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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