both fee and maintenance support was entirely free?

I am very intrigued by your answer, it seems to be contradictory to what people are saying to me on the ground.

(Margaret Hodge) You have not answered the question.

You are here to answer the questions, not me.

(Margaret Hodge) The interesting thing is that responsible politicians have to look at the alternatives and see what decisions they have taken. The only alternatives I have seen from the Conservative Party is to put a cap on aspirations by not increasing the numbers going into higher education and the only alternative I have seen from the Liberal Democrats is to cut degrees to 2 years and force people to stay at home. Those are the two options. I think what we have done, which is not to put a cap on aspirations, to ensure there is proper choice for students as to whether they stay at home or go away and that they can undertake a 3 year honour degree if they want to but to provide a student funding regime which supports them at the time at which they are studying and particularly supports those from low income groups is a much better way. If you have other ideas during this consultation paper let us know.

Mr Simmonds: I am not going to get an answer.

Chairman: We want to talk a little on research now.

Jonathan Shaw

Minister, 75 per cent of the funding for research goes into 25 per cent of the institutions.

(Margaret Hodge) Yes.

You want to further concentrate that, what are we looking at 80/20, 90/10, 95/5?

(Margaret Hodge) Again we have not set a specific figure and it will be for HEFCE to determine the output distribution. What we have set from the evidence we have seen, particularly round academic salaries at the top level, at the professorial level of the top American universities, is we do need to put additional funding into our top research institutions here to ensure that we can compete and keep the best researcher and that the revenue is level. On the capital level we also have to make sure that the facilities are in place so that they are attractive to the world's best researchers so that they want to carry out their research here in England.

It will be at least 76/24, it will be less than it is at the moment.

(Margaret Hodge) It will be more concentrated, but of that range somewhere or other.

Is there not a contradiction in the White Paper then if you are saying that you want to nurture and provide opportunities for research in institutions but you are going to concentrate it in another, explain that?

(Margaret Hodge) There is no contradiction. There is a lot of extra money going into research, some of it will be used to concentrate additional resources at the top end so that we can keep the best researchers, other will be used to fund identified new research which is developing in areas of emerging research and new disciplines.

How will it emerge in universities other than from where it is concentrated?

(Margaret Hodge) HEFCE have to lay down the funding. There are two separate areas, one is where there are new emerging disciplines of research, nursing might be one, some of the applied medicines might be one, creative industries are another, two areas of emerging research, we would want to fund research that is not world class but where the discipline is important to the future economic prosperity of the nation, that is one. Two, you want to fund research, I call it the escalator of improvement, if you look at the funding over time there are some departments where they have been sort of stuck at a level and not going up or down, they are not improving or indeed some have declined.

Are these the Level 4s that you are talking about?

(Margaret Hodge) We will want to fund those that currently have the Level 4 classification where they demonstrate that they are improving departments.

That means you will continue them to the next round or are you going to pull the rug?

(Margaret Hodge) We want to fund those that demonstrate they are improving departments.

Let us be clear about this, the next round goes up to 2008, is that correct?

(Margaret Hodge) Yes.

All research institutions that are at Level 4 will they continue to get the funding up until 2008?

(Margaret Hodge) We will want to introduce our new policies on the funding of research before 2008.

The answer is that they may not.

(Margaret Hodge) They may well not.

That is a very powerful signal to a lot of research institutes out there that your money could go before 2008?

(Margaret Hodge) We want to concentrate funding on the world class institutions and secondly on those that demonstrate that they are on the upwards escalator.

If you are running an institution and you have heard that decision from you, Minister, and the research assessment exercise was awarded research up to 2008 obviously universities have taken account of that, do you think you might find yourself in court?

(Margaret Hodge) Let me say a number of things, under the last RAE 55 per cent of research departments got a 5 or a 5*, there is already a concentration of research at the upper end.

To stay alive you have to be 5

(Margaret Hodge) I have not said that. We want to fund those at the Level 4 where they demonstrate they are developing and improving. That is the first thing to say. The second thing to say is that universities get their money from a variety of sources, they get their money from research, and we want to incentivise teaching. One of the ways in which HEFCE will be distributing the teaching monies over the coming period will lead to changes. If you increase the premium for teaching disadvantaged students from 5 per cent to 20 per cent that is a pretty big redistribution of monies towards those institutions that do teach disadvantaged students. Universities may well end up getting their money under different schemes. One of the purposes behind this White Paper and philosophies that underpin it is that we do want universities to focus far more on their own individual missions.

Is it not the case there is a connection between teaching and research?

(Margaret Hodge) I think what we would accept is that there is certainly a very, very strong connection between undertaking proper scholarship round your subject, ensuring you are up-to-date on the research that is round and the quality of your teaching, there is a connection between scholarship and teaching which does not mean there is a disconnection between research and teaching, nobody is arguing the contrary. You need to ensure that you do proper scholarship to ensure that you are an effective teacher. The evidence from the QAA subject review has been very much those institutions that have not actually carried out a lot of research do incredibly well at teaching, even in the UK the evidence is such that ---

On that very point, Minister, is it not the case that the institutions that got the highest overall QAA assessment were the very same ones that had the most intensive research institutions? Is that not the case? Just a further point, therefore do you not see the connection between research carrying on in institutions and being able to attract high calibre people so it provides that sort of spark that all institutions need?

(Margaret Hodge) I am not sure.

On the first point.

(Margaret Hodge) Do you want me to go back to the first point? Nobody is denying that those who undertake world class research can also provide excellent teaching, I am not putting that forward as a proposition. What I am challenging is the proposition that you must undertake world class research to be effective teachers. I think that is an unproven hypothesis. That is where I would ask you to look at the QAA teaching assessments, where much of the very good teaching takes place in situations where there is not an enormous amount of research. That is where I would say to you that teaching depends on good scholarship, not necessarily world class research. The other thing I would put in the frame is, in the States out of the 1,600, or so, higher education institutions they have only 200 have post-graduate degrees awarding powers, so there is a much stronger distinction between teaching universities and research universities. I have not heard anybody who has studied these things saying therefore the teaching that takes place in those universities that do not have research degree awarding powers is of a lesser quality than the teaching that takes place in those that have research powers. Let me make one final point, let me take one example, Cambridge. Cambridge in the 2002/2003 RAE because of the current concentration of research got nearly £68 million under the RAE for research money, it is a research intensive university. Anglia, the other university got £370,000 in research. Again I have not heard anybody allege because Anglia only got £370,000 of research money, whereas Cambridge got £68 million, Cambridge teaching is in all instances that much better than takes place in Anglia.

Let me give you an example, Minister, Greenwich University that recently won the Queen's Anniversary Prize and was the outright winner of the British Computer Society prize developed the software for models that evacuate people from buildings in emergencies. It was used, for example, in the Sydney Olympics and it is to be used in forthcoming Air Bus project, that is not just good for Greenwich but that is good for Britain, that is good for the world. What concerns me is that you are going to reduce opportunities like that for all those working-class kids you are talking about because the new universities provide the bulk of places, they are not going to have access to that, what then is going to happen to the young, working-class, ambitious researcher if it is concentrated in yet more universities?

(Margaret Hodge) You are presuming in the first instance that the young, working-class student will only go to the non-research universities and I hope all of the policies we have put in place round access, round student funding will break that.

Take a guess, it is fairly broad brush but I think I am correct.

(Margaret Hodge) I hope we will break that link. That is the first thing. The second is that we specifically said in our chapter on research that we will want to fund those developing and emerging departments where there is excellence in research, and some of them exist in the some of the less research intensive universities. Indeed even on the 5, 5* there are something like 90 universities across the country that have a 5 or a 5*, it is spread across institutions. The third thing to say is that we have specifically said in our chapter on knowledge transfer that we would want that money - and the extra money that is going into it, and that is increasing over this Spending Review period - to be concentrated on supporting the non-research intensive universities so that they can engage in the technological transfer of research that Greenwich has so well engaged in. I think the mix of those policies will ensure that that sort of effort that you talked about in Greenwich, which I applaud, will continue into the future.

Do you not think there is any danger that the signals that you are sending out now are going to have a blight on recruitment for particular institutions?

(Margaret Hodge) No.

Do you think that an academic person is going to think, they are 4*, the minister is pulling the plug on those or she has put pressure on HEFCE to pull the plug on those I am not going to that institution? That will affect the institution in terms of all sorts of things.

(Margaret Hodge) I would simply say to you there is a hierarchy of institutions at present and I think one of the dishonesties in the debate round higher education over the past 10 or 15 years has been to fail to acknowledge that hierarchy. One of the things we are honestly doing---

Chairman

There is a lot of hypocrisy about that, there may be a hierarchy but what this Committee is worried about, what Jonathan is worried about, is if you set that in concrete the Warwicks will not happen any more, the Baths will not happen any more and you will get no movement of universities that see an opportunity for excellence in research and get into it and change. What we are worried about, and maybe you can reassure us, is that you are setting that hierarchy in concrete for time ever more.

(Margaret Hodge) We were absolutely clear when we established the policy that the last thing we wanted to do was to ensure that there could be no change. I talked when I came here last time about being like the football league and you wanted people to be able to go up and down the divisions. I think that the range of policies that we have put in place, let me mention two more, one is that we are going to encourage collaboration between institutions, which means that individuals who may find themselves teaching in one institution could collaborate on research with a department in another institution and we are going to launch some new research fellowships which allow a particular academic and non-research intensive institutions to go and spend some time at research intensive institutions if they have a particular capability, interest or project they want to follow. All of those put together will make sure that it is not set in stone and that we provide the framework which allows new, good, excellent research to grow.

Chairman: Minister, we will come back to that on another occasion. I am very conscious I have been neglecting Jeff Ennis' opportunity to question you.

Jeff Ennis

Minister, going back to the issue - and I want clarification on this, please - of how many students will benefit from the maintenance grant, you say that up to one third of students, particularly those from lower income families, will benefit from the new maintenance grant, how many students will qualify for the full £1,000 maintenance grant benefit, because my understanding is that that figure could be as low as 7 per cent?

(Margaret Hodge) No. You are thinking of students under 21?

Yes.

(Margaret Hodge) Because of the large proportion of mature students who have low incomes and therefore access to grant, I cannot let you have that figure today, I do not have it on the top of my head, I will write to the Committee and let you know. It is one third of the student cohort who will have access to the student grants. Let us go further and say in those institutions that choose to levee their own fees there will be access to bursaries for them. We will carry on. More students will have fee remission on the first £1,100, that is a higher figure.

Looking at the Widening Access Agenda, if we look at two policies side by side, the up-front tuition fees was a disaster in terms of access, it is a good thing that is gone now and I think we can all agree with that. If you look at the impact that the Education Maintenance Allowance has had on sixth form students, particularly in areas like mine, it is having a really good impact. I am sure you are aware the Committee asked you to consider a seamless progression from what I call the junior maintenance allowance into a higher education maintenance allowance, as I am sure you are aware, we trumpeted the fact that EMAs would provide students with a grant of between £30 to £40 a week and the Maintenance Allowance has been pitched at £1,000 a year. I know you say that the EMA is only paid over term time so the global amount is the same but the point I am making here is, would it not have been better to try and capture the students we are trying to capture in terms of widening access if we pitched the maintenance at say £1,500 a year or £2,000 a year?

(Margaret Hodge) We had a finite pot of money and the decision we had to take was, would we put the grant at a higher level and therefore reduce the number of students eligible to it or would be put it at the £1,000 level and therefore increase the number with eligibility to it. We went down the second road and I think that was sensible. The door that is not closed to us is to review that for the next Comprehensive Spending Review, and we shall look at that. The other door that is not closed to us is to look at the maintenance loan and see whether that properly covers legitimate expenses for students whilst they are at university. We are just undertaking a new student income and expenditure survey again which will inform our next bid to the Comprehensive Spending Review just to make sure that we have those limits right.

I am sure are you aware, Minister, that the Widening Access Agenda is certainly number one on my agenda, and I am sure it is in most of this Committee's agenda as well, if that is the case why did we not consider paying the whole of the variable tuition fee for the poorer student up to £3,000 if access is our number one agenda? Another option we have considered was actually raising the threshold from the £1,100 to £1,500 for all students, why did we reject that option as well? I know it could be to do with funding, but it is the messages that it sends out to future students?

(Margaret Hodge) 2006 is a bit of time away. We had the money available to us in this Comprehensive Spending Review settlement so we were anxious to introduce grants as quickly as we can, they are coming in in 2004, we took the decision to set them at the £1,000 maximum level because that allowed us to reach about one third of the student cohort. We have said that as we get closer to the 2006 introduction of variable fees we will look at how we use the money we have set aside for grants to see whether or not we cannot concentrate it better to promote our Access Agenda. We are open to that. We will be reviewing that. We were anxious to get those grants up and running as soon as possible, I am sure you would support that. Why did we not raise the £1,100 to £1,500, because not everybody will be charging the variables fees.

It is an alternative model.

(Margaret Hodge) If you are a student that goes to a university that charges £1,100 you will immediately not be eligible for £1,500 because the university gets to charge £1,500.

Chairman

Minister, you say that you had a finite amount money, one of the things you failed to convince the Committee about, and I think I speak for most of the Committee, in your reply to our Report on Student Finance was the argument that was put forward to this Committee very eloquently by Nick Barr and Ian Crawford from the London School of Economics, they have now updated their figures and say the Government is subsidising now mainly middle-class, professional families to a level of £1.2 billion per annum. Was it because the Department did lots of focus groups and ran scared because this a still an enormous subsidy? You could have spent that on widening access, £1.2 billion, but you have decided to keep the zero interest loans to a lot of people who do not need that low rate of interest.

(Margaret Hodge) Firstly, I am rather astounded by that figure.

That is from a very reputable 5* department.

(Margaret Hodge) It just shows, do we have the RAE assessment right? I am surprised by that figure, I do not know where it emerged from

It emerged in our seminar last week.

(Margaret Hodge) Right. Well Nick Barr might share it with us.

It was 800 million on the previous system, as you replace it with the proposals in the White Paper the figures will to rise £1.2 billion.

(Margaret Hodge) We questioned his previous figures. I am happy to go through that with you again. Can I stick to the point of principle.

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-

Minister, you have answered the question in the negative to our Report.

(Margaret Hodge) Let me go back the to 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 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, woman 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 per cent that are not going into higher education, the Government is not offering them zero per cent.

Ms Munn

On this point, what you said to us in your response to the Report is that it is important do 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

Come on, Minister, the figure zoomed up to 78 per cent 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 per cent of the loan, they are only eligible for 75 per cent 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, zero per cent.

Mr Chaytor

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 zero per cent 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 has 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

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 to woman, particularly to lower paid people who tend to earn less over their lifetime because they may be working in the voluntary second or indeed the public sector. I also think we have spent a lot of time 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.

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

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 a 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 per cent real terms increase since we have been in government to deal with the 36 per cent 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.

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.

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 per cent 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 and D2 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 in 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 per cent. So there appears to be a greater acceptance than you or I might have imagined. Only 14 per cent said no. "Debt is a normal part of today's lifestyle?" Yes said 47 per cent, no said 18 per cent. 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 per cent 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.

And encouraging that group to go to university is going to be helped by raising the average student debt from £900 to £1500 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?

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 ----

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

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 per cent 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 ----

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 and 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, and 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 ----

Exactly on that point ----

(Margaret Hodge) Let me go on -----

You are not answering the question I asked you. It was like when you said to ----

(Margaret Hodge) You asked me to explain my -----

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?

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 ----

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.

Chairman

Minister, I think Paul has a very strong point here. It is obvious from the White Paper and it is obvious what everyone in the education sector knows, there must have been almighty number-crunching in your Department in order to persuade the Treasury of the viability of the proposals you came up with. We know that is the case and Paul is quite right to say we would like to know more of what sort of case you made to the Treasury. Why should we not know? This Committee represents Parliament and should be able to follow that track from your Department to the Treasury. Why should those figures not be made available?

(Margaret Hodge) I am trying to share with you, Chairman, as much of the information as I feel I can.

That is good for us?

(Margaret Hodge) In fact what Paul did was stop me in mid-flow in trying to explain why a proposition which I think has been the one most highly contested against the one we ended up with was not considered appropriate. Again, the specific figures depend on the various assessments which can be made and vary, they vary depending ----

Paul Holmes

So publish all the various assessments and research so we can all see them.

(Margaret Hodge) Undoubtedly you will, as you have done over the issue of interest rates, undertake your own research. I am unclear as to what figures you are missing at the moment.

We do not have quite the same facilities as the Government does and this Select Committee does have a responsibility to oversee the spending of funds on education by the Government, and to do that you need to look at the assumptions as to how you raise that money and why you need to know what the gaps are, and you are refusing to share that information.

(Margaret Hodge) No, I think I have been pretty open with the information we used in coming to our decisions. The only thing I have refused to state to the Committee this afternoon is a finite figure on the funding gap, and I have explained to you why we do not think that is an appropriate figure, although it is pretty clear to everybody there is a huge lack of funding.

You are effectively saying, "Trust us, we are not telling you how we got to that figure"---

(Margaret Hodge) No, I am not saying "Trust us". Perhaps you can give me a specific area where you feel you have not got the information you require.

I have already given you four specifics ----

(Margaret Hodge) No, the only specific you gave me was the funding gap.

I gave you three others, as the record will show when we read it tomorrow.

(Margaret Hodge) What three others?

If you have looked at the alternative of the graduate tax, you must have looked at, for example, how long would it take before graduates repaid it. How many years gap?

(Margaret Hodge) I can tell you ---

Secondly, what is the cost of filling that gap by, for example, issuing student bonds, like the transport bonds which financed the public transport systems in American cities but not unfortunately in London? Those are two specific questions I asked you, I cannot remember the third offhand but the record will show it tomorrow.

(Margaret Hodge) The issue of bonds is a much more complicated one and I can certainly let the Committee have a note on why we felt that was not an option. On the issue of the funding gap it depends a little, as you would imagine, on the assumption you make around the level of fees. But if we were to assume there was no change in the level of fees - and it also makes an assumption around the level of tax we charge, are we going to charge a 3p, 2p, 4p tax - if you assume a 3p tax, which was one of the assumptions we looked at, and we assume the current level of fees, it takes about 17 years before it starts to ----

So if you have all these costings, why can you not publish them?

(Margaret Hodge) Clearly there are a whole range of ----

Chairman: Clearly this argument is going to go on and we have a few scarce minutes left to ask you two or three other very important things.

Mr Chaytor

Minister, would you not agree that the quickest and most efficient way by which a Member can obtain that information would be to submit a Parliamentary Question?

(Margaret Hodge) You could do that too.

Could we ask you about the Access Regulator. The new system comes in in 2006, universities will need to decide whether they are going to raise their level of fees at least 12 months before then.

(Margaret Hodge) Fifteen months probably.

The Office of the Access Regulator will need primary legislation which is due some time between now and 2005, so how much time will the Access Regulator have to do their job? When it says, as it does in the White Paper, that only institutions making satisfactory progress on access will be able to participate in a graduate contribution scheme, how are you going to define "satisfactory progress"?

(Margaret Hodge) I am just trying to work the timetable back. We certainly intend to publish as soon as we can our proposals for consultation on how the Access Regulator would work, and that is one of the first areas of policy we will define in detail. Although you are right to say it will require primary legislation to establish it, we want to get on with it and do that as quickly as we can.

Will that be in this session of Parliament?

(Margaret Hodge) No, it will be in the next session.

So the earliest date for the establishment of the Office will be ---?

(Margaret Hodge) You are tying me down a little and I do not want to mislead the Committee. We now, having published the White Paper, await the consultation responses but we will then be drafting as quickly as we can legislation. Given the changes we have made in the parliamentary processes, we may be able to publish slightly earlier than "next session"; the beginning of next session. But we will have to wait and see, we will move as fast as we can. You are right that institutions will have to put it into their prospectuses in 2005, which come out early 2005. We want to have the Access Regulator up and running - and the legislation will be the end of 2003, beginning of 2004 - as quickly as we can towards the beginning of 2004 to give it time. How will it measure progress? The Access Regulator will not work once and then go away from an institution, it will not make its judgment once and then move away from monitoring an institution, it will have to make judgments and then monitor progress that the institution makes. What will it judge? Again you will have to wait for the consultation paper and the details to come, but it will judge admissions procedures to make sure they are fair and ensure fair access. It will judge the institution against its own ambitions for ensuring a more inclusive cohort of students. It will look at the arrangements around bursaries and it will look at perhaps things like how the institution (inaudible). Those are the sort of things we will be looking at.

Is it conceivable therefore that the most research-intensive universities, which frequently fall short in meeting their ambitions in terms of access, could be denied the opportunity to levy top-up fees, because they are less likely to fulfil the criteria?

(Margaret Hodge) We made it absolutely clear that universities will only be given permission to levy variable fees if they sign a satisfactory access agreement with the Access Regulator and then stick to it and then deliver against it.

Is the permission to levy top-up fees based on the signing of an agreement or track record, because the phrase in the White Paper is "satisfactory progress".

(Margaret Hodge) Yes.

Is that progress towards signing an agreement or progress on improving access to ---

(Margaret Hodge) No, that is why I said this is not a one-off exercise. There will be continuing monitoring by the Regulator of progress by the institution against its ambitions. I think probably what you are getting at is that it would be unfair to assess an institution in the first instance against its past performance, but we would expect it to make progress against the ambitions it sets itself, and the Regulator will monitor the institution's performance.

So it is possible therefore that the Access Regulator may withdraw the permission to levy top-up fees?

(Margaret Hodge) Yes.

Ms Munn

Jumping back to foundation fees - sorry degrees, I have got fees on the brain. Foundation fees, a new idea!

(Margaret Hodge) There is a proposition they may not charge fees on foundation degrees, but go on.

You have talked about, and the Secretary of State did as well, the number of departments being interested in the development of foundation degrees for particular employment et cetera. Is that just in the early stages or have you got solid evidence that there will be a demand for those foundation degrees?

(Margaret Hodge) I am pretty certain that if we get the foundation degree policy right then there will be a demand, because those degrees will be developed by institutions working together with private and public providers to meet the skills gap we know exists in the current economy and will exist with the changes in the labour market over the next decade or so. If they are designed to meet those skills gaps, there will be a demand, particularly, ironically, because at a time when we are asking students to make a contribution towards the cost of their tuition there will be an added interest and incentive for them to ensure the course does lead to a job.

So you are saying that the evidence at the moment is around meeting the skills gap rather than there being lots of people out there saying, "If this course existed" or "If a two-year course existed, I would want to take that up"?

(Margaret Hodge) Where foundation degrees have been implemented in a way that the university does work closely with the employer, they have been a massive success. That is what I can say to you. In the examples I have seen of good foundation degrees, where the curriculum content, the course content, is devised by the employer or the employer body working together with the university, they have been a fantastic success. Where they have not worked as well under the 40 prototypes, which we introduced in 2001-02, is where the higher education institution has developed a foundation degree curriculum on their own without working closely with an employer or an employer representative or a central skills council.

Chairman

In the White Paper you have two suggestions. You have the foundation degrees and the accelerated degree, which is a normal degree programme in two years rather than three. I thought, and I think members of this Committee thought, that the Bologna Accord meant they were very worried about two year degrees and we were having difficulty with the present system in terms of the Bologna Accord and this will only get worse with the present proposals.

(Margaret Hodge) This is an issue which has been raised with me by Universities UK as well but what I would say to you is that in our negotiations over the Bologna Agreement what we have tried to steer those negotiations around is course content rather than length of study. I think so far we have had success in that endeavour but clearly this is a point we need to continue to pursue, and I think the Bologna Agreement is coming back to ministerial level this year or next year - I cannot quite remember. It is an issue we must ensure we stay on top of. Our big drive on Bologna has been to stay focused on course content not course length.

Ms Munn

I was a bit surprised to hear the Secretary of State say he expected we would get to our 50 per cent going to university through the increase in foundation degrees. That would suggest that getting those young people from poorer backgrounds equates to people going into foundation degrees.

(Margaret Hodge) No.

Whereas if it does not, are they then displacing some of the existing 43 per cent and some of the existing 43 per cent going into ---- I did not quite understand that. I think a lot of us on this Committee were hopeful that what would be done through the White Paper was that students from poorer backgrounds would have the opportunity of the whole range of degrees. It just seemed an odd way to put it, because the value of displacement, or the growth which comes both the growth in existing degrees and foundation degrees ---

(Margaret Hodge) There are two issues. How do we expand numbers to move towards our 50 per cent target? All the evidence we have of labour market needs suggests that pursuing foundation degrees is the most appropriate option. To give you one figure, the Labour Force Survey carried out when we were developing the New Deal suggested that eight out of ten, 780,000, new jobs which will be created over the next decade will be at the associate, professional or higher technician level. That is the level to which the foundation degree teaches. So that is why we have felt it is important in expanding numbers that we try and focus that expansion around skills deficits in the labour market.

Chairman

Will there be a guarantee that every person who goes into a foundation degree, if they find they want to carry on to a full degree, can carry on in the same institution?

(Margaret Hodge) Yes.

That will be a guarantee?

(Margaret Hodge) Interestingly enough, that was a pre-requisite of the early design of the foundation degrees ----

It was.

(Margaret Hodge) ---- whether it should remain a pre-requisite rather than a foundation degree in its own right is an issue we are looking at pretty quickly. Certainly universities, if they offer foundation degrees, may want to see whether or not that leads on to an honours degree in some way or another. What we are trying to do is promote foundation degrees in their own right, hence, for example, even the symbolic policy proposal we have in the Paper which talks about calling yourself an FDSc or an FDA, Foundation Degree of Science or Arts, to give it that status of a qualification in its own right.

Many of us on this Committee will be very concerned if that guarantee of the pilots did not carry over. Why on earth call it a foundation degree if it is not something you can build on? Surely anyone who comes into a foundation degree should have this guarantee maintained that they can, because their talents are awoken and their aspirations rise, stay on and do a full degree. How on earth should you stop them? How on earth could you stop them?

(Margaret Hodge) We are not going to try and stop them. Should it be a compulsory feature of the design of foundation degrees ---

No, it is not a compulsory feature ---

(Margaret Hodge) Well, it was in the first prototypes.

It was not a compulsory feature, it was a guarantee that if the person on that course then thought, "I love that two year foundation course, I would like to go on and get a full degree", that was a guarantee.

(Margaret Hodge) No. I am sorry to correct you on this but a feature of the foundation degrees before they secured funding from HEFCE was that for those who undertook foundation degrees there was an automatic right through into an honours degree.

Yes, exactly.

(Margaret Hodge) Not just because the individual wanted to but because the course content led through into an honours degree. What we are now reflecting on, and no doubt the Committee will want to comment on this, is if we wish to establish foundation degrees as degrees in their own right as appropriate for the labour market, should that compulsory feature which becomes a condition of funding remain so. Our current thinking, just to share it with you, is that probably it should not remain as a compulsory feature which then determines whether or not the course gets funded by HEFCE. It does not mean the individual cannot move on, but that aspect of the foundation degree will cease to be a feature which depends on whether or not the course gets funded. You are looking worriedly at me, Chairman ---

I am looking very worried.

(Margaret Hodge) If I take some of the examples of foundation degrees which have worked, for example if I take the aeronautical engineering one at Kingston, which they have done with KLM, that degree moves them towards the professional qualification which is required from the industry, and that is it, and that is sufficient for the people who study on that degree to get the job they want. That is enough. Should we add into it that not only can you go and get the essential professional/vocational qualification which is required to practise the engineering of aeroplanes you also have to be able to get another engineering degree, undefined, at honours level? It just should not be compulsory. Our current thinking is it should not be a compulsory feature. It may be that people can progress as individuals on to honours degrees ----

You are misunderstanding me about this compulsory feature. Most of us have supported the foundation degree concept and indeed were won over to them by the former Secretary of State, David Blunkett, in terms of the view that it was a foundation, that if someone went on to be an aeronautical student in Kingston University, after two years, having found what they wanted was to go on and get a BSc in aeronautics, that is what they could have done. Not only that, more importantly, a two-year foundation course would be accredited to their overall degree. It would be very worrying if there was going to be no credit for that foundation degree to enable that young person, or older person, to use that as a springboard into a full degree course.

(Margaret Hodge) I think what I am just simply saying to you is that we do not want to stop people going on in their life long learning and developing from a foundation degree to an honours degree and onwards if they so wish, but to make that a compulsory feature as it has been of obtaining funding from HEFCE, that the foundation degree provides that route through to an honours degree, is something we are currently questioning.

That sounds almost like introducing an apartheid system into higher education.

(Margaret Hodge) Not at all.

You are classifying a whole cohort of people who can go on and people who cannot go on. It is horrifying.

(Margaret Hodge) No, no. It is a degree in its own right rather than a stepping stone towards a traditional degree, which I think is a move to the good.

And in the status-ridden society we live in, there will be a whole cohort of people in higher education in this country who cannot go on to a full honours degree and a group who can.

(Margaret Hodge) Not necessarily. There is a difference between there being the opportunity to study further and there being a compulsory necessity ---

Compulsory on whom?

(Margaret Hodge) On the institution that delivers the degree.

On the institution? Can we not talk about the individual rather than the institution? Surely what we should be guaranteeing, certainly as a government, is the ability to take your talent as far as it will go, and if a foundation degree leads one into realising you want to go further, surely there should be no bar on that?

(Margaret Hodge) There will not be a bar but there will not be a necessity for those delivering the foundation degree to have the automatic conversion into an honours degree.

Chairman: Sorry, Meg.

Ms Munn

I do not think we finished on the displacement issue.

(Margaret Hodge) I may have forgotten your question.

I accepted the reason why you are looking at foundation degrees, but the issue is, if we are trying to get to 50 per cent and you are expecting that 7 per cent gap is filled entirely by foundation degrees, what happens in terms of the poorer students coming in? Are they not displacing the existing students who are doing the three year degree, some of whom will be doing foundation degrees? What I am putting to you is, it was a surprise that the Secretary of State should say, "That is how we are going to get to the 50 per cent" but if we are really serious about access surely we would expect there to be a growth - and I am not going to say in "normal degrees" - in three year honours degrees as well as foundation degrees?

(Margaret Hodge) I think there is a mistake often made between our widening and increasing participation agendas. We want to increase participation because we think that is appropriate to meet the labour market skills needs. We want to widen participation because there is currently a social class gap in those who have access. So the two agendas are not necessarily completely interlinked; they are not the same, they are different. We hope that some people who are currently pursuing honours degrees from perhaps the lower socio-economic groups will choose to take a foundation degree because they see the link into the labour market they want. That may well happen, and breaking down the social class gap is a related ambition but it is a different ambition.

So are you saying that the number of three-year degrees will increase?

(Margaret Hodge) It is very difficult to predict what will happen over a seven year period. What we have said is that in this spending review period we want to give a real drive to growing numbers of foundation degrees, which is why the growth in numbers through this spending review period will be concentrated on foundation degrees.

Jeff Ennis

If I could just briefly, Minister, return to the point about the role of the Access Regulator. I cannot quite see what the Access Regulator will do which is not already being done by HEFCE in terms of monitoring the access situation of universities. Could you elaborate why we need an Access Regulator and not keep the role with HEFCE?

(Margaret Hodge) The Access Regulator will be located within the HEFCE bureaucracy, simply because we do not want to add yet another bureaucracy to the higher education world. I think the difference is that currently HEFCE publish benchmarks and monitor performance against those benchmarks. What the Access Regulator will do is, I think, have a more powerful lever to ensure change in the pattern of admissions by linking the agreement to widen participation to more young people from lower socio-economic backgrounds to the permission to levy variable fees. I think it is a much more powerful mechanism.

One of the many very positive things in the Paper is to do with participation and the increase that will have for universities. How will the Access Regulator monitor the fact that, say, some unscrupulous university may try and recruit students who are not suitable for that particular degree course purely and simply so they can draw down the participation premium? What will the Access Regulator do to monitor that situation?

(Margaret Hodge) The Access Regulator will also be responsible for intervening on drop-out rates, which will be a way of doing that, but that is outside the Access Agreement. That is another function which we will want to see the Access Regulator fulfil. By bearing down on drop-out rates and ensuring there could well be a financial penalty to the institutions which do not meet a rate relative to their intake, so there will be a benchmark across the sector depending on the nature of the intake, we hope the Access Regulator can contribute and, of course, ensure that we maintain the position we have as the best in the world on graduation rates.

What steps will the Department take to recover the debts from EU students who study in this country and then go back off to their original country, given the fact we will have an expansion in the EU in the next few years?

(Margaret Hodge) Had I been allowed to complete my response to Paul Holmes about the reasons why we rejected the graduate tax ----

Chairman

I cannot believe he did not give you that opportunity, Minister!

(Margaret Hodge) --- I would have raised the position of EU students. When you have an individualised loan and an individualised debt, it is much easier to pursue that debt than if it is pooled in the way it would be under the graduate tax arrangements. That was one of the contributory factors to our decision not to go down the graduate tax route. We thought it was important to have individualised loans and debts. Interestingly enough, currently EU students are being pursued, and paying the figures on bad debts so far is not too bad. We will have to see how it develops over time because it is early days with the income contingent repayment scheme. We will have to watch it over time but I think pursuing individualised debt is the way we hope to pursue those EU students who end up owing the British taxpayer money.

Mr Turner

Can you arrange please for us to receive a list of postcodes which have attracted the postcode premium?

(Margaret Hodge) I am sure we can ask HEFCE to let you have that list.

Mr Chaytor

Briefly on research, is there any precedent in the context of the idea of a 6* grade and any precedent for the retrospective fixing of grade boundaries which this entails?

(Margaret Hodge) It will not be retrospectively fixed. HEFCE are currently considering how they will implement this policy but I imagine they will have to reconvene the groups which considered the Research Assessment Exercise which was completed last year, and will then have to make an assessment as to who in the 5* category ought to receive 6* rating.

Do you expect a backlash because when the original RAE was conducted there was no discussion whatsoever about sixth forms? Would it not be reasonable for universities to protest at having this further refinement?

(Margaret Hodge) We have to reflect on the outcome of the RAE, and the fact that 55 per cent of university departments got 5* rating demonstrates really that the system is no longer discriminating effectively enough to enable us to properly fund those world-class institutions. That is one of the reasons for the change in policy. I do not think it is retrospective in the sense you are suggesting, that what will be reviewed is the 5* to see which should have the 6* added premium. The other thing to say is that the RA Exercise was always one to look at relative quality and never one to determine public funding priorities, although I accept that not all institutions saw it that way when the exercise was undertaken.

Chairman

Minister, I shall be hosting, and I think you will be speaking at, an Open University reception this evening.

(Margaret Hodge) I am.

What are you going to say to them when you talk to them about this Foundation Degree Forward organisation? Surely that is a job which the Open University could very well have done?

(Margaret Hodge) Indeed, I think the Open University may be one of the institutions we will be working with to establish the Foundation Forward group. I think there is a role for them in that. I have to say that what I should also be saying to the OU, which you have not raised with me, is that - and they certainly lobbied me very strongly when we were preparing our Paper - we have done a lot for part-time students, which is of particular concern to them. We have introduced for the first time ever a grant for part-time students to meet the extra costs - means tested as always - and we have introduced a more generous regime for fee remission for fees charged by institutions like the OU which covers primarily part-time students. It is a good news night for the OU.

I think I have rather let you off with a commercial there! You have been sitting there answering questions for a long time and we are very grateful. It has been a long session. We have learned a lot and we look forward to having you back quite shortly.

(Margaret Hodge) I too look forward to discussing with you over the coming period the various policies in the White Paper and how we set about doing that. Thank you for listening.

Chairman: Thank you.