Select Committee on Education and Skills Minutes of Evidence


Examination of Witness (Questions 1-19)

14 JANUARY 2004

RT HON CHARLES CLARKE MP

  Q1 Chairman: Can I welcome you formally, Secretary of State. It is good to see you so soon after the publication of the Bill, and it is a very good time for us to ask you some questions. You will know very well, because we see you so regularly, that we have had in recent years four major inquiries into higher education so we have a fair degree of knowledge about the subject, and you will know that we liked some parts of the White Paper in our recent evaluation of it and were not so keen on others. I know it has been a long day for you today and it is probably going to go on for a long time too so we are going to try and limit this session to about an hour and three quarters, so can I start off by saying that  given that the university people, the Vice-Chancellors, have been telling this Committee that we have an overall shortfall in funding of around £9-10 billion if we are really going to get our universities up to the level we want them to be, and you know that this Committee wants expanded education and high quality higher education, if we are to achieve that could you give us some idea of how this Bill will help plug that gap? They were talking £9-10 billion; the Prime Minister today in Prime Minister's Questions talked about this bringing in a billion of new money; are we going to be having to pursue you up and down the country over the coming years to get the rest of the cash?

  Mr Clarke: I do not think so, Mr Chairman. Obviously every sector of public life, certainly education, thinks there is a shortfall in funding for where they are. If you were to say what is the shortfall in under funding today for under fives, for example, according to the positions you put you could assemble a whole series of arguments as to what it would be. I mean no disrespect whatsoever to universities in saying that it is right that they, too, should make their submissions to what the "underfunding" has been and is for universities for where they have to be. It is also the case that the "underfunding" divides into two categories: Category A, the infrastructure and weaknesses as a result of under-investment for many decades which needs to be put right and, aspect B, any underfunding on the given year-on-year revenue that you might look at in a given situation. Now, we accept that there is a range of estimates in the £8-11 billion area where resource in capital would make a significant difference to moving things forward. The approach we have is not really designed to attack the capital aspect, though it does help with that, but the revenue position, and the amount of revenue that you think can be generated by our proposals depends on the set of assumptions you make about how many students will be in the universities, how many courses there will be and so on, and at what level the fee will be. We have used the figure that the Prime Minister used in Questions today of about a billion pounds; it could be significantly more than that if every university were to put every fee at £3,000 or it could be significantly less if you went the other way round, and we will not know to what extent this has succeeded in generating money at the scale we want until the system has been operating for some time, but we think it is reasonable to assume of the order of one billion pounds extra coming in to help with the cost in this area and that is why we put it forward and we think it is a material extra income source. Would it "solve" any problems that exist? I do not think I would maintain that it would necessarily. It is a step towards solving them and it is a step towards helping universities develop their own income streams to be able to attack those problems.

  Q2 Chairman: Lord Puttnam and others have suggested new novel ways of bringing, by a sort of bond system, massive new resources into higher education. Has your Department looked at those proposals? Have they been crawled over and rejected, or have they only just come to light?

  Mr Clarke: We have looked at them but fairly briefly, for this reason. I have talked to Lord Puttnam about this in a number of different circumstances and I think it is an attractive idea and other colleagues have also raised this idea, but the bond idea falls short of the current forms of PSBR definition that is operated by the Treasury, and simply does not fall within the framework that we have at the moment. You can make all kinds of arguments about how government should address these matters, and as you know those are discussions which have taken place in political parties and elsewhere, but I think the straight bond approach as suggested by Lord Puttnam does not meet the current public spending conventions that we have, so for that reason we in our Department did not spend a lot of time investigating that particular solution because it fell outside the framework we have at the moment. There are big issues about this, as there are when you look at graduate tax versus fees as to what falls on the balance sheet and what falls off. The Treasury is very well aware of what happened with Network Rail and the various issues around that in those areas, as are we all, and in all these areas, because of the need to maintain financial confidence, it is important to proceed cautiously, so I think the Chancellor has been right to proceed cautiously in this area but for that reason, and I have discussed this with Lord Puttnam, we have not given a great deal of attention to the bond solution because it would require a total change in public finance conventions.

  Q3 Chairman: Both this Committee and parliamentarians alongside have also suggested that perhaps the Department and the government have missed an opportunity by not rolling out EMAs into   FEMA (Further Education Maintenance Allowances) and into HEMAs (Higher Education Maintenance Allowances). I know that particularly the Member of Parliament for Nottingham North is very fond of this. Is this a missed opportunity? Could there not have been a really rolled-out programme where one flows nicely into the other which could be more effective at bringing poorer students in the early initial period of 14 and then keeping them in?

  Mr Clarke: I do not think I would accept that charge. Many have campaigned, and as you say the honourable Member for Nottingham North is one who has campaigned very strongly, for an effective grant package called Education Maintenance or Higher Education or whatever system that one wants to name it to encourage students from the poorer parts of his constituency to go into further education and then higher education. One of the changes I announced last Thursday for increasing the grant package from £1,000 to £1,500 was designed to meet that suggestion to get a smoother position of transition than we have at the moment. Is it perfectly smooth? Has it been perfectly put together? I would not say it has been but I do think we have created a framework which allows that to be established. To be quite blunt, I believe that one of the arguments for the Bill that I presented to the House is that it creates a framework within which all of this can be addressed in a much more coherent way, and we are using that framework to do it in a more coherent way, but I do not claim that in every respect the example I gave in the House last Thursday was of financial independence at the age of 18. We have taken some steps towards that but we are not yet there. You can only, because of the vast amounts of public expenditure involved in these areas, take these steps one at a time.

  Q4 Chairman: Two last points from me: some of your greatest critics and critics of this proposal both in the Parliamentary Labour Party and outside say that this is going back on a manifesto commitment, that here was the government in elections elected on a promise not to introduce top-up fees, and although the present administration calls these variable fees they are in fact representing a going-back on a solemn commitment. What is your answer to that?

  Mr Clarke: I do not really accept this point. The first point, which I think is very important, is that there will be none of the fee arrangements we have talked about and which we are legislating for having effect during the course of this Parliament, and a manifesto is for a Parliament and I think it is right for us to say that we have carried through that pledge in relation to this Parliament. Secondly, there is an important context of this which the former Secretary of State for Education, David Blunkett, made clear recently after Christmas which was that he was facing the situation, and the Parliament in 1998 was facing the situation, of universities wanting to use the freedom they then had to charge fees of £10,000 a year, £15,000—very substantial fees—and he therefore legislated, and I think rightly, to say they could not do that and there would be a limit on what could be achieved, effectively a cap. The cap is what we have established too in that situation, and that is what the approach to the statement we have legislated meant. Thirdly, importantly, certainly my experience and I think others' during that election was there was a lot of public resentment at the upfront fees—and I distinguish between the upfront fees and the top-up fees. The upfront fees led people to be very concerned, and there was concern certainly in meetings I did about this question. It was that that led the Prime Minister to say "We have to look at this again", and we have and we have come to the position we have. So the combination of those factors with the demonstrable need for universities to raise more resources in the increasingly competitive international market place I think justifies where we are. I know there are concerns about it, and I note that some of those concerns are genuinely held, but I believe both the narrow wording of the manifesto can be justified and also the central proposition.

  Q5 Chairman: Lastly, the other damaging allegation coming out of the variable fees structure is that you will introduce a two-tier system of higher education.

  Mr Clarke: I simply do not accept that point at all. I say it almost to the point of repetition, but I think it is the case. You have a vast range of different universities running a vast range of different courses and subjects, a vast range of different types of course through the three year degree, the sandwich degree, the four year degree with a year abroad, the foundation degree, other two year degrees—the range of different tiers is immense. You have the freedom of universities today to vary fees for part-time students, for post-graduate students, for overseas students, to the extent that I think I am right in saying that about half of all students of British universities today are being charged on the basis of fees which are variable, ie determined by the university without any constraint generally. In fact, it is the exception of full-time undergraduate courses where there is that variability. That is not the rule. Now, the question is why should that particular group be in that position of no variability whereas all the others are not, particularly at a time when the university sector itself is trying, working with industry, to get a much more appropriate range of courses and qualifications available to encourage people to come into education, and in this context this Committee knows better than anybody that 20% of university courses are studied in further education colleges precisely designed to encourage access in a variety of different ways, and I say that to have flexibility in those circumstances for university vice-chancellors is important. If you add to that the need to try and track students on subjects which are not otherwise attracting people so that the course can be run and the HEFCE grant be levered, I think it is seriously mistaken to say that whatever your level of fee you should not permit universities to charge lower fees if they wish to do so.

  Q6 Mr Jackson: I want to explore the financial implications of the government's proposals really with a view to trying to put alongside alternative suggestions that have been made by other parties, but a preliminary point. Firstly, is the 50% target for participation in our education a target in your mind or is it simply a projection?

  Mr Clarke: There is a very subtle distinction which I would expect a Fellow of All Souls to give me a lecture on rather than the other way round, but I believe it is a projection which in a sense becomes a target because it is a projection. If you look at the desire of young people to go into university education, which is very strong and continues to be very buoyant, if you look at the desire of universities to provide those courses, if you look at the range of qualifications which are needed, if you look at the extent to which a higher education qualification is going to be necessary for jobs in later life, all of these push strongly to an increase in numbers, and that is what countries abroad are seeing. Does the 50% target as opposed to a 49 or a 51% target have immense meaning? I do not think it does as such. I think it is a projection of the trends that we are moving towards, but I felt—and this is why what I said in the White Paper that we published—that moving from the 43 to 50% could best be done by expanding foundation degrees and going down that course, but because we thought those are the types of courses most in demand by people in the way we are describing, so we have said explicitly that, as we get towards our 50%, we should do it by increasing the number of two year foundation degrees, and I am certain that is the right way for us to proceed. So I have a target, yes, to establish foundation degrees to increase the number of foundation courses. I believe that goes with everything else happening to take the age group up from 43% to 50%, but some have sought to portray our policy as a slanderous attempt to say, "Here is a figure which nobody really wants", and I do not think that is true. That is why I think your comparison with projection is good—it is a projection but it is not one I want to reject. I want to say it is a projection but yes, we would like to go with this trend rather than not.

  Q7 Mr Jackson: That is precisely the difference between a target and a projection, if I may make a comment. It seems to me from the Secretary of State's answer that the government's policy is simply in line with the policy of all governments since the Robbins Report which is that places should be found for all qualified young people.

  Mr Clarke: I do not have Robbins in front of me at the moment, but "all who wish to and are qualified to do so" or a phrase of that type is exactly what we want. As the Committee knows that has been the trend for years and decades now.

  Q8 Mr Jackson: It has been suggested that it might not only be better but also cheaper to divert potential higher education students into vocational training. Assuming we are considering that we have a choice here between new foundation degrees and vocational studies in levels 3 and 4, I wonder if the Secretary of State could tell us what the difference is in cost between those two types of provision?

  Mr Clarke: There is not a straight comparison because the fact is there are so many different types of vocational courses, though it is the case that I know that, for example, a modern apprenticeship costs between £5,000 and £11,000 whereas an HE place might be £5,300 per year or whatever, but I do know it is not a cheap option. I was up yesterday in Liverpool and I went to Jaguar at Halewood—a fantastically impressive place by the way as Halewood is being turned, under this government I say in a sectarian way, from a hotbed of militancy to the most productive Ford unit in the whole of the world, and that is through their relationship with education, and they are developing foundation degrees through St Helen's College with the local John Moores University, and I asked them precisely this question about what the costs would be and they said that they are important and good but they are expensive because you are taking a lot of time, so anybody who thinks vocational education is education on the cheap I think is mistaken, and I think the same is true of medical courses, dental courses and engineering courses and so on, so I do not think it is a cheap option to go vocational. Of course, it varies with the vocation. It might be that the vocation to be a lawyer is one that could be a bit cheaper than some of the others, but I think it is a question of saying how we weld together the vocational ambition and the educational ambition in what we offer and the party political stuff which says, "We do not need the academic; we go for the vocational" is quite falsely based. We need to do both using the sector skills councils and the foundation degrees, and it would be unusual in my opinion to believe that vocation will be cheaper. There is no evidence for that.

  Q9 Mr Jackson: In order to give a basis for comparison between these policies, can the Secretary of State repeat for the record what his estimate is based on? Assuming that all universities charge the full fee, what will the income be that will be produced with present student numbers, and how much will be produced if participation rates do rise to the projected 50%?

  Mr Clarke: If you took the current student numbers today unchanged and all fees were charged at the £3,000 rate, we estimate it would be of the order of about £1.3 billion. That then increases by the time you get to 2006 and numbers have gone forward, and if you were to say you got to the 50% target as you suggested—

  Q10 Mr Jackson: Projection

  Mr Clarke: —Projection I should say, not target—you are talking about £1.7, £1.8 billion as the amount of money that would come in at that time. The precise figure between that range depends on the exact mix of courses and student numbers and so on, but that is the range, £1.3-1.7 or £1.8.

  Q11 Mr Jackson: Taking the Secretary of State on to a policy proposal in the last Conservative Party manifesto which proposed the creation of an endowment fund for universities, and there is some press comment currently in favour of that, we do have a very important educational charity in the shape of the Wellcome Foundation, and I am sure the Secretary of State is familiar with its important work. Could the Secretary of State give us a rough idea of the size of the capital endowment which would be required to generate an income which is comparable to the amount which the government's proposal for fees will generate?

  Mr Clarke: We have looked at this question of endowment very deeply and Eric Thomas, the Vice-Chancellor of Bristol, is chairing a task force to look into this, and there are a number of conclusions which can be drawn. The first is that endowment income is very important. Secondly, it has to be built up over years and there are no quick fixes by going down the endowment income route. We understand that Wellcome, and we looked at the range of different institutions, has investment funds of about £10 billion which generated just over £400 million of income in the last year for which figures are available, so if you took that £400 million and said you were hoping to raise three times as much as the £1.2 million, say, as opposed to the figures I was talking about earlier, that means you would need an endowment of about £30-40 billion. The amount of time it takes to build that up is very substantial. It is, of course, the massive competitive advantage that the American universities have, and obviously we are keen to encourage that which is why Professor Thomas is chairing this group to take it forward, but it would be an illusion to think that any of these figures would suddenly rise very quickly and solve the situation we have now on a timescale to taste. I saw the Conservative Party proposal and an endowment approach is fine, but nobody should believe it solves the problem we are talking about in the immediate foreseeable future.

  Q12 Mr Jackson: But the money you are proposing comes in immediately—

  Mr Clarke: Precisely.

  Q13 Mr Jackson: Whereas this would come in after a time, unless there was some massive asset sale. Could the Secretary of State speculate about possible privatisations that might yield £30 billion?

  Mr Clarke: I would be delighted to speculate, of course, at any time but I am not the Chancellor of the Exchequer and I feel he might see it as an encroachment on his territory if I were to go into speculations of that type. You will remember that one of the most successful recent sales was of the waveband, where significant resources raised well less than the kind of figures we are talking about here. Other people, I know some Conservatives, have suggested selling off Channel 4. It is not my bailiwick but the point you are making is one which is well made and I certainly take it, that whatever the desirability of endowment, and it is highly desirable, it does not provide the bucks you need right away to deliver the bonus you have to take. It is one of the most long term of policies available—and not wrong for that, but it does not solve any of the issues we are talking about here and now.

  Q14 Mr Jackson: The Higher Education Policy Institute of Oxford has estimated that, on the government's proposals, the unit of account or resource per student will rise by £2,008 to £6,400 which would put it back roughly to where it was in 1992. Let's just take that unit or average funding per student of £6,400 that would be restored to where it was 10 years ago. There are, in principle, two ways of increasing the unit of resource per student: one is to increase the amount of money which is spent per student, which is what the government is proposing, the other is to cut the number of students—which is what I think I understood the Conservative Party is proposing! I wonder if the Secretary of State can tell us how many fewer students would be necessary in order to match the government's proposed increase?

  Mr Clarke: Mr Jackson, you will be much superior than I at trying to understand what the Conservative policy is. I have tried to study it and get clarity on it but with difficulty. Our estimates are—and to be fair I put these across the floor of the House to the Opposition party and they have not contested them but, on the other hand, that is maybe because they do not understand them—that if you scrap the existing fee that costs about £430 million. That is what the Conservatives are proposing. We estimate that is equivalent to losing about 100,000 higher education places now, today, which is equivalent to sacking, by the way, about 13,000 teaching and lecturing staff. If in addition to getting rid of the existing fee you prevent variable fees, that could cost the sector we estimate a further £660 to £680 million on the basis of 50% charging £3,000, more the kind of estimates you were talking about earlier. That would be equivalent to about 150,000 places, so that is where our quarter of a million comes from. 100,000 as a result of scrapping fees now; 150,000 further places now by preventing variability along the lines proposed in our Bill. Now, this is a very substantial cut in numbers. It may be that is not what the Conservatives intend. It may be they intend to raise taxes to deal with it that way, as the Liberal Democrats sometimes have suggested and maybe Mr Holmes would have a comment, in which case that is fine in the political debate that we have. What you cannot do in my opinion and integrity is say we are going to take out the fees, we are going to stop the variability, we are going to cut the money going in, but we are not going to have any impact on the number of students that are at university or the quality of what is done. That is why I have said, and it is a partisan exchange, that I thought the wheels would come off the Conservative front bench proposals very quickly. I am glad to say they have come off a lot quicker than I thought but it is a matter for yourself, Mr Jackson, and your colleagues in your Party to wrestle with how you deal with the Bill in the light of those circumstances.

  Q15 Mr Jackson: So we may be talking about half a million fewer places, that is the HEPI estimate, in our education and, going from your earlier answer on vocational, no money available for vocational provision either?

  Mr Clarke: That is correct and again, to make a partisan point which is out of order in this Committee, we published our Skills White Paper last July, and I would say it, wouldn't I, but I think it was a serious effort to address these skills issues right up to the level of foundation degree throughout the economy. We have put very major commitment in and will continue to do so through the Learning and Skills Council and otherwise, and I am glad to say good progress is being made. As yet the Conservative Party has not responded to that White Paper, either by saying they would match what we are proposing to do or, as is implied by the rhetoric of their front bench, by saying what they would do more than what we are now doing. It may be there are proposals, in which case I would welcome it quite frankly, because I think a bidding war between us and the main Opposition party about how much money we were going to put into skills would be a very good debate for the country to have, but I would like to see that proposal before being able to comment more substantially on it.

  Chairman: 500,000 places is a lot of universities but let us move on to Val Davey.

  Q16 Valerie Davey: Going back to the government's proposal, what is that going to cost the government, because clearly you need a bridging loan to assist the development of a plan which is, as I welcome and I   am sure many others do, a payment post-graduation?

  Mr Clarke: Yes. The costing is basically divided into two parts. Firstly, we are changing the student support system, and the effect of that is to take out the upfront fee, to create a fairer repayment system for graduates and to create more targeted support for the poorer students in the forms of grants at the level of £1,500 to go with the fee remission. We have costed that quite carefully; we believe the upfront cost to the government in providing these loans is that the cost of deferring the new higher fees would be around £445 million, and our highest estimate is that the cost of providing subsidised loans to defer the current fee would cost around £190 million. I announced on Thursday that we would write off any debt still outstanding after 25 years, and I perhaps could take this opportunity to correct an answer I gave in the House on that point where I said our estimate of the cost of that was about £25 million. Our estimate is, in fact, £30 million rather than the £25 million I said across the floor of the House in that exchange, and finally we would provide the extra support to students by raising the maximum amount of maintenance loan they could take out, and we estimate that would be at a cost of about £65 million. So we have a set of measures which will essentially shift money in the student support system by getting rid of upfront fees and putting in place the grants establishing a better repayment schedule, we think, with the costs I have indicated. In addition, universities will be able to raise money according to the various estimates we have talked about, which we estimate is an increase of around 30% on the average funding per student that universities will be able to achieve as a result of this.

  Q17 Valerie Davey: So, if you follow that through, at what stage does the Exchequer think we are going to break even in terms of the money being repaid?

  Mr Clarke: It is about 14 or 15 years down the line but I have not got the figure in front of me, I must confess. We had an exchange on this matter at an earlier Select Committee on this point when we looked at the various options, so I am speaking off the top of my head when I am talking about the timescale. Perhaps I could write to the Committee later on today to make sure I have the figure exactly right, but there is a timescale of that order.[1]

  Q18 Valerie Davey: This is on the element of the billion that we are trying to raise for the universities through this mechanism as opposed to, as I understand it, the £3 billion which is coming directly from government anyway. So the 6% year-on-year for the next three years is £3 billion towards this contribution?

  Mr Clarke: That is there, come what may, and that is a testament of our intention to continue funding from the taxpayer, from the Exchequer, the resources of universities.

  Q19 Valerie Davey: And that is not affected by the Bill?

  Mr Clarke: Correct.


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