Examination of Witnesses (Question Numbers
100-119)
The Rt Hon Vince Cable MP,
Secretary of State for Business, Innovation and Skills, and The
Rt Hon David Willetts MP, Minister of State for Universities
and Science, Department of Business, Innovation and Skills
26 October 2010
Q100 Chair:
Thank you. If I understand that correctly, you are saying that
in effect the tuition fee stream of income will not come on-stream
until 2012, but your cuts in the teaching budget are going to
start beforehand. What are the implications for the Department?
David Willetts:
We are still agreeing and working out a detailed profile. We
are realists; we know that the kind of efficiency savings that
we're expecting from universities and elsewhere cannot all be
delayed two years. So yes, we are expecting some savings in 2011-12.
However, in our conversations with the Treasury we make it clear
that when you think through the logic of this, the reason why
we have the very substantial savings that the Secretary of State
identified is because of the change in the way that the financing
operates, and that is going to take several years to feed in.
For that reason you would expect the savings to be rearend
loaded. They do become much bigger towards the end of this time
scale.
Q101 Chair:
But the cuts are going to be felt pretty well immediately.
David Willetts:
This is what is called in the trade—it is a rather lurid
expression—"Valley of Death": is there going to
be a terrible situation in 2011-12? We are expecting, clearly,
some savings in '11-12, but the bulk of them come from the shift
in the way higher education is financed, and that change only
starts in the autumn of 2012 and takes three years before it has
a full effect. As we set out a detailed profile for the departmental
spending in this area, as we work it out, I think you will be
able to see that as we share it with the Committee.
Q102 Chair:
I see a problem in so far as universities, if they are deprived
of funding in the next year, will have to close departments, or
take remedial action to keep their budgets balanced. They will
effectively not be able to replace those closed departments even
when the additional funding comes on-stream. Will there be departments
closed? Will there be universities amalgamated? What sort of
assessment have you made of it?
David Willetts:
We are still making that assessment as we work out the profile
of these savings. It is not possible to give a blanket guarantee
that all departments will carry on, and we are indeed looking
for savings that will start in 2011-12. However, I absolutely
share your analysis of the risks and that is why it is important
that, as we develop the profile, we shift as much of the saving
as possible towards the second half, so they are delivered by
the new financing mechanisms that Lord Browne has proposed and
which we have endorsed.
Q103 Chair:
It does seem a huge risk. Can I just briefly ask you about student
grants? I think you implied that there would have to be cuts in
the funding for them. Over and above tuition fees, student grants—they
are going to have to pay more. Have you made any assessment of
what that is going to be?
David Willetts:
No. The only point I was trying to make, Chair, is that the total
budget for higher education is not simply a teaching grant budget.
There are several other components as well, of which the maintenance
grant is a big element. Lord Browne proposes, if anything, a
modest increase in the maintenance support for students, and again
we hope to be able to bring to the Commons our detailed response
to Lord Browne very soon indeed, which will include our proposals
on what the level of the maintenance grant and maintenance loan
should be.
Q104 Chair:
So you are saying there will be an increase in maintenance grants
for students?
David Willetts:
We have got to work out a breakdown of this total between several
elements, one of which is maintenance, and we very much hope that
we can bring those proposals to the Commons very soon indeed.
But we have only just agreed the totals, and we are still considering
our response to Lord Browne; but he makes a very important argument
about the importance of a proper package of maintenance support,
especially for the poorest students.
Q105 Chair:
What actual percentage figure do you anticipate the cut in teaching
grant will be?
David Willetts:
That is what we are working through at the moment, and that will
be set out in our letter to HEFCE in the usual way. We fully
understand that universities need to know this, and of course
the Committee is right to ask about it, but there is no extra
uncertainty, beyond the usual uncertainty. These figures are
set out in an annual HEFCE grant letter that will go out on the
usual timetable; it will set out the detail of exactly what the
teaching grant for universities will be in the next year.
Q106 Chair:
When can you give a date for this? This is a crucial element
in their forward planning, and I would have thought it relatively
easy to work out, in bald statistics, what the percentage cut
in teaching grant would be.
David Willetts:
We have several different parts of the budget, and we both have
to do a breakdown between the different parts of the budget.
We have also got to agree with the Treasury the profile that you
were asking about earlier. Last year, I think from memory Lord
Mandelson sent out this letter on about 21 September. I think
it would be a good efficiency target to try to do better than
that. But we will certainly try to get it out before Christmas
if at all possible. That is the usual timetable; we're aiming
to stick to it.
Chair: Can I bring in
Luciana Berger?
Q107 Luciana Berger:
Thank you, Chair. Further to that, in the statement about the
cuts to the higher education budget, there was a statement that
said that "the Department will continue to fund teaching
for science, technology, engineering and mathematics, the STEM
subjects". Does that mean that there will not be any funding
for teaching arts, humanities and social sciences?
David Willetts:
Lord Browne's proposals, which we have broadly endorsed, do envisage
most of this funding going in a different way; going via the student,
through the student eventually paying a graduate contribution.
As you introduce this new mechanism, it is clearly part of Lord
Browne's proposals that the teaching grant becomes a much less
significant source of resource for universities.
Q108 Luciana Berger:
There is a big difference between "much less significant"
and "100% cut".
David Willetts:
The teaching grant that you certainly need would be the teaching
grant for the extra costs of Band A and B subjects, the subjects
that are expensive to teach, the laboratorybased subjects.
You would need a teaching grant to cover that extra, on top of
the basic teaching element, which on Lord Browne's model that
we've broadly endorsed, goes, instead of to universities via HEFCE
and teaching grant, goes to universities via students exercising
their choice and spending the money with, of course, no cost for
them up front, but a loan paid back out of their graduate contribution
later. On that model, there is a big reduction in teaching grant.
The exact size of it will depend on the detailed decisions we're
taking on implementing Lord Browne, and then the HEFCE grant letter
will come out in December.
Q109 Luciana Berger:
Bearing in mind the time scales we are talking about, you must
have an idea of whether there's going to be any proportion of
teaching grant available to those subjects that aren't STEM.
Is it a 100% cut or will there be something available for those
subjects?
David Willetts:
There are four bands—A, B, C, and D. The Browne model that
we have broadly endorsed certainly envisages that bands C and
D essentially lose their teaching grant support, and that instead
goes via students. Then you have bands A and B, which come in
much more expensively because they are labbased, and on
his model if you put the basic teaching element through the student
you are left with the teaching grant to finance the extra costs.
We are not yet at the stage of detailed figures but that is the
broad approach we have endorsed. There are some other angles,
for example whether you keep any special funding for strategically
important and vulnerable subjects, like certain foreign languages.
That is why I am hesitating as to exactly how far it will go
and we are not yet in a position to provide detailed figures.
We aim to as soon as possible.
Luciana Berger: Can I
ask one quick supplementary?
Chair: Yes.
Q110 Luciana Berger:
In order for those social science subjects to provide those courses,
they will have to raise the cost of the course to £7,000.
If you are saying that all C and D subjects, perhaps modern languages
to be put to one side, are not to receive any teaching grant,
they will have to charge £7,000 to maintain the current level
of funding that they receive.
David Willetts:
Those are the kinds of estimates that are floating around. I
think that some universities would say it would be rather less;
others would say it would be rather more. But those are the kind
of estimates that are around, indeed, yes.
Q111 Chair:
The figure of 40% is being bandied around, and that I understand
is based on the cut in the HE funding. However, the teaching
grant is going to be considerably more, and within that you are
preserving STEM subjects, so humanities and others are going to
be hugely hit. Can you give us some assessment of what impact
is going to be made on humanities and nonSTEM courses?
David Willetts:
It is a very significant change in the way in which public money
gets to universities. That is Lord Browne's proposal, and that
is what we have endorsed, and we think that it is a reform that
empowers students. It means that many university courses, as they
look to their financing, will have to attract students and the
students will bring the money with them, though the student does
not have any direct cost up front. They have a loan up front
which they repay as graduate contribution. It is a big change
in financing, which is a reform and does also indeed absolutely,
Chairman, have a public expenditure saving. The money will still
flow into university departments, provided that there are students
who still wish to study these subjects, as I am confident there
will be. Also, as long as they appreciate—it is a key feature
of these changes—that they do not have any up-front costs.
They would only pay as and when they were in a wellpaid
job, and they have a graduate contribution to pay afterwards.
Q112 Chair:
Thanks. It was something of a surprise to me, I must admit, to
be given information that, in fact, there are more people employed
by the creative industries than by the banking sector. What assessment
has been done of the impact on the potential reduction in the
humanities and social science courses on skills and employment
in this sector?
David Willetts:
Well, we do not see it as a reduction in that sense. It is a
shift in the way the money reaches the universities, but there
is an enormous hunger among young people to study those subjects,
and we are not suggesting that they pay any costs up front. We
do believe that alongside these changes there has to be a transformation
in the amount of evidence and information that young people have
about what they can do after these courses and what their likely
employment prospects are, and what those jobs will pay. There
is much more to the university experience than that, but we are
talking about finance and money at the moment, and as you rightly
say, Mr Chairman, with such a dynamic, creative industry sector,
I hope people will see that these courses, when they are well
taught, in institutions that do a good job of it, are still a
very good route into employment, as well as being worthwhile in
their own right.
Q113 Chair:
You made an interesting comment about how you see it as, in effect,
a replacement funding stream. That brings me to the issue of,
first of all, do you anticipate, arising from the changes that
will be made postBrowne report, that there will be additional
funding for universities over and above what they have under the
current system?
David Willetts:
That is a very interesting question. If universities are able
to attract students then they should be able to carry on with
flows of funding of the sort they enjoy at the moment, coming
in a different way. But I have to accept that there will be pressures
on universities to save money, and we do not believe universities
should be exempt from the wider pursuit of efficiencies. They
may find that people, when they are seeing this sum of money,
even though they do not have to pay it directly up front, ask
and expect savings to be made. The Secretary of State and I have
both signalled that universities do need to look at their pension
costs, at their pay structures, at whether there are more backoffice
services that can be contracted out. If they can achieve savings
like that, I think it will be very desirable all round.
Q114 Chair:
When Browne was set up, I think it was conceived by all parties
that there needed to be more funding to maintain the quality and
offer of our university sector, given the vital strategic role
it had in underpinning an advanced industrial economy. Arising
from this, it is unclear whether the Browne proposals and the
likely Government response are going to be just to finance cuts,
or promote that vision of universities in an advanced industrial
economy.
David Willetts:
There clearly is a shift in money away from the old HEFCE teaching
grant route into the hands of students. Then it is for universities
themselves, who I think have become very innovative, and I completely
agree with what you say, Chairman, they are crucial in a high-growth
economy. It is for universities to see exactly what students
would be willing to contribute to their course—afterwards,
as graduates, not up front—and whether they can secure funding
from other sources, like businesses, where universities have done
a lot better in the past few years and we are looking to them
to improve further. I look forward to a university system that
is well funded and strong as a result of these reforms.
Q115 Chair:
It sounds to me as if you are saying that the Government are withdrawing
from this vital strategic role, and just leaving it up to the
universities. Is that so, and do you think they will do it better?
David Willetts:
We are not withdrawing, because we are going to lend the students
all the money they need to pay whatever levels of charges that
universities propose, under certain limits. There is still going
to be a very strong level of public support, but it is going to
come in that route rather than the teaching grant, and that does
have the great advantage that it clearly empowers the individual
student and also forces universities to think very carefully about
their costs. There is still going to be very substantial public
support. Of course, we are focusing at the moment on the teaching
element, where you are absolutely right about the shift from £7.1
billion to £4.2 billion, but that excludes research, and
remember on top of this there is the ringfenced protected
budget both for research councils and for the research excellence
framework, or the RAE at the moment. That funding will carry
on as well, so there will be a substantial protected flow of research
funding going to universities alongside the Government support
via students.
Q116 Chair:
I want to move on in a moment. What you said elaborates the process,
but at the end of the day there is no guarantee under the change
implemented by the Government that there will be the additional
funding that universities feel is needed to sustain their position
in the world education league, and to sustain its role in underpinning
an advanced economy.
David Willetts:
Well, there will be substantial taxpayer support, and on top of
that it will be for universities, whose initiative and autonomy
I value and respect, to secure extra funds on top.
Q117 Chair:
You cannot guarantee it?
David Willetts:
I cannot guarantee it, but I believe the reform is a step in the
right direction.
Chair: Can we go on to
science and research? Sorry, David Ward wanted to come in. I
do apologise, David.
Q118 Mr Ward:
First of all the maths and then the accounting side of this.
First of all, the £2.9 billion, less any efficiency savings
that can be made. Is the £2.9 billion the figure that is
going to be filled up, almost pound for pound, by the graduate,
not student, but the graduate contributions? Is that the gap
that is going to be filled?
David Willetts:
It is only part of it, because that is the total higher education
budget excluding research, of which, as I said, the teaching grant
is one element, but there are other elements as well: maintenance,
other specific programmes. It is absolutely correct that the
biggest single adjustment is on the teaching grant side. I accept
that, yes.
Q119 Mr Ward:
That is the maths. The accounting side is that the rise in the
graduate fees will appear at a point, but the recoupment of that
will appear at a later date and will accumulate as more and more
students graduate. Is the withdrawal of the £2.9 billion
on the same sliding scale as the increase in the graduate contributions
as they come through?
David Willetts:
There is a resource issue—this is not simply a cash measure.
The biggest single impact here is indeed the teaching grant shift,
yes. The exact scale of that we are still calculating.
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