Select Committee on Education and Skills Minutes of Evidence


Examination of Witness (Questions 360-379)

8 NOVEMBER 2004

DR KIM HOWELLS MP

  Q360 Chairman: I think I can speak for the Committee and say that we think highly of the Chairman of OFFA. In fact, he was our host on a visit to Manchester on a previous occasion just after I became the Chair. We think very highly of him but this Committee never believed that OFFA was necessary. We thought that the benchmarking process that HEFCE had, as long as the benchmarking was fair and based on a good basis, worked. Is it not your opinion too that the most recent reports out of the benchmarking process are quite encouraging? Things are moving in the right direction anyway.

  Dr Howells: They are indeed and it was part of the reason why, like Mr Jackson, I was so disappointed when those figures came out with the room, if you like, for journalistic interpretation that they provided because it is a complicated issue—and we have spoken about this before, Chairman—and I know that some universities are doing terrific work in communities trying to persuade young people, especially young people but not exclusively, to apply for university but the university that might be doing that work is not necessarily the university where the young people might apply to. Very often, the most extensive work has been done by those universities which have the money to do it and they are not always given the credit for that. It can shield all sorts of activities that are going on out there. Beside the fact that there has been a significant improvement anyway in the numbers of people coming from those poorer socioeconomic groups who have applied for university in general and I think that the universities are certainly to be congratulated for that.

  Q361 Chairman: Do you not get worried when you read that Sir Peter Lampl is worried about OFFA? He thinks that a lot of the work that universities and his sort of organisation, the Sutton Trust, are doing are getting everything moved in the right direction and then OFFA might put everybody's backs up and you might get less good results and less progress than if you left OFFA out of the Higher Education Act.

  Dr Howells: No, I think it is a serious observation and I am convinced that Martin Harris will be able to overcome that. He has to reassure people, there is no question about it.

  Q362 Valery Davey: Can I ask if the Minister has yet had time to consider not just the position of those low-income students from this country but the low-income students internationally for whom in the past this country has given a very generous welcome and it has had huge benefit in the longer term to this country. I know that the Prime Minister's challenge of 75,000 new overseas students has been taken up and I think more than reached, but they are students who are paying and I am wondering whether he has had time to look and consider whether we should not be doing more for those students from developing countries for whom the fee is a barrier and, just to put into that, whether he has had time to look at the situation in Nottingham where I understand that they do some top-slicing of funding from their overseas students to help with some of those from less advantaged backgrounds.

  Dr Howells: I have heard great things about the Nottingham project but I have not had time yet to visit Nottingham nor indeed to talk with anyone about it. Can I say that the Secretary of State, Charles Clarke, on the first day that I went into the department said that he wanted to see the international agenda of the department increased very significantly. As I interpret it, he means that we have to try to find out much more about the potential that is out there both of us engaging and working with people especially from the developing world but also trying to increase that benefit that you described that flows from students coming here and a number—they are early days for me yet—of complaints that we have had, have been about obtaining visas and travel documents for students, especially from China and it is understandable after the terrible disaster with the cockle pickers and so on—and this has never been very far from the cockpit of politics of course—but we are working very hard with the Foreign and Commonwealth Office to try to sort this one out because it has had some serious effects on some of our universities that have come to depend very heavily on large numbers of students. On the question of the effect that the fees themselves have, I do not think we know enough about that at the moment because there are still very large numbers of people applying to come to our universities and I know that a country that is still poor like China, is nevertheless applying students in record numbers because the Chinese Government sees it is a very important qualification and they recognise the reputation of British universities as being second to none and I think that they want their students to be educated here, so they are prepared to put up that financial support to ensure that they are.

  Q363 Chairman: That is all very well, Minister, but what we are worried about and what Val is worried about is that we have a tradition now of students from affluent backgrounds, whether German, French, Scandinavian, members of the EU, coming to this country in large numbers and do we need more relatively affluent sons and daughters of party bureaucrats coming from China? They are not the sons and daughters of cockle pickers as far as I am concerned who come to our universities as students. The whole thrust is that we now have overseas students where it seems the only criterion is, can they pay lots of fees? Many of us remember the days when we opened our doors to bright students from poor backgrounds and apart from achieving Cheveley scholarships, there is not much else that we are doing, is there?

  Dr Howells: I do not know, Chairman. I really do not know where the students are coming from, or who they are.

  Q364 Mr Jackson: Perhaps he could put OFFA on to it!

  Dr Howells: I will certainly try to find out. That is an interesting thought! OFFA might well say to a university, "Perhaps this could be part of your outreach." I am not saying that they should though.

  Jonathan Shaw: Tomorrow's headline, "OFFA goes international."

  Q365 Chairman: Minister, we are obviously going to have to sometimes discipline the length of your answers but we have given you a nice trial there. We may get into something where you might want to make brief answers because you might find that it is some rather difficult territory that we are now going to move into and this is the history of the UKeU project. I want to begin by saying that, from the beginning—and I think this was after your time in this department that this happened, but it was under the previous Secretary of State or certainly in David Blunkett's time—this was what seemed to be a marvellous idea, the top of the dot.com revolution, but what is interesting is the kind of over arm's length relationship between the department and then through HEFCE and then HEFCE had a holding company and then you had the UK eUniversity that was some sort of private entity. It is very arm's length, so it is very murky territory. What was the department up to? Why did it choose this kind of arm's length on arm's length structure?

  Dr Howells: I have read quite a few fascinating transcripts of your investigations so far on this and I think that probably the most fascinating bit of it has been about what the nature of this company was and is. I note that John Beaumont and Anthony Cleaver seemed to be very confused about what kind of company it was, which I find extraordinary. It was a company limited by shares and, in that sense, it was a private company. When you asked them, "Was it a company limited by guarantee?" they seemed to agree with you at first and they did not change their minds though I have not reached the very last page of the transcript.

  Q366 Chairman: They were leafing through their notes and we did not get an answer. So, it was a company limited by shares and the shareholders were whom?

  Dr Howells: The shareholders themselves—and this is where it does become complicated—were, as I understand it, essentially the universities themselves who I think paid £1 each, which does not sound like a great investment to me!

  Q367 Chairman: It sounds like a very good investment to me!

  Dr Howells: Looking back at it, certainly. Of course, I think it reflected the way in which higher education is run in this country and funded. The Government give the money to HEFCE and HEFCE then allocates the funding as it sees fit and it has a board and so on and so forth. The company that was created however was a company which had to operate as any other commercial entity. That meant that individuals from HEFCE had to be very, very careful that they were not seen to be acting as shadow directors and that is something that is not unique to this company. There are many arm's length businesses which Government and Government agencies have to be very careful about in terms of the way in which they act as shadow directors on those companies and this one was no different. As far as I can see, it highlights a very interesting or it poses some very interesting questions about how Government should spend taxpayers' money. There seems to be general agreement, at least there is in the kind of orbit that I have been floating around in since I came into this job, that HEFCE generally does a pretty good job and this is the proper way to spend £9 billion of taxpayers' money because that will be HEFCE's budget next year. If HEFCE, as part of that, decides that it wants to do something like set up an eUniversity, a virtual university or whatever, then it presumably has to have that degree of flexibility to allow it to do so.

  Q368 Chairman: That is not the way this worked, Dr Howells, is it? The Secretary of State became enthused about this idea by whoever was pressurising him and he told HEFCE to set it up.

  Dr Howells: As you know, Chairman, I like things visually and I have a very interesting coloured chart here which says that the eUniversity was included in the HEFCE spending review bid with no student numbers and that was the very first we heard about it.

  Q369 Chairman: Come on, Dr Howells!

  Dr Howells: No, seriously.

  Q370 Chairman: Look, at this level, we are not suggesting anything underhand went on or anything like that. All we are saying is that we understand how politics work. A group of universities and university people, the chattering classes around this area, persuaded the Secretary of State that we would be missing the boat in the worst way if we did not set up something like eUniversity and he told HEFCE to do it. Now, that is on the record surely. You are not saying that somebody in HEFCE dreamt it up on their own, are you?

  Dr Howells: Chairman, I am too old to be in the business of trying to fantasise about what happened in these things. I am just telling you what I have in front of me here. It says here that, in 1999, eUniversity was included in HEFCE's spending review bid. No student numbers. First short courses were anticipated in September 2002 and the first degree courses in September 2003. Then, it says that, on 15 February, the Secretary of State announced the venture and the Secretary of State of course was David Blunkett and the Minister for Higher Education was Baroness Blackstone. The thing starts to roll from there. I would be delighted to give the Committee a copy of this because you can see that the list of events becomes very dense then. Back in 1999, the background context—and this is a wonderful Civil Service expression—is that there is only one other entry in 1999 and it says this, "Very early predictions that dot.com market cannot sustain level of growth." Remember, this was at a  time when NASDAQ—I saw the figure somewhere—was soaring and, within a period of maybe three or four months it crashed and with it crashed a lot of dreams about what was possible to deliver virtually, mostly commercial businesses but also, I suspect, e-learning as well.

  Q371 Chairman: We have been saying two things in this Committee. We are quite pleased when the department is entrepreneurial and, if you are entrepreneurial, things will go wrong: individual learning accounts that we conducted an inquiry into and you were never involved in that, were you?

  Dr Howells: No, I was not.

  Q372 Chairman: We did a forensic examination into that really to learn the lessons, not to condemn it, and to spread across other government departments when you have a public/private sector partnership and what you had to have in the original document and agreement of partnership and in the contract. In that case, we are very supportive of e-learning. One of the things that we fear is that this debacle will poison the atmosphere around which interesting and innovating policies are pursued on e-learning. So, we do not want that but we do think it is our duty in this inquiry to find out why this went on so long. If this had been a private company, you are absolutely right, in the dot.com, they would have failed to find a market, private investors would have pulled the plug and it would have been history very, very quickly indeed. In this case, because there was public money pumped into it of a very substantial amount, it was going on for a very long time even to—and you will have read the transcript—a situation just before the plug was pulled by someone where the directors gave the senior management team bonuses, some of them of £40,000. This is what we are trying to track and if you can help us in terms of why you think it had this sort of trajectory.

  Dr Howells: Before we come on to those details about bonuses because I found that as astonishing as you did—

  Q373 Chairman: We will keep that for later.

  Dr Howells: I think we certainly have to go back to that period when it looked as if it would be possible to deliver all kinds of education on line and I know a little about it because one of the jobs that I did in 1997-98 when I was at the department was to work on what we then called the telecommunication superhighway for schools and I think it was envisaged that we would be able to do this with all kinds of education at all levels. I remember at the time going, as I am sure you did, Chairman, down to Crawley College of Further Education where they could have lessons with 16,000 people out there in the ether and did regularly and have continued to do so. It was a very brilliant scheme which had very limited horizons. It was about engineering; it was part of what is a new word that I have learned since I have come into this job, "blended learning". We have learned from the Open University that these forms of delivery of learning are not necessarily cheaper than are conventional forms, that you still have to mark papers, you have to, as the jargon has it, engage with students and, if one lesson came out of this lot, it probably is that they should have been much more sensitive to those needs of students the world over. When I look at it, where I am most mystified is to the lack of any serious marketing. It seemed that there was a technological idea here which had no fundamental backing in terms of serious market research. There was an assumption that if you can provide the platform and provide some content, then that would be enough and people would flock to it. The parts I do not know are (a) about the details of any market research that might be done—from what I can see from reading the transcripts, actually there is very little market research done—and (b) were any lessons learned from previous failures to try and deliver this stuff, and to some other schemes that were out there? Was there one called the Western Governors' Scheme in the United States? There were others around. I did not think that there were very serious evaluations being made of those at the time. When I read the transcripts, it is all about how they are going to deliver a more comprehensive and a much bigger and much more far reaching service than anybody else had tried up to that point in history in any country in the world. It was also informed—and I will shut up in a second, Chairman—by a kind of fear that the Americans were going to capture students and that they were actually going to capture students in this country. I think that if there were a better illustration of the lack of understanding about that blended learning as we call it now, then I would like to see it because I believe it was very wrongheaded.

  Chairman: Thank you very much, Minister.

  Q374 Helen Jones: Minister, we have this structure of a private operating company and a holding company. Who chose that structure? What was the DfES involvement in choosing it? Can you tell us what other models were considered? Were any others considered and, if they were rejected after that, what were the reasons for doing that?

  Dr Howells: I think that the model that came forward, especially in terms of accountability, was the one that HEFCE decided that this was the proper model. So, there would be a holding company and an operating company, but there was always the problem—and it is the problem to which the Chairman alluded originally—that you can have accountability that runs through those three organisations but, in the end, the person has to answer for it to the Public Accounts Committee as the accounting officer who presumably is Sir Howard Newby of HEFCE and he is the one who has to answer the questions and be responsible for what has happened in terms of the eU venture.

  Q375 Helen Jones: The original objectives envisage this, if I am right, as a public/private partnership. There was to be private funding in this company, I think 50/50. That never happened, so we ended up with a private company being funded wholly by public money. Can you tell us what went on inside the DfES while that was happening? What was the monitoring of how this company was progressing? If bringing in private funding was a condition of grant, when did the alarm bells start to ring? Why did no one say much earlier, "What is going on here? Why is there no private money coming in?" Why did no one say, "We will withhold grant unless this happens"?

  Dr Howells: My reading of Sir Anthony Cleaver and Mr John Beaumont's evidence is that they were not given long enough to have a crack at this, but the Chairman, quite rightly, said, "Hang on, there were signs right the way along that this was not happening." One of the clearer signs was this lack of private investment. I think Sun Systems put a certain amount of money in and that was seen as a very encouraging move when it happened, but nobody followed or I do not think anybody very substantial followed if anyone at all. At that point, HEFCE and the companies would have had to make a decision about whether or not they thought that the lack of investment was due to the non-viability of the model that had been created. Remember that it was consulted upon before it went forward, Price Waterhouse Coopers had produced what some call a spreadsheet and others call it a business plan; it had attracted two very distinguished businessmen to run it and the board of HEFCE and of the holding company contained numbers of distinguished business people and of course academics who had a very real interest in this. So, theoretically at least, there ought to have been enough expertise there to have made the decision, as I think HEFCE and the holding company and the operating company had to make the decision, about why it was that that private investment was not forthcoming. I am not clear in my own mind whether they made the decision that they did because of the commercial atmosphere at the time, the middle of the dot.bomb crash—well, if we can hold on for a little bit perhaps, if we can subsidise it with public money for a while, then people will see that this is a good venture and they will start to invest in it, which is roughly what Anthony Cleaver and John Beaumont told this Committee. It was certainly something which was a decision where, once it had gone out to HEFCE and to those companies, they had to make it and it was not a decision for the Secretary of State to make although the Secretary of State clearly had an interest in ensuring that part of that massive grant which went across to HEFCE was properly being spent.

  Q376 Helen Jones: That is, I think, where we have the problem. I understand what you are saying about the role of HEFCE but this was, at the end of the day, public money that was being spent. What exactly was the relationship between the DfES and UKeU once it was operational? I think what we are trying to find out is, why were no alarm bells ringing inside the DfES long before the plug had to be pulled on this?

  Dr Howells: If I could just look at my chart. There were meetings which took place. I know that, for example, on 7 March 2002, my predecessor, Margaret Hodge, met UKeU and HEFCE and asked to establish regular meetings.

  Q377 Chairman: We were told by Sir Anthony Cleaver that your predecessor met every six months with them.

  Dr Howells: The next meeting was on 17 October and, if that is six months later, then that sounds true to me. Regular meetings: with the meetings Margaret Hodge would have been holding every day, once every six months is pretty regular in my book.

  Q378 Chairman: Six months is regular, but that means she knew what was going on or not going on.

  Dr Howells: I cannot answer that.

  Q379 Chairman: Dr Howells, if you were in the job at that time, surely you would have asked each time you met how the whole thing was developing and how many students did you have, would you not?

  Dr Howells: I certainly would have asked those questions, yes, and I believe that those questions were asked both by Margaret Hodge and by Alan Johnson who I know expressed some worries about the very, very, low numbers of students.


 
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