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The complexities of the present system in the UK are legion, but we are not having any real discussion about them. We have had recent elections in Wales and Scotland, and Governments are yet to be formed in those constituent parts of the United Kingdom. Therefore, it is an appropriate time for us to step back and to examine the overall higher education system and the way in which students choose to go to university in the United Kingdom. The constituent parts of the United Kingdom should begin to talk to each other to a greater extent about how the higher education system should progress.

There is a common agenda for UK higher education and we all recognise that the sector is a competitive environment. We all know of universities that are competing hard for international business and trade. The difficulties of the different funding systems do not just affect students; they also affect higher education institutions. When I secured this debate late last week, I quickly found out that there is an active higher education system in operation for briefing MPs. I am grateful to those bodies that forwarded interesting information to me about their particular areas of interest.

It is clear that there is real concern about the future of university funding and the different sources of funding that exist. I have always accepted that, at a time when, on leaving school, 43 per cent. of individuals go into higher education, it is appropriate for students to make a contribution to their higher education. However, I favour a graduate tax, rather than the variable fees introduced by the Government in 2004.

Mr. Boris Johnson (Henley) (Con): The hon. Gentleman makes an interesting case against the disparity between charging systems in England and Wales. Does he wish to roll back the devolutionary settlement whereby Wales can have separate arrangements for university finance?

Ian Lucas: I do not want to roll back the devolutionary settlement, although I am certain that some of my colleagues will be surprised at my gentle approach to that matter. I would like to facilitate much closer dialogue between the constituent parts of the UK, and between Ministers in the devolved bodies and the UK Government. We should not simply go back to the system that existed before the Higher Education Act 2004 because there are benefits from having closer links between universities and the local community as a result of a devolved system. However, there must be better recognition that we are operating in a competitive world market and not simply a UK market.

Mr. Andrew Smith (Oxford, East) (Lab): I am sorry that I missed the start of my hon. Friend’s speech. He speaks with feeling about the complexities affecting students, particularly in his own area. On the funding of higher education as a whole, does he agree that there is a strength in diversifying sources of funding and that, as well as a contribution from the taxpayer and students, there is an increasing role for endowments and other sources of funding? That would allow us to strengthen the independence and long-term stability of our universities and colleges in what is, as he said, a competitive global situation.

Ian Lucas: That is certainly the case. It is extremely important that we diversify the sources of funding in higher education. There are difficulties in the approach
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to endowments recently announced by the Prime Minister because the scheme tends to benefit those universities with a more traditional background, more alumni and more affluent alumni; smaller and newer universities do not have that same support. We must look for new sources of funding by developing links with previous students and with industry. The most competitive economies in the world have extremely high levels of contribution from the private sector. For example, in the higher education sector in the United States, levels of private sector funding are higher than we currently have. That is something that we need to develop. The foundation degree scheme that I mentioned in relation to Airbus in my own area must be extended in order for universities to progress.

There are concerns about the disparity of funding in the UK, which was recently expressed in evidence that was given by the Higher Education Funding Council for Wales to the inquiry on globalisation by the Select Committee on Welsh Affairs. Even now, under devolution, there is a dual-support system for higher education in Wales. The Welsh Assembly Government provide funding through the Higher Education Funding Council for Wales and funding is also provided by the Department of Trade and Industry and UK research councils to important universities in Wales, such as Cardiff and Bangor. Therefore, even under the devolved system, contributions are made by the UK Government.

The higher education sector in Wales has expressed concerns that it is not adequately funded by the Welsh Assembly Government. When a Government have been formed, I will ask them to look at that issue. The Higher Education Funding Council for Wales observed in its evidence to the Welsh Affairs Committee:

Anecdotally, vice-chancellors in Wales have told me that that is their perception of the issue. I am not sure whether the Minister should take that as a pat on the back from England or not, but I am sure that he will take it that way if he can.

Welsh institutions are in a small higher education environment and must compete with higher education institutions in England. It is increasingly difficult for Welsh institutions to secure the appropriate level of investment to finance high-quality higher education for students. In the modern economy that we are developing, which is supported by universities, it is important that progress is made on that issue. I want to see a university in Wrexham, in my own constituency, that works closely with the successful private industry in north-east Wales and provides support for the research that companies undertake. I have met companies in my constituency that have told me about their research and that they use universities from across the United Kingdom and, in certain cases, from other parts of the world. There is a gap in the market and a missed opportunity for the local education sector as it could provide companies with the support that they need to progress.

The link between industry and universities must be taken forward and competitive universities should be
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able to offer the appropriate support to business. However, that is complicated by the current arrangements and the disparity in funding regimes for students and institutions in the UK. This matter has not been on the political agenda for a long time, which may be because of the elections to the Welsh Assembly and Scottish Parliament. The issue presents some political difficulty and should be discussed not just within one political party, but among all parties. We all agree that we need a competitive and high-quality higher education sector, which at the present time is very complex. We had a full debate about different funding systems for students at the time of the 2004 Act, but things have moved on since then. We are beginning to see evidence of changes in student behaviour, and that evidence will, of course, increase as time passes.

This is the appropriate time for the UK Government to engage closely with the devolved Governments and institutions to discuss how we can codify and bring together the funding systems within the United Kingdom. It is also time that we had detailed proposals from all political parties, not only from the Conservatives and Liberal Democrats in the House of Commons, but from nationalist parties in Wales and Scotland, so that we can hear what they have to say on the subject and how they believe that higher education can be taken forward.

Make no mistake: the higher education sector is vital to the continued success of the UK economy and to the UK as a cultural centre that other countries respect. We have built that up over many years, and further in recent years, and I am pleased to see the increased number of students accessing higher education through different means—not just through school, but through the workplace, institutions such as the North East Wales Institute and other non-traditional means. It is important that we make the system work as well as possible. In order to improve the current position, we need much greater dialogue between the UK Government and the devolved institutions.

11.22 am

David Howarth (Cambridge) (LD): I congratulate the hon. Member for Wrexham (Ian Lucas) on securing this debate. He is quite right to say that this issue needs more discussion. The level of public debate seems to have gone down since the one on the Higher Education Act 2004. I add also that, as a parent, I appear to be in a similar position to him. My other interest, perhaps formal, is that I am a university academic, and I shall come back to a point arising from that in a moment.

The hon. Gentleman raised an important point about differences between funding opportunities for students across the boundaries between Scotland and England, and Wales and England. However, in many ways, that comes back to the fundamental point made by the hon. Member for Henley (Mr. Johnson), that this flows from the very idea of devolution and of devolving student support as part of the devolutional settlement. That relates also, as he said, to the devolution of some parts of university funding. What he said about one part of university funding—the research councils—remaining on a UK basis is true.

There is an interesting question about whether that should be devolved further to Scotland and Wales, or whether there is an important benefit from maintaining
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a UK basis for research council funding. The amount of money available to universities from the research councils might be stabilised, because the complication of devolution makes it more difficult for the Government to shift resources about. I gather that there is a question about whether the research councils will continue to come under the auspices of the DTI, which may not be long for this world. If that is the case, the question arises of where the research council funding should go. Should it go to education or perhaps to the Cabinet Office? That is a difficult decision, but academics can take some comfort from one thing at least: because of the complications of devolution, the Government’s possibilities for raiding the research councils’ overall budget might be less in mainly England Departments than in United Kingdom ones.

On fairness and the opportunities for students on different sides of the boundaries, it strikes me that this is very similar to what used to happen when county councils and local education authorities could give discretionary grants for particular postgraduate courses, for example. Funding depended on where a person lived, but that was a political decision by that local authority, just as it is a political decision by the Scottish Parliament to spend the money available to it on effectively paying the fees of Scottish students in Scottish universities. It seems to me that if devolution means anything at all, it means allowing different layers of government to make different political decisions about spending priorities. That is the Scottish Parliament’s decision, and we have to respect it.

The second point from the hon. Member for Wrexham that I want to comment on was about the breadth of sources of funding in higher education. He is quite right that we should be looking for a broad range of funding sources. During our discussions on education funding at the end of the last decade and the start of this one—with the Dearing report and so on—a number of ideas arose that have not been taken forward. Most obviously, the point was made that students, the economy, employers and the Government all benefit from higher education, but in the debate since then, we have concentrated exclusively on the balance between the individual student and their family on the one side, and the taxpayer on the other. The one source of funding originally mooted, but no longer in the debate—it ought to be brought back—is employers. What place should they have in the funding of higher education? I would be interested to hear the Minister’s views on that.

Mr. Andrew Smith: Does the hon. Gentleman accept that one way in which employers could help would be to assist those they recruit with meeting their outstanding student debts? He might care to elaborate on that. Does he accept also that it is not quite true to say that other sources of funding have disappeared from the picture? Does he welcome the £200 million announced by the Government earlier this year as match funding for universities and colleges able to raise money from other sources, thereby expanding the endowment foundation, which, as I said earlier, has an important role to play in offering stability, security and independence for universities?

David Howarth: Yes, on those two points, certainly I welcome the money offered by the Government to universities to encourage fundraising. There are limitations
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on it and difficulties with the amount offered, but the principle is none the less a good one: higher education institutions should be looking for as much independence as possible, and financial independence is one of the foundations of academic freedom. It is often said that the older institutions have more opportunity to fundraise on that basis than new ones, but experience in the United States, to which the hon. Member for Wrexham referred, shows that even quite new state universities can raise a lot of money from the private sector in that way.

On the other point that the right hon. Member for Oxford, East (Mr. Smith) mentioned about employers effectively paying off the debts of those they recruit, that is one way in which employers can contribute, but of course it is voluntary: some do it, but others do not. There is a problem with free-riding by some employers. Furthermore, in America—part of my education was at a law school in the United States—I noticed that that was one of the ways in which the very well-off commercial law firms in New York and Wall street attracted bright students to their firms, as opposed to their going into perhaps more socially useful areas of the law. The number of my contemporaries who went into New York legal aid was, I think, one, and the number of my contemporaries who went into very large commercial firms in New York was very large. That is part of the problem with doing things in that way.

My main reason for speaking today, though, is to put a particular point to the Minister, to which I hope he will respond. Much of the debate on fees has been about the financial attractions or otherwise of taking a university course. As an academic, my point of view is probably slightly different from that of most people, in that for me, the most important thing about university is the content of the course and the effects of higher education more broadly on our culture. There is evidence, for example, that people who go through university courses tend to be more tolerant and liberal in their outlook, which I think is a very important aspect of our education.

Nevertheless, the question of the financial return to the student from taking a higher education course is important. I want to bring the Minister back to his comment in a debate in the main Chamber not so long ago that, on average, the financial benefit for students of taking a degree, over and above what they would obtain on the basis of A-levels, was about £100,000. Does that figure take into account taxation and the amount of income forgone by a full-time student on a three-year course? I ask that because those amounts can be quite considerable.

There are estimates that the amount of tax that someone would pay on an extra lifetime income of £100,000 would be about £42,000. Turning to the income forgone, let us say that someone worked for, say, 30 weeks a year extra by not taking a course and they worked full-time at about minimum wage level. On those figures, a student would lose, over the period of a three-year degree, some £20,000. Obviously, that figure would be much higher if the alternative employment was more lucrative, as it probably would be.

Let us consider how much per year a student will gain over a 40-year working lifetime and how much they lose by not working for the three years of the course—they never get that back, and in effect they lose the interest that they could have earned by putting
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the money in the bank. If we also take into account the tax, the overall calculation as to whether it is worth while, purely in financial terms—for me, that would not be the most important factor—for a student to take on a university course turns out to be very close. Indeed, it is so close that the question whether there are fees, and especially whether there are £3,000 fees, would make a difference to a large number of students.

I ask the Minister to consider that, because if the calculation is correct, we will see a shift in the student population away from students who are from what one might call risk-averse backgrounds. People who are not sure what the rewards will be may be less confident than others that those rewards will come their way, which will discourage them from going into higher education. Perhaps just as important, there will be a shifting of students on to courses on which they think they will get a higher financial return than the present average.

That might be part of what the Government intend to achieve through their higher education policy, but we need to consider whether it is right to encourage students to think about lucrative careers—in the City, perhaps—and to think less about less lucrative careers, which might be highly socially useful, such as careers in social work or in teaching. For me, the crux of the argument about fees is what we are trying to get students to do and whether we think that the only plausible incentive to give people who go into higher education is financial. If it is financial, will it work and what effects will it have?

My final point about the fees system applies also to the proposal made by the hon. Member for Wrexham when he talked about a graduate tax; it is a problem with that system as well. If it is true, which I think it is, that higher education is desirable for the whole of society—it is something that we want to see more of—does it make sense to tax it? Increasingly in the debate about green taxes or environmental taxes, for example, it is accepted broadly across the political spectrum that taxation should be used as far as possible to discourage activity or behaviour that we disapprove of and to encourage behaviour that we do approve of. If that applies to higher education, what we are doing now is completely wrong.

11.35 am

Stephen Williams (Bristol, West) (LD): I was not expecting to speak so soon: I thought that the right hon. Member for Oxford, East (Mr. Smith) might be about to speak, so that we would have an Oxbridge contribution across the Floor of the Chamber.

I congratulate the hon. Member for Wrexham (Ian Lucas) on securing the debate. I listened with interest to his description of North East Wales institute of higher education. He may not know that I come from south-east Wales originally. I am sure that he has followed the fortunes of what was in my day Caerleon institute of higher education, which has become the university of Wales, Newport. Newport has become a city; perhaps Wrexham will go along the same path in the near future.

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I also had some empathy with what the hon. Gentleman said about Airbus. From the point of view of my own constituency across the border in Bristol, Airbus is crucial to the west country economy as well as to the economy of north-east Wales and Cheshire, and co-operation between higher education institutions and industry is vital in that area.

Going back 20 years, I was a cross-border student myself, but it was a rather simple thing for me to decide to go from a south Wales valleys comprehensive school to an English university. There was no difference at all for me between doing that, going to Scotland or going to Cardiff or Swansea, which were my two nearest home institutions. Now, of course, students face a considerably more complicated application procedure and have financial choices to weigh up. The Campaign for Mainstream Universities has sent through a most useful briefing, to which I think the hon. Member for Wrexham would also have had access, which says that there are seven scenarios as to whether someone is an English, Welsh, Scottish or Northern Ireland student, depending on where they apply. Universities UK has also sent a very useful summary, which sets out the financial difference that students now face.

Let us take the example of students who originate from Wales or are going to study in Wales. A Welsh-domiciled student studying in Wales will receive from the Welsh Assembly Government £1,845 towards their £3,000 tuition fee, whereas someone going from Wales to study in an English university, as I did 20 years ago, will not receive that support: they will have to pay the full £3,000, albeit on a deferred basis under the new arrangement. A Welsh student from my background will now have to weigh that up.

An English student studying in Wales is subject to exactly the same regime as if they were studying in an English university. Someone who is from Wales but studying in Scotland has a completely different arrangement, and a Scottish student studying in Wales has a completely different arrangement as well. I will not go into the arrangements in Northern Ireland, because that would complicate things even further.

As someone who believes profoundly in devolution, I suspect from what the hon. Member for Wrexham said that I have rather more enthusiasm for it than he has. Indeed, my first political act as a schoolboy in the late 1970s was to deliver leaflets for the yes campaign in the dying days of the Callaghan Labour Government, so I have a long-term interest in devolution, and some of the things that he described and that I am summarising are an inevitable consequence of the devolved arrangements. I am sure that those complexities will evolve even more. If we believe in devolution, we cannot complain too much about that, because just as is the case for different health treatments on different sides of the English and Welsh border, or for bus travel and all the other anomalies that have sprung up since devolution, it is a natural consequence. For a 17 or 18-year-old in school who is contemplating where to study, the state none the less has a role in ensuring that they have access to the best advice and information, so that they can make an informed choice.

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