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Mr. Clarke: I agree and I shall return to those points in a moment.

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It is on the second pillar that we part company with the Liberal Democrats. I believe that no Secretary of State faced with the choice to which I have referred in spending on education—even a Liberal Democrat Secretary of State, should there ever be one—would say that universities had to come ahead of every other demand, educational or not. That is where the Liberal Democrats are quite wrong, as they say that it is wrong in principle for the student to make any contribution. They state that, in principle, the bus driver should pay for the barrister, and they assert that no choices need to be made and that the taxpayer can fill the gap as they seek to abolish fees.

Ironically, the Liberal Democrats have been helpful enough to confirm that real choices have to be made. They have pledged to introduce a 50p-in-the-pound rate of income tax for those who earn more than £100,000 a year. Their Treasury spokesman at the time, the hon. Member for Truro and St. Austell (Matthew Taylor), made it clear on 2 April that that money would have to be spent "to abolish the burden of student fees". In the same speech, he said that it would have to be spent on cutting council tax by £100 for everyone. In September, he said that the same money would be used to scrap charges for personal care. In the same speech, he said that it would also be used to cut taxes for the lowest paid. The Liberal Democrats stated in their 2001 manifesto that the same money—again, it is the money generated by a 50p-in-the-pound tax on incomes of more than £100,000—would be used to provide a "substantial and immediate increase in pensions". The same manifesto said that the same money would be used to increase investment in the national health service.

I shall be generous and not cite the more than 60 other spending commitments that the Liberal Democrats have made on the basis of the same pot of money. They all confirm, however, that any Chancellor or Secretary of State faces competing demands for whatever resources come from taxation. That is why, in my opinion, resources from taxation alone offer no guarantee to universities.

Dr. Jenny Tonge (Richmond Park) (LD): The right hon. Gentleman should review what he has just told us, because in fact, it is not true, and I suspect that he knows it. I want to ask him a serious question: why is it fairer to tax young people earning between £15,000 and £20,000 a year than to tax people earning £100,000 a year, who may also have benefited—indeed, they probably have—from university education?

Mr. Clarke: I have addressed the argument on the fairness of asking people who earn more than £15,000 to pay for some of the benefits that they have received, and I think that that is entirely reasonable. On the separate argument about how one deals with people earning more than £100,000 a year, there is a debate to be had about the appropriate level of taxation at any given time. However, I do not accept—this shows the misleading nature of the Liberal Democrat proposition—the argument on increasing taxation to 50p in the pound for everybody who earns more than £100,000. If that were to happen—I do not want to argue about the merits of the case now—I do not believe that it would fund the long Liberal Democrat list of substantial spending commitments, including the abolition of fees. The authority for what I have said is

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on-the-record speeches by the former Treasury spokesman, the hon. Member for Truro and St. Austell, on 2 April and in September, and on-the-record commitments in the Liberal Democrat manifesto. I know that the hon. Gentleman has been moved from that position for being a bit of a soft Liberal and that others have been put in his place because of their hard and clear position, but I say to the Liberal Democrats genuinely, in the spirit of the big conversation, that they have an obligation to face up to the choices and to stop claiming that the same money can be used for an enormous multiplicity of different purposes, misleading electors throughout the country.

Mr. Phil Willis (Harrogate and Knaresborough) (LD): I will respond in my speech to the issues that the Secretary of State raises. Will he explain for the benefit of the House the difference in principle between saying, as the former Secretary of State—now the Home Secretary—and the Prime Minister did in their 2001 manifesto, that Labour has ruled out top-up fees and legislated against them and the comments that he just drew from our manifesto?

Mr. Clarke: The difference is clear. As the Prime Minister said, our manifesto position was, in effect, that we would not introduce top-up fees before the next general election. That is what we said, and that is the position. Before top-up fees are introduced, the people will have the chance to vote on the hon. Gentleman's proposals, my proposals and Conservative proposals.

Mr. James Clappison (Hertsmere) (Con): Is the Secretary of State saying that his manifesto makes the statement on top-up fees with the qualification that it would not be done before the next general election? The manifesto says:

Mr. Clarke: That is exactly what I have said. The point has been extremely well rehearsed, and that is the position.

Mr. Adrian Flook (Taunton) (Con) The Secretary of State spoke in warm and glowing terms about the level at which a graduate will start to repay a loan being raised from £10,000 to £15,000, £18,000 or £20,000. Will he remind the House that that level was reduced from £14,000 to £10,000 under the Labour Government?

Mr. Clarke: I thank the hon. Gentleman for that comment. I am happy to say that the changes that we introduced in 1998 are precisely those that we reviewed in order to arrive at the package of measures that we have put before the House.

I have tried to argue that there are three pillars to our proposals. First, universities need more money, which is where we part company with the Conservatives. Secondly, it is reasonable that graduates should make some contribution towards the costs of their university education, which is where we part company with the Liberals. The final pillar is the need to ensure that graduates' contributions are made fairly. That is the issue about which several of my hon. Friends have

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expressed concern, as in the early-day motion to which there has been much reference. I want to address those concerns.

The fairness of our proposals can be set out in several ways. First, I believe that university should be free at the point of use. That is why parents or students who have to pay £1,125 of the entry price to study will no longer have to find that before or during their studies. The recent student income and expenditure survey shows how much of a problem that payment is: a substantial number of students have had to find nearly £700 a year towards fees because their parents were not making the assessed contribution. That inequity should end, and under this proposal it will. As it is a central part of the Bill, it would, of course, fall if the Bill were to fall.

Secondly, I believe that graduates should have to pay back only the cost of their own higher education: that is a form of individualised graduate tax that is fair. The figures used in the amendment tabled by the hon. Member for South Suffolk are highly tendentious and bear no relation to any that exist in any assessment that has been made by a serious organisation.

Thirdly, I believe that it is fair that graduates should make a contribution that is based only on what they earn, not what they owe. It is therefore right that graduates should contribute to costs once they are earning more than £15,000. That is fairer than the current level of £10,000, which is why it is important that the Bill allows us to raise the threshold. The progression is reasonable. For example, it is not unreasonable to ask a person who is earning £18,000 to contribute £5 a week. Again, that proposal would fall if the Bill were to fall.

Mr. David Rendel (Newbury) (LD): I think that I understood the Secretary of State to say that repayment will be based on what a person earns, not what they owe. Does he accept that in practice it will be based on what they owe, and that if they earn less it will simply be stretched over a longer period?

Mr. Clarke: I concede that point: the hon. Gentleman is correct. Obviously, there is a relationship between the amount that one pays and the time in which one has to pay it. The point that I am trying to make is that at any given point, the burden of the repayment being made should reflect the individual's income at that time, not the size of the debt. That is why it should be done through the tax system rather than by any other means. It is not like any other kind of debt, because it is directly related to earnings. If one has, for example, a mortgage or a loan for a car, one has to pay off that debt in regular amounts according to what one owes, leaving aside the issue of the real rate of interest. By contrast, under our system, because it operates through the tax system, a person's payments will depend on what they earn at any given time.

Fourthly, graduates are never charged a real rate of interest: the Government pay the cost of borrowing for the individual, so no one is penalised for taking longer to pay the money back or—this is an important point—for taking career breaks or dealing with family responsibilities, for example.

The final aspect of the fairness of the proposals that I want to emphasise is that students from lower-income backgrounds will get significant extra financial support

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from the Government. Money to cover all or some of the first £1,125 of the university fee will continue to be paid, and around one third of full-time students will benefit from a grant of up to £1,000. Those significant contributions to students from such families go a long way towards my being able to claim that the system of repayment is indeed fair.

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