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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