House of COMMONS









Wednesday 29 October 2008


Evidence heard in Public Questions 124 - 224





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Oral Evidence

Taken before the Innovation, Universities, Science and Skills Committee

on Wednesday 29 October 2008

Members present

Mr Phil Willis, in the Chair

Dr Roberta Blackman-Woods

Mr Tim Boswell

Dr Ian Gibson

Dr Evan Harris

Dr Brian Iddon

Mr Gordon Marsden

Ian Stewart

Dr Desmond Turner

Mr Rob Wilson


Witnesses: Rt Hon John Denham MP, Secretary of State and Ian Watmore, Permanent Secretary, Department for Innovation, Universities and Skills, gave evidence.

Q124 Chairman: Could I welcome the Secretary of State, Rt Hon John Denham, to this, the DIUS Departmental Report session. Thank you very much indeed for your attendance this morning, John, and a return visit from Ian Watmore, the Permanent Secretary to DIUS. We have an enormous amount to get through this morning and we are very grateful to you for letting us have a copy of your statement. We understand that we can discuss that.

Mr Denham: It should now have been made available to the House at 9.30, yes, Chairman.

Q125 Chairman: I will come on to that in just a second. It is 16 months, Secretary of State, since DIUS was established. What has been your greatest success?

Mr Denham: I think that we have established ourselves certainly in government as a significant department in two areas of government concern, one as an economic department with a key role to play in promoting overall economic prosperity through our work on research, innovation and skills, and, secondly, as a key department in promoting social mobility, particularly through the raising of skill levels of adults and opening new opportunities for them and through our work on widening participation, and I will not give you a long shopping list, but establishing that reputation that we are centrally involved in both of those areas of government policy, I think, is a real achievement. The other thing which I would say, which you will take for granted, Chairman, and have every right to, but nonetheless it is important, that to form a new department and actually to see the basic functions, the delivery, the work which was inherited carry on and continue to improve is actually a real achievement. Now, everyone will say, "Well, of course that should happen", but it is not quite as simple as that and there have been cases of government reorganisations where the disruption caused by a merger or a change has been a much bigger problem than it has been in our Department.

Q126 Chairman: John, one of the real concerns, I think, our Committee and, I think, a wider audience has is that, with the split which put, if you like, children and schools into another Department and then the responsibilities which you have to increase, for instance, the skills of the nation and to increase participation in higher education, et cetera, the real levers for much of your success are actually held by another Department. Do you find that a real hindrance?

Mr Denham: No, I think it is an area where we just have to work together extremely well, so, if you look, for example, at the recent National Council for Educational Excellence Report, they clearly identify information, advice and guidance in schools as critical to raising aspirations and ensuring that students stay in the right subjects and apply to the most appropriate university. Similarly, with apprenticeships, we know that there is a real problem that young people are not always advised about apprenticeships as a career route. That is an area where what we need depends crucially on what happens in schools and in the wider advice services for young people, but is, therefore, an area that we work very closely with the other Department on, so I do not think it is a frustration, but clearly we have to be aware that we need to be joined. We need to be talking to universities about diplomas because actually one of the things which is critical for DCFS's delivery of diplomas, and it is only one element of it, is their acceptability, their credibility in universities, so, when we are talking to universities, although we, if you like, do not do diplomas, it is a very important part of our discussion on behalf of DCSF, so I think there is a pretty good understanding of the joint agendas, the shared agendas between two departments. I think I would say to you the same as I did when I came here earlier in the year, that the gains for having a department focused on children and the gains of having a department that brings together, for example, innovation, research and skills outweigh the issues we inevitably have to deal with as a consequence of the split.

Q127 Chairman: Obviously, within a department that has only been going for a relatively short period of time, there were going to be difficulties of settling down budgets, for instance, and making sure that there was a proper allocation of resources.

Mr Denham: Yes.

Q128 Chairman: Mr Watmore, on 6 October, talked to us about the transfer of 128 million from 07-08 from the further education budget, the LSC budget, into the HEFCE budget, and he said to us at that time that this was basically a problem because the end of year came early and that the term for the higher education students, Easter, came early and, therefore, there had to be an adjustment in that way, but, in your letter to me on 28 October, you explained that that was in fact only part of the story and that 67 million was a temporary loan to cover part of that summer term deficit, but 49 million was a permanent transfer.

Mr Denham: Yes.

Q129 Chairman: Can you explain, first of all, why there was so much money available in the LSC budget, there was an underspend, and how are you going to square the circle this year in terms of making sure that those resources are available within the higher education budget?

Mr Denham: I will happily do that, Chairman, but I think I should make a general observation about budgets and finances in a department like mine because I think my successors and your successors will often be having this type of discussion. The reality is that we have a very large budget, about 20 billion, as you know, some of which is ring-fenced by policy decision, particularly the science budget, and the other major budgets are very much demand-led or at least demand-influenced, not perhaps in quite the same way that DWP has to pay JSA to every claimant, but we can influence overall the student numbers, we can influence overall FE learners, but we are pressured under demands. I think it is an inevitable fact of running a department like this that, even over the course of the CSR, there will be adjustments one way or the other in most years that a department like this operates, just as historically, although it was not always so obvious, people who knew the old Education Department knew that there were always shifts between 16 to 19 and adult budgets one way or another, reflecting the flows of students. I say that by way of context, Chairman, because I think it would be wrong of me to encourage the idea that this is the sort of department where every single year you will get your allocation figures right to the last million pounds because of the flows of students influencing the demands on different parts of the system. Now, the particular background to this particular year was that the Train to Gain budget that had been projected for that year underspent and there was an extra pressure in HE which turned out to be, in part at least, the emergent pressures on student finance, which we will come to later, so the underspending was partly allocated to meet the HE pressures and, therefore, to avoid having to make other adjustments in HE spending, which we would have had to have done if we had treated that as a wholly ring-fenced budget, and the other part was reallocated within the FE budget, for example, the expanded Apprenticeship Service, starting up with the National Apprenticeship Service and so on. I think actually it was the sort of adjustment towards an end of a financial year which over the years, one way or another, is likely to occur in a department of this sort.

Q130 Chairman: I do not think anyone on the Committee would disagree with the need to via resources from one budget head to another, it is simply what a responsible department should do. We found it strange, however, that the Permanent Secretary did not know anything about that last week.

Mr Denham: I am sure that is not the case, Chairman.

Mr Watmore: I think you asked me a specific question and I said that my memory of the situation was that we had to do the 31 March adjustment and I said I would correct it if there was more detail, which I subsequently did.

Q131 Chairman: But, in reality, the statement in the summer of 2007, which was to change, and indeed to enhance, grants for students and student support, had the effect, did it not, of creating an extra demand on the HEFCE budget when the resources were not there to actually meet that, so it was not the year end, it was a matter that, during the whole of that year, there was a pressure building up to actually find the additional resources.

Mr Watmore: Last year, we inherited budgets from different sources, as you know, because it was the first year of the Department, and we got it half-way through the year, so actually to finish the financial year with a fully properly audited set of accounts and all the money balancing, I think, was a huge achievement. The particular adjustment that we made at the end of the year, as I said last time, my memory of the major part of the adjustment was the fact that it was the 31 March issue. There was, however, as we subsequently clarified, an adjustment of, I cannot remember the figure in my head, the 49 million or so that went the other way. What I also said was similar to what the Secretary of State has just said, that, in the course of a year with budgets in the billions and with the demand-led nature of it, we are going to have to make judgments about where we spend the money, and the specific policy announcement that was made in July of last year, 2007, actually came with new money from the Treasury to finance it, so the underlying pressure on student grants is one that is coming from a growth in student numbers, which is very hard to predict, but which had been predicted based on the data that emerged in 2005-06, so I think there is quite a lot of moving parts behind these numbers and the real pressure has built up in the course of this year and, hence, the Secretary of State's statement today.

Q132 Mr Boswell: In a sense, this is a loop back to the earlier issue about consultation, and perhaps I can put two points. One is that it would be useful, John, if you could say a bit more to us about the consultation between your Department and DCFS on a continuing basis, and is this normally conducted at your level, the Accounting Officer's level or at the professional and technical levels? The second question is about your own Department. Clearly, as Ian has explained to us helpfully, there was an underlying pressure, and I am not unfamiliar with that, I can see what is going on, but that has developed and it has to be set against the money which has been allocated from the Treasury. Are you satisfied that you have got the internal management now right so that, if this pressure develops, you can take a principal decision in good time to via money across? Finally, if there is a situation, which there could be, for example, where there is a decision about the distribution between diplomas and apprenticeships for people on the borderline of the age cut-off, would you be able to have a continuing discussion with your counterpart Department and broker something which would then go forward to the Treasury if there were a clearly sensible need to shift the balance or the baseline between the two departments? It is really, one, how you talk to each other, two, how you manage the internal structure and, three, how you can reconcile that with the pressures developing in the whole education sector.

Mr Denham: Firstly, in terms of the relationships between ourselves and DCFS, and this could incidentally be the same for NUPE as well, they operate at all of those levels, they operate at the level of very regular ministerial contact and discussion at Secretary of State level, Minister of State level, junior Minister level, they operate at Accounting Officer level and they operate at official level as well, there are formal structures and, as you would expect, ad hoc meetings as necessary, and a considerable amount of time and energy is gone into that, particularly of course around the Machinery of Government consultation. In terms of finance arrangements, if I take your question right, Mr Boswell, between the two departments, again I think that we have so far shown the ability to handle those issues, and I can give you two examples. One of the things that we addressed in the Machinery of Government consultation was the position of the FE college which is receiving money from the 16 to 19 budget and from the adult budget. Now, both departments want to be assured that we will get, if you like, the outcomes that we are looking for from that money; DCSF do for their learners and we do for ours. If you are running an FE college, in practice, your operation is much more integrated than that and you probably do not have one set, some do, but you may not have one set of teaching staff devoted to 16- to 19-year-olds and one above that, you will have students who start courses at 18 and go on to 21 and all of those sorts of things that happen, so we have been very clear to colleges that, whilst they will need to account for their outcomes, when it comes to running a college we are not expecting them to run two entirely separate bank accounts with two separate pots of money which never should be brought together; that would be impossible. We work through those sorts of issues and, at the margins, there are issues, including one under discussion on learning difficulties at the moment, where there are some groups who go to 25 and so on. Now, we are not entirely sure that we have got that interface right at the moment and we can sit down and talk about it, though I cannot tell you what the outcome will be, but we have ways of resolving those issues.

Q133 Mr Marsden: Mr Watmore, when I asked you last week about the issue of the underspend on Train to Gain and the overspend on HE, you said that that was because Easter had come early, and we now know today that that was only part of the story. Were you aware last week that in fact there had been a twofold division between the underspend on Train to Gain and the overspend on HE?

Mr Watmore: No, as I said, my memory of the situation was the specific one that that was the issue ----

Q134 Mr Marsden: So you had no memory at all of the fact that there had needed to be this money being diverted into HE?

Mr Watmore: As I said to you last week, the adjustment at the end of the year was to balance the books and my memory at the time was of the specific reason for the 31 March problem. I subsequently went back and I said, however, that I would check the number and, if that was not the full story or was incorrect, I would clarify, and that is what I did.

Q135 Mr Marsden: Of course one of the reasons this issue was raised last week was because of a piece that appeared in the THES at the end of July, raising this issue of the underspend and the overspend, and we have had a two-and-a-half-month period since then where, as I explained last week, I and other colleagues have had this concern raised with us by FE colleges and others. Given that actually the story now appears not to be a bad one for FE colleges and all the rest of it, as the Secretary of State has explained, why did it take two and a half to three months for your Department to clarify this?

Mr Watmore: Again, at the end of the financial year, as the Secretary of State has said, we make adjustments. In the big scheme of things, the amount of money that we are talking about is a relatively minor adjustment for a department with a 20 billion budget, and the abnormal thing that was brought to me at the time was the specific issue of 31 March, and that is why I recalled that fact with the answer, but in general, as John has said, we have to balance the books throughout the year in the broad areas of ----

Q136 Mr Marsden: But you surely have to have a view as to the impact on morale in the FE sector which has been affected by this misunderstanding?

Mr Denham: The 115, when that was reallocated for Train to Gain, was made public at the time and I did that myself in, I think, June. When the story broke in the papers in August, which clearly at the time overstated the problem, I remember my colleague, Bill Rammell, also putting out a statement then about what had happened. Also, as you would expect, he spoke, as did officials, to David Collins at the AOC to explain what the position was, so I myself thought that within the sector there was a reasonable understanding of what had happened and the confusion of the two issues, that the year-end accounting changes with the switching money backwards and forwards and the issue of actual permanent transfer, as the Chairman put it, got mixed up together as people went through the accounts in the summer, but certainly at a ministerial level we did put out statements both at the time of the reallocation of the 115 million from Train to Gain to the FE sector and Bill Rammell, when he was the Minister of State, did deal with this issue in August.

Q137 Mr Wilson: Secretary of State, we all sympathise with you in that putting a new department together is a very tricky operation, but do you have any feeling that that operation was rushed?

Mr Denham: Well, with a new department, it sort of starts from the day that it is announced, so it is almost impossible, I think, to have a new department which does not start from scratch on the first day, it is the nature of the Machinery of Government changes, so whether that means it is rushed, you have to work at it very hard and very quickly indeed. One of the reasons though that, I think, it went pretty well is that we did not try to reorganise all the component parts on day one. Now, you can argue this both ways and some people might say, "You have got new functions and a new role, perhaps you should have new director generals, new structures and all the rest of it". We took a very conscious decision not to do that and the benefit of that last year was that the main delivery parts of the organisation, I think most people say, continued to function and function well and to show improvements in their areas of activity. Where you inevitably lag behind is that some of your core central services and support are not in place on day one. You do not have an office building on day one, so your staff are scattered between different locations, you are borrowing other people's IT systems, you do not have a core press office and communications function. It is very difficult to see how these things can be done differently, given that there is always a day on which the new department is announced, and those are problems that you have to work through.

Q138 Mr Wilson: But there do seem to be some big issues bubbling up. We talked about budget pressures of last year, but there were reports at the weekend that there are big budget pressures on higher education in the coming year, and presumably that is nothing to do with Easter because Easter is April this year, so what is the reason?

Mr Denham: The reason, I would say, is nothing to do with the formation of a new department. If we look at the student finance pressures, the history of this goes back to the data that would have been available when the grant was significantly increased in value in 2007. By definition, if you increase the grant from 1,000 to 2,700, the data you have available to predict with absolute precision the number of people of each income who are going to be in the system is not going to be 100 per cent. You can only have 100 per cent accurate data if you have already been running the system for some time. Now, this predates the Department. The issues that we face would be faced, frankly, by a Secretary of State in the old Department had there been no changes at all, so I do not actually think that this has got anything to do with the formation of the new Department.

Q139 Mr Wilson: Can you then just confirm, which I think you were hinting at in your answer then, are you considering cutting the student grant criteria?

Mr Denham: Well, what we have said in the paper is that the top threshold will now be 50,020 for the grant, and that is substantially more than it was in 2007/08 and it means that everybody up to about 58,000 will have higher levels of total support than existed in 2007 and 2008, but of course that is an adjustment compared with what was in place for students who went to university this year, and we have done that, as we made perfectly clear, to get the right balance between my decision to spend more on student finance because of the number of low-income students in the system and the need to make some changes to the student financial support system so that the system comes into equilibrium.

Q140 Mr Wilson: So the answer to that question is actually yes, you are?

Mr Denham: We are making changes, and in my statement, which you have, it says very clearly that we are amending the regulations to student financial support.

Q141 Chairman: Just to clarify, it is coming down, Secretary of State, the financial income threshold for partial grants, from 60,000 to 50,020.

Mr Denham: That is right, but the key thing I would point out, Chairman, about this is that we are not changing the lower threshold, which is the threshold for the full grant, and that remains at 25,000. Secondly, we are still hitting, in fact we are bringing in line, our original intention that two-thirds of students should get a full or partial grant, so the underlying commitments are ones that we set out in July 2007.

Q142 Mr Wilson: Can you also just be clear on one other thing. Is your Department thinking of freezing English university places?

Mr Denham: No. The statement says very clearly that HEFCE will allocate 10,000 and no more than 10,000, but 10,000 extra places, full-time equivalent, for entry next September/October.

Q143 Chairman: Secretary of State, there appears to be a 100 million projected overspend for next year in terms of HE. How are you going to finance that? Is that going to come out of Train to Gain as well?

Mr Denham: Chairman, we have to look at the budgets available to us and we are looking, firstly, at the departmental unallocated provision, and we obviously carry some reserves and, therefore, one of my responsibilities with the Accounting Officer is when does one plan to deploy those reserves, and that is the first thing. Secondly, within the system we have significant progress on our targets for cash-releasing efficiency saving, so obviously we will look at places where genuine efficiency savings can be made to produce cash, and then we will have to look at other parts of the DIUS budget. Now, what I have tried to do in the statement is set out some principles that should guide us on that. We do not want to breach the science ring-fence, we want to maintain the policy of the real value of the unit of funding in higher education, we want to continue to be expanding higher education opportunities and we want to continue to expand opportunities in further education and Train to Gain, but we will have to work through this and we will make the announcements about any further changes in budgets in the appropriate time in the normal way.

Q144 Dr Harris: In your statement, where do you say that the upper limit on the threshold, the top limit for the partial grant will be reduced from 60,000 down to 50,000? I do not see the top limit.

Mr Denham: What the statement says, Chairman, is what the top limit will be, which is 50,020.

Q145 Dr Harris: So you have to read in that that is a reduction?

Mr Denham: You are clearly, as I would expect, Dr Harris, very informed about the details of the system, so this is setting out what the system will look like, which is what we set out in the statement.

Q146 Dr Harris: So, as long as everyone is as informed as members of this Committee, they will work it out?

Mr Denham: I think you will find, Dr Harris, that, on the websites and the places where it matters, this information is very clear.

Q147 Mr Boswell: I have a couple of points, Secretary of State, and one is: have you now departed from the principle of linking the top threshold to the child tax credit threshold; and, secondly, what on your modelling is the number of people or families who will lose out under these arrangements, notwithstanding the fact that obviously there will be gainers as well as people who lose out?

Mr Denham: The point that I would stress is that the system remains substantially more generous than the one that operated just two years ago in 2007/08, that is the first point to make, because the maximum earnings is much higher, the number of families covered by this has gone from 36,000 a year up to people on 50,000 a year and there is an eligibility for higher loan levels, so, compared with just two years ago, it is a much more substantial package, but the key question which you obviously raise is: what are the group of people who would have got between 50 and a few hundred pounds perhaps in that period between 50,000 and 60,000? You will forgive me for saying there is some imprecision in this, but we could be upwards of 10 per cent of the intake of that year.

Q148 Mr Boswell: So that is 100,000-plus?

Mr Denham: I think that would take us to around 35/40,000, but it is not going to be clear, Chairman, and I want to make that clear, until we have the data coming through from the processing of this year's grant applications on the current system to make that sort of application.

Q149 Dr Gibson: John, if we can change tack a little, you made a speech in September in Cambridge on seven lots of blood, seven new reviews, which is a heck of a lot. How did you come to seven, how did you choose them and what was the point of them?

Mr Denham: Well, the background, Chairman, as you know, is that next year we will have to initiate at least the look at the fees policy and the financing of higher education. I have been very keen, as Secretary of State, to make sure that that debate, when it takes place, takes place against a clear background of understanding what we want from the higher education system. We set out earlier this year the big question, if you like, which is: how do we ensure that our university system is world-class in 15 years' time? I believe it to be world-class today and for the whole university provision we want to be that good in 15 years' time. As part of that process, we looked at areas first where policy had not been looked at recently and we invited people from within the university sector, mainly vice chancellors, to produce think pieces, provocative pieces about international higher education, about the quality of the student experience, the use of IPL and so on. Having done that work, which I think is very good and is now becoming publicly available, we then thought, "Well, we should probably get some people who are outside the university system to tell us what their expectations would be", so we went for somebody from the arts and cultural world, like Nick Hytner, we went for John Chisholm, we went for effectively the Permanent Secretary in the Indian Ministry of Science and Technology because we thought it would be useful to have an overseas view of what they were looking for from our system, so, in a sense, it was not a set number, but we went through different voices. We wanted SMEs, we wanted high-tech, we wanted the creative industries, we wanted the cultural view and we wanted international views.

Q150 Dr Gibson: It smells like the question: what is higher education for? Is that what it is all about? Are you suddenly asking that question after all these years for the reasons that the students now have to pay money upfront and it had better be value for money? Is that what your thinking is deep down and this glosses it all over?

Mr Denham: No, it is the real question of how do you maintain a world-class higher education system in 15 years' time. In virtually every country that aspires to be advanced and influential, higher education is going to be more important, not less important, so those countries over the next 15 years will be, and are, investing money and, therefore, we have to ask the question: what would our system look like and, therefore, how do we finance it?

Q151 Dr Gibson: So will you find all this out before you decide to put the money in?

Mr Denham: The idea, and, in a sense, it will be the big challenge for me, is to produce a document some time in the first part of next year which sets out the Government's view of what that vision looks like and what the challenge looks like, and I suppose my test is to get the balance right between being a document which has a consensual basis where there is real support behind it, but which is also sufficiently radical and challenging in the areas where the system may need to change. Now, that is the challenge we have set ourselves in the Review.

Q152 Dr Gibson: So this is not going to put off that decision about increasing the tuition fees or whatever, so it will decide policy which will be reflected in the tuition fees because that is the biggest event that is going to happen next year in Britain?

Mr Denham: It is a very important issue. I need to choose my words with care because I have to remember that I was on the backbenches the last time we debated tuition fees, but I do not want to be too critical of my colleagues ----

Q153 Dr Gibson: I remember you well!

Dr Turner: ---- but, Dr Gibson, you will recall that, in that fees debate, it was not always clear what the question was that was being asked. Were we trying to produce a market system because some people thought markets were better, or was this about getting more money into the research-intensive universities? Was it just a way, the only way, that people think of for raising more cash for the universities, or was there a principle about co-responsibility where the student puts some money in and gets something back?

Q154 Dr Gibson: It kept changing week by week.

Mr Denham: It did change quite a lot, did it not, as the debate developed, and I was determined, perhaps with the advantage of coming to this from the backbenches, not to have a rerun of that next year. I thought that where we should get to is that this is what the Government, hopefully with widespread support, wants to achieve in higher education over the next 10 or 15 years, so now let us have a proper debate about how we pay for it.

Q155 Dr Gibson: HEFCE - changes taking place? David Eastwood has moved. That is a coincidence, is it not?

Mr Denham: Well, I have a huge regard for David Eastwood. I do not blame him for going for a top university vice chancellor post, but I am absolutely clear that HEFCE's role ----

Q156 Dr Gibson: Very soon.

Mr Denham: He will not go until April which means, I think, in practice, that he will have a huge influence over the document we have just been talking about, and that is the first point. The second thing is that I am on the record as saying that I and the sector will want somebody of his stature and quality taking over. We have no significant, or even minor actually, changes planned for HEFCE. Its role is crucial between government and the autonomously led universities and, without that, a huge range of decisions will come back to government that we would not want to take and which we should not be taking, so HEFCE has a hugely important role for the sector and for government, and we will do nothing to upset that.

Q157 Dr Gibson: So there is no question of eliminating HEFCE from the equation?

Mr Denham: Absolutely none, absolutely none.

Q158 Dr Gibson: Let me turn to another subject, one which I think you are interested in, and that is degree classification. What responsibility do you have for that? After all, you have said that universities are autonomous, so leave them alone and they will turn out the number of firsts that they think they should or which are worth it even.

Mr Denham: It is a very good question, if I may say so, because it is primarily and fundamentally a question for the universities themselves. I think that ministers have a role sometimes in stimulating debates about issues and in challenging the sector to confront an issue, and I cannot remember the exact history, but I am fairly certain that there was some ministerial encouragement for the formation of the Burgess Committee and its report, but ultimately the ownership of it and what universities decide to do has to be in the ownership of universities. If ministers start trying to determine these things from the centre, we will get into a much worse position than we are in at the moment. Now, as you know, the outcome of that process is that, I think it is, 18 universities are trialling extra information to see how that goes, and the unknown question in a sense is: for the employers and other people who read those reports, will that turn out to be useful, that the focus is less on the narrow classification of the degree, or is the demand out there still going to be for a simple classification of degree?

Q159 Dr Gibson: Peter Williams has used the words "the rotten classification system". Let me ask you, do you think a 2:1 at Southampton in his subject or an equivalent subject in another university is more valuable than a 2:1, say, at Dundee?

Mr Denham: I think the words "more valuable" are what is so dangerous about this. I think it is important ----

Q160 Dr Gibson: Well, for the employer then? Let me qualify it. The employer looks at it and says, "Dundee - I wouldn't have them".

Mr Denham: What really does worry me is if employers assume that they know what a particular university offers and have not looked recently. Our universities are not the same, so a 2:1 at one university may reflect a different type of study, a different relationship to vocational education, a different balance of academic and research from other types of skills, and what is crucially important is that the employers have enough information to understand what it was that particular universities were offering in the courses that they offered. There is a danger of assuming that all of our universities are the same, that they all offer precisely the same type of education and, therefore, simply the label, "You got a 2:1 in X" should tell you everything you need to know. That is not true and it does not mean that one lot is better than the other, it is that they are different and to understand the difference is important.

Dr Gibson: So what do you think of the external examination system then when they are made to come and examine all your undergraduates and they do not examine every one? You know the system as well as I do, there is a lot of bias in it ----

Chairman: Allegedly!

Q161 Dr Gibson: Yes, allegedly, a large part of it, so, if an external examiner refuses to sign off the scripts and the classifications, what can we do about it? Suppose they say, "There are more firsts here than you've given"?

Mr Denham: This is a very similar area, Chairman, I think, where my job, as Secretary of State, is to raise an issue and say to the sector, "You can't ignore this type of issue", so over the summer I was very clear that a succession of events with alleged whistle-blowers claiming that this had happened or that had happened was in danger of doing serious reputational damage to our university system, not so much, I think, in this country, but, if you looked, as I did, at some of the overseas websites and the things that were being reported and the stuff that was being published without qualification, it was a matter of concern. I said that I thought the university system needed to have a quicker way of dealing with these issues and, in particular, the QAA should have a less cumbersome process of engaging in these issues. Now, I have put the issue on the agenda. What has happened, and this is the right process, is that the Funding Council, who have the responsibility for the track to the QAA, have asked the QAA to look at a series of issues, including the external examiner issue. They will report, I think, at the end of the year on the extent to which they perceive there to be a real, or perceived, problem and then there will be the discussion between HEFCE and QAA about what the response should be. Now, sometimes, if you are an activist minister, you think, "I'd like to dive in there and tell them to do it this way" ----

Q162 Dr Gibson: That was a venture(?) with Chris Patten, quite a venture.

Mr Denham: ---- but I do not do that. What I do is I raise an issue and I put it on the agenda. Do you want me to talk about Lord Patten?

Dr Gibson: No. I am tempted, but we will leave that for another time and another place!

Q163 Dr Turner: John, the problem of getting kids from lower socioeconomic groups to take up a university education is as old as my memory, which is quite long, and it does not seem to be getting that much better, although your departmental report complains that the gap has closed by 3.5 percentage points. That is not actually borne out by the Director of the Office of Fair Access to Higher Education, who says that the proportion of applicants has stayed stable, and the UCAS figures bear him out. What is your assessment of the situation, John?

Mr Denham: My assessment is as in the annual report, that, if you take a consistent time-line of the number of people from the bottom, I think, four socioeconomic groups, there has been, not spectacular, but steady progress over a period of time, so I think we have made real progress in widening our participation to higher education. Where we have made less progress is on the issue of fair access, which is the participation in the most selective universities. It may have been that Martin Harris was referring to that, but, without going back to his original thing, I would have to check on that.

Q164 Dr Turner: But whoever is exactly right on the figures, the improvement is marginal at best, if it is really there. What plans have you got to address the problem? For instance, it is commonly said that one of the biggest barriers is the perception of people from low income families or working-class families, that they are afraid of coming out of university with a large debt and this deters them, or it is often quoted as one quite important factor, and another obviously is the question of sheer aspiration, so what plans do you have to try and get round this difficulty and markedly increase the level of participation?

Mr Denham: There is no really strong evidence that the issue of debt is a decisive factor for those who decide, when they are qualified and able to do so, not to go to university. It is a minor factor in all of our assessment, which does not mean that people do not raise issues of finance, but, if you actually look at the evidence as to what actually makes somebody decide, debt is not the major issue. The biggest issue we have got is about aspiration and also about talent-spotting and achievement, and that is why so much of the effort that we put in through Aim Higher, through the work of individual universities, through our encouragement of links with academies and school trusts and the encouragement of summer schools and so on is aimed at working with schools to identify those young people with the ability to go to higher education who might not otherwise do so because they have not got the aspirations to do so. The second part of that is the issue of information, advice and guidance, which we talked about earlier, but certainly, if we are looking at some of the more selective universities, the actual choice even of GCSEs, but certainly of A levels, can be quite a determining factor in whether somebody is able to apply or not.

Q165 Dr Turner: In my day, it used to be whether you went for Latin or not.

Mr Denham: Well, that may have passed, but it may certainly be a combination of science and maths A levels and the pure subjects as opposed to something studies and whatever. There are different lists at different universities and it is undoubtedly the case that some students get themselves into a position by the end of the first year of the sixth form when they have actually ruled out some options in university entry without ever realising they have done so.

Q166 Dr Turner: Yes, that is quite true. Do you have any target figures in mind for widening participation?

Mr Denham: Our overall target is to get the participation rate of 18- to 30-year-olds to 50 per cent, ie, by the age of 30, 50 per cent of the cohort will have participated in higher education.

Q167 Dr Turner: Yes, but specifically from lower socioeconomic groups?

Mr Denham: We have not broken it down in that sort of detail, but, given the disparities of participation rates by socioeconomic groups, it is fairly clear, I think, that, in order to achieve that target, the growth will come from the lower socioeconomic groups.

Q168 Dr Turner: There is one thing which is definitely a problem in terms of student support in that, since it is provided by the universities, those universities that are taking more poorer students, by definition, cannot give as generous bursaries as those taking smaller numbers of poorer students. Do you think that this is a problem?

Mr Denham: Well, I am not convinced that the alternative, which would be essentially to have a national system of bursaries which then would become effectively an additional part of the student financial support system and wholly integrated to it, is a better alternative than universities running their own bursary systems. We are still at very early days and one of the reasons that Parliament took the view that the fee system should not change until 2010 at the earliest was that we needed to get much more evidence than we have really got at the moment about the interaction between bursaries, the decisions that students take, widening participation, the selection of different universities and so on, so I think we do need to let the system run still a bit further to analyse that information and to see how it is working.

Q169 Dr Harris: First, dealing with this question of the 50 per cent, that is going to take an expansion of higher education. I think in the statement that you put out today, you say that you are decelerating the expansion, and it was, by my reckoning, 20,000 last year, but no more than 10,000 this year. Do you have an expected date of arrival for your 50 per cent figure?

Mr Denham: I am not going to name an expected date of arrival, all sorts of factors come into play here, but I think it is important to make it clear that we maintain that aspiration and we want to work towards it. I think, Chairman, you will understand that one of the limiting factors, which has been important to us, is maintaining the unit of funding of higher education. We could make much more rapid progress if we simply did what happened in the late 1980s/early 1990s which was to say, "Take all the students you want and don't worry about the cost per student", but there has to be a balance between the rates of expansion and the desire to maintain the quality of education. Now, I think we have made the right choice there.

Q170 Dr Harris: So it becomes an aspiration rather than a target because you are going to be limited. Can I just ask you about this issue of widening participation and the figure. I have the departmental report, which states, and I quote, on page 69, "The gap between 2002-03 and 2005-06 in participation among young people from higher and lower socioeconomic classes grows by 3.5 percentage points", and then it says, "Table 1 shows the proportion of young, UK domiciled entrants from state schools and disadvantaged groups to full-time first degree courses at universities in England". Firstly, table 1 does not talk about higher and lower socioeconomic classes, so it does not relate to the figure in the sentence before and certainly you cannot see a 3.5 per cent gap closure there, even if it were, so can you defend, as I imagine you would want to defend, as the Secretary of State in charge of the Department that has science in its remit, the assertion that you make that the gap has closed by 3.5 percentage points?

Mr Denham: I am not sure if I can do it, Chairman, from this particular set of tables because I think it is one of those questions where, frankly, I would have liked to have had notice that we were going to go through them in great detail, but I am happy to write to the Committee setting that out. The figure that we have generally used, but I am not saying that it is not in the report, is that there has been an increase of nearly two percentage points since 2003 in the younger students from lower socioeconomic backgrounds. Now, there are issues here, as you know, about the changes in categorisation which happened between 1997, 2002 and then 2002-03. We have an increase in the number of young people entering university for the first time from state school, which has risen by over six percentage points from 87.2 per cent in 2006-07, but of course state school, one indicator, does not of itself directly indicate socioeconomic categories.

Q171 Dr Harris: Well, let me give you some other data. I do not know if you have seen a House of Commons Library paper, I think you have now got it, which is dated 24 April 2008, and it has been there for a while, and in table 2 that does give the breakdown according to socioeconomic group - this is on page 9 - where it says, in group 7, for example, 5.6 per cent in 2002 and 5.8 per cent in 2007. Well, that is a 0.2 per cent change, and I think the reduction from the top class, as it were, is one of 0.4 per cent. Well, if you add those two together, you get a 0.6 per cent change, not a 3.5 per cent change, in the language you use in your report, from higher and lower socioeconomic classes and, even amalgamating them in some way, one to three and four to seven, you get hardly any change at all. Now, unless the Library has got this wrong, and at least it has given the data and its source, which is UCAS, it seems that your annual report is misleading. That could lead to complacency as well as misleading the public and the media.

Mr Denham: Let me go back, Chairman, if I could, to look at the annual report and the 3 per cent figure. The figures that I have here are in my briefing for this meeting, which are the ones we normally use, for example, for oral questions and news, actually do not use a 3 per cent figure. The standard ones we tend to use are the increase in numbers from state schools, and that is 81 per cent to 87.3 per cent, that is from 1997-2008 and 2006-07, from lower socioeconomic classes, where we go from 27.9 per cent in 2002-03 to 29.8 per cent in 2006-07 and from low participation neighbourhoods 11.4 per cent in 1997-98 to 13.5 per cent in 2005-06, so none of those figures is 3.5 per cent, so it is not immediately obvious to me and I would like to go back and look at the source of that figure and that analysis.

Q172 Chairman: I think it would be far better, Secretary of State, if you could actually send us a note.

Mr Denham: I could, but could I challenge the point that there is any complacency here. Where, I think, we are, however you look at these figures, you see steady improvement on each of the measures year on year on year. What we now understand, and I think we understand this much better than some years ago, is that performance in this area, you are talking very often about changing the aspirations of a 12- or a 13-year-old, you are talking about working with their school to make sure that that ability is nurtured, and it is years before they turn up as an entrant at school. Where, I think, we are is that there is far more university activity taking place, it is much more structured and will produce the results, but I would not like to pretend to the Committee, Chairman, that this is not a fairly lengthy process in the lives of individual children, so I assure Dr Harris that there is no complacency here at all.

Q173 Dr Harris: Would you agree that in future it would be best to take one measure and stick to it because, otherwise, there is a risk of doing what politicians do, which is to choose a measure which suits you in any one year? I have done it in my time, you have done it in your time, I am sure, but we expect departmental figures to be consistent, so take one measure and stick to it.

Mr Denham: Again, I need to look at the report because I have not memorised it in front of me, but my memory is that we have been pretty consistent over three measures: state schools; the top three and bottom four socioeconomic groups; and deprived neighbourhoods. Now, the reason for keeping all of those in play is that they tell you different things about how the system is operating, and most of us would recognise that, in some ways, the deprived neighbourhood challenge is the biggest challenge of all of those because that is where the young person is least likely to get the reinforcement of others in their peer group, others in their cohort, saying, "We are going to university". Take the same child and put them in a school where most children are going to go to university and they are much more likely to.

Q174 Chairman: I do not really want to pursue that because I think we have got from the Secretary of State that he is going to give us a written note on this. Indeed, it would be useful, Secretary of State, if you could also, in response to us, give a response to this business of consistency of statistics because I think that is a very fair point.

Mr Watmore: Chairman, I just wanted to add that the Public Accounts Committee have just done a report on this very subject which has a lot more detail on it and you may wish to look at that.

Q175 Dr Harris: These young people from poorer neighbourhoods, as it were, may well go to their home university and in fact we know that there are some universities which have huge numbers, much higher proportions, of young people from poor economic backgrounds than others. Is it fair, as Des Turner intimated in his question, that, because of the local bursary system, those universities end up only being able to afford to give much smaller bursaries than those places which do not rely on a hinterland, like Oxford and Cambridge, because they are not big cities and, therefore, take far fewer? Is that not the overriding message from the HEPI Report, that it is just unfair on those universities and on the students who find themselves going to those universities?

Mr Denham: Well, I think that, if we got rid of the bursary system or made it a national one, we would have to make it part of the national student finance system and it would not really exist, except as a bureaucratic administrative procedure, in any other way.

Q176 Chairman: Would that not be sensible?

Mr Denham: The original reasoning behind the bursary system was to encourage universities to be able to target students who might not otherwise apply to those institutions and to encourage them to go there. To the extent that some of the most selective universities do offer higher bursaries, the principle or the thinking behind it was that this would enable them to offer a great incentive to the appropriate young people who might not otherwise go there, and there is an issue and an advocacy of fairness there too. Now, my view, Chairman, is that we put this system in place a couple of years ago, we will look at the whole issue of fees and bursaries, the lot of it, next year and I do not think that any of us have yet got sufficient evidence about how the system operates, its behaviour effects or its impact on students, to make a firm judgment about it, so I am going to park this, if I may, with the rest of the fees debate until we look at it next year.

Q177 Dr Harris: My final question is about the eligibility for grants then. In your statement, you say that you are freezing the upper limit of 25,000 for the full grant. Would you accept that that means that, for someone whose standard of living stays the same because they just get an inflation rise in their family income, they will fall out of that group? Do you accept that freezing at a fixed amount does mean that eligibility reduces even for people on the same standard of living?

Mr Denham: If wages move, if individual circumstances move, people will find themselves in a different position here, but let us not forget that we are talking about a huge increase from a limit that was about 17,500 just two years ago and also it does mean that we are significantly exceeding our initial aspiration, which was that a third of students should get the full grant.

Q178 Chairman: Secretary of State, I think you have accepted Dr Harris's point. There was just one comment that the Committee were very concerned about, and this was from the Vice Chancellor of London Met when he said that there were more black Caribbean students in one university than the whole of the Russell Group. Does that worry you and would it be possible for us to have a brief note from you as to how in fact you are dealing with that issue of ethnic minority students in the Russell Group universities?

Mr Denham: I would be more than happy to write to you, Chairman, but I will make the point that it goes back to your opening remarks. Prior attainment is a very significant driver on which universities people go to and whether they go to university, so this is one of the huge areas where our co-operation with the DCSF is very important.

Q179 Mr Marsden: Secretary of State, in March your Department published the New University Challenge, ideas for bidding for new centres of higher education. As you know, I and my constituents in Blackpool have a particularly strong interest in this because my FE college is one of the biggest deliverers of HE in the country, but the broader issue that I want to raise with you out of that is how that then fits into a regional, an innovation and a regeneration agenda because the Cambridge Journal of Regions, Economy and Society have just published where they say that the whole potential for universities to become regional hubs of innovation and boost local economies has been overstated. I do not happen to agree with that view, but I wondered what your take was on it in the context of what you are trying to do with New University Challenge.

Mr Denham: My view certainly, Chairman, is that the offer of a university education, and we are not, as I think everybody now understands, proposing a whole range of freestanding universities, but a university offer has a significant role to play, if done well, in economic development and regeneration as well as in widening participation, and that is why there is such a significant demand for this, which we have reflected in our policy, from areas that do not have a university offer, a university, college of some sort or another, so I think we are pretty convinced that the basic principle is right. Now, it does not, I think, follow from that that you automatically, just by doing this, will have all these regeneration or innovation effects. It does not, I think, follow from that that you automatically, just by doing this, will have all these regeneration or innovation effects. What we have done - and what the Funding Council is now taking forward - is to say, "Look, if you actually look at the money, for a start, these are only really likely to work where you have very significant business buy-ins and where you have engagement from the RDA." So it is at that stage in the process that you would be expecting the Regional Development Agency on the first hand to say, "Does this make sense in terms of our regional innovation strategy and our education strategy?" I think those partners need to take their responsibility for assessing whether this actually fits.

Q180 Mr Marsden: I know that my colleague Dr Roberta Blackman-Woods wants to come in further on this but can I ask a quick supplementary on that one? In order to do that effectively - and I entirely agree with everything you have said, it is particularly relevant in my own region in the northwest - would it not be better if HFCE had a stronger regional presence on the ground? As you know, at the moment it has no regional structures whatsoever, no people on the ground, and so would it not be better to make sure that they were in the regions in the same way that the LSCs had been?

Mr Denham: I think the relationship between the Funding Council and the regions is different because the funding system and the nature of the funding relationship are different. We would certainly expect the Funding Council to be well informed about regional needs and regional views when it comes to taking decisions. The decision about whether they think they should have a regional structure as opposed to people who are clearly allocated to understanding what is going on in regions is very much one for them, and when they have looked at it in the past they have formed the view that that is not the best way of deploying their resources. I would not read into that the idea that the Funding Council has no sense of region.

Q181 Dr Blackman-Woods: Secretary of State, a number of RDAs put universities at the heart of regeneration in their region. Given what you have said about their own business, are they right or wrong to do that?

Mr Denham: I think they are as long as they do it properly and they make sure that the centre of universities is properly integrated into wider strategies RDAs are right to do that.

Q182 Dr Blackman-Woods: Surely what is critical in this is getting the transfer of knowledge from universities to business development to job creation. Are you satisfied that DIUS and BERR are working closely enough together and that they have the structures at regional level in order to deliver that knowledge transfer?

Mr Denham: Yes, I do. I think it has to be an area where we talk about the progress that is being made rather than saying that we are there; but the introduction of the Higher Education Innovation Fund, which was first brought in on a bid for basis and now is on a formula basis has for the universities transformed their capacity to do knowledge transfer. The development of innovation vouchers, which we have tested in the West Midlands and we now want to extend with RDAs across all of the English RDAs has brought in people, particularly from the higher tech SME sectors to universities that has not happened previously. The work that Professor Paul Wellings, the Vice Chancellor of Lancaster, has done for us on intellectual property and universities has interestingly concluded and countered, as it were, a lot of common sense views, that we are rapidly closing the gap with other leading countries on our successful exploitation of intellectual property and within a very short period of time will actually be performing at the level of the best. So all of that suggests a changed landscape for knowledge transfer over the last few years and I think that is very, very good.

Q183 Dr Blackman-Woods: I think critics say that we are tinkering at the edges and what we are not getting is the big business buy-in to knowledge transferral and I wondered if that was something that you would accept or not?

Mr Denham: No, I would not accept that at all. I would never say that things cannot be improved but if you look at the large companies - the pharma companies, the IT companies and so on - that you will find engaged in somewhere like Cambridge and the whole of that wider region they are buying in on a massive scale and they are developing all sorts of additional relationships with spin-out companies, with university research departments, with the wider pool of knowledge in the area. So I think there is huge engagement and one of the reasons that is regularly given by inward investing companies into this country is the quality of the research base and the UKTI have reported on this regularly and it is a product of the doubling of the science budget.

Q184 Mr Boswell: Do you feel that in any way the autonomy of higher education institutions inhibits this process or in practice there is no profit from it?

Mr Denham: I do not think it inhibits it in the sense of being a fundamental obstacle but I think that some of the review papers that we have written pose some challenges. So one of the things that Paul Wellings has proposed, for example, is that he says a university with a small tech transfer office cannot really do the whole of the job. So it might be better to have tech transfer offices located at a number of effectively hub universities which service tech transfer across a wide range of institutions in their area. If you want to say does autonomy mean that that is a process of negotiation and discussion if we go in that direction, yes, it does. Do you mean would it be better if I could tell them they have to do it? No, probably it would not. So I think we are better off where we are.

Q185 Ian Stewart: John and Ian, good morning. John, we all support the thrust of the government policy to allow wider access to further and higher education and to make the experience both enjoyable and effective for students. The strategy is employer-led and is based on employer demand. We have interviewed different employer organisations like the CBI, the Chamber of Commerce and the Federation of Small Businesses and we have some evidence from, for example, Vice Chancellors, questioning the commitment of employers and indeed the understanding of employers about further and higher education. For example, John Brooks, the Vice Chancellor at a university in my own area of Greater Manchester, Manchester Metropolitan University, has said that employers have been quick to criticise university provision but they have not been so quick to engage with universities to try and tackle this. What will the department do to try and involve employers more within the system?

Mr Denham: If I can list a number of things. One is that we asked our Funding Council this year to put money aside for 5000 co-funded degree places or higher education places between employers and universities. That has been massively over-subscribed - I think, if I remember, the figure is about 8000. So there is far more interest out there in working with higher education in newer ways than people perhaps at first anticipated. Secondly, we are close to finishing a higher level skills strategy, which has been produced in consultation with the university sector and with business about tackling these interface problems. Thirdly, I think as a result of our engagement in this area the CBI and UUK are working directly together on better ways of collaborating and that is one of the areas where it is good to see people owning the problem. Fourthly, in different sectors of economic development government is trying to provide the forum that brings people together. So the Office of Nuclear Development, for example, in BERR actually brings together higher education institutions that may have an interest in supporting the engineering side of the nuclear industry with the main companies that will be involved. By and large it is not for us to be solving the relationship problems between them; it is to get people together and working it out. The reality is - and I have said this over the last year - for every university that says, "Business does not understand us" you will find somebody in business saying, "Universities do not understand us." We have to oil the wheels between the two.

Q186 Ian Stewart: Is not one of the problems that the different employer organisations representing different sections of industry have different demands? The larger employers seem to be at ease with the government's intention that people should gain skills for their job, but also transferable skills that will allow them to move from job to job. The smaller end of the industry, which probably represents more than three-quarters of the workers in industry are more interested in, "We want the skills for this particular job and we are not really interested in transferable skills that will help the employee." So how do you reconcile, John, what role is the department to play in helping both the industry sector and the universities because I am conscious you say that it is not really the role of the department.

Mr Denham: In the sense that the relationship has to be delivered between the business and the university that is the case, and we cannot substitute that process. But what we do is we provide the mechanisms that enable that relationship to get better. So, for example, the creation of foundation degrees has led to a growth of new qualifications, often developed in a fairly bespoke way for employers at quite local level. So at the University of Derby, for example, you can do a foundation degree in miner engineering, in quarrying. It developed for the industry in that region with employers. If you go to universities at Greenwich there are foundation degrees there developed for the local employer community. So while we are not where we want to be there are many examples of good relationships developing. The introduction of the co-finance courses again has focused people's attention on new ways of developing this relationship and our higher level skills document, which we will produce soon, will set out more of the practical things we can do to encourage that relationship. So I acknowledge the issue but I also think that even in the last year the level of practical engagement between higher education and business has improved enormously.

Q187 Ian Stewart: Can I finally put this to you? Looking at the more strategic role you say that they have in place, when the department has set up its shape and structure review it has, I suppose, chosen seven business people to comment as users of higher education on that review. Why was there no consideration of trade unions or perhaps non-statutory sector people or people from civil society, to get the balance right?

Mr Denham: Nick Hytner from National Theatre is regarded not so much as a business user in this case so we did broaden it, but I think the point that is being raised, Chairman, is one that we acknowledge. We do not want to do something artificial but we are giving consideration as to whether there should be other voices in from the user point of view.

Q188 Mr Marsden: John, one of the things that the government is saying in raising expectations is that the local authority is going to take over a large chunk of FE College funding for 2010. What do you think is going to happen in that scenario to adult learners over 19 years of age?

Mr Denham: I think that over the same period of time the funding system for adult learners will become more flexible because we are moving from the LSC to the Skills Funding Agency and that will enable us to be more responsive. I think that one of the longer term benefits is the existence of coherent 14 to 19 strategies should reduce, when put together with raising the participation age, the number of people who are coming in to adult provision having not achieved a reasonable level of qualification at school. So I think there will be benefits from that. I do not think that there are any problems for the colleges themselves that would be unmanageable in that relationship.

Q189 Mr Marsden: I share your hopes in that area but I think there are two very practical things which have already been flagged up by the FE sector - not least by my own FE colleges but I know others as well - and they were raised in fact on the draft Bill. One is that when you have, as most FE colleges have, split local authorities, possibly three or in some cases even four, what incentives there are going to be to make sure that those local authorities cooperate holistically to make sure that those colleges can deliver properly. Perhaps more hard-headedly and specifically what safeguards are there to make sure that this huge amount of funding that you are now going to make available to local authorities is in a tightening local authority budget crisis actually going to reach people. Because you do not have a ring fencing procedure and we all know what happened to some of the spending on FE in the 1980s with local authorities.

Mr Denham: Chairman, if I may, some of these questions are really for my colleagues from DCSF because the responsibility for that is with that department. They have set out how they intend to ensure that local authorities work together but they have rightly, I think, put the emphasis on local authorities seeking their own ways of cooperating and how they ensure that they will take responsibility through the various performance measures and the rest that they have for ensuring that they get the results they want for the effort that is put in. So in that sense I will say that the details of those questions are questions for my colleagues.

Q190 Mr Marsden: I understand that, Secretary of State.

Mr Denham: A word I might add, though, is where we retain an overall interest, if you like, to maintain the function of, as it were, sponsors of the colleges, particularly the general FE colleges, it would fall to us to act if we felt that actions were being taken which were undermining the viability or the security or stability of an individual college. That clearly had to lie somewhere within the system and that lies with us.

Q191 Mr Marsden: You are confident, are you, that the very dramatic financial changes that have been described in terms of giving this money to local authorities are not going to result in situations where the sorts of problems I have described will manifest themselves, particularly in FE colleges that genuinely want to expand their appeal to adult learners over 19.

Mr Denham: I am confident; I think it will bring a greater coherence into the provision for that important generation of young people. We know that there is a weakness in the system at the moment; that some of those that succeed least well are not really owned by anybody in the system in terms of responsibility and we are addressing that and that seems to me to be absolutely fundamental.

Q192 Dr Blackman-Woods: Compared to higher education institutions are further education colleges over-regulated?

Mr Denham: We certainly would like to see a continued move towards greater levels of self-regulation within the college system. There is a process which is underway and we are doing it on a step by step basis. One of the crucial issues in the sector is always the extent to which the sector itself takes responsibility for poor performance and the extent to which that remains with us, and I think that that is an issue that is not yet resolved.

Q193 Dr Blackman-Woods: Do you think we are moving away from the situation where further education is seen as the poor relation to higher education, or is that being achieved because we are getting higher education on the cheap through FE colleges?

Mr Denham: No, I think we are actually raising all the time the status of further education and something we have done a lot of over the last year is to make it clear not just that we value the core educational role of further education, but we value the role that further education colleges in particular play within local communities. I have probably been more explicit than any Secretary of State for a long time in acknowledging the huge role that local colleges play as community leaders, as places of social capital - some of the best gun and knife crime work, gang work you see in the country is done in colleges. There is no budget line from the LSC that says, "Here is a bit of money to deal with that"; we just expect the professional leadership of colleges to do that. I am sure, Chairman, that members of your Committee will take part in Colleges Week where for the first time we are actually officially celebrating the role of colleges specifically within the FE system, which is not to take away from the crucial role played by private and third sector training providers, but colleges as institutions have a uniquely important part to play in many of our communities and I really think that our department has probably pushed that message more strongly than has been heard for quite a long time.

Chairman: Thank you very much indeed. You will be pleased that we are not going into science budgets but science policy, which Dr Turner is going to raise with you.

Q194 Dr Turner: Lord Drayson recently swapped his racing car seat for a seat in the Cabinet. He is also a member of the National Economic Council, chairs a Cabinet Committee for Science and Innovation with a mission to integrate science across government. Does this mean that the science part of DIUS is emerging almost as a freestanding entity?

Mr Denham: No, I think it means that the science and innovation part of DIUS has a minister of quite exceptional ability, both in terms of his own science background, his business career and the work that he did particularly on the defence industrial strategy. If, Chairman, we look Innovation Nation and the amount of that policy that needs to be delivered across government in terms of use of public procurement to drive the market for innovative products, the development of the SBRI and so on, I think Paul Drayson is a huge addition to the team to drive that and is enormously welcome. But it does not mean in any way that there is a separation of those activities from DIUS as a department as a whole.

Q195 Dr Turner: While these activities were in BERR and Lord Sainsbury was the Science Minister there was a freestanding office of Science and Innovation, which covered all the activities that you have just described. Do you think there is any mileage in resurrecting that?

Mr Denham: I do not. You have the critical role of Go Science - the government office, the Chief Scientific Adviser who is sort of hosted within DIUS but has the autonomy that we all understand, which I talked about last time I was here. Innovation policy and science innovation policy critically has to be integrated into the whole of the government effort. So Paul Drayson's role in the Cabinet committee is not to be over here somewhere in a separate office saying, "This is a bit of government that has a science policy and the rest of you can get on with it," the critical thing is to engage the rest of government. We had a very good example of that this week, which was the launch of the electric car project, which has a buy-in from BERR; it has involvement from DIUS; you have the Department for Transport helping to create the market. We are going to need far more of those sorts of farsighted market making activities which pull things through from the fundamental research to the consumer products of the future if we are going to be successful. I think the last thing you want to do is to separate off the science and innovation bit of that into a separate bit of government with no purchase on the rest of the system.

Q196 Dr Turner: How can we expect to see science policy develop, given that Lord Drayson has virtually dedicated himself to continue where Lord Sainsbury left off, and of course there was the Sainsbury Review of Science and Innovation published a year ago? What do you think are the implications for the future of science policy?

Mr Denham: I think what we are going to see is a continuation of the work that David Sainsbury did and which we then took further and broader in the Innovation Nation policy, which crucially began to institute some cross-government mechanisms for making this happen, and also took our understanding of innovation that much broader than purely science-based innovation. I am slightly traducing what David Sainsbury said because he was not that limited, but I think we are more explicit in the wider role of innovation. The crucial task in government I think at the moment is to actually make that policy work in practice. I am not saying there will be no development of policy but we have a pretty good basis of innovation policy analysis set out in David's report and in Innovation Nation, and I would say that the critical challenge is to make that policy happen in government on the ground.

Q197 Dr Turner: To this day one of the greatest weaknesses in the innovation process is essentially a commercial one and it is small-scale venture capital. Do you have plans within DIUS to address that problem?

Mr Denham: The area that we have concentrated on has been reforming the small business research initiative. If you go to the States - and I went to the States earlier this year - one of the things that is built into the business plans of many innovative start-up companies is the ability to get not a government grant but a government contract at that crucial stage of developing a new product. We have had one for a number of years which has not really played that same role. It has been revamped - the first two projects are now on the TSB website, which went on in July, one from defence and one from health, and that is the particular DIUS contribution to this. Obviously the Treasury have discussions with BERR about wider venture capital policy but our particular contribution is probably more in the SBRI area and the general fostering of the right environment for innovation that has been announced to take place.

Q198 Chairman: Secretary of State when Lloyd Mandelson of Foy in Hartlepool gave evidence before the BERR Committee last week he said that science would be better placed in BERR. Why are you right and he is wrong; or can we say he is wrong?

Mr Denham: I am not entirely sure he said that, Chairman, although I was not at the Committee, but no doubt you can quote it back to me?

Q199 Chairman: Yes, we could do.

Mr Denham: Could I invite you to!

Q200 Chairman: He actually said: "I know, it would be very easy to take you all into my confidence. Look, I will be honest ..." - which was an interesting statement! And he went on to say that if he had been there at the time he would have argued for science to remain within BERR.

Mr Denham: The answer I would give to that is I think that science, although it gained hugely from investment and from David Sainsbury's influence in BERR, there were some weaknesses, I think, in having that arrangement over which I think DIUS has an advantage. One is, if you take our universities, which are hugely important institutions, the separation of education policy, teaching policy basically in universities, from research policy means that no university could engage with one government department over the whole of its activities - in innovation, research and teaching. Now universities can do that so we have a better fit. Secondly, I think that because now science is clearly located in a department which brings together many of the elements that we need for competitive and prosperous policies from research, from innovation to skills there is coherence and a join between them that was not there previously, leaving aside any question of squatters' rights!

Chairman: I have every confidence in you, Secretary of State!

Q201 Dr Blackman-Woods: The vision for Science and Society has been criticised somewhat in the press for presenting a view of science from your department that sees it totally as a public good. Is that a fair summary of the government's position?

Mr Denham: No, we have a consultation taking place to develop a new Science and Society strategy. The critics who were in the press and were kind enough to quote a speech that I made to the RSA earlier in the year, I think it is a false choice between the document we have produced and the views that I expressed there. We have tried to do a number of different things. We are genuinely trying to create a society where there is an excitement about science, its importance is recognised and where that is reflected, not least in the number of young people who study stem subjects at school and university. But we are also trying to have a society that is mature in its handling of science, so not a society where by having scientists in science by saying, "Therefore you have to trust the scientists, scientists are always right" we have to have a society that is confident about understanding what science is telling us; confidence about understanding that scientific method rarely gives you certainty and what it does tell you. What we are trying to do is how do you get those two things? How do you generate a genuine enthusiasm for an engagement with science as well as a society which is mature in the way in which it understands scientific issues and handles scientific information and advice, and that is what we are trying to do. Although the letter that came in from a number of professors of social science was quite critical we took the view that whether they said it was not worth a contribution to the debate or not, we thought it was and we were pleased that they took the trouble to write.

Q202 Dr Blackman-Woods: But would you accept that what they are setting up in terms of their criticism is that there was not really a clear role for social sciences in terms of critiquing that vision and that in fact the vision did not make it clear at all what role you were suggesting for social sciences in explaining the role that science plays in society?

Mr Denham: When you do a consultation document for people to come back and say, "We cannot respond to your consultation document because we do not agree with you" is not really the most productive engagement. Let me make the point, they do not think that social science was dealt with adequately and that is an issue we will take on board. The Chairman knows that we now talk about the research budget rather than the science budget - it was one of the small but symbolic changes that this Committee prompted us to make as part of one of your earlier reports. So we do value the role of social science and indeed the arts and humanities in contributing to the formation of policy across the piece. We will look at their particular criticisms when we come to produce the final document.

Q203 Dr Iddon: John, the government set up three new major institutes for research - OSCA, TSB and the Energy Institute. At the same time the government dedicated six themes where research money should be dedicated and there has been a significant shift of research money in the Research Councils from responsive mode to programme research as a result of that. Is the Haldane Principle not shattered?

Mr Denham: No, it is not shattered, Chairman. I set out in a speech to the Royal Academy of Engineering earlier this year what I thought about the Haldane Principle and I was very happy to restate the core principles of the Haldane Principle, but I pointed out three areas where I think inevitably in the modern world ministers will have a greater degree of engagement. The first was in major projects; so, for example, the Camden Medical Research Centre would not happen if you just said to the MRC it is up to you to make it happen or not. You had to have engagement with ministers across government. The same would be true about Daresbury and Harwell. The second area is that I think it is legitimate for ministers to say, "Look, there are some very, very big questions in our society that we need research to help us answer: for example, climate change; the implications of an aging society and the other cross-cutting areas." I think that is one of those areas where, provided ministers are open about it and upfront about it, that is a reasonable contribution for us to make. It does not mean that we determine in any way the individual decisions about what gets funded within those programmes and indeed if you look at the cross-cutting programmes the contributions of the additional Research Council budgets were decided by the Research Councils themselves. But I think is reasonable for us on behalf of the people who elect us as a government to say that we need a part of our science effort organised to tackle these major problems. The third thing I think we were right to do - and I set out in that same speech about the Haldane Principle - was that if you have an overall responsibility for science policy there are times when you will need to raise questions and initiate things. So, for example, as this Committee recognises, my decision to get the Wakeham Inquiry underway, which was taken before there had been any public criticism of the STFC at all, it was just me looking at what they were proposing and saying, "This is going to raise lots of questions about the state of physics." So it was not for me to step in and say, "You cannot do this, STFC" it was my job to say, "This is going to kick off a debate about the state of physics," and we then found the mechanism for Bill to come in and do his report. Similarly - and again before there had been publicity - the decision to ask Tom McKillop to lead some work on Daresbury was in response to looking at a situation and saying, "What we might be getting here is not quite what we perhaps had in mind." It is not for us to come in and say, "You must do this particular thing in this place at this particular time," but we should at least initiate a process which will guide government policy on the development of Daresbury. So Haldane, I think we are respecting, but I am being very honest that in practical government terms in those areas of big projects of strategic priorities we have an input to make.

Q204 Chairman: But Wakeham in his report about the state of physics did in fact urge the government to redefine the Haldane Principles given the changing circumstances and I think in response to Dr Iddon's question, are you intending to do that?

Mr Denham: I think this is something we should return to on another occasion. My view is that in that speech I made earlier this year it was done in order to redefine the Haldane Principle and to actually say, quite upfront, there will be major issues like a government decision to have international innovation centres, which will have ministerial involvement, or the International Research Centre in Camden. Government will legitimately say, "We must ask our science base to address some of the big societal challenges that we are facing." So I felt I had done and, if I am honest, I thought Bill Wakeham's report was excellent and the one bit I was disappointed with was that he did not feel that that restatement was adequate for his purposes. I would be more than happy to carry on this discussion but I have tried to be very clear about how I have interpreted Haldane.

Q205 Dr Iddon: In this place yesterday we had a very interesting round table discussion involving many scientists from the physics community and a lot of politicians were there too, and the question of responsive mode grants came up. You must be aware, John, as we are, that there is a huge criticism across the scientific community, not just with physicists, that responsive mode grants are contracted to such a degree that looking ahead it might be difficult to provide the researchers for programmes if we do not encourage them to apply for their own grants. I am talking particularly of young scientists. What do you have to say to the scientific community this morning in response to that criticism?

Mr Denham: It is of course for the Research Councils to balance those contesting priorities and to nurture the health of the research base. I think it is an issue in broader higher education policy, which is where a lot of research lies, which we will need to return to off the back of the work that people like Nigel Thrift have done for us when we do the HE framework next year. So I am not sanguine about it but I do think that this is a job that the Research Councils need to take responsibility for managing.

Q206 Dr Iddon: We have over 150 universities now and yet 76 per cent of the research money goes to just 19 universities with that money focused on research of international significance. Do you think that balance is right? Let me also add that recently I met some of the Millennium Group people who are arguing for a sum of money set aside so that they can kick-start research in their universities, and of course in some of those universities there are excellent pockets of research. Do we have the balance right with so much money going to the top 19 universities?

Mr Denham: I would say broadly speaking yes. In other words, I think that broadly speaking the distribution of research funding strikes the right balance between the ability of a university over time to improve its research perform, develop a greater critical mass and, as it were - not that we ever take any notice of league tables - move up the league tables. Together with the fact that you need probably institutions with sufficient concentration of the highest quality research across a range of disciplines to be really competitive and an effective collaborator at an international level. So if you ask me I would say yes, broadly. That is not the same as saying I think that that is a system which should be absolutely rigid and does not allow people to progress. As far as the Million Plus campaign goes I think there are two issues. W are sceptical about the idea that you top slice a budget which is distributed on the basis of quality criteria and so we just distribute it on a different basis. But do those institutions have a strong case that they play a very, very important role, particularly in applied research, the translation of knowledge, knowledge transfer and the Open University, yes, I think they do and I think that is something we have to consider. It was part of the reason why the HEIF money was put on a formula basis and moved away from a competitive basis, to ensure that institutions were incentivised to encourage that sort of activity. So I do not think it would be fair to say that we do not recognise the issue at all.

Q207 Dr Iddon: The Arts and Humanities Research Council in particular has been hard hit with cuts in its research budgets; what do you have to say to the people who did for AHRC funding?

Mr Denham: I probably cannot find my figures directly but I think I am right in saying that if you look over a three or four year period there was a pretty significant increase in the funding of the arts and humanities.

Q208 Dr Iddon: It is the smallest of all the separate research councils.

Mr Denham: But there had been none the less a significant increase. So we value the work that they do; it is important to look at the expanding research budget and how people have fared over time, not just in one settlement. AHRC received an increase in its funding in CSR 2007 of 12.4 per cent. That was a 43 per cent increase in the previous spending review.

Q209 Mr Boswell: They have actually been cutting their grants back though.

Mr Denham: One of the things that the research councils have to manage - and if you look back historically they have taken different strategies - is the extent to which they increase grants rapidly at a period of time when they have more money, without a view to the sustainability of it in the future. I think that is quite important. If you looked at the AHRC from 2004 onwards and said, "Has it had over that period of time a significant increase on its previous base?" then undoubtedly the answer is yes.

Q210 Dr Iddon: Your department has received a pretty decent settlement in the present Comprehensive Spending Review round, but nevertheless the UK's position in the 2008 Times Higher Education-QS World University Rankings has deteriorated. Do you think that your settlement will be able to turn that position around?

Mr Denham: It is always very funny to be in the middle of a first year of a settlement and to be talking about the next settlement. My job, Chairman - let me be quite upfront about this - is to argue the case and we will have to see how I do. One of the reasons for raising the question - and I have said this publicly - of where do we want to be in 15 years' time rather than where do we want to be in three years' time is that I think it focuses the mind quite well on the challenge of making sure that we do well. Let us not overstate that. I think the main change was that three universities that were Level 4 were distinguished slightly because one of them moved up a bit - and we do not take any notice of league tables. We are pretty strong scientifically as a country but, yes, we have to make sure that we maintain that. There is no doubt that the doubling of the science budget under this administration has been the biggest single factor in achieving that. There used to be an organisation, as you know Dr Iddon, called Save British Science, which fortunately was wrapped up quite some years ago because of the extra investment in science.

Q211 Chairman: Secretary of State, the Committee were in China and Japan last week and I think what has prompted this particular question - and indeed the concern of the Russell Group - is that the investment which is going in from the developing world, particularly China, into basic research - not just simply translational research - is so massive that unless we actually match that by the time of the next Comprehensive Spending Review we are in danger of moving backwards; I think that was the challenge. We appreciate the resources that have gone into science, but nevertheless the case for maintaining basic science over the next Comprehensive Spending Review is perhaps more important than it was over the last ten years. Do you agree with that?

Mr Denham: You cannot expect me to anticipate what may happen but let me just say, Chairman, you have heard my views on these subjects and my job is to argue the case.

Chairman: We are sure you will do so. Finally, the issue of financial downturn looms and Rob Wilson is the man to ask the questions.

Q212 Mr Wilson: Secretary of State we are now in a recession and that is going to have a number of implications; employers, for example, are going to start cutting training budgets if they follow examples from other recessions that have happened in the past, and that is probably going to mean fewer people able to get into further and higher education. In addition, this is the first recession that we have had since tuition fees were introduced and people who find themselves out of work, unless they have significant savings, might find that their options of going to university may be fairly slim to retrain, particularly with the ELQ budget having been cut substantially. Perhaps you can give us your thoughts on that?

Mr Denham: I think there are a number of different strands there, Chairman. It is right to say that, as everywhere else in government, we respond to the slowdown by saying that we are prepared to do whatever is necessary to make changes where things are necessary to respond. We have shown evidence of that in the last week or so by being prepared to propose quite radical changes for a period of time to Train to Gain and the way that it is delivered to small and medium-sized enterprises; being prepared to flex both the Firstness Rule, in terms of the qualifications people already have, and the Fullness Rule, so that we can offer through FE colleges and training providers a suite of things like business improvement techniques, product designs and things like that, which are shown to have a very immediate effect on the profitability and productivity of companies. Making that change and being prepared, if necessary, to devote the growth in the Train to Gain budget over the next two years to that SME sector is a very good example of our willingness to flex and to change the rules. You will know, Mr Wilson, that your party wishes to abolish that entire budget, but we will not pursue that particular issue. We are also working, with the support of many business leaders and trade union leaders, on a broader message about training budgets and people will have noticed an advert in the papers last week from Sir Mike Rake who heads the UK Commission on Employment and Skills and a number of others making the point that the evidence from previous slowdowns is that companies that do cut back on their training budget are less likely to succeed. There is an important role there because let us not forget that the majority of money in this country which goes into training comes from employers and not from my department. We often talk about we pay for training and they do not; the majority of money comes from employers. Clearly one of the reasons that we are engaged in a communications effort about this is to win the argument with employers that this is not the time to be cutting back on training. So we are prepared to change the way we use our own budget but we also have a very important message for the employing community as well. The one area that I am sceptical about is your assertion that this will reduce FE or higher education numbers when there is not evidence of that from the past and those budgets and our funding for those is in place. So I do not think that will be the change there; our real issue is to make sure that we maintain, so far as we possibly can, the volume of training that takes place, particularly in the business sector.

Mr Watmore: Chairman, could I just add one thing because this is a very important topic? When I was in business we used to have the rule that those that continued to invest in the talent of their people and the innovation of their products are the ones that come out the other side with greater competitive differentiation. John and I discussed this earlier this summer when the economy clearly was in some sort of deterioration and we said that if it is true for business it is true for the country, and if this country continues to invest both nationally and in individual enterprises, public and private, in the talent and innovation agenda, it is most likely to pan its way out of the downturn in a stronger and competitive position. We kind of touched on that last week in my session where what we were saying - and as the Secretary of State said in making the case for further investment in science and higher and further education and training and skills - is we have to make that case both through the public communication channels and through the very hard evidence base that supports that because it is fundamental to the case for maintaining and increasing our budget of this department because we see ourselves as the department for the talent and innovation agenda for the country, and I think that is a very important part of our strategy going forward.

Q213 Mr Boswell: I think that is a very welcome statement which will be welcome to most of us. May I follow it by asking you - perhaps jumping back to the earlier discussion we had about the financing of HE - there is something of a past pattern of engagement on HE in times of economic difficulty as an alternative to an uncertain job market. Do you recognise that as a possible development and, if you do, are you in a position to either resource it or apply for resourcing it as a response to that?

Mr Denham: It is something on which we are going to have to keep a very close eye and see whether it influences the choices that people are making. It also makes quite a big difference how people apply it. Some people may choose to study part-time, for example, so the impact may not be on full time figures. All I can say, Chairman, is that it is something on which we need to keep a very close eye.

Q214 Mr Wilson: If I can just move on now? It has become apparent from the weekend reports that the Chancellor knew before the rest of us that there were problems with the Icelandic banks. Did he or the Treasury inform you, or HFCE, about the dangers that were developing and was the information passed on to universities?

Mr Denham: We are not involved, so far as I am aware, in any way at all in the investment decisions of universities; these are things which are matters for them as autonomous institutions. They are large organisations and there is a reasonable expectation that they employ appropriately qualified people to take these decisions and so far as I am aware we as a department have no involvement in this area at all.

Q215 Mr Wilson: But do the government and the Treasury not have the duty to pass on the information they had about the dangers that were developing?

Mr Denham: Questions about what other parts of government do, which are way outside my brief ---

Q216 Mr Wilson: They certainly did not pass it on to you.

Mr Denham: If I am perfectly honest I would not normally expect that type of broad Treasury advice to the investment community to go through a government department like mine, particularly if one is concerned about institutions which are legally autonomous, separately incorporated institutions, which are responsible for their own affairs. I think it would be a very slippery slope if I started to pretend to the Secretary of State for Innovation that in some sense I had a responsibility or ought to have responsibility for the decisions that those organisations take, and the same would be true for FE colleges, which are also incorporated organisations. We are not talking about an owned subsidiary of the department.

Q217 Mr Wilson: Lots of universities have been affected, as you know. Is your position still that the government is not going to assist them in any way?

Mr Denham: The position at the moment is that we have made sure that they are included within the range of organisations with whom the Treasury is in touch as the Treasury responds to the position in Iceland; but it is not - and this is very important - our job as a department to be second-guessing the positions of these individual institutions that are responsible for their own affairs. Nor have we been asked to, I have to say, and no doubt those who might have asked us to would not because they would know very well that they would not want to have a situation where the Secretary of State was expected to be responsible for the investment decisions of universities - they would hate it.

Q218 Mr Wilson: Can I ask you two quick questions. The first is about large capital projects. Are they going to still proceed on schedule in light of what is happening with the recession, or are you, as the Chancellor has indicated, trying to bring them forward?

Mr Denham: In general they are going to proceed. Let us distinguish between different things. Again, most of these things actually take place to some extent at arm's length from DIUS. If you look at big capital projects they are run by universities or they are funded by research councils, for example the Camden Centre. In those areas our general expectation is that they will proceed as planned. One is always in capital programmes looking at the changes that can take place - the options for bringing things forwards, other things possibly becoming delayed for planning or technical reasons or whatever. Our intention is to maintain the capital programme.

Q219 Mr Wilson: That is clear. One final question, I want to confirm something that you said in answer to Tim about changes to the grant earlier. Did you say that there would be about 30,000 to 40,000 losers?

Mr Denham: No, I did not say that because no one is going to lose.

Q220 Mr Wilson: Nobody is going to lose?

Mr Denham: Nobody is going to lose. All the existing students get the grant that they have at the moment, so nobody is going to get their grant cut.

Q221 Mr Wilson: But next year?

Mr Denham: There are new people coming into the system, all of whom will be better off than the people coming into the system in 2007/08. I said in my earlier question I was worried that this may have been misinterpreted. We will have to wait until we see exactly who is in the system now, what the comparison is between the number of people who got a grant this year and who might have got it next year. Clearly what we have done is try to reshape or announce our intention to reshape the system to bring it in line with the two-thirds. Clearly there is an expectation that we are going beyond the two-thirds and that is what the statement says, and we have more people getting the full grant. Nobody is going to lose; nobody is going to find themselves not having money that they have been promised. Nobody who is on a grant at the moment is going to get their grant cut; it is absolutely essential that I get that across so that there is not a misunderstanding.

Q222 Mr Wilson: But people who were eligible for the grant this year will not be able to get it this year because you are cutting the ---

Mr Denham: No, people who went to university this year on the grant system we announced last year are getting that grant, and they will get it next year too and in the third year of their course. Those who applied this year to go to university next year will apply under the current regime. Clearly there will be some people who fall in the group we were talking about between the changed thresholds who had they gone to university this year would have got it next year and will not. What I am being cautious about is (a) talking about those as losers; (b) being precise about the number of people who might be affected. I will not be able to tell you, Chairman, exactly how many people are affected - I will never know exactly because each cohort every year is different. We will have a better idea when we know how many people got the grant this year in 2008 and it will be easier to make that comparison.

Q223 Chairman: But you are confirming that students already in the system, that those rules for partial grant will not be reduced from 60,000 to 50,000?

Mr Denham: Absolutely, and I was very worried earlier on, Chairman, as we moved on quickly that it had given the impression that any students would lose money. No student is going to lose money who is in the system at the moment. I am really grateful for the opportunity to return to that point.

Q224 Mr Boswell: Of course that is very helpful but equally I think you indicated, subject to all the health warnings you were quite right to make, that if we were to take the position of a student who would have received a grant under the current arrangements and would have then had it validated for the three-year period of course of study and you took a student with exactly the same familiar link-up position next year, between that 50,000 and 60,000 threshold, in shorthand, you did I think indicate to the Committee as a ballpark that this might be ten per cent of the student cohort although you would need to go and look at it further. I think you did float that.

Mr Denham: I tried to give an indication but my worry then, Chairman, from the speaker Mr Wilson who left the room, I may have given the impression that a number of people were actually going to lose money. I would have hated us to be in that position.

Mr Watmore: For the benefit of Mr Wilson, it is not that we have to look at it further, we forecast on the basis of the data that we have coming out of the cohorts that is an imprecise science - we get it as accurate as we can.

Chairman: We are happy to have made that clear and on that note can I thank very much indeed Ian Watmore, the Permanent Secretary and the Right Honourable John Denham MP for your time with us this morning. We have enjoyed the annual report and we look forward to seeing the annual report in a year's time.