Evidence to Lord Browne's Independent review of Higher education and Student Finance.
Part of the Browne review, February 2010
Submission from Rt Hon Charles Clarke MP to the Browne Enquiry into Higher Education Funding
The Intentions behind the Changes
Thank you for inviting me to give evidence to this enquiry. I am honoured to be the first witness.
The legal requirement to establish this enquiry was part of the 2004 Higher Education Act which established the current system of student finance. It was a concession to those led by the current Government Chief Whip, Nick Brown, who feared that the new arrangements would damage access to university and the professions from those from economically disadvantaged backgrounds. You now have the opportunity and duty to make your judgements about the substance of these concerns and to make recommendations for the future.
The 2004 Higher Education Act was itself one of the outcomes of the White Paper of early 2003, one of whose principle concerns was to encourage universities (or Higher Education Institutions), to develop their own unique mission and purpose. Each university has its own history and culture and expresses a different balance between their three responsibilities of conducting research, teaching undergraduates and graduates and transferring knowledge to the benefit of our economy.
Universities in this country are not, and should not be, identical in their mission or purpose. Each has its own strengths and weaknesses both across these broad responsibilities and across subjects. Each teaches in different ways, with different approaches to educational technology, different mixes of students, different relationships to work and different pedagogical methods. Consequently the qualifications from each HEI vary in their quality and relevance.
One of the purposes of the White Paper, and the consequent legislation, was to persuade the higher education world to recognize openly that these differences do exist in practice, that the sector is diverse, it is not a monolith, and that economic consequences flow from these differences.
The system of student finance established by this legislation was intended to allow different fees to be charged for different courses at different HEIs, in accordance with their differing quality and value for future life, but in a way which did not carry adverse consequences for those applying to university from poorer backgrounds. The whole repayment system, which removed the upfront payments and established a payback after graduation through the tax system, was designed to achieve this goal.
This was the core of what was a very hotly contested political process where the opposition parties abandoned any rational consideration of the issues in order to try and gain political advantage from the potential unpopularity of the proposals, particularly amongst the relatively wealthy individuals and families who would end up having to pay more for the advantages they gained from university qualifications and resented the reduction in government subsidy to them.
The new system of student finance was designed to be fairer than its predecessor, in that the beneficiaries of higher education made a contribution (from the gains which they had derived) to the costs involved. This was only partially achieved in that the beneficiaries of higher education are the overall society, which is why the government contributes; the individual student, who contributes through the fee if they subsequently earn enough; and the employer (whether public or private). A contribution from the employer was never included for a variety of reasons, though in my opinion there remains a good case for employers to contribute through employers' National Insurance, with a higher rate for graduates.
The real terms £3,000 cap was deliberately chosen, albeit on a relatively arbitrary basis, to allow the principle of differential fees to be established, whilst not permitting the level of fee to go too high in a way which might discourage potential university applicants.
A direct consequence of these changes, and one which I personally very strongly support, was to shift the system of student finance towards full independence for students at the age of 18. The changes made significant moves in this direction, though there is still some distance to go to achieve this in full. I believe that this shift is socially desirable in many ways and should be completed.
As a result of the politically charged atmosphere in which this legislation was considered we deliberately took the decision to restrict the proposals to full time students studying for an undergraduate degree. There is also a good case for extending the scheme to cover others, such as postgraduate and part-time students, and those studying for other qualifications.
What happened
I believe that the general intentions of the legislation have been carried through in that:-
universities have been able to generate more income than they would otherwise have done, which has in turn permitted significant improvement in facilities, in resources for staff and in teaching standards;
the scheme has not been any kind of disincentive for applications to university in general, nor for particular groups of applicants, such as those from the poorest backgrounds;
university responsiveness to their students and potential students has increased in many universities though, anecdotally, I believe that some universities have not improved enough. There are some, slender signs that students are demanding higher quality teaching in response to the fees they pay. I would urge the Committee to commission detailed work upon the responsiveness of universities to the needs of their students;
However, there are a number of ways in which the actual developments have not been as intended: a system of differential fees has been established only in theory rather than in practice.
The £3,000 cap turned out to be a level that almost all universities felt that they could set their fees for all courses at the maximum level. I was surprised at the time that there was so little variation, and remain surprised that more universities have not offered subjects or courses at lower levels of fee. The myth that all university qualifications have the same value to the student has not been fully tested.
The maintenance loan is in many cases, not enough for students reasonably to live on during their studies. This is particularly because of the very high rent levels which both universities and the private sector are charging. In addition accommodation standards are sometimes very poor, to the extent of discouraging study.
The means tested maintenance loan remains a problem in that some parents do not, or cannot, pay their share and the students concerned then can face real financial difficulties.
Reforms for the Future
Your Committee has the opportunity to recommend the adjustments which are necessary to strengthen the system which was established in 2004 and entrench further improvements in the system. I would offer the following proposals:
Removing disincentives to study
The most important step is to ensure that students can afford to study without borrowing commercially. They should thus graduate with only the debts due to the Student Loan Company, repayable through the tax system from earnings above a specified level.
This means that the full maintenance loan has to be sufficient to cover genuine student costs. I am not convinced that this is in fact the case today. Both personal anecdote and constituency cases suggest that student living costs, particularly for accommodation, are higher than can be properly covered by the loan. It seems that student rent levels for much accommodation are very high, too often with low standards. So I would urge the Committee to assess the adequacy of the maintenance loan and I recommend that it is set at a level which does meet overall costs. (Recommendation 1)
It is also the case that some parents do not pay their share of the maintenance loan, so that their children are left in some difficulty. I continue to hold the view that young people should be independent at 18 and should be treated as such. If there is a desire for their parents, If wealthy, to pay more to the state this should be done through the tax system rather than through their children. So I recommend that every student receives the full maintenance loan and means-testing is removed. (Recommendation 2). This would have the additional advantage of significantly reducing the administrative cost of the Student Loan Company and removing the cause of many of the bureaucratic problems that have been experienced. Moreover the increased number of family breakups has led to more complicated family financial relationships which mean that the current means-testing rules are not always just.
In addition to these changes there is a strong case for extending the system to include groups of students not covered by the current arrangements. This would increase access to university education. Such groups could include part-time and postgraduate students. The criteria for such extensions would need to be carefully thought through and require careful definition.
Similarly there may be other non-degree courses to which the scheme could be extended. In particular this might help some aspects of access to the professions.
I would therefore recommend that the Review considers whether there are particular courses, or modes of study, which could also benefit from the student financing structures set up by the 2004 Act. (Recommendation 3)
These three changes would cost money, though I do not know what the full current costs would be. The two following recommendations address this point.
Finally I would oppose changing the current arrangements for payback after graduation, such as the level of income at which students become liable to repay or the time after which no repayment has to be made.
Value for the Exchequer
For a variety of reasons the Treasury was not fully engaged in securing value for money at the time of the 2004 legislation. There are two changes which could have been introduced then and which should now be considered.
The first is that either the maintenance loan, or the fee loan, or both, should charge a real rate of interest. This should not, and need not, be at a "commercial" rate, whatever that is thought to be, or at a substantial level. But the existence of a real rate of interest reflects the cost of borrowing and it is fair that, as between taxpayers as a whole and the individual borrower, the financial cost of borrowing should be reflected in a rate of interest. So I recommend that the loan for either maintenance, or the tuition fee, or both, should be charged with a real rate of interest. (Recommendation 4).
The second change is that early repayment of outstanding loans should be incentivised, as I believe is already done in some other countries. In this country I think that there would be significant benefits to the Exchequer. There is every reason to believe that many parents and other relations would like to pay off outstanding loans as their child leaves university and many parents or grandparents of those currently attending university might well have the means to do so, even through legacies. However at the moment there is no incentive for early repayment; indeed the current zero real rate of interest is a positive disincentive to repay. So I recommend that a system to incentivise early repayment of maintenance and fee loans is developed and marketed. (Recommendation 5).
I do not know the exact financial implications of implementing Recommendations 4 and 5. My recollection from 2003-4 is that, depending on the assumptions, the extra income from Recommendations 4 and 5 would probably have covered the extra costs of implementing Recommendations 1 and 2. But I would suggest that the Committee looks at the current financial implications.
In political terms I believe that there is a strong case for linking Recommendation 4, the establishment of a real rate of interest, to Recommendations 1,2 and 3, on the maintenance loan since there would be a clear social benefit which resulted from the imposition of a real rate of interest.
Promoting the diversity of universities
As indicated above, one of the main intentions of the 2003 White Paper and the 2004 legislation was to promote the diversity of universities. This has happened but not to the extent anticipated.
This should remain a goal of public policy and the Secretary of State, Lord Mandelson, has recently stated that the Government remains committed to a diverse range of different means of delivering university degrees over varying time periods, modes of learning etc.
I remain convinced that a great deal of work remains to be done to change the relationship between universities and work, for example through the continued development of foundation degrees, distance learning and part-time study and lifelong learning and mature student education.
In my experience such ambitions are not wholly shared by the university world. The traditional university model retains a strong hold. Many parts of the university culture remain very resistant to change.
Much of the controversy about the 50% participation "target" comes from the misunderstanding that advocates of this "target" believe that it can be achieved simply by expanding what currently exists. In fact such expansion can only be achieved if the higher education sector changes substantially and in particular becomes a great deal more flexible.
The system of variable fees which was established by the 2004 legislation was intended to help open up different means of learning, new course structures, new partnerships with employers and other means of reaching students, both "traditional" and "non-traditional".
There seems to me little evidence that this has happened to the desired extent. The one change which does seem to have happened is that more students are studying from their family home, rather than moving away to study.
Though part of this may be because the £3,000 fee cap was "too low" to encourage such diversity, I believe that the major reason is the unwillingness of universities to try new approaches.
If this is right, I do not think that there is yet a great deal of evidence that simply increasing the fee cap substantially, as some universities argue, or even removing it altogether, will of itself increase diversity. It would increase income for some universities, though the disincentive effect for students from poorer backgrounds could be serious if the fee were too high.
It seems to me that those universities which are arguing for a significant increase in the fee cap need to make the case that a higher level of fee at their university:
will not be a disincentive to applicants from poorer backgrounds. The economic recession makes this argument more difficult but I believe that such a case can in principle be made. However I have not yet seen it made even for a proposed increase to £5,000 let alone to £10,000 or more;
will promote educational diversity of the type described above, including differing levels of fees for different types of course etc.
So far I have not seen these arguments being made, and I believe that the Committee should only propose any change in the current fee cap levels if such arguments are convincingly advanced.
Rt Hon Charles Clarke MP