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4.22 pm

Mr. David Rendel (Newbury) (LD): I am delighted to have the chance to take part in this debate, not least because it may surprise some Members to learn that there is a measure of agreement between the Liberal Democrats and the Government on what the Government claim to be their aims. It is on how they try to achieve them that we have significant differences.

The Secretary of State said today that he was basing his proposals on three main themes, two of which we are entirely in agreement with. The first is that there should be more money for universities. There have been huge cuts in university funding during the early part of this Government and under the last Conservative Government. Universities badly need more funding to get more places; expanding participation is another area on which we would be largely in agreement with the Government. Not having enough places is a waste of talent and having more places would help to reduce the divisions in society between the rich and the poor, which have been highlighted recently as some of the worst in Europe. We agree that universities need more money and that it will benefit our economy in the long run if we have more people educated in higher education.

The second point was that there should be some contribution from graduates where they have gained financially from going to university. I agree with that, too. But the significant point is that that should happen only where such graduates have indeed gained financially from going to university. The Secretary of State said that the contribution due from graduates should be calculated in a fair way, but we do not believe that his proposals have provided a fair solution in that regard.

Before I elaborate on that point, I want to mention one or two other issues that have been raised. The Secretary of State said that one reason why the new fee of £3,000 should be acceptable is that those from the poorest backgrounds will get grants of £1,000. Of course, that grant was explicitly intended to help those people to pay their maintenance costs at university, in order to reduce somewhat the fear of getting into debt and being unable to afford to pay for food and housing. But if that grant is to be used instead to help offset the cost of fees, its original point is lost completely. Indeed, it is rather hard to see how a young undergraduate from a poor background, who will presumably be paid that grant at the beginning of the academic year, is supposed to put it into a building society, for example, save it for three years and use it to pay the fees when they are due, on graduation. That does not seem a sensible policy, and the suggestion that the grant could be used to pay off part of the fees is unrealistic.

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Secondly, as has been pointed out, the Secretary of State said that the Liberal Democrat policy of raising income tax on the highest earners in no way guarantees that such money will be used for universities, and I accept that point. Of course, it is not possible to guarantee that particular funds will always be used for a particular purpose. But when we said that we would cancel tuition fees in Scotland and raise the money through general taxation, we were indeed able to implement that policy, upon gaining at least a share of power in the Scottish Parliament. So it is fair to say that our record in implementing such change, as based on an idea in our manifesto, is very good.

Of course, it is also true that one cannot guarantee that the money that universities raise in tuition fees will make them better off and provide more funds for teaching undergraduates. What happened in the past is only too likely to happen again: the money raised in fees will be used by the Chancellor of the Exchequer at the next comprehensive spending review to reduce the amount of money coming from general taxation to those universities that are able to raise fees. So the very argument that the Secretary of State is using against our policy can be used against his own.

Thirdly, as has been said, although the new policy is to some extent a form of graduate tax, the important point is that it has all the characteristics of a graduate poll tax. Sadly, the Government seem not to have learned the lesson of the poll tax introduced by the Conservative Government. Poll taxes are deeply unpopular because they are seen to be unfair. The Secretary of State says that he wants the contribution to be calculated in a fair way, but he has introduced a contribution that is effectively a poll tax. It has a very important characteristic of a poll tax, in that exactly the same charge is made to graduates, irrespective of their level of wealth.

If the argument is that graduates ought to pay more towards the cost of their education because they have gained financially from graduating, surely the extent of that financial gain should form part of the calculation in assessing how much they should pay back. But that is not the case. Even under the variable fees policy, a graduate on a given course at a given university will have to pay back exactly the same amount, regardless of their level of income and the financial benefit that they have gained. Some will pay over a longer period and others over a shorter one, but exactly the same amount will be paid, regardless of income and of the financial benefit derived from gaining the degree.

There is a further important point in respect of the unfairness of the method of calculation that has not been mentioned so far. Let us assume that, as expected, the threshold for the repayment of the graduate loan is raised to £20,000. If we assume, as Barclay's predicted, that the average debt from now onwards, or from 2010 onwards, will be about £33,000, and if we assume, as the Government have predicted, that inflation will remain at about 2.5 per cent., the amount of money that has to be repaid each year merely in order to keep the debt level at £33,000—not to reduce it, but not to allow it to increase—is some £820 a year. It requires a salary of £9,000 above the threshold before one can even begin to pay off part of the debt.

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If we assume a debt of £33,000 and that someone wants to pay off at least £1,000 a year in order to reduce it to nothing over 20 years—even 20 years is a pretty long time to be repaying debt—being able to pay an extra £1,000 a year would require a salary of a further £11,000 above the threshold. Adding on to the threshold of £20,000 the sum of £9,000 to pay off the inflationary increase, and £11,000 to pay off £1,000 of debt, a salary of £40,000 would be necessary to pay off that debt over 20 years.

That, of course, takes someone well into the higher rate of income tax—currently 41 per cent.—and a further 9 per cent. has to be paid on top of that in repayment of the graduate loan. Even under the Government scheme, then, repaying a debt of £33,000 over 20 years means repaying the last £5,000 of the £40,000 salary at a marginal income tax rate of—guess what—50 per cent. I stress that even under the Government's own scheme, paying off a loan over 20 years requires payment of tax at a 50 per cent. rate. Under our scheme, however, people do not pay at that 50 per cent. rate until the salary reaches £100,000—very different from a mere £40,000. That demonstrates clearly why the Government scheme is so unfair.

A new graduate with a salary of £40,000 paying a 50 per cent. tax rate in respect of the last £5,000 compares with a graduate of 40 earning £100,000 plus—perhaps £110,000—whose marginal rate is only 41 per cent., or a new graduate earning only £22,000 whose marginal rate is 42 per cent. The man who graduated some years ago and earns £110,000 will, under the Government scheme, pay a lower marginal rate than a new graduate paying at 42 per cent., or perhaps a new graduate with higher earnings paying at 50 per cent. The Government believe that that is a fair way of charging graduates for their student loans.

4.32 pm

Mr. Eric Illsley (Barnsley, Central) (Lab): I greatly welcome many of the Bills announced in the Queen's Speech, but I shall confine my remarks this afternoon to where I have the greatest difficulty—top-up fees, of course. Anyone who listened to the hon. Member for Newbury (Mr. Rendel) must be shocked to reflect on the figures that he calculated. It is on account of such debt levels that I believe students in areas such my own constituency—a low-income area and a former mining community—will be deterred from attempting higher education courses.

My plea is for the Government to publish the options that have been mentioned in the debate, to establish whether there might be another way of balancing funding between the student or graduate and the Government, through taxation. I believe that the Government still have a responsibility to meet a certain proportion, if not a large proportion, of the costs of higher education. I do not believe that we should thrust on to future students the consequences of historical underfunding and the historical debts of universities. Why should the many of us in our places today who have benefited from a university education vote in favour of students having to pay £30,000 in fees for an education that we enjoyed at universities that now demand extra funding? That is wholly wrong.

Peter Bradley: Because we were the few, and they will be the many.

3 Dec 2003 : Column 575

Mr. Illsley: But will they be the many? That is another question that we need to answer. The Government's target is that 50 per cent. of students should go into higher education. That is a massive expansion; I welcome it and would like to see many, many more students going into higher education, especially from my area and background. However, it worries me when a Government who propose a 50 per cent. target talk about students taking Mickey Mouse degree courses. Will the 50 per cent. target really be valid if a portion of that 50 per cent. study for degrees that are of no benefit?

I know of graduates in my constituency who will not be able to find employment in the discipline of their degree; they may never find employment related to their chosen subject. I am worried that we shall push students into taking degrees that are not good enough, yet when they graduate they will face debts of between £15,000 and £30,000—a conservative estimate—and they may not obtain the type of employment that they need to repay the debts. The hon. Member for Newbury told us about the salary that will be needed to pay back the fees, but some graduates will be unable to find employment that pays that much. We are making a circular argument: we say that universities need extra funding to meet the target of 50 per cent., yet the costs will deter students from entering higher education. That seems wrong.

It is also argued that many should pay for education because a thriving higher education sector benefits us all. Graduate professionals benefit commerce and industry, and that benefits the whole country, so why should not we all contribute?

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