U/C HOUSE OF COMMONS SESSION 1997-98 EDUCATION AND EMPLOYMENT COMMITTEE Third Report THE DEARING REPORT: SOME FUNDING ISSUES VOLUME I Report together with the Proceedings of the Committee Ordered by The House of Commons fo be printed 2 December 1997 LONDON: THE STATIONERY OFFICE £5-80 TTA A TTNE | IlH I WII ANBNaaAd NW i] |ga |l WNWIWA HAIW II N HNWWI WI IWA i HVi lN Hi |lH YHI HHi} |M Wi AIM N| IN HOUSE OF COMMONS SESSION 1997-98 EDUCATION AND EMPLOYMENT COMMITTEE Third Report THE DEARING REPORT: SOME FUNDING ISSUES VOLUME I Report together with the Proceedings of the Committee Ordered by The House of Commons fo be printed 2 December 1997 COS DUnMe tne STATIONERY OFFICE £5.80 241-I il THIRD REPORT FROM The Education and Employment Committee is appointed under Standing Order No 152 to examine the expenditure, administration and policy of the Department for Education and Employment and associated public bodies. The Committee consists of 17 Members. It has a quorum of five. Unless the House otherwise orders, all members nominated to the Committee continue to be members of it for the remainder of the Parliament. The Committee has power: (a) to send for persons, papers and records, to sit notwithstanding any adjournment of the House, to adjourn from place to place, and to report from time to time; (b) to appoint specialist advisers either to supply information which is not readily available or to elucidate matters of complexity within the Committee’s order of reference; (c) | to communicate to any other committee appointed under the same Standing Order, to the Committee of Public Accounts and to the Deregulation Committee its evidence and any other documents relating to matters of common interest; (d) to meet concurrently with any other committee appointed under the same Standing Order for the purposes of deliberating, taking evidence, or considering draft reports. The Committee has power to appoint two sub-committees and to report from time to time the minutes of evidence taken before them and their minutes of proceedings. The sub- committees have power to send for persons, papers and records, to sit notwithstanding any adjournment of the House, to adjourn from place to place to report from time to time their minutes of proceedings and to meet concurrently with any committee appointed under the same Standing Order or any sub-committee thereof for the purposes of deliberating or taking evidence. Each sub-committee has a quorum of three. The membership of the Committee since its nomination on 14 July 1997 has been as follows: Ms Candy Atherton Mr Don Foster Charlotte Atkins Mr John Healey Mr Joe Benton Ms Margaret Hodge Mr Graham Brady Mrs Eleanor Laing Yvette Cooper Judy Mallaber Mr Cynog Dafis Mrs Theresa May Valerie Davey Mr Nick St. Aubyn Caroline Flint Mr Gerry Steinberg Rt Hon Derek Foster The cost of preparing for publication the Shorthand Minutes of Evidence published with this Report was £3,946.80. The cost of printing and publishing this Volume is estimated by The Stationery Office Limited at £1,430. THE EDUCATION AND EMPLOYMENT COMMITTEE TABLE OF CONTENTS Page CONTENTS OF THE REPORT aL PL) Ud LGN ities “tare us ROL ae i randhe neice “fet: Jbl paaatintGeeaheramion. « Vv Simugture othe Renorts tx:i sk evidequiguiacaoie mok -thpe Doeimwigee Re V Futupeuvork-olsthe Committeciaria cect 4a issues ave ted aed: tho: sewed. V B CBUNDINGcISSUES 28 ta erie, the sutyect. We. heleve cas valuable tad v1 Provision of information by the Government ................. vi The short-term funding of higher education .................. Vi Hypothecation of tuition fee revenue to higher and further education .. vii The use of the Inland Revenue for repayment of student loans ...... Vii ‘bnemevertn the tuidorice COnMDUTOI oto te es Pe eee ee Vili C THE TREATMENT OF STUDENT LOANS FOR Pi re CeO OUR EQ. erie te en he ee ee etree the 1X SeGe ECM IST Berge as ake oe, SE by Wing tel ee ce EL: gh Steal cen ale 1X jB LA PAV LTE sT AU Rh OR RS er ee RES GOR Te NE SNE RR EAR AFD Scr? X The argument for treating student loans differently ............. X Could spending on student loans be removed from the PSBR? ...... Xli Would a change in treatment of student loans generate more money? .. Xxil Other reasons, forssuchia change: « «videark eoabldidihe dconhmmaenhodw ou. xiii Meni ac sm TeSOlICesaeCOUNUIND i/o Bele dil oes see kn ahs ter eta ltel eds Xili ihansing ane way ssiuocnt .0ans are funded) 27.5) 4 ese ee ae XIV PROCEEDINGS OF THE COMMITTEE RELATING TO THE REPORT ... xv BISTMORAWENESSEStwees the HEE and HM Dreamy. . oie. sale. Winy. ihe Xxi LIST OF APPENDICES TO THE MINUTES OF EVIDENCE .......... Xxii Pe POL PONE RINT ED MEMORANDA ee Se a ee ee Xxiii Minutes of Evidence and Memoranda are published in Volume II ae sabatintedi o: gga SIM —— ee ip ALAA a i 4 ae (Ys ; ¥ mer ro At 4 Aw aste ¥ ai4 tyw 7 o F, y r rap! eh rl Di bi tad is.| =f ay The Commnittes:p a, oe Meeo e wh Frege por mn ain ed of inder of the Pariiamedi |) a The Comtehittee has Powers.o er wea o nang Wow persons). ae, v -Nonse, bo ndjourn Sonn: isieaah ery atta neon » td “opyiatnt Speoiplting = edse hter to: sepa’ .b ay: , avalabis m to ehucidlate “nate piyi tChOam IaN m reference) 1 ita +o ) te bommeunicdte 6 aly otter janes iy ‘the’£ omit Kita n ve4 itv, vobioth PA), Mpg iti | .Ontien for shpe Ht o as es, of 02a a etrett fhe Comupittec haa S DOWEr {0 appoint. (we sub-committees fv ia: he. reiimetes af idence taben SOOy Ade TE INGOT ormimuitices halts peeves.' pend fat pecs ereainy tt Ray, wie wirnyte tit,t it the Hoos, 6) 5 agjourd itm ‘plage, i pipre, te TRUSS. Oh prt Op AES, AAG 4 Pupel COMCAST. ‘eta h “gala a! sgiit Stay ding Urgeg ar Any cade ABO NA: err OS te AE quae. Mick BRES R mbH BAO | aHe6I‘ cabeies fo:i pavahy yo) iix . S¥saom ster, STORIE ansot cyurss jo insepeaei Sgnsd> 8 blow os7 ; HER Ajts isa hth RUR yRy Ueameae a ee es OGRRT8B Soa ) ea enoanst 13910»w e isting) ize , 7 AHO t shin ate Cranmnasere pe ae ie fpiiowss ae ks eee Se eal. Bobet ois aa aha ow a i ve... THOWA BHT OT OACTAIAA 5 sa TINMODa nt4 0e omnda Uixx. 3). MC anpa t 0 at a Mr toe- Biante TARA a Nor iat Bt at ol toe ; \ reite . Cet R Lion Ate Covang Rete... yy sence May Valorie Davey; hic Nick St; Aubyn ae Cumobine Fyn ; saei ea tn iei e iit "H osy edsb erek Postar . % Layy : *7)' y ; 2»5) od » ' poe rnmmance ag ene re Tl , aye i i Le) aa aa, women eT.a eamrit a 1) si! if ‘ > ‘ é Ay 4 ey, hi Nsn ehp as bie ft wae ri at i : Pon ' re’ wirkate d BAY pe : ? Ay i a, y i " a i ie far pe " a ee | PENS! aan +t eaehig PR ne Beeys pte ae The ciostt eheva ey( ner t ie ah Rie hity ee sia* i te mike ae i mt, pete is ag wey x pety yyi mi e aaa Pee j THIRD REPORT The Dearing Report: some funding issues The Education and Employment Committee has agreed to the following Report: A INTRODUCTION 1. The report from the National Committee of Inquiry into Higher Education (the Dearing Report) and the Government’s response to it represent a major challenge to the higher education system of this country. The Dearing Report affects every aspect of higher education provision and also has significant implications for all post-16 education. We thought it right for the Committee to take evidence on some aspects of the Dearing Report during the Summer Recess, given the importance of the issues involved and the speed with which the Government is taking forward its response to the Report. The public meetings we held during the Recess helped to ventilate the subject. We believe it was valuable to do so during the Government’s consultation period on the Dearing Report and on lifelong learning more generally, in advance of the White Paper on Lifelong Learning expected to appear early in 1998. 2. It was clear that we could not hope to cover all the issues raised by the Report in this short space of time. Therefore, we concentrated on the funding arrangements proposed by both Dearing and the Government. The Government’s decisions in this area will start to come into force in less than a year. They have therefore had a much more immediate and perceptible impact on universities, students and potential students than many of the other highly significant proposals in Dearing. We took oral evidence from the Secretary of State for Education and Employment, the National Union of Students, the Committee of Vice- Chancellors and Principals, officials of HM Treasury and the Office for National Statistics, Dr Nicholas Barr and Mr lain Crawford, of the London School of Economics, and Dr Bill Robinson, of London Economics. We also received a number of written submissions. All the oral evidence and a selection of the written evidence is published in the companion volume to our Report.' Structure of the Report 3. Our Report is divided into two main sections. In the first, we cover, very briefly, some issues arising from the Dearing agenda about which we wish to register our concerns at this stage. In the second, we focus on one particularly topical issue, on which discussions are currently taking place between the DfEE and HM Treasury. This is the way in which expenditure on student loans is treated by the Treasury for the purposes of public expenditure classification. Future work of the Committee 4. The Government is shortly to publish a White Paper on Lifelong Learning which will take forward much of its response to the Dearing agenda. Some initial information is currently available about the impact of the Government’s proposals for tuition fees and loans on attitudes towards participation in higher education. We recognise, however, that this information is very preliminary and that better information may be available in the New Year. During the course of our inquiry a number of issues relating to access were raised, such as the impact of the new arrangements for student finance on students in rural communities and on the propensity for students to attend higher education institutions away from home.’ Because the issue is so important, in the New Year we intend to start an inquiry into participation in all post-16 education, covering higher education, further education and continuing adult education. 'HC(97-98)241-I1. >See e.g QQ.58-65. vi THIRD REPORT FROM B FUNDING ISSUES 5. In this section, we raise a number of concerns regarding funding which have arisen during the inquiry and which we believe the Government should take account of as it develops its policy towards higher education. This does not claim to be an exhaustive list, but there is general agreement within the Committee that these are important issues which the Government should address. Provision of information by the Government 6. The Government has yet to publish fully detailed information about many aspects of the arrangements for the introduction of tuition fee contributions and maintenance loans. We expect the necessary detailed information on the new arrangements for student finance to be made available as soon as possible, for the benefit of those who are planning to enter higher education in the near future and their families. We intend to monitor the detailed arrangements for the scheme as they become clear. The short-term funding of higher education 7. The Dearing Committee estimated that higher education would require an additional £350 million in 1998-99 and £565 million in 1999-2000, and expressed concern that “the long term wellbeing of higher education should not be damaged by the needs of the short-term”.*? The CVCP argued that the expenditure cuts inherited from the previous government amounted to a reduction of 6.5 per cent.* The Secretary of State subsequently announced that an additional £165 million had been found for spending in 1998-99 for the higher and further education sectors.> This meant, according to the Secretary of State, that he had achieved “the 1 per cent efficiency gain that Dearing said was the absolute minimum to avoid major cuts in higher education next year”.° The Chair of the CVCP agreed on this point, but told us that the additional money “makes almost no contribution to the access and infrastructure repair agendas ... there will be a cut of just | per cent, but it is absolutely clear that that leaves very little money indeed to pay for the Dearing agenda”.’ 8. This additional £165 million will not affect the position in 1999-2000. We have noted that the Dearing Report argued that additional money would have to be found for that year if higher education were not to be damaged in the long term. Mr Blunkett told us: “From April of the financial year 1999-2000 we will have to negotiate with the Treasury in a situation where the expenditure cap of the first two years of this Government will have reached its end. We will then be talking of the balance between future fee income and immediate needs as from April 1999. That is a debate still to be had.”® We welcome the Secretary of State’s announcement of an extra £165m for higher and further education for 1998-9 and his subsequent announcement in November of an additional £83 million for further education. We believe there is a case for the Government to grant additional support for higher education in 1999-2000, as it did for 1998-99. Higher education should not have to face an efficiency saving of more than one per cent in 1999-2000. Ministers have claimed that a net saving of about £100 million would accrue from the tuition fee contribution scheme in 1999-2000.'° This will not be sufficient to meet the anticipated funding gap. Even so, we would expect that the income from fees should flow into higher and further education. : Higher Education in the Learning Society, p.2. “Appendix 10. DfEE Press Release 23/97, 25.9.97. °Q.210. ’QQ.69, 76-77. §Q.211. DfEE press release 362/97, 12.11.97. Hansard, 31.7.97, cols 495-96 W. THE EDUCATION AND EMPLOYMENT COMMITTEE Vil Hypothecation of tuition fee revenue to higher and further education 9. The Dearing Report recommended that students should make a contribution towards the tuition costs of their courses, and that this should be a standard fee equivalent to 25 per cent of the average course cost. The Report proposed that students should be able to take out loans to cover the contribution cost, repayable once their earnings reached a specified level. The Report further recommended that such contributions made by graduates to their tuition fees should be “reserved for meeting the needs of higher education”.'' The CVCP endorsed this recommendation and told us that it would be “indefensible to expect present and future generation of students to contribute to fees without a direct improvement in the funding position of our universities.”' * The Secretary of State told us: “I am very clear about the importance of investing in further and higher education from the resources being released, which is why we use the term ‘universities and colleges’ ... Clearly, a greater proportion has to go into higher education ... to meet the immediate crisis and invest in competence, research capacity, better quality and, above all, to open up new access. Without these extra resources the opening up of access will be nil.” 10. We recognise that it is not possible for taxation revenue to be hypothecated to any particular area of public policy. However, fee income is not taxation, and in our view, the proceeds from the tuition fee scheme should not be diverted from improving higher and further education. There is an obvious overlap between the work done in universities and further education colleges in respect of lifelong learning, and clearly the Government will have to consider carefully the appropriate balance of funding for each sector. We will monitor with interest the Government’s future spending decisions in respect of higher and further education. 11. Whatever decisions are taken about how any additional revenue is divided between different parts of post-16 education, there is always a danger that the Government could decide to reduce its funding to higher and further education in proportion to any additional funds released by the tuition fee scheme. We urge the Secretary of State to ensure that any such move is resisted strongly. The use of the Inland Revenue for repayment of student loans 12. The Dearing Report examined several methods of collecting repayments from graduates and concluded that the Inland Revenue should be used as the principal route for their collection. The Report argued that the main advantages of this approach are that the Inland Revenue already has in place mechanisms for assessing income and securing payments from almost all the working population. Furthermore, “a system which is simple and efficient is far more likely to be acceptable to graduates and to reduce the risk of defaults”.'* The Secretary of State told us that he had “not ruled out the collection process being attached to the Inland Revenue”. This approach, he said, “would eventually help people in terms of their repayments because they would see it as part of the normal process of contributing, as well as it being secure and administratively simpler than other schemes.”' Messrs Barr and Crawford also argued for using the Inland Revenue, or alternatively the National Insurance Contributions Scheme (NICS), partly because of “the very low default rates and high confidence that you will get most of the money back”.'® The Dearing Report, ' Recommendation te Dido: '2 Appendix 10. 139 216. '4Daragraphs 21.43-21.49 and Recommendation 82. "Q25i), '°Q.188. Vill THIRD REPORT FROM however, rejected the NICS for the purpose as it would “introduce an unnecessary layer of administrative activity”.'’ 13. The Teaching and Higher Education Bill [Lords], published on 26 November, makes provision for the loans to be recovered with the assistance of the Inland Revenue, via the PAYE scheme.'* We welcome this decision of the Government. We recommend that the Government accept the recommendation in the Dearing Report that the Inland Revenue be used as the principal route for the collection of loan repayments. The level of the tuition fee contribution 14. The Dearing Report suggested that all students make a flat-rate contribution to their tuition fees of “around 25 per cent of the average cost of higher education tuition”. The Report also noted concerns that “it would be open to any government to increase unilaterally the proportion of tuition costs to be paid by graduates”, as has happened in respect of similar schemes in Australia and New Zealand. With this in mind, the Report proposed the establishment of an independent committee to review any proposal to increase the proportion of tuition costs paid by students, and that any such increase be subject to a debate on an affirmative resolution in both Houses of Parliament.'? The Government decided to set the fee at £1,000 per year, which is “roughly 25 per cent of the average cost of a course”.” ? 15. Evidence echoed the concern about the future level of the fee expressed in the Dearing Report. For instance, the President of the National Union of Students told us: “We believe the breaching of the principle of free tuition opens the door to charges of a much higher level in future years. The evidence is very clear internationally with Australia, where a system of fee contribution was introduced which was abused by a successor government... Our opposition to fees, the reason we are so viciously opposed, is because it is the thin end of the wedge to other charges”.? ! 16. The Secretary of State told us that: “I believe that for the longer term there is a debate to be had about ... whether an affirmative order of the House is sufficient to safeguard the interests of students in future. There is a balance between the responsibility of the individual and the responsibility of the nation. I am sure that the Committee will want to deliberate and make recommendations upon that. I am open to persuasion as to whether additional safeguards can be built in.”” The Teaching and Higher Education Bill provides that any increase above inflation should be subject to affirmative resolution by each House of Parliament. The measure of inflation used is defined as “such index of prices as may be specified” by regulations.» We are aware of the importance of creating safeguards to stop inappropriate increases in tuition fee contributions, and the need to balance these with the spending priorities of governments in the future. We support the recommendation in the Dearing Report that an independent committee review any proposal to increase the proportion of tuition costs paid by students. However, we believe it should also review any increase in the actual amount of the fee, with the exception of uprating in line with inflation. Any increase in the proportion of tuition costs, or the amount of the fee, should be subject to a debate on an affirmative resolution in both Houses of Parliament, on the lines proposed in the Dearing Report. We would also expect the Secretary of State of the day to be prepared to appear before this Committee (or its successor) to defend any such proposal. Paragraph 21.43. 'SHL Bill 47, Clause 16(4)(e). Paragraphs 20.75 and Recommendation 79. "Higher Education for the 21st Century, DfEE, July 1997. 21 Q.119. 2Q.231. HL Bill 47, Clause 16(5) and (6).