Student Loans

HC Deb 20 October 1989 vol 158 cc380-449

Motion made, and Question proposed, That this House do now adjourn.—[Mr. John M. Taylor.]

9.49 am

The Secretary of State for Education and Science (Mr. John MacGregor)

I am delighted that we are having this debate. Earlier this week the hon. Member for Blackburn (Mr. Straw) made some ridiculous charges, suggesting that we felt some nervousness about the student loans scheme because we were holding the debate today. That suggestion, however, is easily rebutted by the fact that we are happy to have a whole day's debate on the matter. The hon. Gentleman's charge is even more extraordinary, given that we are doing so in response to a request by the Opposition for a debate in Government time.

It is perfectly normal to have a general debate on a motion for the Adjournment, and this, of course, will not be the only occasion when the House will have the opportunity to debate this subject; there will certainly be a debate on a substantive motion when the House considers the Second Reading of the Bill. This is not the only curious and irrelevant charge made by the Opposition Front Bench on the issue: I shall deal with others later.

I welcome the debate because it allows me an opportunity to set out what I believe to be the overwhelming case for the introduction of top-up loans for students to supplement their maintenance grants. It also enables me to report progress to the House following the statement on 19 June by my right hon. Friend the Member for Mole Valley (Mr. Baker), then Secretary of State for Education and Science, and to say something about the next stages of work. I remind the House that the scheme is to apply throughout the United Kingdom.

Top-up loans will secure three pre-eminent objectives. First, they will spread the cost of student support more widely. Students themselves will join their parents and the taxpayer in bearing the cost of their support, as they do in all other comparable countries. We believe that—not least given the high taxpayer cost and comparative generosity of our system of student support—it is not unreasonable to say now that students should also make their own contribution.

Mr. Peter L. Pike (Burnley)

Will the Secretary of State give way?

Mr. MacGregor

I will, although I have not yet developed my argument.

Mr. Pike

The Secretary of State has said that students should make a contribution to their education at university. Is it not the case, however, that, as university graduates tend to earn at least 30 per cent. more than other people, they will ultimately pay for their education in any event?

Mr. MacGregor

I shall come to that point in due course. Let me make it clear, however, that we are talking about students making a contribution to their mainte-nance while at university. Although graduates who are earning more than others may be contributing more in higher rates of tax, that also applies to many non-graduates.

It is not unreasonable to expect students to make their own contribution, because higher education benefits not only society as a whole but the individual student. Secondly, top-up loans will provide more money for students while they are studying. That is why they will improve access to higher education. I shall return to the question of access in a few minutes.

A third and, in my view, very important point, which has tended to be overlooked in public discussions so far, is that top-up loans will secure changes in student attitudes. They will reduce students' sense of dependency on the state, and will promote a proper sense of self-reliance and responsibility. The most important point, I think, is that students are investing in their own future. Because they are doing so by using what will be, in effect, a part—if only a very small part—of their own money, they will be more inclined to insist that they obtain value for it in their courses.

Mr. Andrew F. Bennett (Denton and Reddish)

Will the Secretary of State give way?

Mr. MacGregor

I will not give way at this stage.

The experience of the countries operating loans schemes brings out the relevance and importance of that last point.

Let me expand on two aspects of the general argument. Taxpayers, the great majority of whom have not received the benefit of higher education and many of whom will throughout their working lives earn less—often a good deal less—than graduates can expect to earn, should not have to shoulder a steadily increasing burden of student maintenance. We also need a fairer share in the balance of the burden between parents and children. Many parents have been bearing an increasing share of the cost of their student children's maintenance, and we know that some parents do not make the full contribution for which they are assessed. When our scheme is fully operational, the parental contribution at all levels on the scale will have fallen by nearly half.

The idea of loans for student support is not new, either as a concept or as a firm proposal. Clearly it is not new in other countries—which are already putting it into practice on a large scale—but it is not new here either. In our manifesto at the last election, we said that top-up loans supplementing grants represented a source of new finance to help students and to relieve pressure on their parents, and we set out our firm proposals in the White Paper of November 1988. It is also worth restating that the Government's plans relate to loans for maintenance—that is, for students' living costs.

Mr. Tony Benn (Chesterfield)

Is the Secretary of State aware that there is a fourth aspect of student loans to which he has not referred? Last Sunday, Price Waterhouse advertised the post of managing director of a student loans company, with a salary of £55,000 plus bonus and a car, in Glasgow, to be under contract to the Government. The advertisement was drawn to my attention by students at Glasgow university, and, of course, it already anticipates the legislation.

A good deal of money will be made by financial institutions at the expense of students—many of working-class origin—who will depend on top-up loans. That is the pressure and the vested interest behind the scheme.

Mr. MacGregor

The right hon. Gentleman's last point is absolute nonsense. When I spoke of three pre-eminent objectives, I referred to the overall objectives of the scheme, not the details; and the right hon. Gentleman has related his question to a very detailed point. I shall say more about that later in my speech, when I come to report on the progress of the scheme.

Let me remind the House of some of the key facts and figures underlying our policy. First there is the question of student numbers. The present awards system was introduced in 1962, when there was no conception of the extraordinary and welcome expansion in higher education that would take place in subsequent decades. I well remember the Anderson report of 1960, as—unlike, I suspect, the hon. Member for Blackburn—I was very much involved in student politics in the years preceding it. I also remember the debate about Robbins. I was therefore also closely involved in the debate leading up to that report.

Anderson, on which the Education Act 1962 was based, envisaged that higher education student numbers might eventually reach some 175,000. This autumn there are over 1 million full-time and part-time students in higher education, and, of those, fully 400,000 are receiving mandatory awards. Their numbers have been growing year by year, and there is every sign that student numbers will be buoyant throughout the 1990s.

Secondly, there is the question of cost. Total expenditure on student maintenance has almost quadrupled in real terms since 1962, rising from £253 million to well over £800 million in constant money figures. But, while total expenditure has increased, the maintenance grant available to the individual student has fallen steadily in real terms. Let me add that that has happened under Governments of both parties. At the same time, the average value of the parental contribution has increased.

The Government's declared policy is to expand access to higher education. When I addressed the Committee of Vice-Chancellors and Principals last month, I looked to roughly a doubling of the number in higher education over the next 25 years, and we are already seeing an increased demand for higher education from those who have the intellectual competence, motivation and maturity to benefit from higher education and who wish to do so.

Mr. Martin Flannery (Sheffield, Hillsborough)

Will the Secretary of State give way?

Mr. MacGregor

I will, but I hope that what the hon. Gentleman is going to say is relevant to the point that I have just made.

Mr. Flannery

The Minister claims that the aim of the Government is to expand higher education. In the Select Committee on Education, Science and Arts we have had to discuss demographic trends because we know that the professions will be competing with each other for a far lower number of 16 to 19-year-olds. That means that it will be difficult to staff the professions, and especially the teaching profession. Far from increasing, the number of young people may fall.

Mr. MacGregor

Obviously, I know about the demographic trends coming through in the early 1990s and, indeed, running through the 1990s. Equally, I know about the demands not just in the professions about which the hon. Gentleman has spoken, but in the economy as a whole, for more skilled people. That is why I am so strongly in favour of a policy of expanding higher education. I do not think that I should give way much more, because it is clear that many hon. Members want to speak in the debate. The interjections so far have not been relevant to what I have been saying or have pre-empted what I was about to say.

I was about to say that such an expansion in higher education will be partly driven by economic considera-tions, and it is important for our economic competitiveness that that should happen. Of course, it will have benefits that are cultural and social as well as economic.

There is much agreement about the need to expand higher education, and it is also widely accepted —I know by some Opposition Members—that a doubling in student numbers cannot mean a doubling in public expenditure on higher education. A feature of the debate in almost all developed countries is that it is recognised that, with all the pressures on public spending, higher education cannot realistically expect to win a significantly greater share of public spending than it has now.

Student support is a major component in this country of that expenditure. We already spend far more on student maintenance than do other comparable countries. If we are to expand and adequate funds are to be available to students, parents and taxpayers cannot bear the cost alone. Part of the cost must be borne by those who will benefit —the students themselves. Moreover, there can be little doubt about the benefits that individuals receive from higher education. As an Opposition Member has said, in 1985, on average, the male graduate aged between 30 and 39 earned about 30 per cent. more than his non-graduate counterpart.

The analysis set out in the White Paper suggested that the rate of return to society as a whole on its investment in a graduate's higher education, was between 5 and 8 per cent. I have no doubts whatever about the value of that investment, but the benefits to individual graduates are even greater, and the White Paper sets out the analysis. While calculations of this sort have, I know, to be treated with some caution, economists have calculated that the rate of return on the individual graduate's investment in higher education was in the region of 25 per cent. One can argue about the figure, but the principle is clear. That reinforces the legitimacy of arguing that it is only reasonable for the beneficiary to bear part of the cost.

Mr. Andrew F. Bennett

Will the Minister give way?

Mr. MacGregor

No. Many hon. Members wish to speak in the debate and I want them to be able to do so. I have given way three or four times already.

I turn next to the international comparisons that underline the point that in Britain, society as a whole—the taxpayer and students' parents—has been generous in its support for students. The White Paper set out in annex C an impression of the nature of the support regimes in a range of countries. I recognise that international comparisons of this kind give rise to particular statistical problems. There are, for example, differences of definition, and there are problems in attaching value to various hidden subsidies, but with those caveats, I strongly commend to the House the material presented in the White Paper. It makes a powerful case.

Several points stand out. First, taken as a whole, public expenditure on higher education in the United Kingdom campares favourably with expenditure by our competitors. Secondly, based on the latest up-to-date figures we are nearly top of the league in the proportion of full-time higher education students receiving Government assistance, second only to the Netherlands. Thirdly, fully 20 per cent. of our recurrent expenditure on higher education is devoted to student support, a far higher proportion than is to be found elsewhere. We have the most generous system of support for students in the western world, yet —and this is a very important point in relation to access —in other countries with much less support, demand for ad Mission to higher education is no less buoyant than here; rather the contrary. One reason is that demand is less constrained by the cost to the public of supporting students' living expenses.

Another fact that the international comparisons bring out is that while public funding of students is more generous here than elsewhere, the maximum amount of support available to students from public and private sources combined is in many countries higher than in the United Kingdom. In that combination I am including loan schemes which, in the first instance, are financed by Government. In Denmark, Holland, Norway and Sweden, for example, which also have fairly high proportions of students receiving support as we do here, the maximum sums available under their Government schemes are larger than in the United Kingdom. Those are Government schemes that include loan schemes as well as grants.

The figures for the latest year available show that in 1987 the amounts were about £2,300 in Denmark, £2,500 in Sweden, £2,900 in Holland and £3,600 in Norway, but with a very high emphasis on loan schemes. That compares with £2,040 in England and Wales at that time for students outside London. Yet public expenditure through grants on student support is, as I have already stressed, lower elsewhere. In these countries, students have access to more cash, but the bill for the taxpayer is lower. It is the loan that makes the difference. In addition, those countries are getting the benefit of the different attitudes that a mix of grant and loan brings about. I talked about that earlier. Therefore, we have a higher proportion of our funding going on student maintenance and we are unique in putting such a total focus on grants.

At the same time participation levels in higher education do not reflect the taxpayer's heavy investment in student support. Thus the message of international comparisons is clear. Neither the taxpayer nor the student is getting a good deal. The taxpayer does not see the participation that his investment would lead him to expect and the student does not receive the support available to his counterparts elsewhere. We must spread the load and increase the resources available to students if we are to achieve, as we must, much improved access to higher education.

Mr. Simon Hughes (Southwark and Bermondsey)

The Minister has not said that the Governments of Denmark, Sweden, the Netherlands and West Germany have either implemented or are implementing moves away from loans towards a greater proportion of grants. Can the right hon. Gentleman explain the fact that there is no evidence anywhere to suggest that access is improved by loans rather than grants? The European trend is very much against the Government's proposed direction.

Mr. MacGregor

There is evidence that access is higher in many other countries. It is also the case that those countries are retaining loan schemes. We are talking about a balance. Under our schemes as set out in the White Paper, it is clear that loans would still play a much smaller part in the overall mix than in most of the other countries about which the hon. Gentleman is talking.

Our critics assert that loans will impede access to higher education. I do not think that that will be so. The question of access is important and requires careful thought, not knee-jerk reactions.

First, the way to bring into higher education more students from the groups that are under-represented there at present is to continue to persuade more of them to remain in the education system—in school or in further education—beyond the age of 16. The GCSE and the national curriculum will undoubtedly help many more young people to reach the necessary standards, and this year's A-level results are an encouraging pointer. Once that barrier has been broken for the individual pupil and his or her family, enthusiasm to go on to higher education is much more likely, and I do not think that a top-up loans scheme to support the other funding will at that stage prove to be a barrier.

I say that because, secondly, as I have already outlined, the experience of other countries is that access is not impeded by their use of loans schemes. I suggest that all those interested in this aspect should read annex C of the White Paper, which sets out information on that subject.

Thirdly, financial help can, of course, be helpful. That is why we are increasing, with the top-up loan, the total resources available to students while they are studying. That is why we have devised a loans scheme with generous terms: instead of overdrafts at commercial rates, graduates will have student loans at a real interest rate of zero. This is a much better deal for those students who are currently topping up their maintenance, including those who are not getting full funding of their parental contribution, by taking out loans at what will be full commercial rates of interest. That is why we shall arrange to defer a graduate's repayments if income is low at any time for any reason. And that is why we shall establish the access funds as an additional way to help students for whom access is particularly difficult for financial reasons.

Let me make one final point on the so-called disincentive effect of a loans scheme to those contemplat-ing higher education. Future graduates should not be discouraged by the prospect of loan repayments. As I have already shown, most graduates can expect to earn high incomes in their future careers, but some will choose to enter less well-paid occupations, while others will work at home for long or short periods, perhaps raising a family, or will stay at home, not working. Our loans scheme will not penalise such graduates. Repayments will be deferred if a graduate's income is low at any time for any reason.

Mr. Jack Straw (Blackburn)

Even though teachers are, on the Government's evidence, much more poorly paid than comparable graduates, graduates going into teaching will still be above the point of the income level that would allow them to defer payments. It is clear from that that loans will act as a further disincentive against recruitment into the teaching profession. Is the Secretary of State proposing that new teachers should be let off from their loan contributions?

Mr. MacGregor

I shall have a word to say about exactly where we intend to put the figure on incomes. Teachers will be in no different a position from others. It is worth bearing in mind that some students are topping up their income while at university or teacher training college through loans. We are proposing a loan scheme that will be much easier to repay and will not be dependent on commercial rates of interest.

Dame Elaine Kellett-Bowman (Lancaster)

I have been listening with the utmost care to what my right hon. Friend is saying, and I am in favour of a top-up loan scheme. However, I am anxious about those who take up long courses, such as doctors and vets. So far, my right hon. Friend has not referred to that, but it is a matter of considerable importance and, when we are trying to raise the health of the population, we need more doctors.

Mr. MacGregor

Some of these matters will be debated when we have the Bill and we shall not be able, during my opening speech, to deal with them all. However, I do not think that it is possible to exempt any groups of students, and it has to be borne in mind that many of the groups about which we are talking will be in higher-income categories. The individual rate at which they will have to repay will be the same as for everybody else, but it may mean longer periods of repayment for those who have incurred larger loans.

In his statement on 19 June, my predecessor, my right hon. Friend the Member for Mole Valley set out the Government's view on the repayment system. He said that repayment would be deferred when a graduate's income fell below given levels in relation to the average national income. I now come to the point. We have now concluded that repayment should be deferred altogether if the borrower's income is less than 85 per cent. of the national average. This basis for deferment will be built into the arrangements now being developed. I shall later say something about alternative schemes, and show that that is a more favourable position on income than the alternative schemes that are being advocated.

Mr. Straw

The Secretary of State has said nothing new about the point at which deferral operates. That will not help new teachers. How will he help new teachers overcome the burden of loan debt?

Mr. MacGregor

I have said that people with that level of income, whether they are teachers or anybody else, will have to make repayments. We are not making exceptions for any class or profession. As I know that many others wish to speak in the debate, I shall not give way again. The hon. Gentleman can make his points in his own speech.

I shall now report on recent developments on the scheme. Over the summer, steady progress has been made in regular meetings between my officials and representatives of the committee of London and Scottish bankers. A cost-effective and practical scheme is taking shape. Management consultants have placed advertisements to recruit personnel to senior executive posts in the company. I shall come to the point raised by the right hon. Member for Chesterfield (Mr. Benn). The CLSB has decided—on the basis of advice from management consultants—that the loans administration company should be located in Glasgow. I hope that hon. Members representing Scottish constituencies will be pleased. Negotiations are under way to secure premises. Negotiations are well in hand for the establishment of the necessary computer systems. This is good, positive progress. I should make it quite clear that Parliament has approved the costs of the preparatory through a Supplementary Estimate this summer, that no initial contracts with suppliers and prospective senior management will prejudice the rights of this House in regard to matters requiring its approval; and the full-term contracts for personnel, premises and systems will be signed only after the Royal Assent to the Act.

I believe that it was right that, as has already been announced, the administration should be handled by the financial sector and that various financial institutions should have the opportunity to play a full part in the scheme. They can provide a quicker and more personal service. They have skill in handling personal loans. They have experience in advising individuals on financial matters and they have nationwide branch networks. Students will be able to walk into high street and campus branches, discuss their loan requirements and gain ready access to the loans to which they will be entitled.

My right hon. Friend told the House in June that preparatory work had indicated that start-up costs for the loans scheme would range from £8.3 million to £11.5 million. He said that annual operating costs would range from £10.4 million to £14 million. Our opponents and those with axes to grind continue to suggest that actual costs will be far higher. Naturally I cannot comment on the figures until the Government's negotiations with the financial institutions, and the financial institutions' negotiations with suppliers of goods and services for the scheme, are concluded. At that stage I will of course report on the outcome in detail to the House.

Mr. Benn

Will the right hon. Gentleman give way?

Mr. MacGregor

I hope that the right hon. Gentleman will forgive me if I do not give way, because I have given way a lot. If he wants to make his points, he can do so in his own speech, and my hon. Friend the Under-Secretary will reply.

Mr. Benn

The right hon. Gentleman should listen to a comment on the point that he has made.

Mr. MacGregor

The right hon. Gentleman may get an opportunity to make his point, but many hon. Members wish to speak in the debate.

Mr. Andrew F. Bennett

On a point of order, Mr. Deputy Speaker. Will you draw to the attention of the Secretary of State that the idea of debates is that there should be an interchange of ideas, rather than hon. Members delivering monologues? Surely it is reasonable for the Secretary of State to give way.

Mr. Deputy Speaker (Mr. Harold Walker)

The hon. Gentleman knows that that is not a point of order. I remind him and the House that a large number of right hon. and hon. Members wish to take part in the debate. I hope that we can get on.

Mr. MacGregor

I sense that some people feel that I have been generous in giving way already.

There are those, I know, who suggest that, rather than a loans scheme or this particular loans scheme, we should introduce a graduate tax as in Labour Australia—or work through national insurance contributions. Some proponents of those ideas sit on Labour Benches.

In our view, the tax on graduates is not the answer. The Government's policy is to simplify the tax system, not to complicate it. We have been in the business of reducing the number of taxes, not adding to them or inventing new ones. A graduate with a loan to repay knows that the period of repayment will last for only a defined period, and it could be quite short. If a graduate tax were to be a permanent feature of his life on top of a progressive income tax system, that prospect really would threaten to inhibit access to higher education. If it were to be for a limited period, the complications and bureaucratic burden would start to pile up.

Above all, my objections are more than just the practical ones. A graduate tax would be unfair because it would not distinguish between those who had benefited from public funds and those who had not; nor would it relate pro rata to the extent to which they had benefited. It would singularly lack that benefit of culture and attitude which a loans scheme has, of encouraging students to see their higher education as an investment that they are making in themselves for themselves.

A variation on the theme is that the loan should be paid through tax. I have two objections to that. It is using the tax system for a purpose—the recovery of debts—for which it is not intended; that is establishing a new principle and a dangerous precedent. In addition, the administrative consequences of any form of graduate tax for both employers and the Inland Revenue would be extremely burdensome.

Many of the same considerations apply to repayment through national insurance contributions. I know that such an approach is advocated by eminent experts at the London School of Economics, one of whom I know extremely well and who is a friend of mine.

Mr. Straw

Does he agree with the scheme?

Mr. MacGregor

I am entitled to say that there are some features that I think are right and which he has not taken fully into account.

The experts recognise the need to increase the resources available to students, the need to encourage those who have not traditionally benefited from higher education to gain access to it, and the need to relieve the general taxpayer of the burden of paying for these developments. They recognise all of that, but they propose to charge real interest on the loan. That would penalise graduates, who will be protected by the Government's scheme under which repayments can be deferred for those who take time off work, for example, to raise a family, or for those whose earnings are low. Moreover, repayment would begin at far lower levels of earnings under a national insurance contribution scheme and would last much longer. Those are two crucial factors for students. The advocates of such a scheme seek to give a relatively better flavour to their own proposition by attributing wholly unrealistic administrative costs to our scheme.

Nor is it right to imagine that using national insurance contributions is a simple alternative. It is not. Again, it would be inconsistent with the purposes for which the national insurance system operates. The administrative burden would be heavy and unwelcome to employers and others, especially the small and medium-sized companies. I am assured that any repayments system using NI could not be introduced before 1992 or 1993.

But I come back again to the fundamental reason why the Government's scheme is preferable to some of those put forward by our critics. We believe that students should make an investment in their higher education. They should decide, as responsible individuals, how much they want to borrow. They should know at the outset how they will repay their loan and how long it will take. They should borrow money from a clearly identified lender and repay their loan to that lender. In short, we wish to encourage self-reliance and individual responsibility among students. We believe that our scheme fully meets that important objective. They will not get any of those things from a graduate tax.

I turn to the public expenditure implications. The hon. Member for Oxford, East (Mr. Smith) tried to make great play yesterday of the cost of the scheme. Let me make our position plain, dissect his analysis and try to find out what point he was trying to make—what his position is. We have of course made no secret of the figures. There was nothing new in the facts in his press release yesterday that was reported in the newspapers. What was new and revealing about the Labour party was the interpretation that he tried to give to them. The point that he tried to headline—that the initial outlay of Treasury money, as he put it, will not be recouped until the year 2026—was based on his assumptions, and, of course, he chose all the most difficult that he could find. Based on more realistic assumptions, including an 80 per cent. take-up, the public sector borrowing requirement starts to show benefits from about the year 2002–03. And there is a net cumulative saving,—that is paying back all the earlier additional expenditure—some 10 years later: a very different outcome from the hon. Gentleman's figures.

That, however, is not the major issue. For I grant the hon. Member for Oxford, East that there is a higher cost in earlier years. It is in the nature of a loan that it takes some time for the money to come back, but in due course there will be substantial annual savings for the taxpayer, and there will have been a permanent shift in the costs to the taxpayer of our support system, and in its value for money, as well as the non-financial benefits which I have already stressed several times today.

It need not necessarily be that way. The fact that the scheme is initially costly—that the costs exceed the savings in housing and other benefits and from the freezing of the grant—is because we are increasing the total amount of money made available to students. That there is calculated to be a substantial cumulative total before significant total annual repayments are received is because we are making significant additional investment in student support. As a result, the great majority of students will be net gainers from the scheme.

On the basis of this spring's survey of student income and expenditure, which will be published shortly, we estimate that in 1990–91 students would have been able to claim on average some £175 in benefits. Not all are eligible; we estimate that the average benefit receipt of those entitled would have been about £300. The loan facility —£420 in most cases—will outweigh those benefit receipts. I hope that my hon. Friends will note that parents' contributions will stop escalating in 1990–91. That is relief for parents from that year on.

So what is the complaint of the hon. Member for Oxford, East? Is it that we have been too generous in providing the additional support to the year 2002 of some £667 million, which he so criticises? Is it that we should reduce the levels of support—that we have been too generous? Is he saying that we should tighten the conditions for deferrals and that we ought to insist on no defaults? He criticises the potential costs of these, too. If the hon. Gentleman claims that he would do it all by grants, let him reflect that that would be a bad deal for parents in the 1990s and an even worse deal for parents and taxpayers generally thereafter.

How would the Labour party finance the expansion? What are its costings? I am sure that we shall not get any answers to those questions today. If the hon. Member for Oxford, East were to proceed by grants alone he would saddle parents and taxpayers generally with unsustainable and unfair burdens for decades to come. More likely—indeed almost certainly—he would make it impossible to finance the increased demand for student places over the period with which we are concerned. That is why I ask how the Labour party would propose to finance the expansion. I wonder whether we shall get any answers to that question today. I suspect that we shall not, because it is typical of the Labour party that it does not know. It is a hallmark of its backwardness that it rejects a solution that in so many other countries is seen simply as sensible.

I have outlined the powerful reasons for introducing the loan scheme and the advantages of it. We are pressing ahead with its preparation. We have parliamentary approval for the costs of the preparatory work. We are making steady progress, working closely with the representatives of the committee of London and Scottish clearing bankers. We shall bring forward the necessary legislation at the earliest opportunity. I am keen that more resources should be available to students next autumn, 1990. Top-up loans will achieve that objective. I commend the proposals to the House.

10.27 pm

Mr. Jack Straw (Blackburn)

The Government's proposals for student loans are fatally and fundamentally flawed. Loans will place a mortgage on knowledge, a debt charge on skills. The scheme will increase the burden on the taxpayer, not reduce it. At the same time, loans will not improve students' incomes. Instead they will cut them. The Government say that loans will increase participation in higher education by the least well off in our society. The scheme is, however, bound to deter such people. We know that the scheme is flawed; the country knows that it is flawed. Even the Government know that it is flawed. It is holed below the waterline even before it is launched.

We did not have one piece of new information from the Secretary of State this morning, despite the 11 months that have passed since the previous Secretary of State announced the scheme. The review of student finance on which the scheme was based was promised in 1986 to be completed in a year. Instead the review took two and a half years. The previous Secretary of State promised an early debate, but he dodged for all he was worth to avoid any debate while he was in office so as to pass the poisoned chalice to his luckless successor.

The House should have little sympathy for the new Secretary of State. Instead of using the opportunity which his accession to new office gave him of quietly abandoning the wilder excesses of his predecessor, he has ploughed on without any proper consideration of the merits of the scheme, with that arrogant, contemptuous disregard for the opinions of the House that is the hallmark of the Government.

Why else did the Secretary of State authorise that an advertisement for the managing director of the student loans company be placed in The Sunday Times a week ago, before the House had had a chance to consider or to discuss the scheme? Only a Secretary of State who was determined to ensure that he was completely deaf to hon. Members' representations would have taken such a provocative step.

The Secretary of State has said that he has already announced that he will ignore what is said in the House. He told the vice-chancellors three weeks ago that he was "pressing ahead with implementation." How strangely that fits with the promise by the previous Secretary of State, who said that the review would be a consultation document… Surely that is what the House and the country would expect. Surely I am not expected to hold a review under a Government Minister and to slap the result on the table and say 'That is that' ."—[Official Report, 18 June 1986; Vol. 99, c. 1063.] That, however, is exactly what this Secretary of State has done.

It is a great pity that the right hon. Gentleman has not listened to some of the wiser counsel from his own Benches. The hon. Member for Leeds, North-West (Dr. Hampson) is quoted this morning in The Times Higher Educational Supplement as saying: We are potentially into another poll tax scenario in which MPs welcome the principle of loans without waking up until it is too late for the practical repercusions. What so exposes the intellectual inconsistency, the administrative incoherence and the financial ineptitude of the scheme is not the test that we would set for the scheme, but the objectives laid down for it by the Government. The scheme fails on every count. First, there is the simple, stark, preposterous truth that a scheme originally intended to save money to reduce the burden on the taxpayer will in fact cost more money from now until well into the 21st century. The principal justification for student loans has always been that they would cost the public purse less than any system of student grants. That is why, over the years, there have been repeated references to the alleged generosity of the British system. "We have the most generous system of student support in the western world", the right hon. Member for Mole Valley (Mr. Baker) often used to say—an assertion repeated this morning by the present Secretary of State. His predecessor did not just imply that student support should be cut; he spelt it out explicitly. "We are reducing the burden of student support on the taxpayer", he said. A Conservative Central Office brief underlined that, and stated: There is a limit to the number of students the taxpayer can support: especially when other important demands on the Treasury, such as the care of the elderly and the disabled, are considered.

Mr. Edward Leigh (Gainsborough and Horncastle)

On the point about cost, will the hon. Gentleman commit a future Labour Government to increasing student grants to a level commensurate with what students would receive under the top-up scheme? Will he explain what would be the implications for taxation and what would be the cost?

Mr. Straw

The Labour party's position on student support is made absolutely clear in our policy review document. We shall maintain the grant system. It does not lie in the mouth of any supporter of the Government's scheme to complain about Labour party policy, because, although the income to most students will be cut under the loan scheme, the cost to the taxpayer will be more than it is for the grant system. Conservative Members do not understand the scheme and have not accepted the advice of the hon. Member for Leeds, North-West to take account of those facts.

Mr. Leigh

rose—

Mr. Straw

No, I shall not give way as I am about to deal with the hon. Gentleman's points.

It is true that the real income of most students will be cut by the introduction of the loan scheme—something to which I shall return later. Students' incomes will be hit by the scheme, especially those from lower income homes. What makes such cuts in students' incomes so gratuitous and so wilful is the fact that, far from saving the taxpayer money, the scheme will cost more than the grant system from now until at least 2015 and probably 2026. The additional expenditure will, however, produce no discernible social or economic benefits; instead it will disappear into a black hole of vast administrative expenses and enormous default and deferral costs.

Annex E to the White Paper admitted that the scheme could not start to show annual savings until 2002, nor break even until 2013. As ever with a document from the hand of the right hon. Member for Mole Valley, the annex told only half the truth. Those calculations did not include the cost of the so-called access funds of £15 million a year, nor take account of the cost of administration.

Thanks, however, to relentless and assiduous question-ing by my hon. Friend the Member for Oxford, East (M r. Smith), a clearer picture now emerges. There is no point in the Secretary of State complaining about my hon. Friend's figures, because they are the right hon. Gentleman's figures. On 80 per cent. take-up, no cumulative saving will arise until 2014—

The Parliamentary Under-Secretary of State for Education and Science (Mr. Robert Jackson)

Will the hon. Gentleman explain the difference between current saving and cumulative saving and say when, under the Labour party's proposals, there would be any savings at all?

Mr. Straw

Surely the Minister knows the difference between current savings and cumulative savings. Current savings arise year by year. According to the Government, current savings will not arise until 2002, and cumulative savings will not arise until 2014.

Mr. Jackson

Deal with the issue.

Mr. Straw

I shall indeed deal with the issue of the Labour party's position. We believe that the major part of the cost of higher education needs to be borne by the taxpayer, and we do not resile from that. We are not in favour of pouring money down the drain, into the pockets of financiers or randomly into the pockets of those who default on loans —

Mr. MacGregor

rose—

Mr. Straw

No, I am about to ask the right hon. Gentleman a question, which he can then answer. He said that higher education cannot realistically expect a greater share of public expenditure. In fact, the greatest share of public expenditure on higher education goes not on student maintenance but on tuition costs. Currently, more than twice the amount spent on maintenance is spent on tuition costs, and those tuition costs are met by the state. Are we to conclude from the right hon. Gentleman's statement that the whole of the future expansion of higher education, tuition costs as well as maintenance, is now to be financed not by the taxpayer but by the private individual?

Mr. MacGregor

My hon. Friend the Under-Secretary of State will deal with that point—[HON. MEMBERS: "Answer the question."] This is not Question Time—[interruption.] We will deal with the point, but I do not wish to make a long intervention now. I stood up only to ask the hon. Gentleman a question—[HON. MEMBERS: Answer the question."] We will. Is the hon. Gentleman saying that the Labour party opposes the scheme's proposals for deferral for those on low incomes or not earning anything at all? Is the Labour party also opposing the scheme's proposals on defaults?

Mr. Straw

Of course, I am not saying that, within the awfulness of the scheme, we are opposing deferral. The Secretary of State said that this was not Question Time, and it obviously is not answer time. I have raised a central issue and it is no good the Secretary of State dodging it or relying upon his acolyte, the Under-Secretary. It is a central question about the future course of public expenditure on higher education. It is absolutely critical.

The major cost of higher education is tuition. The right hon. Gentleman said that he is sticking to his predecessor's plans to double the number of students in higher education over the next 25 years. He also said that higher education could expect no greater share of public expenditure in future than it has now. Am I right in saying. therefore, that that must mean that the whole cost of not only maintenance but tuition will be borne by the private individual?

Mr. MacGregor

My hon. Friend the Under-Secretary will answer that point.

Mr. Straw

No, answer it now.

Mr. MacGregor

No, my hon. Friend will answer it when he replies.—[HON. MEMBERS: "Answer, answer."]

Mr. Straw

I shall abandon my speech if the Secretary of State is prepared to answer that question—[HON. MEMBERS: -Answer, answer."] What is the answer? How can the right hon. Gentleman leave the answer until the end of the debate? That cannot possibly be right. I see that he is being passed a piece of paper—[HON. MEMBERS: "Answer, answer."]

Mr. MacGregor

This matter has nothing to do with our debate today, which is why I did not deal with it in my speech. Nevertheless, I shall make it clear that we are proposing loans to top up maintenance grants. I know that currently there is a debate in the Committee of Vice-Chancellors and Principals of the Universities of the United Kingdom about the funding of higher education in the 1990s, including full cost fees. It is clear that that debate has a long way to go, and I am sure that we are all interested in it, including the hon. Gentleman.

Today we are debating the proposal for an important new means of support for students, and that is a scheme for loans to top up maintenance grants. We have no plans to introduce fees paid by students.

Mr. Straw

The right hon. Gentleman gives the House half an answer. If there are no plans to introduce tuition fees, his earlier statement that higher education cannot realistically expect a bigger share of public expenditure is completely inconsistent to the point of mendacity with his pledge to double student numbers. One cannot expand higher education, double student numbers, and claim that students will not be charged the full cost of tuition, while at the same time claiming that public expenditure on higher education will not increase. As a former Treasury Minister, the Secretary of State must recognise the impossibility of doing so.

On 80 per cent. of take-up, there will be no cumulative savings until 2014.

Mr. Jackson

The hon. Gentleman is on weak ground.

Mr. Straw

The Under-Secretary of State suggests that I am on weak ground, but it took 10 minutes and a lot of wriggling by right hon. and hon. Members on the Government Front Bench to provide half an answer from the Secretary of State as to the Government's future plans for higher education. No wonder that it was decided to dodge that topic and keep it for the Minister's winding-up speech, when no Opposition Member could possibly take it up.

The Secretary of State should have glanced behind him to see the incredulous faces of some Conservative Members when he stated that public expenditure had nothing to do with the question of tuition fees. It has everything to do with it. The Secretary of State claims that he wants to increase access to higher education, but not only sticks loans on students but also the full cost of their tuition. How the devil does he expect students, except those from the wealthiest homes, to finance their own higher education?

The lack of cumulative savings until at least 2014, and probably not until 2026, arises because of the scale of the interest rate subsidy, and administration, deferral and defaults costs. I asked the Under-Secretary of State a question about his assumptions as to the interest rate subsidy built into annex E. He replied: The costings set out in annex E of Com. 520 are expressed in constant prices, and are accordingly not affected by interest rate assumptions."—[Official Report. 19 October 1989; Vol. 158, col. 185.] If that is true for the costings, it is not true of the scheme. Even if the costings are expressed in terms of constant prices, the difference between the nil real interest rate that will be charged to the student and the cost to the state of the money that the loans agency borrows will be variable, depending on the overall real interest rate in the economy. When the Under-Secretary of State replies, perhaps he can say more about the assumptions made in that respect. Is it expected that the real interest rate will remain at its present level of 8 per cent.—or that it will be, say, 5 per cent?

What is to be made of the statement on page 10 of the Price Waterhouse report that the amount borrowed should be spread over the London inter-bank rate, which suggests that the interest charged on the money brought into the books of the agency will be higher still than the minimum lending rate? Answers must be given to those questions as they fundamentally affect the further costings omitted from the White Paper.

The anticipated administration costs are all based on the Price Waterhouse report, which was produced in just three weeks—an impossibly short time in which to give the matter serious study. Key data about take-up and repayments were not independently calculated but were provided by the Department of Education and Science. The Secretary of State received a further report from Price Waterhouse a month ago, and I regard it as an insult to the House that he refused to put that report before the House in anticipation of today's debate.

On 19 June, the former Secretary of State's immediate predecessor told the House that start-up costs would be between £8 million and £11.5 million, and the annual operating costs between £10.5 million and £14 million. Again, those figures were downright misleading. They did not include debt collection agency fees, the depreciation of start-up costs, marketing and publicity, university administration costs, and other costs to the Department of Education and Science. When just some of them are included, operating costs rise to between £14.5 million and £20 million. Although the Department denies this, those costs will rise again as the number of debtors increases.

The extent of deferrals and defaults anticipated by the Department is staggering. On 24 July, in a written answer, the Under-Secretary of State, the hon. Member for Wantage (Mr. Jackson), estimated that 41,600 people will default and that there will be 336,000 deferrals. That means that the total number of students claiming deferral or defaulting will exceed those making repayments. Half the 250 staff to be sited at the loan agency in Glasgow will be engaged in nothing but default chasing; and no doubt an outside army of debt collectors, credit agencies and bailiffs will also be employed.

The official line that the scheme is designed to save the taxpayer money was repeated four weeks ago in the Secretary of State's speech to the vice-chancellors' and principals' conference at Leeds. He stated that it reduces the dependence on the ability of the taxpayer as a means of finding the extra resources. I am sorry that the right hon. Gentleman has been lured into such a trap by either his officials or the Under-Secretary of State. The right hon. Member for Mole Valley—and I am glad to see his parliamentary private secretary, the hon. Member for Bury, North (Mr. Burt) in the Chamber—may have little shame, but he recognises an impossible case when one stares him in the face. He tried to make an impossible case last November. In the space of four minutes he said of the loan scheme: The net cost of the scheme to the Treasury will be £850 million so there will be an increase in Government expenditure. But, later he said: We are reducing the burden on taxpayers."—[Official Report, 9 November 1988; Vol. 140, c. 307, 309.] One month later, my hon. Friend the Member for Leeds, Central (Mr. Fatchett) put those two inconsistent statements to the present Secretary of State for Education and Science, and asked about the cost of the scheme to the taxpayer. The right hon. Gentleman replied: The proposal is not meant to cut the amount of money spent on higher education but to increase it."—[Official Report, 20 December 1988; Vol. 144, c. 277.] That statement is completely at variance with the earlier comments made by the right hon. Member for Mole Valley.

On the most conservative basis, the scheme will cost the taxpayer at least £1 billion over the next 10 years. That money will be squandered on moneylenders, bureaucrats and defaulters and could be far better spent on restoring the value of student grants and on paying for the expansion of higher education to which the Government are apparently committed.

I turn to the crucial matter of access to higher education. Before the war, higher education was largely the preserve of the well-off. Hundreds of thousands of young people were denied a fair chance of higher education because their families had insufficient incomes. The present system of student grants was developed at the end of the war and finally became established in the early 1960s to ensure that the experience of pre-war days, when individuals were denied their life chances because of their family backgrounds, would never be repeated. Some millions of people today owe their education and livelihoods to the chances that the grant system offered them. I happen to be among them. Many Conservative Members are in the same position, and it is to their shame that they are now to pull up the ladder of opportunity behind them and to deny others the opportunities that they themselves enjoyed.

In 1985–86, the Conservative-controlled Select Committee on Education and Science inquired into the awards system. Paragraph 8 of the Committee's report remarked: Without the award system, it is unlikely that the expansion of universities and polytechnics over the past two decades could have taken place. It has provided the means for extending the educational opportunities of the nation as a whole and has widened the base from which the most skilled manpower of the nation may be drawn. In the view of the Committee an award system, analogous to the grants system introduced in 1962, will continue to be essential in the years ahead if national requirements are to be met. The report added that the grants system had encouraged access by a wider range of social groups.

Mr. Alistair Burt (Bury, North)

The hon. Gentleman, with his high moral tone, is getting into his stride, but, if his argument were valid, no other country in which there is a mixed system of grants and loans would have a higher proportion of students from lower socio-economic classes than this country, which is patently untrue. There is no evidence that such is the case. Rather, the record of such countries is better than ours. How can the hon. Gentleman possibly sustain his moral tone on access when there is support for the Government's figures?

Mr. Straw

If that claim is nonsense, it is the nonsense of those of the hon. Gentleman's right hon. and hon. Friends who were members of that Select Committee on Education and Science. I do not recall the hon. Gentleman telling them at the time that it was nonsense. I shall deal shortly with international comparisons, but one of the characteristics of British society that makes it different from those of Japan, the United States and western Europe is that it is far more class-ridden and, above all, has a far more divided system of secondary education. The blocks on working class schoolchildren achieving higher education are far greater in this country than in others. Significantly, as the hon. Member for Southwark and Bermondsey (Mr. Hughes) has said, other countries are moving in the direction of a grants system, not away from it.

The conclusion of the Select Committee is borne out by the facts. The White Paper reports that participation in higher education by children with fathers in manual occupations more than doubled under the operation of the present grant system, from 3.2 per cent. in 1962 to 6.9 per cent. in 1985. The House of Commons Library's statistical section looked at the same data from the last general household survey for me. Those with fathers characterised as "unskilled manual" make up 5 per cent. of those aged between 40 and 49 who received higher education 25 to 30 years ago. The comparable figure is 13 per cent. of those aged 30 to 39 and 16 per cent. of those in their twenties. Taken together, these data confirm the conclusion of the Select Committee which examined the operation of the grants system during the past 30 years, and suggest that the progress made over those three decades has fallen back in the 1980s.

Other figures show that the proportion of candidates with fathers in manual occupations accepted for university has declined from 22 per cent. in 1979 to just over 19 per cent. in 1988. In the same period, the real value of the grant was cut by 20 per cent. It is hard to avoid the conclusion that these two factors—a decline in working-class participation and a decline in the value of the grant—are linked. In other words, access is related to income. We believe that, and so does the Secretary of State.

The Secretary of State has claimed here today that, somehow, loans will lead to increased access. Let us briefly examine how that could possibly be achieved. There is one key figure about which there can be no argument: 30 per cent. of all students receive a full grant, either because they are independent of parents or because, as is the case with 27 per cent. of them, their parents' income is so low that even the Government say that those parents should not pay towards their children's maintenance. Those students will be hit immediately by the cut in housing benefit, which has already been cut once and is to be cut again. They have been hit by the decline in the real value of grants, and they will be hit by the poll tax—students in Scotland have already been hit by it. Now those students will be hit by the freeze in the real value of the grant.

Students with the greatest need and the least resources will lose the most when loans are introduced. There is no conceivable way in which this scheme can possibly encourage access to education. The only students who will benefit are those who come from wealthy homes, who will be able to swap the expensive credit that they get on their credit cards with the cheap credit that they will get under this scheme.

The scheme will restrict access and distort the labour market. Access to medical and dentistry schools will become the privilege of the well off even more than it is today, as my hon. Friend the Member for Newham, South (Mr. Spearing) has said.

Recruitment to teaching will be damaged still further. There will be a special effect in Scotland. The Secretary of State made something of the fact that 250 jobs will be created in Scotland. I have yet to meet a Scot who does not think that if there is that kind of money available it should be put into expanding the Scottish education system and not wasted on a debt collection agency, whether in Glasgow or anywhere else. It is significant that there is no Scottish Minister here today to take account of the way in which Scottish education will be disproportionately hit by this scheme.

The Secretary of State relies on international comparisons in support of loans. He could name no other country where Ministers are so incompetent as to introduce such a scheme. He knows that New Zealand tried to introduce a similar scheme but had to abandon it because the banks would not co-operate. He also said nothing about the fact that Britain's higher education is cost effective. We have lower wastage rates. We produce graduates in a much shorter time than do other countries because our students do not have to worry about where the next penny will come from. In the United States, students with loans drop out at three times the rate of those with grants or wealthy parents. Grants produce efficiency. Countries which have loans have a higher drop-out rate and longer degree courses. Countries with loans are now moving away from them because of the hardship and restricted access to education that they produce. That is what is happening in West Germany and Sweden.

Even the financial institutions are decidedly lukewarm about the scheme. University chancellors and polytechnic directors do not support the scheme, and precious few Conservative Members support it. The students and polytechnic teachers do not support it of course, and the banks do not support it.

The Secretary of State could give us no further details about arrangements between the banks, this agency and himself. I wrote to the right hon. Gentleman last week about the indemnity that banks are demanding as a price for proceeding with the loans scheme. The banks have rightly demanded—although we oppose it—an indemnity against a change in Government. There will be a change in 1991, and we will not operate this scheme. The banks have also demanded an indemnity against a change of policy by this Government. Would the Secretary of State like to say anything about that? It is a most extraordinary arrangement. The banks bear no financial risk under this scheme: they are just fronting up a disguised quango. I am grateful to my hon. Friend the Member for Fife, Central (Mr. McLeish) who has drawn my attention to page 10 of the Price Waterhouse report, which says that the financial institutions will require a return for the remaining risk. Essentially this is not a financial risk but a risk that their reputation could be impaired by their involvement". Perhaps the Secretary of State, or the man who has been feeding him his lines—the Under-Secretary of State —could say a word about this embarrassment. I agree that the banks will be embarrassed and that that is why they want nothing to do with the scheme. There will be not a Midland hank, Access or Visa student loan scheme, but the London and Scottish clearing banks scheme, and no one has ever heard of that. It is not an organisation that is talked about in student unions.

It is to front up this scheme and it is so deeply embarrassed about its involvement that it wants some compensation, which it says can be obtained by putting a spread on recurring expenses or a spread over the London inter-bank rate on the funding. The Under-Secretary of State had better say a word about this.

The loans scheme is so bad that it is difficult to work out why Ministers have pursued it. The only credible explanation is that, like the poll tax, its pursuit has been ordered from on high. Yet again it is a triumph of ego over reason.

At last week's Conservative party conference the new deputy Prime Minister said that the Conservative party should become "the listening party". A week is a long time in politics. We do not expect the Government to listen to the country or to the Opposition. We do not even expect them to listen to their own Back Benchers—they have dismissed out of hand the criticism of the hon. Members for Chichester (Mr. Nelson), for Cambridge (Mr. Rhodes James) and for Brentwood and Ongar (Mr. McCrindle) and the criticism of Lord Rayner about the impact on medical schools.

I ask the Secretary of State—as a former Heathite and wet—why he and the Cabinet do not listen to themselves. Why do they not listen to the Secretary of State for Health, the Home Secretary and the Secretary of State for Wales, who are all signed-up members of the Tory Reform Group, which has said of loans: All the evidence suggests that the social cost of loans would be considerable. The results of having the system would be to reduce working class access to higher education, to lower standards and to produce a new class of poor graduates. The indirect damage to society‖may be even more serious". The Tory Reform Group and their Cabinet colleagues and supporters are right. The Secretary of State is wrong. This scheme is rotten to the core. The Government should listen, recognise their error, and abandon the scheme before it is too late.

Several Hon. Members

rose—

Mr. Deputy Speaker

A large number of right hon. and hon. Members wish to take part in the debate. The briefer the speeches, the fewer disappointments there will be.

10.58 am

Mr. Robert Rhodes James (Cambridge)

I have received a petition, signed by more than 5,000 constituents, which is on similar lines to those presented beforehand and which I agree.

I welcome my right hon. Friend the Secretary of State to his position. I wish to emphasise one point which has always dominated me—the words of Alfred North Whitehead: In the conditions of modern life, the rule is absolute. The race which does not value trained intelligence is doomed. In England—although less in Scotland—we face the problem of an undereducated work force, even though it is a problem of long standing, and it is not the particular responsibility of this Government or, indeed, of any previous Government.

My first point is a point of principle. The hon. Member for Blackburn (Mr. Straw) referred to the pre-war arrangements. I was educated in the post-war system in the pre-grant era. To go to university—and there were not many universities anyway—one either had to have rich parents, which I did not, or one had to be fortunate enough to get a scholarship, and scholarships were few and far between. I was one of those fortunate enough to get a scholarship, but when the Conservative Government of the early 1960s introduced grants, I thought that that was one of the finest things that any post-war Government had done. That Government also initiated the expansion of higher education which was continued by the Labour Government. We all know that there were disappointments and that mistakes were made, but the principle that a university education should be available to anyone with sufficient ability, regardless of his or her means, was one of the finest principles ever established.

I should have supported the proposal had we been talking about true top-up loans—loans to supplement the grant—but I am afraid that we are not. Instead, the scheme will reduce grants and make student finance dependent on loans. I listened carefully to my right hon. Friend the Secretary of State in the hope that perhaps there had been second thoughts. A substantial volume of opinion, both in the Conservative party and elsewhere, has concluded, having examined the scheme carefully, that it is wrong in principle and that the practicalities would pose immense difficulties.

Let us suppose that the Government go ahead with such a scheme, although I still hope that they will not. Why do they so casually reject the option of a graduate tax? I was not convinced by what my right hon. Friend the Secretary of State said about that. The Committee of Vice-Chancellors and Principals took the valid view that the option should be seriously considered.

If the scheme were the only development with which students were faced, it might not be the major disincentive that I believe it will be. But it is accompanied by the abolition of benefits, the introduction of the community charge —admittedly at a low level—and a number of matters which add up to a substantial disincentive to parents and people who wish to go into higher education.

I believe passionately that investment in education—not least in higher education—is the very best investment that we can make. Our higher education budget is not enormous compared with those of other countries, and I therefore ask my right hon. Friend seriously to reconsider the matter.

11.2 am

Mr. Martin Flannery (Sheffield, Hillsborough)

It is always a pleasure to speak after the hon. Member for Cambridge (Mr. Rhodes James), who has an enlightened approach to most subjects.

The Minister's maiden speech in his new position sounded more like an uncorroborated confession: much of it was wrong, and he is not so innocent. either. Most of us have received a large number of briefs on this subject, and it is difficult to find among them one that agrees with the Government. Many people who vote Tory profoundly disagree with what is happening. We face a return to past attitudes which had a deadly effect and made it quite impossible to expand education.

The Minister now proposes a plan that he says will double the number of entrants to higher education. When he elucidated the plan, however, we found that it was a plan for halving, rather than doubling, the number of those entering higher education. It would push into difficulties those young people who in the past have been able, because of the grant, to enter higher education. At a time when we urgently need to expand higher education, we should find ourselves curtailing it instead.

Earlier, in an intervention, I made a serious point that all Conservative Members should consider, and, to do the Select Committee justice, it is already doing so. The report on teacher shortages shows that one fundamental factor is that the fall in the numbers in the 16 to 19 age group is so serious that competition among the professions will make it increasingly difficult to persuade people to become teachers or lecturers and, therefore, to expand education. That is why the Committee of Vice-Chancellors and Principals, referred to by the hon. Member for Cambridge, profoundly disagrees with the plan.

The committee asserts in its brief that the aims of any plan should be to ensure that students have enough to live on while they study and to ensure that the scheme does not deter increasing numbers of people from applying for higher education. I think that the whole House would agree with those aims, but we must judge them against certain criteria and against the Government's plan.

The committee says, first, that the plan should be simple—in addition to the principles that it should provide adequate means for the student while studying and that it should not deter people from becoming students, especially people from poorer families. The White Paper fails to satisfy any of the criteria laid down by the Committee of Vice-Chancellors and Principals—a very important committee which briefs us continually on education affairs.

The committee gave some of its reasons for rejecting the Government's scheme—for example, that the scheme takes no account of the loss of social security benefits, especially housing benefit. We must all consider that. It also takes no account of the poll tax or community charge, which will affect some students—especially poorer students—far more than others. The means-tested parental contribution may mean that some students do not receive the full amount. Many of them do not receive the full amount now. We should take into account the fact that, as a result of the Government's policies, many parents are already finding themselves in a dreadfully difficult position, with higher mortgage repayments and with the other startling effects of the Government's policies.

The scheme lacks simplicity. It is most complicated, and the Government are silent on the question of the administration of the loans. People are wondering exactly how the scheme will work. As my hon. Friend the Member for Blackburn (Mr. Straw) said, the banks do not want to be identified with it because it will earn them a bad reputation. That is an interesting position for them to be in. The banks are usually the ardent supporters of the Government, but even they are sounding a warning to them. Discussions with officials reveal that students may be involved with no fewer than four separate groups—their bank, the local authority, their institution and their parents. Yet the Government boast that this is a scheme whose simplicity should commend it to all of us.

The White Paper says that the scheme will mean a grant of 50 per cent. at the most. It is a strange top-up scheme that "tops up" the remaining 50 per cent.—as much again. The catch words "topping up" have no meaning in that context. The scheme will place a further tax on students, and a deterrent tax at that. It will mean that large numbers will not be able to attend higher education institutions. It commands so little support that it is almost an embarrassment to the Government to have to present it.

Many students already borrow from their banks to try to top up their grants. I am perhaps the only hon. Member who has suffered this experience: I was a student from 1937 to 1939, when the teacher training course lasted only two years, and practically all my companions in college had no money to spend. They spent two years at college with nothing. Nearly all of them had to borrow the £40 per annum college fee from the local education authority which, in its turn, could lend that money only to a limited number of students. That lack of money stopped people entering higher education. As the hon. Member for Cambridge said, the grants were one of the greatest things to happen to the expansion of education in this country. This new scheme takes education back to the pre-war days.

After six and a half years of war I came home and still had to repay the £80 for my college fees. My wage as a teacher then was very small, indeed it was even worse than teachers' wages are today. It took me four years to repay that £80 from my pitiful wage. That kind of debt hangs over many students in other countries, particularly the United States.

This plan will most likely deter students from higher education. The doctors' representatives have briefed us that the new plan will stop students from becoming the doctors that we urgently need. Students on longer courses will be deterred. There will be a shortage of teachers if we do not reconsider the plan, and that is important because studies show that there is a shortage of teachers now. The Royal College of Nursing is opposed to the plan because it will lead to a shortage of nurses. At the moment there is keen competition among the professionals for qualified students. If the scheme goes ahead, they will be fighting for people from a much smaller group of qualified students. The Select Committee on Education, Science and Arts is well aware of the shortage of students in higher education. Conservative Members on that Select Committee will be aware that this is a cause of great concern for us all.

There is evidence that the new scheme, which is supposed to benefit the taxpayer, will actually do the reverse. As my hon. Friend the Member for Blackburn explained, the new plan will cost a great deal more and will not do what it is intended to do. The Government had the benefit of nearly £100 billion of North sea oil money and the profits from North sea gas. They had a wonderful opportunity to do something for people, yet the streets are filthy and that money has not been handled properly. That money should have been a boon for all. The Government now propose to curtail education through this nonsensical scheme.

The low-income families will once again be hit hardest. The White Paper "Top-Up Loans for Students" is 11 months old. We have been asking for a debate on this subject since last November. At last we are debating it, but we are on a motion for the Adjournment, the proposal cannot be amended and we are debating it on a Friday morning. Instead of handling the real problem, the Government are trying to shield themselves and the country from the real problems by secreting the debate in an Adjournment motion on a Friday. The Government's scheme is like their handling of the economy—it is bad, useless and will come home to roost.

As my hon. Friend the Member for Blackburn said, the Government's aim is to save money. The Government are hopeless; the scheme will cost more. They claim that it will improve education. That claim, and the claims about the so-called Education Reform Act 1988—it should be called the Education Deform Act—are linked. They will harm education. The scheme will not work. It will cause worry, misery and penury. It should be abandoned.

11.13 am

Sir Rhodes Boyson (Brent, North)

I am aware that many hon. Members want to speak and, as far as I can, I will speak in headlines. It was a pleasure to hear my right hon. Friend the Secretary of State for Education and Science this morning. I agreed with most of what he said, but not all. I have always admired him for being intelligent, full of integrity and of independent mind. I want to appeal to his independent mind. Hon. Members have said that they hope he will listen, and I have no doubt that my right hon. Friend's ears are some of the best in the House.

We all agree that more people should enter higher education. The percentage of people leaving school at the age of 16 is far too high. In Japan 92 per cent. of students stay on at school until they are 18. In Germany 64 per cent. stay on, while in this country only 32 per cent. stay on. The problem does not lie simply with higher education; schools have a role to play. I am not convinced that a watered-down grammar school curriculum for all 14 to 16-year-olds under the national curriculum will solve this problem.

Many hon Members have referred to education in other countries. Unless we introduce some form of specialisation for 14-year-olds to make them interested in their future careers, people will not come through at the age of 16 and 18 to fill places in higher education. We already have a very high truancy rate. Three schools in one London borough have a truancy rate of 50 per cent. for 15 to 16-year-old boys. The curriculum that they follow has no meaning to them. They will not go on to higher education.

Under both Labour and Conservative Governments the value of the grant has declined under the present system. The situation is not ideal; the grant has gone down while the average standard of living has risen. We have created a new poor. They are particularly the students at university who live on grants while their parents do not make up all the parental contribution. A study has shown that the value of the grant in purchasing power terms is 35 per cent. less than it was in 1962. It has dropped by 11 per cent. since 1979 while the average standard of living of people at work has risen by 27 per cent. The present system is far from ideal and is causing many families and students anguish.

People resent the parental contribution. It is particularly resented by the children of the one third of parents who do not make it up. That creates another new poor among students going off to university. Some parents make no contribution towards the grant.

We will have to decide at what age people grow up. People can have sex legally and marry at 16. They can vote at 18. However, they are dependent on a parental contribution to their grant up to the age of 24. As Margaret Mead and other anthropologists have said, a good society has a time when a child becomes an adolescent and when an adolescent becomes an adult. One of our problems with young people is that they do not have a clear cut-off age when they become an adult. For people to be dependent on their parents up to the age of 24 or 25 is not helpful in the making of a good society.

Other countries have a grant or loans system. The White Paper is not suggesting something that is unknown in other countries. So far as I know the Republic of Ireland is the only western country which does not have some form of loans system. We also hear much paternalistic talk about the percentage of the working or labouring classes going up to university—[Interruption.] The Labour party appeals to people in the north in an attempt to bolster their votes in election after election. I grew up in a two-up two-down house in a textile area in the 1930s not far from the area represented by the hon. Member for Blackburn. I know what I am talking about.

I believe that if a university education is worthwhile, people from all groups will attend. People compete in every way in society and they are not dependent on being trained from above. The average loan in Germany is £2,000 per student and three times as many of the so-called labouring classes attend university in Germany than in this country.

Mr. Andrew F. Bennett

Will the right hon. Gentleman give way?

Sir Rhodes Boyson

Yes, by all means I will give way to another paternalist.

Mr. Andrew F. Bennett

Is the right hon. Gentleman aware of a German survey which shows that fewer poor people are attending higher education because of the introduction of the loans system? Over the past 10 years the loans system in Germany has had the effect that we now fear here.

Sir Rhodes Boyson

I shall have to debate that with the hon. Gentleman outside the Chamber. The figures that I have are different. The Minister also has figures for Germany. The subject will make a splendid debate in Oxford or Cambridge or somewhere in the north where the allegedly deprived live, to whose conscience the Labour party will continue to appeal at election time.

The present system does not help part-timers or those coming back to education later in life. One aspect that I like about the proposed new scheme is that it will cover students up to the age of 50. Part-time education and the Open university are the cheapest ways for people to go through higher education, yet we have underfunded them from the beginning.

I shall support the Government's new scheme, but I wish to make some mild suggestions which may influence Government policy now that Ministers are listening. I was privileged to be a Minister at the Department of Education and Science before loans were as fashionable as they are now. I produced a loans scheme, but it was dismissed in seven and three quarter minutes by a Cabinet sub-committee. I spent three months travelling around the world to see different schemes in operation. I concluded that debt redemption was most difficult. Much of the money is never recovered. The only system that worked was the Swedish system where the loan was plugged into income tax. I understand why Labour Members are silent: Sweden is a Socialist country, but I will take the truth from anywhere. That system seemed to work. The loans were paid directly by the Government and there was a graduate tax until the loan was paid off. Nothing was paid if the person did not earn the average income. It seems strange to take 85 per cent. of the average income as the limit here. I would suggest that a simpler method would be to take an average income rather than employing statisticians to work out what is 85 per cent. of it. I also suggest that a wife should not be responsible for her husband's loan or vice versa. That is my preferred scheme. I know that the banks will provide the money, which will save the Government money but the Government always find money when they want to for denationalisation of water and electricity and other matters.

Mr. Straw

And the poll tax.

Sir Rhodes Boyson

I must not be drawn by the hon. Member for Blackburn (Mr. Straw) on the community charge on which my ideas have been completely uninfluential.

The simplest method would be to plug loans into taxation. At some stage we shall link national insurance and taxation so that people either gain or lose from the state. That will be when we get a proper system going.

Do we believe in the incredible Labour policy under which the numbers going on to higher education will be doubled, the Government will give students a better grant and money will be saved? I do not believe it. As always, I am trying to help the Labour party. Labour policy is improving on nuclear defence. Bit by bit, the Labour party is approaching the truth and I welcome that. I am sorry that the hon. Member for Sheffield, Hillsborough (Mr. Flannery) has left the Chamber. I always enjoy his interventions in my speeches and I tried to intervene in his speech. Apparently, Labour does not intend to unscramble the privatised industries and bring them back under national control. The Labour party's policy of wiping out parental contributions and doubling the numbers in higher education is not credible. I shall not hazard a guess about what the centre parties think. They can think what they want because nobody notices anyway.

I would prefer a system where we pay for the very able to go to university. Wherever such people come from we must get them through higher education and not discourage them from taking it up. First, I would give a third or half of pupils who got the highest results at A-level, in whatever subjects, free tuition and a more generous grant than at present. In that way, we could keep "high culture" alive, as the German universities put it. Secondly, I would test the other half to two thirds on their motivation and give them a loan linked to income tax.

Hon. Members on both sides have said this morning that students increase their earning potential by 30 per cent. by going to university. Higher education is a personal investment. Students should assess what they should do in order to repay these loans. My criteria are high culture first and motivation second. When the Government plan the numbers for the professions they never get them right. Either we have too many doctors and lawyers or too few. It is better to leave it to the students to say, "If I train for this profession, I shall be able to repay my loan." I would prefer that to the present system. I shall support the suggested system on Second Reading. I do not agree with the intentions of my Government on every matter, but generosity on my part is helpful.

No one has mentioned the problem of our last closed shop, the student unions. I look forward to a debate on that before the new Session begins. I trust that the Queen's Speech will include a Bill to deal with the problem of our last closed shop; may it end.

11.26 am

Mr. Simon Hughes (Southwark and Bermondsey)

This is the first opportunity that we have had to discuss this proposal. I hoped that it would be an opportunity for the Government to reflect on the opinions expressed about it. Of the speeches made so far, only half of that of the hon. Member for Brent, North (Sir R. Boyson), could count as support. Otherwise, the Secretary of State stands on his own. That may say something about the general view of the proposals conceived by his predecessor. I hope that at the end of the debate the Secretary of State, his Ministers and officials will retire gracefully, consider carefully, and rethink properly these proposals.

In the 11 months since the White Paper was published there has been widespread opposition to it, and not only from the Opposition parties. My party passed a clear, overwhelming and unequivocal motion against student loans in March. One might expect Opposition politicians to do that, but it is noticeable that academics, vice-chancellors, principals, commentators and financiers have also expressed their opposition to all three of the objectives set out by the Secretary of State at the beginning of today's debate.

The first was to spread the cost of higher education more widely. It would be tragic if the Department of Education and Science were run on the principle that higher education should not in the future have a higher share of public expenditure.

In an editorial on 3 October, the Financial Times said: In the US, public expenditure on higher education absorbs 2.5 per cent. of gross domestic product; the figure for Britain is around I per cent. Such a policy"— that of keeping down expenditure while increasing the numbers— will either fail or result in a big reduction in the quality of university education. We need more expenditure on higher education, not the same or less.

The second objective enunciated by the Secretary of State was that there should be more money for more students. What the Secretary of State did not say was that this objective would be achieved only by students incurring more debts. The Secretary of State and the Prime Minister seem to favour a more indebted society; the Chancellor of the Exchequer certainly does. To encourage debt, particularly in the youngest members of society, is not a moral principle that Governments have previously supported. I hope that even this Government will see the immorality of pushing people into debt as opposed to helping them to avoid debt as they become adults and take on full working and family responsibilities.

The third objective set out by the Secretary of State was that, by this means, we should produce changes in student attitudes. Mr. Wilby said in The Independent of 29 September: Ministers argue that proper loans, borrowed from banks, are somehow good for students rather as schoolmasters used to argue that cold showers were good for pubescent boys. This is ideological twaddle. The most worrying thing of all that the Secretary of State said and that betrayed the fundamental flaw in the Government's policy was, "We believe that students must invest in themselves, for themselves." The difference between the Government, my party and my colleagues and, I guess, all Opposition Members is that Opposition Members and some Conservative Members such as the hon. Members for Cambridge, for Leeds, North-West (Dr. Hampson) and others believe that it is for the nation—for the people—to invest in education so that the nation and the people can benefit. We do not share the selfish attitude that the only proper investment is investment in oneself for oneself. We believe that investment in others so that the common wealth might benefit would be a far more appropriate policy.

Mr. Burt

I understand what the hon. Gentleman is saying, but does he accept that there is a sense of balance and proportion? There is no doubt that the Government already contribute a huge amount to higher education. The argument is not that the individual student will take on the full burden but that he or she will accept part of the burden for his or her own living arrangements—nothing else. Surely that is a fair spread of the burden.

Mr. Hughes

I am sure that the hon. Gentleman realises that many students already have a very impecunious existence. They decide to opt out of earning money at a young age, at substantial disadvantage compared with some of their peers, and often with no realistic chance of recovering their position. Just because they are graduates, it does not mean that they necessarily end up doing higher-paid jobs. Many non-graduates earn considerably more than graduates. One cannot rely on the benefit being much greater as a result of the sacrifice that one makes at the beginning.

It was noticeable that the Secretary of State paid no attention to the arguments put forward in 1986 by the Select Committee on Education, with a Tory majority, and already cited by the hon. Members for Blackburn (Mr. Straw) and for Sheffield, Hillsborough (Mr. Flannery). The Select Committee made it clear how vital grants were. It is disingenuous for the Secretary of State to ignore the one specific piece of recent advice by the Select Committee on this subject.

Why should the scheme be opposed? First, it will extend hardship for students. It is an extraordinary feature of the scheme that the welfare state is suddenly to be denied a particular range of people. Since 1944 the principle has been that social support would be given to people below a certain income level. These proposals mean that income support, housing benefit and unemployment pay is suddently unavailable to students, whatever their income. That is entirely unacceptable as a matter of principle.

The Government have not said what a minimum student income should be. They have not admitted that students on full maintenance grants could lose up to, or even more than, £1,000 a year as a result of the removal of housing benefit. There has been no assurance that students will not be poorer as a result of the scheme. The removal of the right to claim unemployment benefit or income support could affect 100,000 to 200,000 students. Is that insignificant? Should that be ignored? The Government have not answered questions about why unemployment benefit, for example, should be removed from this category in our society. They have not dealt with the fact that many students will be in a particularly disadvantageous position.

If a student is doing a four-year course in Scotland, his debt is likely to be substantially greater. A medical student doing a five or six-year course at Guy's hospital in my constituency, as the hon. Member for Lancaster (Dame E. Kellett-Bowman) is aware, will probably be substantially in deficit. We are talking about thousands of pounds, and, in some cases, about tens of thousands of pounds. Postgraduate students who will lose housing benefit are not eligible to take advantage of the top-up loans scheme. All these are real people in real education, making real choices about how to organise their lives. The inadequate access funds—the Government are to put in a small amount of money but have given no detailed explanation —are no substitute.

Secondly, the scheme will clearly deter many students from applying for further and higher education. All surveys suggest that loans, as opposed to grants, are a deterrent, particularly for those who find higher education most difficult to obtain. A recent survey at Cambridge university suggested that nearly 50 per cent. of women would have been deterred had they had loans and not grants. I appreciate that one could say, "Yes, that is a survey. They would say that, wouldn't they?" However, if we are trying to encourage women and those for whom higher education is most difficult to choose, we must be conscious of the risks. Small proportions of our ethnic minority communities and black people are at university. What are we to do? Are we to say they will be all right because they are likely to be earning the highest incomes? That is twaddle. The figures show that these groups are the most economically disadvantaged. As a proportion of people in higher education, their numbers will decrease.

As an example of the risks to disabled students, the Royal National Institute for the Deaf estimates that the cost of support for a full-time student is in the region of £8,500. Will there be funds to cover the cost of an interpreter to enable someone to follow a postgraduate certificate of education? They are exactly the people for whom it is vital to encourage access, but they are exactly the people whom this scheme will discourage from the beginning. Mature students who make a decision in mid-life to go back to college normally risk incurring a substantial loss of income. If they are told that they cannot have housing benefit or unemployment pay, will their numbers increase? Logic says otherwise.

Perhaps most important of all, whereas we know that we still have significantly small numbers of people from working backgrounds —social classes 4 and 5—in our higher education system, there is not a jot of evidence that this scheme will encourage there to be more. Rather, to the contrary, it will discourage those young people from going into higher education. If one comes from a background in which it is difficult to break from peer group and family pressure to make certain choices for higher education, one will be even more deterred if the risk is also a financial one. It is completely inconsistent for the Government to argue that they believe in an increase in numbers and yet make it clear that that increase will be obtained only if students must pay.

Currently available choices will be put at risk. The strong likelihood is that students will be obliged to follow more practical and vocational courses. The idea of a liberal, balanced, general education will be something which people will not have the "luxury" of being able to afford. Just as research has moved from pure to applied research, colleges will move from courses in general education to courses that are funded specifically with a view to helping people into jobs. That is not the way to produce an educated society.

I repeat the point that I made to the Secretary of State. Trends in Europe are the other way from these proposals because of evidence in countries such as Denmark, Sweden, the Netherlands and West Germany. They discovered that they were unable to recruit from as wide a range of backgrounds as they would have wished, that their loan schemes were complicated and clumsy to administer, and that there was a high level of default. What evidence is there that we will not have the same problems? It is fallacious to argue that, because there has been an increase in participation in other countries where there has always been a loans scheme in part, the change from a grant system to a loans scheme will not act as a deterrent in this country. It is an absolutely illogical fallacy. There is no evidence. That is why I hoped that, as a man of intelligence and integrity, the Secretary of State would have said, "We are taking a huge risk, but we believe that it is the only way out." If the Government had admitted that it was a big risk and that they might not achieve any increase in numbers, they would at least have been honest.

Mr. Harry Greenway (Ealing, North)

Will the hon. Gentleman give way?

Mr. Hughes

I will not give way, as other hon. Members wish to speak.

The Secretary of State should notice that, even among Tory supporters as well as supporters of my party and the Labour party, support for grants has increased as opposed to decreased in recent years.

The argument that has been advanced about the short-term costs is clear. On the Government's own figures, at the best this scheme will actually cost more—extraordinary when the Government are asking for Tory support—at least for the next 13 years, possibly for the next 23 years, and, without any stretching of the imagination, potentially for many years beyond that. It is an extraordinary proposal. The Government have put forward a scheme which, in the short and medium term —in the political lifetimes of every hon. Member—will cost the Exchequer more. I had thought that the Chancellor of the Exchequer was against the public purse spending more. It is all very well saying that eventually, on the best projections, the figures will balance some time early in the next century, when the reality is that the best projections 10 years ago of how the economy would work did not foresee us in the dire straits that we are in now. Even on the Government's figures we cannot assume that the scheme is a justifiable use of public expenditure when it will cost the country so much more and risk so much more as well —

Mr. Harry Greenway

rose—

Mr. Jackson

rose—

Mr. Hughes

I shall give way to the Minister.

Mr. Jackson

In such debates, it helps if hon. Members listen to each other's speeches. The hon. Gentleman should have listened to my exchange with the hon. Member for Blackburn. The fact is that there will be savings under this scheme at the turn of the century.

Mr. Hughes

The fact is that, on the figures given by the Under-Secretary and the Government, the first date by which it is conceivable that the scheme will have broken even is 2002, which is 13 years away. The Government concede—all the experts who have commented on the scheme apparently believe—that the break-even point could well be well into the following decade, if not well after that. The Minister knows that.

Mr. Harry Greenway

rose—

Mr. Hughes

No, I shall not give way.

The Government argue that it is important to make young people less dependent, but they will be more dependent when paying back loans over years if not decades. Many may, paradoxically, become more dependent on their parents than they are now.

The Secretary of State has come to the House to defend an ill-conceived and ill-thought out White Paper. Sadly, he has argued unconvincingly when he should have been able to find arguments—if they existed—to win the discussion today. The Secretary of State has tried to defend, but has not defended the indefensible. There has been enormous opposition to this scheme, including from Conservative Members.

The costs to the country outweigh the benefits, and the costs to the Exchequer will outweigh the benefits for decades. Students and their livelihoods and incomes and their families' incomes are at risk. There is nothing to suggest that access to higher and further education will be improved.

In the weeks that remain before the Queen's Speech —I am sure that there will be other competitors for legislation—I ask the Secretary of State to drop the baton that was passed to him by his predecessor; to realise, as a former Treasury Minister, that he is now the custodian of a proposal that will be unworkable and that will do himself and his Government no favours, not least with their own supporters, and to rethink so that we can have a scheme with which we can expand education and do what we need to do to survive and prosper in the future as a nation. It is no good having a scheme that currently does not work too badly replaced by education on the never-never because then we may never never see the expansion of our higher education that this country so badly needs.

11.43 am

Dr. Keith Hampson (Leeds, North-West)

In 1976 I first wrote an article in favour of loans. Before that I had been against them. Indeed, in the 1960s I helped to draft a ringing denial that loans were good for British higher education for the then leader of the Conservative party when he was the first party leader to address the National Union of Students' annual conference, which that year was held in Leicester. However, I changed by view and I shall later give the House some of the reasons why I came out in favour of the loans scheme.

Four years ago my hon. Friend the Member for Buckingham (Mr. Walden) and I persuaded the then Secretary of State for Education and Science, now Lord Joseph, to withdraw some proposals affecting parental contributions and urged him to review all student support, including consideration of loans. Frankly, like most of my colleagues, I find it disappointing that after four years the net result of the Department's efforts is an excellently researched comparative document about what has happened elsewhere in the world, with a good statistical base, but which is short of effective details on what the proposals that it is recommending will mean. It is especially disappointing that after all this time the details have still not been finalised with the banks.

However, I must advise the hon. Member for Blackburn (Mr. Straw) that this debate goes back much further than that. Indeed, it goes back to the 13 points of Mrs. Shirley Williams in the 1960s when the Labour Government first raised student loans —

Mr. Straw

indicated dissent.

Dr. Hampson

The hon. Gentleman should not shake his head because that issue was one of the 13 points. We have had 20 years since then of "Shirley-shallying" by Government after Government, Labour as well as Conservative. When Lord Preston was political adviser to the Department of Education and Science, at the time that the hon. Gentleman was an adviser to the Government, he advocated loans. It is extremely disappointing that, as in every other aspect of policy of the Labour Front Bench's policy review, here too, it is grubbing around for votes, student votes.

As my right hon. Friend the Member for Brent, North (Sir R. Boyson) has pointed out, everybody knows that the present system is far from perfect. We should not be debating the principle of whether we have loans, but the nature, scale and detail of the best loans scheme.

Mr. Harry Greenway

Is it not a fact that the average student borrows about £400 a year at present?

Dr. Hampson

It is, in part, the reason why there should no longer be a debate about the principle. As my right hon. Friend the Secretary of State pointed out, a student should invest against his or her future earnings. Obviously, we should like students over 18 not to he so dependent on their parents. I am sure that Opposition Members would advocate that, as has the National Union of Students many times.

The figures on what has been happening are damning. About 300,000 students in higher education are not getting their full whack of parental contribution or are getting no contribution. We have seen the value of the grant fall steadily under all Governments, but it fell most during the financial crisis of 1976, under the last Labour Government. That Government were the only Government since the war to reduce the rate of student participation in higher education. However, Opposition Members want to forget their track record.

We must produce a scheme that does more than produce only a modest financial gain to the system. We need a scheme that genuinely opens up access. That is the key reason why I changed my mind. Critics of the Government, such as the team from the London School of Economics, have been critical of the scheme, but all have said that the present extraordinarily generous grants system is an incubus on the growth of higher education. The high extra unit costs it causes deny us the ability to open up access. We have the only university system in the western world to have put hard limits on the numbers of students that universities and polytechnics can take. They could take more students—and they must—but we have said no, because that has been the edict from the Treasury. If it is at all possible, it must make sense to recycle money in the system so that more people can be put through it for the given available resources.

I wish to reiterate what my hon. Friend the Member for Cambridge (Mr. Rhodes James) said to my right hon. Friend. The context cannot be ignored. My right hon. Friend has already made a strong statement, but I urge him to acknowledge the vital importance of distinguishing between the cost of education and the cost of maintenance. At this stage we should not be talking—or encouraging the universities and polytechnics to think—in terms of full-cost fees being paid by students through loans. We should certainly be encouraging a more open-market system of providing courses and drawing people into education.

However, we should be realistic about it. If 80-odd per cent. of medical students are already from social groups 1 and 2, where will we suddenly find a great new surge of students who are willing to pay the huge fees that medical courses would involve? If we are to open up the market, it must be with automatic funding of fees as now, so that students can shop around and we can have a more competitive system between institutions as students carry the money with them. Indeed, that is the trend we have begun by reducing the amount of direct funding and providing it more through students.

For heaven's sake, however, the impression should not be given that students will have to take loans to cover full-cost fees. That is what some vice-chancellors have said, and possibly they have done so to try to blackmail the Government to put more resources into higher education.

I must enter one caveat. If we are to have a more competitive and open system I urge my right hon. Friend to allow polytechnics, if they so wish, to change their names to incorporate the word "university". My right hon. Friend's predecessor did not allow that when we were discussing the Education Reform Bill. If we are to have an open market we should have level playing fields for all parts of the system. The polytechnic part of that system is regarded by most people as the second division, and that is unfair.

It is already true that the university system is not monolithic. There is diversification of standards and provision within that system and it is not fair that polytechnics are regarded as second best by so many parents, students and teachers. We should be able to refer to the university, or institute of science and technology, in Leeds or wherever. If the universities and the polytechnics were all considered universities, as in the United States, that could have a profound effect on achieving the open and competitive system that my right hon. Friend wants.

I cannot understand why we so rigidly deny polytechnics their freedom in this respect. We gave them the power to change their names, but then we tell them that the Minister will veto any use of the term "university".

Some of my hon. Friends raised their voices at the comment of the hon. Member for Blackburn that I had likened what we are getting into with student loans to the community charge. I did that with an eye on my right hon. Friend the Member for Brent, North. Many of my colleagues welcomed the principle of abolishing the rates, but they did not look too closely at the details of the community charge until it was well down the line. That is my principal objection to the Government's current proposals.

My hon. Friends—one of them is not present at the moment —may have been critical of my remarks, but I believe that it would be better if we were talking about private money issued by the banks and collected by them.

To the extent that that money is an unsecured loan, it needs Treasury guarantees. That is exactly where we started in 1979–80. We are now, however, talking about public money which the Government are paying the private sector, through a quango, to disperse. They will then pay the private sector to collect that money back. It will not be additional private money, but public money and considerable administration costs will be attached to it.

Time and again we start by trying to make things simpler, but end with more confusion. Students will be involved with at least four basic bodies. They will still be dependent on their parents because the £400 that we are offering will not avoid that. They will also be dependent on their banks and their credit cards, just as now. The German system provides £190 a month, not £400 a year. Our students will still be involved with their parents, the banks, the new quango, their own education institution —university or polytechnic —and with their local education authority. Why is all that necessary? In 1979–81, my right hon. Friend the Member for Brent, North was largely instrumental in the work done on a banking scheme. Some of the issues were outlined in a document which said that the student "armed with his certificate" —from his institution could go to the local bank to negotiate a supplementary loan up to a set maximum". What is wrong with that simple system? When one signed on at the college one could take that certification to the bank and receive an overdraft just as now.

Mr. Jackson

That is precisely what we are proposing.

Dr. Hampson

But we now have an institution that is owned by the banks collectively, which is sitting in Glasgow and which employs very expensive staff.

We should be able to do what was proposed in 1979–81. We have not got rid of the LEAs. In paragraph 19 on page 8, the document states: If a central agency for student loans were established there would be a strong case for centralising all mandatory student support, whether by loans or grants. It would make little sense for LEAs to retain responsibility for the grant element in a combined scheme; such an arrangement would be confusing to the clients and a recipe for administrative confusion, and would certainly be more expensive overall". The document also pointed out that when Rayner studied the present system he concluded that it was "chaotic, confusing and over-expensive". If we are to use the banks, which is an admirable notion, the money used should be the banks' and they should administer and collect it, provided that the Treasury gives an ultimate guarantee.

The proposal failed before because the banks insisted on the creditworthiness of the individuals and the Government rightly said that they could not allow that. The banks then said that the Treasury would have to give guarantees on every loan. In 1981–83, it was perfectly understandable that the Treasury resisted that proposal. We had a huge public sector borrowing requirement crisis and in those days the convention was that every guarantee, whether called or not, fell against the PSBR. Frankly, the world has changed somewhat. I cannot believe that we could not find the means by which the Treasury could guarantee defaulters after a time. That happens in so many other systems.

Under the current proposed scheme, we will write off a debt after 25 years. It should be possible for the banks to do their best to get their money back, just as they do with any of their clients. Students will be valuable clients. Are we suggesting that students will borrow on a loan and then suddenly walk away from the bank and disappear into the blue and never have a bank account? There will be some defaulters, but the banks will pick up most of the loans and, to the extent that there will be a shortfall, I believe that it would be fair for the Treasury to guarantee paying back those loans, after a certain time.

The other big issue raised in 1981 was an absolutely basic political one. We are talking about young adults, and we asked why they should be dependent on a system that palpably failed—the parental contribution. One alternative to consider is simply to replace the parental contribution. One could still expect such a contribution from the top income earning families. It is a good Conservative principle that the family should look after its own if capable of so doing. Richer families are obviously more capable of maintaining—not paying the tuition fees —their children in higher education. Obviously there is a case for providing loans on an easier and more generous basis than under the scheme proposed. In that way the vast bulk of students would not have to depend on their parents.

We do not know what the current options have been or what the arguments against them have been. We have not seen any working paper, but I do not see why there should be any trouble in providing the House with that. So far, why my right hon. Friend has pitched for the particular proposal before us is not convincing. It looks suspiciously as though it is the worst sort of compromise. It is patched up all over the place in different elements of the scheme, and it is a compromise especially in relation to the Treasury.

Let us consider the interest-free argument. I have a feeling that the Treasury is uptight about the overall scale on which it will have to provide the money. So we have a tight ceiling on the global amount and a low ceiling at which each student can borrow. In future, every year when the Department of Education and Science tries to raise the total for the loans scheme or to raise the level available to an individual, the Treasury will have an almighty argy-bargy about it. In return for the limits imposed it looks as though it has been agreed that to make the scheme more saleable to the public there should be no interest charge. That is nonsense given some of the principles involved—to circulate money on as large a scale as possible to give more people greater access to higher education. There should be an interest charge and it need not be a big one—virtually every other similar system has interest charges ranging between 3 and 4 per cent. It is still extraordinarily cheap money and such interest charges change the gain factor in terms of the amount of money available for other students. What is the advantage of the loan being interest-free? It would be far better to do something further about parental contributions.

The scheme will not be seen to be fair and will not meet with public and student acceptance unless we get the repayment proposals right. In that regard I agree entirely with my right hon. Friend the Member for Brent, North. That was the conclusion of all the Government working papers between 1980 and 1983. The argument then advanced was that the Inland Revenue would not act as a debt collection agency for the Government. I suspect that it will not cause what my right hon. Friend the Secretary of State called "excessively burdensome" bureaucracy. There is no evidence that it will be excessive. All operations such as this will be burdensome, and the present system using the new quango will be burdensome. The real Treasury argument was that it would be a rotten precedent because there might be others in Government who wanted to use the Inland Revenue computer to obtain money from people. That is the real issue and it is a perfectly valid argument. However, the Government have to judge which is the worse of the arguments.

It might be better to use this system because it would result in a much better loans scheme, one which would ultimately save the Treasury money and-or provide access for more students in higher education. That is the route that the Department of Education and Science wanted to take, and that is the route that was taken in Australia. Why is it that, even within the English-speaking Commonwealth. this supposedly critical principle that the Treasury stands by has been so obviously and often breached?

That alternative is the only way successfully to relate the repayments to income. Instead we are proposing a broad cumbersome threshold of 85 per cent. of the national average income before repayment begins. Beyond that, no matter what the differential incomes are, students pay back at a fixed rate. We should have a simple coding change for the period of borrowing, not a graduate tax for life, and this is where I differ from my right hon. Friend the Member for Brent, North. If earnings rise or fall, if someone was ill or out of work, there would be an automatic change. That must be the way to do it.

The alternative of using national insurance takes a broad-brush approach and is not so finely tuned. It breaches a principle of the fund. We could possibly introduce an employers' skill levy as an alternative, although I do not particularly advocate that. We could have a skill levy which would be collected by employers and which could even go for other aspects of training, as well as paying off loans for higher education. There are loans for training through the MSC and perhaps we could dovetail them. There are a number of alternatives, all of which have more attractive features than those recommended to the House. Why have they been rejected?

Would a loan scheme provide a disincentive? If the repayments are finely tuned and equitably related to income, the problem of disincentive will be much less. But it would be wrong for Conservative Members not to take account of the points raised by some Opposition Members who said that the change from the present to the new system would create some disincentives. I stress that the DES recognised that, and in earlier papers said: It is however most important to emphasise that while the effects on participation of the introduction of loans cannot be accurately predicted they must include a risk of decline at least initially. Experience abroad cannot serve as a guide here since in almost every foreign case the introduction of loans increased the public support available for education. During the short period of readjustment, until attitudes come into line, there will be some disincentive. However, Ministers are correct to say that there is no positive correlation between the level of financial help offered to students and participation rates. Evidence from around the world shows that that is so, but in the short period of readjustment from the present to the new system we might find a problem.

I beg my right hon. Friend the Secretary of State not to saddle us with a second-rate system, not to rush ahead too fast, but to pause, to be more cautious and to reconsider the detail. My right hon. Friend has earned a reputation of being a genuinely listening Minister. I urge him to listen now so that we may have more of a financial return from the system, more students entering the system and a fairer system.

Several Hon. Members

rose—

Mr. Deputy Speaker

Order. I hope that the House will continue to bear in mind my earlier appeal for brief speeches.

12.4 pm

Mr. Henry McLeish (Fife, Central)

There have been few occasions in the post-war period when there has been a consensus about the need to expand entry into higher education. Interestingly, there have been few occasions when higher education has been so high on the political agenda. Why, instead of discussing access, equal opportunity and excellence, have we today become bogged down in debt, debtors, deferrals and defaulting? There seems to be a mean response to what should be a time of enthusiasm and imagination about the expansion of the higher education sector.

My hon. Friends have eloquently expressed the public policy issues involved, which are worth repeating. First, Ministers have given no assurances that introducing such a scheme will improve access. That issue should form part of the debate which will continue in future months. Secondly, it is quite clear that, at least in the initial period and in the next century, a high financial burden will be paid by the taxpayer for the loans scheme. The Government must tell us why, when the initial intention was to reduce the burden on the state, the scheme being devised will increase the burden over the next 20 to 25 years.

The third issue shows the difference between the Government and the Opposition. Why do the Government constantly talk about investment in education without giving adequate attention to their economic performance and the nation's needs generally? The balance of the debate in the Conservative party has swung far too far away from the nation and its economic performance to the burden which is exerted on the individual.

Fourthly, the Opposition recognise that the Conservative party is fast becoming the party of increasing debt. Is it right that, after a four-year course, in the mid-1990s students will face a level of indebtedness which will not only worry them when they leave university or higher education but will be a burden on them when they are studying? They will have to face the problem of how to cope with this level of indebtedness.

The hon. Member for Leeds, North-West (Dr. Hampson) tackled the problem of the proposal's workability. There is a particularly Scottish dimension to this debate. There are no Scottish Conservative Members in the Chamber this morning. Where are the Scottish Office Ministers? Where is the Education Minister? Is this not important? Where is the Secretary of State for Scotland? It is important to put on record that while people throughout the country are genuinely concerned about higher education, a portion of the Conservative party clearly does not find it suitable, convenient or interesting enough to be here.

There is a higher proportion of Scots in higher education than of citizens from elsewhere in the United Kingdom. There are currently 83,000 full-time students and a great proportion have state awards. Therefore, when the Government devise and prepare to implement the proposals they must bear that factor in mind.

An important social class factor must also be taken into account. In the United Kingdom the proportion of skilled, partly skilled and unskilled parents who send their children to university is approximately 29 per cent. of the total. In Scotland it is 34 per cent. The key issues of access and indebtedness have always been associated with those who may have difficulty obtaining the finance to undertake higher education courses. There will be an additional financial burden on Scottish students and parents which will have a higher impact on them than on those in the United Kingdom.

The problem of the four-year degree course has been highlighted by hon. Members. Figures can always be debated and statistics can always be misconstrued, but two specific figures are now under discussion. It is possible that in the mid-1990s, not far off the year 2000, Scottish students will be faced, after a four-year course, with debts of approximately £10,000 over five years. How many parents have made the quantum leap from the concept of a top-up loan to such a level of indebtedness? Let me put it another way; those students will be faced with a mortgage repayment of £97 per month.

According to the Government propaganda that is being put about, the loan is a top-up—an extra into which students can dip if they wish. The harsh reality, however, is that, if inflation continues to accelerate over the next two or three years, parents will very soon be faced with a 50 per cent. so-called top-up. The Government should be warned that student loans—as is clear to both educationists and to parents—could do to higher education what the poll tax is doing to local government; and the Conservative party is already in a state of disarray over the electoral impact of that tax.

Let me say a little about the workability of what could be objectively described as a harebrained scheme. The document that gives the game away is the Price Waterhouse report, published in May 1989 and commissioned by a group of bankers—the Committee of London and Scottish Bankers—working closely with the Department of Education and Science. We have heard much this morning about the quangos that have been set up. Why the need for this new bureaucracy? The answer is simple: individual banks and banking institutions want nothing to do with the scheme. Clearly their financial judgment is of a much higher order than that of education Ministers.

Let me highlight the dangers that I feel the Government should address. Price Waterhouse spent an immense amount of time on its study—three weeks!—and the Government have spent even less time assessing the implications. I am sure that, if we wished to promote our view, the distribution of the Price Waterhouse report to every Conservative Member and every banking institution in the country would be the best way to capture the essential absurdity of the scheme.

For the banks the scheme is foolproof. No market machinery is involved; this is not the market responding to a Conservative call to widen access by expanding the volume of cash in the system. According to the criteria used to devise this "vehicle", as Price Waterhouse describes it, loans will be kept off the balance sheet of the participants". Everything will be funded by Government, including default liability", and there will—or should—be effective arrangements for pursuit of defaulters". The Government will pay the bill for that as well. Start-up and running costs will be fully recouped—and all of this madness is to be in operation by September 1990.

A more revealing section of the report deals with debt collection. This is the other reason why the quango was needed: individual banks do not want abusive students criticising debt collection procedures locally. As the Price Waterhouse report makes clear, the reason for setting up the organisation in Glasgow —the Sunday Times advertise-ment last week was the first step in this crazy process—was that, of the 200 staff envisaged, more than 50 per cent. would be debt collectors. The explanation is simple: any loan scheme, especially in America, reaches a critical stage at which the loan debt ratio becomes a burden on the public purse, and a massive debt collection service is therefore necessary to ensure that the number of people paying back the debt is greater than the number involved in either deferrals or defaulting.

The report goes into more detail about how this bizarre affair is to be handled by the Government. We are told of an incentive scheme to minimise bad debts", and appendix III, statement 8 informs us that Payments would be made to loan collection staff…This will provide direct motivation for all collection staff to be enthusiastic in pursuit of debts. This bonus will be paid out of the institutional incentive above. Compliance with agreed collection procedures would be required. So there we have it. The Government pay for the loan and the quango and underwrite the initial costs, the debt collection and the debt collection agencies. It is impossible that a Government who were either competent or knowledgeable could embark on the implementation of a document that is not only bizarre but barely conceivable. That document is, however, the Government's bible. Perhaps when he replies the Minister will tell us why the Government are departing from some of its findings.

I mentioned the loan debt ratio. According to appendix VI, statement 1, In 1995, the average number of defaulters is expected to be 41,600 according to the DES. It is estimated, however, that the total value of money sent to the debt collecting agencies—this is not within the quango, but one step removed from it—will be a massive £64 million in one year. Here is another brilliant solution: the Government, if they implement the report, will allow debt collecting agencies to come in and, for a fee of 20 per cent., cream off £5 million of that. The Government, however, will collect only £22 million at best from that £64 million. This is the stuff of comic strips. Clearly the Minister will want to distance himself from some of the more ridiculous proposals in the report—or possibly to confirm that the Government are about to embark on setting up such an agency in such a way.

Those are only a few of the gems contained in the Price Waterhouse report, which is essential reading for all who are interested in the efficacy of public expenditure and in the future of higher education.

The Treasury implications are such that the scheme must surely be a subject for either the National Audit Office and the Public Accounts Committee or the Treasury Select Committee. If higher education is to be reduced to a set of bounty hunters being paid a commission to bring in the debt, and if students are to have restricted access to higher education because of the cost to a household, we are hearing a sorry and shabby tale about the government of higher education by the present ministerial team. I hope that the Government will think again, and I am given a measure of confidence by the fact that the Secretary of State is not only a Scot but an ex-Treasury Minister. I hope that the sanity of the Treasury will be combined with the Minister's Scots canniness to produce a better scheme than the one that we are debating today.

12.19 pm

Mr. David Evans (Welwyn, Hatfield)

I wholeheartedly endorse the principle of student loans and welcome the Government's proposals as a positive step in the right direction. I find totally unconvincing the arguments advanced against the proposals. The arguments in favour are compelling.

I should like to focus on the two principal and fundamental arguments in favour of student loans. First, it encourages a greater sense of responsibility on the part of the individual and that can only be a good thing. It is certainly good for students, who will be in a better position to assess their own needs, to determine priorities and to appreciate the value of money. Critics have palpably failed to grasp that this sense of responsibility can be achieved to the financial benefit and not the detriment of students.

Most students in Britain in full-time higher education depend wholly or in part upon parental contributions. That creates a burden for parents, some of whom are unable or unwilling to meet the demands. As a result, about one third of all students who need the help of parental contributions do not receive it. In some cases the shortfall is considerable. The proposals try gradually to remove much of the burden from some parents and ensure that students have far greater control of their own resources. Making a loan available at a new rate of interest ensures that students have the money which for many would not have been forthcoming from parents and which they would have had to borrow. That money would have been interest bearing.

It is significant that the proposed size of the loan, at least in the initial stages, although relatively modest at about £420 a year, is probably still higher than the average overdraft run up by students over the course of an academic year. Therefore, the average student will be a net beneficiary under the Government scheme.

As I have said, parents will also benefit, the locus of responsibility shifting from the sometimes unwilling parents to the consumers of education. The education system and society generally will also benefit. The consequence of the second principal reason for the change is that students will appreciate education far more. The problem with the existing system of automatic grants is that it is overgenerous. Bright students in secondary education know that the grant is automatic. A smooth passage from sixth form to university or polytechnic, courtesy of the state, is taken for granted and hence higher education tends to be taken for granted.

At the end of the day the students graduate, but in the process they are far less demanding of the system than their counterparts in other countries. Elsewhere it is far more common for students to have to bear part or all of the cost of their education. As a result, they take education far more seriously and demand more from it. They also apply themselves with more vigour to their work. After all, it is their own money that they are spending to obtain a good education. Who is likely to want to pay for that out of his own pocket only to achieve a poor result at the end of three or four years in higher education?

I have already effectively dealt with some of the arguments against the system. Relative to many countries, the system of loans proposed is generous. In both the long and short terms students will not suffer. The loan will enable them to achieve a good education and potentially, for the reasons that I have given, an even better education than they can obtain at present. That will enable them to get good jobs.

We are currently in a period of demographic downturn, and commerce and industry are competing vigorously to attract students. Increasingly a degree will become a passport to a good and well-paid job. Students know that when they apply and will have no worries about repaying a loan. After all, it is a modest loan at privileged rates when they have graduated. The prospect of a good job is likely to draw students into higher education from working-class and middle-class backgrounds. I see no grounds for suggesting that it will work against working-class students. In so far as students from working-class families are discouraged from going to a university or polytechnic, the constraint is essentially cultural. As far as money is relevant, it is in terms of the attraction of achieving an immediate money-generating job and not in terms of the cost of higher education.

For graduates who go into important but low-paid vocations, the loan repayments can be deferred and in some cases written off. There is, thus, no discouragement for those who continue to enter low-paid occupations. I find little force in the arguments against the loan proposals. They are weak and the arguments in favour of loans are convincing.

Could the proposals be improved? The one modest suggestion that I have is that there should be a bigger differential between home students and those who come from some distance. Under the proposals, undergraduates may be tempted to reduce their cost of living at home and attend a home town university or polytechnic. That is not necessarily desirable in terms of encouraging greater independence and responsibility. In many cases it may not even be possible.

Of course, there may be geographical factors and for many students there is no nearby university or polytechnic and increasingly we are likely to see more specialisation in education. With the greater emphasis on centres of excellence which the Government have encouraged, there is a greater likelihood that students will have to travel some distance to attend the most appropriate seat of learning. Some account must be taken of their learning needs. That can best be done through a greater loan facility and I hope that the Minister will consider such a differential. That would improve what is already a good scheme and one which in principle has my wholehearted support.

12.26 pm

Mrs. Margaret Ewing (Moray)

I hope that the speech by the hon. Member for Welwyn Hatfield (Mr. Evans) will be read not only by existing and aspiring students, but by everyone who is interested in education. I found quite horrifying the bias and prejudice in that speech. That was greatly against the philosophy of the debate, which was evident even in Opposition speeches, because we have addressed the issue of student finance and higher education finance. It does not help the debate one whit to hear such bias and prejudice being put forward in such a manner.

The idea that a student does not appreciate his responsibility or the value of money is ludicrous. I lived on a student grant and I can assure the hon. Member for Welwyn Hatfield that every student knows about value for money and accepts his responsibility by working during vacations and at weekends to try to supplement the grant. My generation was slightly more fortunate than the present one in that at least we had job opportunities in the summer months.

I endorse the comments of other Opposition Members about the failure of the Scottish Office to have a representative here and about the absence of Scottish Conservative Back Benchers. Perhaps when the Minister is winding up, he will tell us whether an invitation was extended to the Scottish Office, or whether Ministers there showed any interest in the fact that the debate was taking place. We knew about this debate about three months ago and there is no excuse for any hon. Member not keeping a space in his diary in order to be present. It is a tragedy that they are not here today.

No doubt, the Under-Secretary will use as one of his arguments that the Department of Education and Science has responsibility for universities in Scotland. That is one of the tragedies that we have to face up to in Scottish education. The recommendation of the Scottish Tertiary Education Advisory Council, that the Scottish universities should be brought more effectively into line with the rest of the Scottish education system, should have been accepted. As a matter of courtesy, Scottish Members and Ministers should have been present. Certain aspects of higher education come under the auspices of the Secretary of State for Scotland, and he attached his name to the White Paper.

I am sorry that the Secretary of State for Education and Science is not here because, through my maiden name, I belong to the clan MacGregor. We must come from different sects of that clan because we come to the debate from different ideological approaches. The concept of universality of access to education at primary and secondary schools should be extended to tertiary education, by ensuring that the funding is there to allow people that direct access.

Underpinning the debate is the issue of times and circumstances. There are generation gaps. I am the child of one of the 5 per cent. of unskilled manual labourers, who went to university in the 1960s as part of the post-war bulge, which resulted in that wonderful headline, "The bulge goes to university." The times and circumstances were such as to enable children such as me to have, for the first time, the opportunity of university education. When I think of my parents' generation, I realise that the skills, talents, abilities and intelligence that they had was never allowed to come to fruition because they had to leave school at the first opportunity, usually to supplement meagre incomes. The tragedy is that that was a loss not just to the individuals but to the common weal, because they could not bring their developed talents into play in advancing our society.

The White Paper contains a disincentive to children from the lower socio-economic groups that will prevent them from entering higher education. My father, as a farm worker, would never have contemplated allowing me to go to university if that had meant taking out a loan. Debts and loans are still alien to huge sections of the working class. They are not people who run around with credit cards and have vast overdrafts. They try desperately to make ends meet, and have a tradition of independence.

We have heard that there is a decrease in the numbers entering university and higher education institutions as a result of the devaluation of grants, housing benefit cuts and, in Scotland, the poll tax contributions, all of which are making it more difficult for people from lower socio-economic groups to take advantage of education. We are not talking about top-up loans. If we were talking about such a facility being made available, at some point, to students, it would be a different matter. Instead, we are talking about a system that will eventually replace the grants system—the very system that extended access to education to people such as me. The proposals in the White Paper will take us back to the times and circumstances before the grants system and we should resist that with vigour and energy.

Much has been made of the 250 jobs that will be created in Glasgow as a result of these proposals. However, these jobs pale into insignificance when we see the impact of cuts on our universities —the closure of departments at Aberdeen, the redundancies of academic staff, the threat to the veterinary college in Glasgow and the closure of the dental school in Edinburgh. The 250 jobs at Glasgow are no compensation for the way that our university system has been undermined by severe cuts in financing and research grants.

The White Paper has implications for the four-year honours degree course, and this has concerned all hon. Members representing Scottish constituencies. It would be useful if those hon. Members who do not know about the Scottish education system understood why we have a four-year honours degree system. We have always believed that education should be a broad rather than a narrow experience and in high school, youngsters take several highers rather than one or two A-levels. The university system is built on top of our schools system and results in a broad-based degree, with little early specialisation. As a result, students at Scottish universities can switch in the middle of their degree courses and still complete their degree course within three or four years. The hon. Member for Stirling (Mr. Forsyth) should be here because he benefited from that at Saint Andrews. He started off taking one degree and switched to another subject —presumably in privatisation, at which he seems to be an expert.

The very breadth of our degree course enables that facility to change. Furthermore, it is much more compatible with the degree courses of our European counterparts. At a time when we should be mindful of the European dimension in education, we should take cognisance of how close the Scottish education system is to the systems that are applied elsewhere in Europe. I believe that many students south of the border would benefit from many of our ideas.

The Government's proposed scheme would lead to severe financial difficulties for Scottish students. The illustration in the White Paper shows a student commencing a degree course in 1990 and graduating after three years with a debt of £1,438. On the same projection. a Scottish degree student commencing his course in the same year but not finishing it until a year later would have a debt of £2,161. That is a difference of nearly 50 per cent. That would result in pressure for curtailing the length of Scottish courses, and we in Scotland would resist that strongly. When Principal McNicol of Aberdeen university suggested that one way of dealing with the severe cuts being experienced by the university would be to curtail the four-year honours degree, there was outrage throughout the country. The suggestion was condemned and rejected. We do not want to see the breadth of our Scottish education system being curtailed as a result of financial pressures.

It should be remembered that the funding council stated that institutions running shorter courses and thus increasing the throughput of students should be rewarded with extra funding. That sounds ominous for Scottish degrees.

We are arguing not only about the pound in the students' pocket, although that is an important feature in the debate. We are arguing also about how universities and institutes of higher education are funded and how best the traditions of our universities can be preserved and enhanced.

We are all aware of the money that is available to the Government. North sea oil revenues have already been mentioned, but I would describe them as Scottish revenues. It was ludicrous that Aberdeen university, the oil capital of Europe, was having to close departments because the Government would not fund them. Political decisions will decide what are to be our spending priorities, and the priorities of the Scottish National party and of Plaid Cymru are very different from those of the Government. The Government seem to prefer to spend on Tridents rather than to ensure that we have a decent education system.

12.38 pm

Mr. Mark Wolfson (Sevenoaks)

I support the principle of the scheme in general but I want to raise several issues with my ministerial colleagues. I agree that there may be some risk in the areas of uptake in the scheme that we are suggesting, but I believe that it is a proper and balanced risk which it is right for the Government to advocate to the long-term benefit of higher education.

Many of the fears that have been voiced today are exaggerated. I regret that the hon. Member for Southwark and Bermondsey (Mr. Hughes) is no longer in his place. The hon. Gentleman talked of the sacrifice that students make to go to university. I suggest that that is an emotive and inaccurate description. Students are taking a conscious choice to use an opportunity and are not making a sacrifice. I believe that my view would be borne out during a conversation with any student who is participating in university education, irrespective of his or her financial circumstances. Students recognise university education as an opportunity. Most of them enjoy it enormously and see benefits flowing from it in the opportunities that it offers them for later careers.

Concerns were expressed equally clearly and fully by university administrations when we were talking about overseas students' fees several years ago. The Government proposals were resisted root and branch, but the results have been nothing like as disturbing as the university people suggested at the time.

As other hon. Members have said, the present position is unsatisfactory. It begins with the problem of those who do not stay at school long enough to receive sixth-form education. Sufficient numbers will not be staying on at school, which is an area where one of the problems facing increased intake to universities may occur. That problem must be firmly and continuously addressed.

There is a need for students from a wider range of what I call the socio-economic groups to be attracted to higher education. All universities want that, and especially Oxford and Cambridge which have that as a firm policy. I believe that their resistance to the Government's proposals is based on an erroneous view. The current parental contribution is a continuing problem for students, especially those who do not have a university background within the family. The Government's scheme will give many of them a greater opportunity because they can make a conscious decision to manage their own affairs.

I do not think that loans, in themselves, are bad—and neither does the Government's scheme propose to remove grants. The subject of today's debate is top-up loans; it is not a change from grants to loans. That is of fundamental importance. There are those who will say that it is the thin end of the wedge and that, ultimately, there will be no grants, only loans. That is an erroneous view —

Mr. Jackson

I am intervening in my hon. Friend's excellent speech to confirm that the Government's proposal is to move to a 50–50 grant-loan system. It is the sort of system now evolving in other countries, which are moving from loans to a mix of grant and loan on a 50–50 basis. We are moving from a grant-only system to a 50–50 mixed grant-loan system.

Mr. Wolfson

I thank my hon. Friend for confirming my point and for putting a figure upon it.

Another matter that has not been aired this morning by those arguing against the system in total is the continuing scope for students to take vacation work, which could help to limit the extent of the loan that they require and help them to repay it rapidly when they finish university and before they take long-term employment. I am not skating around the issue and trying to pretend that that is an easy solution for all students, but my experience of a wide range of students is that there is an acceptance of and a readiness to take vacation work. Many do so, but many others do not.

Students are not living on the poverty line. Indeed, some of them are much better off than others because of their ability, initiative, energy or, perhaps, luck in finding vacation work. Of course, some may find it difficult to do so, but such work is available and it would not necessarily he bad to pressure students to seek such work.

I ask my right hon. and hon. Friends whether, in their total view of university funding, they will continue to pay proper attention to how student costs for maintenance are incurred. It is clear that the opportunity for students to live in college or hostel accommodation has a direct bearing on the costs that must be met for maintenance. There is a need for universities to increase the provision of hostel accommodation for those wishing to use it. The burden on student budgets rises dramatically when they have to live out. Many universities allow them to live in their hostels for only one year. I hope that my hon. Friend the Minister will comment on that point, because it bears directly on the ultimate amount of money that a student needs to survive his university education.

It is important to remain acutely aware of the differentials by area of student costs, which I hope Ministers will continue to bear carefully in mind. I acknowledge the point made by those who oppose the scheme that the simultaneous loss of other student benefits requires careful monitoring of student incomes and costs.

I have some sympathy with those who voice their uneasiness in respect of students wishing to enter lower-paid careers but who nevertheless require a university education as a qualification for those careers —such as those in the paramedical field, including physiotherapy and radiography. Although such careers offer relatively low salary levels, one needs a higher standard of education to enter them. Mention has also been made of doctors, and the response from my right hon. and hon. Friends on the Front Bench so far has been that the students concerned will ultimately enter highly paid professions. That may be so, but the training required for them is lengthy, as it is for veterinary surgeons, and attention must be paid to avoiding the danger of the scheme acting as a disincentive to entering professions that are essential to the wellbeing of the country.

By comparison, companies in certain sectors of the British economy are very ready to offer not only high salaries to university graduates but even golden hellos, so that those new employees can often wipe off a large debt on the day that they start work. Ministers must be aware of the kind of competition that such arrangements create.

I turn finally to the scheme's administration. I share the concern about it that has been voiced, particularly by my hon. Friend the Member for Leeds, North-West (Dr. Hampson). For a Conservative Government, we appear to be getting ourselves into a very strange situation. We are utilising public money to establish a quango for the purpose of administering a loan scheme when currently, as many other hon. Members pointed out, the banks administer such loans as part of their normal business. I ask both my hon. Friend the Under-Secretary of State and particularly my right hon. Friend the Secretary of State, with his extensive City background and financial knowledge, to bring ingenuity and new ideas to bear in rethinking the scheme's administration, which is not as simple, inexpensive or effective as it ought to be. We should surely use the private sector to do that work, as it is similar to schemes that it already operates.

I support the scheme in principle. I believe that it is the right and proper way forward, but I hope that the points I have made will be given careful consideration.

12.48 pm

Mr. Andrew F. Bennett (Denton and Reddish)

The main tenor of Conservative Members speeches has been that, although they are in favour of student loans in principle, they are not in favour of the proposed scheme. The evidence of the debates on loans over the past four or five years is that a scheme can be devised that will be attractive to certain groups of people. The amazing thing is that the Government have designed one that is attractive to nobody.

The only reason for the scheme that one can see is that it solves certain social security problems and adheres to the Government's ideological commitment to the belief that students will only value higher education if they have to take out a mortgage to receive it. That is an appalling state of affairs.

When the Secretary of State opened the debate, he went straight into the argument about people not valuing higher education unless they made some investment in it. That is absolute nonsense. People make an investment from the second or third year at secondary school in the amount of time and effort that they put into their studies. From the age of 16 they make a considerable financial sacrifice because those with good exam results know perfectly well that they could get well-paid jobs, but they choose to stay on at school and in many cases are worse off.

The present level of student grant means that most students have to make sacrifices. To assume that they will value higher education more if they have to take out a mortgage for it is absolutely apalling.

The hon. Member for Brent, North (Sir R. Boyson) referred to student unions. It was a very neat manoeuvre by the Government last year to announce a review of student unions. It was really a warning: "Be very careful. don't make a fuss about loans or we may clobber you with both of them." I was pleased that the Minister announced that, because of procedural problems, he has backed off from that.

I should like an absolute assurance in the winding-up speech that, when the Government draw up the title for the Bill on loans they will make sure that there cannot be a Back-Bench amendment about membership of the National Union of Students. We saw the way in which a Minister was mugged in the middle of consideration of a Bill, and most student unions fear that that is what will happen here.

I am amazed at the way in which the proposed Bill has been put together. The previous Secretary of State and the Under-Secretary of State could have come up with a loan scheme that would have been of some advantage to somebody. The only people who they have pleased are the Prime Minister, with her loan ideology, and the Department of Social Security.

The only real benefit of the scheme will be that students, instead of going to the Department of Social Security for help, will have to apply for loans. That is the only change that will take place in the lifetime of this Government.

Why do the Government want to get people out of the Department of Social Security? Because students are not subservient when they go to claim benefits. They go in believing that they are demanding a right. Therefore, it is convenient for the Department to chase students out and stop them claiming benefits. Students sometimes give advice to other people in benefit offices, and make a fuss when things are not done properly. The one gain for the Government is that they will push students out of benefit offices. There is nothing in it for students, as they will not get an extra penny in their pockets as a result of this proposal. All they will get is a mortgage.

The Government keep saying that we cannot have a graduate tax because that would put up earnings, but they must be very naive if they do not think that some of the big accounting firms are not already preparing to recruit students saying, "We'll make sure that we meet your repayments of any loans."

I suspect that one of the reasons why the Department of Education and Science likes the scheme is that, if it wants to attract people into teaching, it would be possible for the Government to say that they would write off the loans of the students they recruit.

Because of the shortage of graduates, an increasing number of employers will put up their costs to write off the loans of students they recruit, but the loans of students who go into more socially adventurous areas will not be written off.

If the Minister wants to understand the problems caused by a loans scheme, he should look at the situation in the United States. Time after time, articles in the American press menion the problems. One reported huge losses put United States loan scheme at risk. Another reported a $2 billion deficit and a third wrote, "Bankers 1, Students 0."

When it comes to sorting out the problems in the United States scheme, it is the bankers who have the power, not the students, and today's students have to pay for today's defaulters. That is an appalling situation.

The Government have been praying in aid the fact that the Germans have a loan scheme, yet clear evidence is emerging that as a result of the loan scheme in West Germany working-class youngsters have been put at a serious disadvantage. The Under-Secretary of State is shaking his head. Perhaps he can refute the article in The Times Educational Supplement of 13 October. Perhaps the publication got it wrong.

Mr. Jackson

I can certainly assure the hon. Gentleman that the proportion of working-class students in German universities has risen from 16 per cent. to 18 per cent. in the past five years.

Mr. Bennett

Let me quote the article, then: Working class families have been at a severe disadvantage since West Germany went over to a total loan system in 1982, a new survey has shown. Whereas demand for higher education has risen considerably among almost all groups of society, students from low-income groups are still underrepresented in higher education. Evidence from other countries, too, shows that the participation rate is nothing like as high as one would wish.

This squalid loan system is an appalling waste of parliamentary time. The Government should be addressing the real problems of higher education. They should be attracting more people into higher education. There is nothing in the proposal to achieve that. They should be addressing the question of access for mature students. There is nothing in the loan scheme that is attractive to them. The Government should be addressing the problems of funding higher education, as well as the appalling drain of academics and the difficulty of recruiting them. None of those matters is addressed in the loan scheme. It is irrelevant to the needs of the nation, and the Government should scrap it now and start to address the real problems of higher education.

12.56 pm

Mr. Anthony Nelson (Chichester)

I have grave misgivings about the scheme, although, strangely, I find myself wholly disagreeing with the hon. Member for Denton and Reddish (Mr. Bennett). I did not find any of the arguments that he adduced persuasive, although I shall make some critical comments about the White Paper.

I welcome the debate, albeit late in the Session. I believe that my right hon. Friend the Secretary of State and my hon. Friend the Under-Secretary of State have come to the debate with an open mind, that they will listen sincerely to what is said on both sides of the House and that our comments will be translated into changes in any measures that are introduced. At this stage, the Government have an obligation to slow the pace of reformative legislation and to be concerned about the extent to which major reforms will upset an important constituency of future voters and those who will make major contributions to our economy in years to come.

The Government should look forward, rather than backward to the progenitors of these ideas. I cannot help but feel that the ghost of Keith Joseph stalks us in the proposals. We do not yet have a voucher system and we have not yet tackled tuition grants. But after years of trying to introduce a scheme such as this and assessing that there was not the necessary political' backing, the Government have finally placed a proposal before us. It was Keith Joseph who started the process. His proposals did not enjoy majority support on the Conservative Benches at the time and I predict that if the Government seek to introduce proposals such as those outlined in the White Paper and today, those proposals will have a most difficult passage through the House. The Government, whom we support, would be wise to listen to the concerns and criticisms of those who wish them well and who have a common interest in seeking better access to, and great improvements in, our system of higher education.

Let me outline my principal misgivings. First, the arguments about access are, quite simply, bogus. Secondly, I believe that, far from helping poorer people to gain access to higher education, the scheme will amount to an indiscriminate subsidy to the middle classes who need it least. Thirdly, the problem should not be seen in isolation from wider questions concerning future funding of higher education—in particular, the future funding of tuition grants—and the numbers we expect and hope to enter further education.

Like many hon. Members, including my hon. Friend the Member for Sevenoaks (Mr. Wolfson), I have serious reservations about proceeding with a scheme which does not enjoy the administrative backing of the banks which administer most of the finance for young people. It is a sad reflection on the admittedly substantial progress in education in post-war years that only 15 per cent. of young people enter further education. Of those, a much smaller percentage enter degree-level further education than is the case in the countries of our principal industrial competitors worldwide.

It is an even greater concern that only about 7 per cent. of the children of manual workers in this country enter further education. Therefore the sentiments behind the Government's proposals are, I am sure, quite right in seeking to improve access and participation in higher education. However, like my hon. Friends the Members for Leeds, North-West (Dr. Hampson) and for Cambridge (Mr. Rhodes James), I do not see the link between introducing a loan facility and substantially improving the access of young people to the university system, which is particularly important for the least well off.

Let us consider a middle-class student in years to come. As I understand it, under the proposals a loan facility will be given regardless of income. Unlike the grant, which will be means tested, the loan will be available for all. Plenty of students and families have substantial resources and can afford to go to university. Such a student will have a real incentive to borrow as much as he can interest-free and deposit that money in a building society. He will earn interest and maintain his capital sum which he can repay at the end of the course. On current rates of interest, a student will earn £243 over the three years even on the basic rate of grant. When the loans move up to equate with the level of gross grant and contribution a student could earn £1,423 net at 10 per cent. interest over the three years. He will be able to pay back all the money that he has borrowed and have that sum net. That is a substantial sum.

I do not want to be told that people will not do that. I have a young family who I hope will go to university. I will not tell them to look such a gift horse in the mouth. However, is that a sensible use of taxpayers' money? I believe that it is not. If the grant system is means tested, logically the loans system should be means tested too. If that were the case, the Government would be able to target limited resources of taxpayers' money on those most in need, as they are doing in other areas. I could live with a loan system if it were means tested. By means testing and not subsidising the more wealthy middle classes, money could be spent to improve the quality of our higher education system and on improving, in real terms, the value of the student grant.

I have a more fundamental objection to the proposals. When these proposals were first mooted, I went to see my hon. Friend the Member for Wantage (Mr. Jackson), the Under-Secretary of State for Education and Science, to ask him to think again. I asked him whether it was worth the political candle and whether it would bring about benefits and changes. I asked him whether, if the cost saving turns out to be a cost increase, the proposals will be worth the problems that he will encounter in the House and elsewhere.

I hope that my hon. Friend the Under-Secretary of State will not consider me to be romantically nostalgic, but, like my hon. Friend the Member for Cambridge, I believe that we all have an obligation to remember how lucky we were to benefit from university grants. We have an obligation to do at least as well for the next generation. It cannot be right to be considering proposals in isolation which will substantially undermine that.

When we consider investment in higher education, we must remember that there is a fundamental difference between maintenance and tuition. It does not make good sense to borrow money for day-to-day living expenses. A stronger case could be made for introducing loans if students or their families had to pay some of the tuition costs. Tuition costs represent the investment side of education. Students can see that they will gain great benefits from their tuition in the years to come. While I understand that tuition and maintenance cannot be considered separately, it cannot be a good principle officially to sponsor young people to incur debt simply to pay their living expenses. The Conservative party should not be the progenitor of that way forward.

I sincerely hope that the Secretary of State and his Ministers will think carefully about the case for the legislation and about some of the positive proposals put forward to improve it. First, we must have an assurance that Government responsibility to fund tuition fees will not be undermined in future. Secondly, access funds should be larger. The amounts proposed in the White Paper seem to be small. As moneys expended from the funds will be on a discretionary basis they should not be limited to the relatively small sums proposed for helping to resolve some of the serious problems of those on the lowest incomes in higher education.

Thirdly, the Government should reconsider means testing so that, as in other areas of social policy, we insist that help goes to those most in need and thus make a genuine contribution to improving access to higher education.

1.7 pm

Mr. George Galloway (Glasgow, Hillhead)

The hon. Member for Chichester (Mr. Nelson) made a splendid speech and the whole House is grateful to him for giving us the benefit of his experience as a merchant banker and bringing to bear some of the more salient fiscal facts of life. I have long since abandoned hope that the Government will listen to moral or principled arguments. If they are not persuaded by the hard pounds, shillings and pence of the hon. Member for Chichester I fear that they will never be persuaded about anything.

The Secretary of State opened the debate by saying that he knew nothing of the nervousness from which the Government are reported to be suffering as a result of the reception that these plans have received. If, from his period as a Scot, he remembers the motto of Duncan McCrae: D'ye ken noo? does he now understand why he should be nervous about the reception that the plans have received? I have listened to every Tory Member who has spoken. The fulsome support of the hon. Member for Welwyn Hatfield (Mr. Evans) was a mixed blessing. Sometimes on a Saturday afternoon I have occasion to be grateful to him so I had better be careful. Only he supported unequivocally the Government plans. That was rather like the rope supporting the hanging man.

The hon. Member for Leeds, North-West (Dr. Hampson) has remarked in the newspapers that the Government are getting themselves into a poll tax scenario. The hon. Member for Cambridge (Mr. Rhodes James) put forward the extremely principled and intelligent argument that trained intelligence is important. Indeed, every Conservative Member who has spoken seems to have the most profound misgivings about the Government's proposals.

The Government have made a U-turn on this question before. One part of me, while I am speaking about ropes and hanging, hopes that the Government will proceed with the scheme because it will be another nail in their coffin. However, as an hon. Member representing more students than any other Scottish Member—Glasgow university, parts of Strathclyde university and many colleges are in my constituency—I believe that the proposals will cause too much suffering for us to allow them to pass without vigorous opposition.

It has been said before—and it is important to repeat it —that it is a disgrace that not a single Scottish Tory Member is present for the debate, even though we have had three months' notice of it. Not a single Scottish Minister or Tory Member has seen fit even to hear the Government's case, let alone defend it. As the Tory party has recently touched bottom—16 per cent.—in the Scottish opinion polls, Conservative Members are not prepared to turn up to defend the indefensible.

There is a cynical, cheap-jack move to locate 250 loan shark jobs in Glasgow. They will probably be in my constituency. Heaven knows we are grateful for any jobs, even if they are 250 loan shark jobs. I wonder how many will be Glasgow loan sharks. How many will be eastenders in sheepskin coats battering people's doors trying to get money? Blood money will cut little ice in Scottish public opinion. Perhaps the Tories have not yet reached bottom in the Scottish opinion polls.

I have often said that the Government know the price of everything and the value of nothing. Having heard the arguments of the hon. Member for Chichester and having read what I have read, I believe that we have now reached the almost unbelievable pass at which the Government know neither the price nor the value of anything. The financial arguments against the scheme—they have been well deployed and time does not permit me to add to them —are overwhelming.

I have never been a student. I speak only as someone who represents students. I do not recognise the life of a student as described by the hon. Member for Welwyn Hatfield. He said that a student grant scheme is not only generous but overgenerous. That is truly mind-boggling. Students come to my surgery every week, including my surgery on the campus. Students simply cannot make ends meet. If they are making ends meet, they are doing so only by getting further and further into debt.

There is already a student loans scheme. It is called bank overdrafts, bank loans, and loans from parents. Some Conservative Members talk as though the poll tax is only on the horizon in Scotland. It is already in place. With the poll tax and other housing regulations, other gentlemen in sheepskin coats—private landlords—have been unleashed on the student population in the west of Glasgow and elsewhere. There are mounting problems in the everyday lives of students. Of course ultra-high interest rates are already punishing students who have overdrafts or store credit cards. That is the means by which students buy clothes. They are up to their ears in debt with Top Shop, Burton and Top Man, and they are paying 35 to 40 per cent. interest on that indebtedness. Some are getting money or support in kind from their parents who are now suffering under the Government's high interest regime. As parents struggle to pay their mortgages, hire purchase commitments and other debts, there is nothing left for their student children.

I must leave to catch a train, so I apologise to the Secretary of State and to the Minister for not being able to remain much longer.

The hon. Member for Welwyn Hatfield gave the game away when he said that the real reason for these proposals is to force a change in student attitudes—a kind of cold bath, short-sharp-shock treatment for the nation's students. The Government think that, somehow, a cold bath will be good for them and that they might place a higher value on their education. That is an offensive argument. The Secretary of State also gave the game away when he repeatedly talked of higher and further education being a means by which students invest in their own future.

I advise the Secretary of State that the state is investing in the nation's future when it spends money on education. However, the Government's attitude is typical, given that they believe, in the words of the Prime Minister, that "There is no such thing as society, only individuals and families." It is clear how the Tories have come to see education through that distorted prism.

I believe that the Government not only should but probably will think again on this matter. Having tested the water of this cold bath, they have found the reception frosty. I hope that we will hear little more of this measure in the months to come.

1.15 pm

Mr. James Pawsey (Rugby and Kenilworth)

It is interesting to follow the hon. Member for Glasgow, Hillhead (Mr. Galloway) because he and I have at least one thing in common—neither of us was a student. I was however, interested in some of his comments on student poverty. An excellent local newspaper, the Coventry Evening Telegraph, has stated: Students started a five-month protest when they were told that those living on campus would not be able to use their cars there from the beginning of this month… About 3,000 students live in campus. Last year more than 650 had cars.' I do not object to the principle of students running motor cars. Indeed, I say "good luck" to them—but I do ask whether it is right to call upon the taxpayers to part-fund those same motor cars.

I wish to refer to the remarks of the hon. Member for Blackburn (Mr. Straw) and to an intervention in his speech by my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh). My hon. Friend asked a specific question to which the hon. Member for Blackburn did not respond in his customary frank way. My hon. Friend asked about Labour's proposals in this area and what they would cost. The hon. Member for Blackburn replied, "We will keep the grants system." Therefore, I must ask the hon. Gentleman, at what level would he maintain the grants system? Will there be an uprating for inflation, or is it intended that the system will gradually erode without the comfort of a loans system? If the hon. Member for Blackburn wishes me to give way on this point, I shall be happy to do so.

Mr. Straw

Obviously, it is implicit—it was explicit in the policy review—that, in keeping the grants system, we aim to maintain its real value and, as resources allow, to restore the loss of grant that has been suffered under this Government, not under the previous Labour Government. Contrary to what the Secretary of State said, despite the economic difficulties of the last Labour Government, the grant's real value was then restored, whereas it has been cut by 23 per cent. under this Government.

Mr. Pawsey

Is the hon. Gentleman saying that he would increase the value of the grant by the amount that he says has been taken from it? Will he put a figure on what he believes that that will cost? Again, I shall give way if the hon. Gentleman wishes to intervene, but obviously he has said enough. People outside the House will be able to draw their own conclusions from the silence of the hon. Gentleman.

I offer my congratulations to my right hon. Friend on his appointment as Secretary of State for Education and Science. He will take the transition from sheep to science and from agriculture to the arts entirely in his stride.

I subscribe to the view that has been expressed by some of my hon. Friends that student support in the United Kingdom is among the most generous in the western world, but despite that only 32 per cent. of the target group enter higher education. That is a smaller proportion than in many other European countries. Top-up loans will increase access to advanced education by reducing dependence on the taxpayer and by introducing an element of new money. Surely no hon. Member can doubt that there can be a limit to the number of students that the taxpayer can afford to support on the present grant-only basis.

Incidentally, the NUS seems to be inhabiting a Peter Pan world if it believes that an additional £100 million can be found by taxpayers to restore the level of grant to the 1978–79 figure. Surely the NUS must be aware that, as the Prime Minister has said on a number of occasions, Governments do not have funds of their own; they have only the funds that are given to them by the taxpayer. I cannot see why taxpayers should be expected to be soaked for every single student penny.

Mr. Straw

The hon. Gentleman is complaining about the NUS demand to spend £1 billion to restore the value of the grant, but what about the £1 billion plus that the loan scheme will cost?

Mr. Pawsey

I believe that the hon. Gentleman will find the answer as my speech develops.

Many students will be able to take advantage of one of the three access funds that will be administered by the institutions. Those funds will total about £15 million. I told my right hon. Friend's predecessor, however, that £15 million is grossly inadequate. I urge my right hon. Friend to make further representations to the Treasury so that the figure may be increased. My hon. Friend the Member for Leeds, North-West (Dr. Hampson) may have given us a lead when he said that a modest interest charge of between 2 and 3 per cent. should be imposed. The proceeds from such interest repayments could then be used to increase the amount of access funds. I am convinced that there will be hardship unless we substantially increase the three access funds. I hope that my right hon. Friend will forgive me for returning to that specific point.

The top-up loan of £420 will be available to virtually all full-time home students in higher education, the exception, of course, being postgraduates. It is fallacious to argue, as Opposition Members have done, that a large measure of taxpayers' support is necessary to guarantee student admission to advanced education. I underline that point by using the very argument advanced by the NUS and the Opposition that since 1979 the real value of student grants has fallen by 10 per cent.—I know that the hon. Member for Blackburn may argue that it has fallen by 23 per cent. If we stick with the hon. Gentleman's larger figure, he will find that he is arguing my case. Despite the real fall in the value of the grant, the number of students has increased by 200,000. I am anxious that the Opposition should take that argument on board.

Mr. Straw

The hon. Gentleman knows that university student numbers have barely moved in the past 10 years and that polytechnic student numbers have increased by 70,000. That does not make 200,000 full-time students in receipt of mandatory awards.

Mr. Pawsey

The full-time equivalent is 200,000.

Mr. Straw

No, it is not.

Mr. Pawsey

Yes, it is. I fear that we cannot continue to have this argument across the Dispatch Box.

The percentage of 18 and 19-year-olds in higher education has increased from less than 13 per cent. to more than 14 per cent. There is no case to answer when one argues that the reduction in grant equals a reduction in student numbers. That is demonstrably untrue.

Another reason for introducing top-up loans is the number of 18-year-olds now entering higher education. Hon. Members will recall that just two years ago it was predicted that one in five 18-year-olds would go into higher education. It is now agreed that by the year 2000 that figure will be much nearer one in four. Furthermore, the proportion of students qualified to enter higher education will continue to increase. That increase, more than anything else, helps to underline the success of the Government's policy to improve the quality and standard of state education. Because of that improved quality, more people are going on to higher education.

Hon. Members will also be aware that the number of pupils studying for A-levels has increased sharply from 21 per cent. of the age group in 1987–88 to 24 per cent. this year. That is a significant increase which contrasts strongly with previous forecasts which said that by the mid-1990s there would be a fall in student numbers. There has been a change and the numbers in universities on a full-time equivalent basis [which has some relevance to the point we were discussing a moment ago—will rise from 330,000 last year to well over 400,000 by the year 2000. That increase underlines the Government's strength and commitment to state education.

There is another reason to justify the introduction of top-up loans for students which was mentioned by my right hon. Friend the Secretary of State in his admirable opening speech. Most graduates expect to receive substantially higher remuneration than non-graduates. Since students benefit most from higher education, can it be either right or equitable that the tax paid by those leaving school at 16 and starting work at that age materially assists those attending university? Can it be fair or just that the non-graduate is called upon to subsidise the graduate?

To underline a point made in the Secretary of State's opening speech, economic analysis shows that graduates obtain a personal return of about 25 per cent. on their investment in higher education, whereas society's return is between 5 and 8 per cent.

Despite the existing system of grants, fewer students enter higher education in this country than in many other European countries. The position is even worse if we consider the number of young people who come from blue collar homes, who currently account for about 60 per cent.

of the population. They represent only 21 per cent. of university admmissions, which is wrong. To some extent, the introduction of loans will help to remedy that imbalance.

Another reason for the introduction of top-up loans is that 35 per cent. of parents do not make the full parental contribution. Five of my sons went to institutions of higher education and I did not provide a contribution to the extent which I should have. Therefore, my sons, like so many others, had to make good the deficit in different ways, for example by borrowing.

The hon. Member for Hillhead said that students now borrowed at a commercial rate of interest. This system would provide loans at zero rate. That is a fundamental and basic difference which will be much appreciated by students. It seems extraordinary that students who are aged over 18 and old enough to vote should be dependent, at least to some extent, on their parents. That is unfair to both parties—students and parents alike.

We have heard it said in the debate that, as loans are introduced, social security benefits are being abolished. However, the facts do not always sustain the arguments put forward by Opposition Members. Loans will be available for all students. Currently, only half of all students receive social security benefits—which average about £300.

The great initiator, Beveridge, never foresaw the day when students would be beneficiaries of the social security system. As my right hon. Friend the Secretary of State said in his opening speech, many safeguards will be built into the system. Payments will he deferred for those who earn less than 85 per cent. of the national income, which is currently about £9,500 a year. Women who start families will not be required to repay loans until they start to earn. There will be no such thing as a negative dowry.

Opposition Members have said much about the substantial problems which might arise from defaulters. Other Conservative Members may share my surprise when I say that I was a little amused at the level of concern being expressed by Opposition Members about the profitability of the banks and the accountability of Government.

We have been reminded of the default position in the United States, but we have not been told the fundamental difference between that and what is proposed here. The United States has no general system for the deferment of payment when income is low; moreover; default occurs principally among those taking non-degree courses—courses that do not always improve employment prospects to any real extent. It should also be remembered that banks in the United States have found it relatively easy to create a default and then simply draw in the Government guarantee and seek a refund. That system will not operate here; indeed, it will be reversed, a positive incentive being offered to banks to get the money in. Incidentally, if we are to draw examples from the rest of the world, we should consider Socialist Scandinavia, where default rates are between 1 and 2 per cent.

I believe that a mixed system of loans and grants is fairer, representing both better value for the taxpayer and improved access to higher education.

1.31 pm

Mr. Jim Cousins (Newcastle upon Tyne, Central)

I wish to confine my remarks to the short-term effects that the proposal will have —and, indeed, is having now. Arguments about the technicalities of the scheme, and its damaging effect on access to education, have already been well rehearsed by hon. Members on both sides of the House, Conservative Members should understand, however, that the shadow of the scheme is already having an impact on higher education. This year, student choice between courses, institutions and locations has been affected by the prospect, adding to the fear in the academic community that we are heading towards a two-tier education system, divided between a handful of glamorous, high-cost, high-delivery institutions and a raft of low-cost operations in low-cost areas.

Dame Elaine Kellett-Bowman

I am glad to know that Lancaster university figures among the glamorous institutions. It has experienced a massive increase in applications, which are going up every year.

Mr. Cousins

That is exactly my point. The Universities Central Council on Admissions and polytechnic clearing applications this year show a major shift in emphasis between institutions. It is precisely that change to which I am trying to draw attention. I shall not comment on the status of the hon. Lady's local university, which may well be a low-cost operation in a low-cost area.

Mr. Jackson

I think that the hon. Gentleman is scoring an own goal. Certainly recruitment to both universities and polytechnics is substantially up this year, and if he is arguing that that is attributable to the prospect of student loans he has produced a very useful argument for our side.

Mr. Cousins

The shift that I have described foreshadows the introduction of the loans scheme.

The short-term impact of the scheme will be highly concentrated. The general student population is itself concentrated in particular locations, but the student populations on whom the scheme will bear most heavily in the short term are still more concentrated. My constituency has a polytechnic and a university which together contain 12,500 undergraduates. More than 3,000 of those are mature students, students recruited through a special means of intake, or students who are on special courses designed to meet special needs. That important but fragile structure has been carefully built up over recent years and in it much of the exciting innovation in teaching is to be found. It is on that structure that the shadow of the loan scheme will be felt first. I ask the Minister to bear that in mind.

The hon. Member for Welwyn, Hatfield (Mr. Evans) said that students are very passive and take what is given to them because it is free. That is far from the case. Student expectations of courses and institutions are rising rapidly. With the introduction of the loans scheme students will rightly become far less patient about deficiencies in resources. The loans scheme will promote the introduction of tuition fee systems by higher education institutions, and those have been steadily condemned throughout the debate by Conservative Members. Such tuition fee income systems will be needed to meet deficiencies in provision that cannot otherwise be met.

In my city the polytechnic has had to reduce its expenditure on books by 20 per cent. of what it was four years ago. Student bodies faced with the introduction of loans systems will be far less patient about that kind of deficiency when this scheme begins to take effect.

Finally, we have the terrible impact on student communities of rising rents which are becoming an ever-increasing problem. There are difficulties about the availability, quality and cost of student accommodation and housing, whether it be, in the immortal words of a Conservative Member, in or out. That is a growing problem for students. Next year we shall see the withdrawal of housing benefit and the introduction of the poll tax and that will add greatly to these problems. Hon. Members with large numbers of student voters are already facing students who are asking us to approach their landlords about separating the rent and rate factors which are being brought together as part of the introduction of the poll tax and which students feel is a future deceit.

To those problems we must add the introduction of the loan scheme in September 1990 and the withdrawal of housing benefit at Easter—a recipe for considerable trouble and difficulty. One consequence may be that not a single constituency with a significant academic community will be represented by a Conservative Member. That will happen if the Government proceed with this scheme. From my point of view there are far less troublesome methods of achieving that object.

I ask Conservative Members to bear in mind the remarks by the hon. Member for Chichester (Mr. Nelson) who said that this was not the time in the liftime of the Government for great new and glamorous reforming projects. He is right. Night time comes upon the Government and it is not the time for great new and exciting dawn marches over difficult terrain. It is a time for hot toddies before bed. It is a time for early bed times and the Government should be thinking of showing their supporters a cosy huddle around a dying fire and not yet another great new project which will torpedo the base upon which the Government stand.

1.38 pm

Mr. Patrick Ground (Feltham and Heston)

Both sides of the House appear to agree that the overwhelming bulk of expenditure on higher education—including tuition—should be borne by the Government. Even after this scheme is adopted, should it be so, that will be the case. I suspect that the majority of hon. Members also accept that the maintenance of students should be achieved not by the social security system but by a proper student support scheme administered by the Department of Education and Science.

For the actual concept of top-up loans—if they are to be correctly described as that—there has also been a considerable amount of support. The hon. Member for Fife, Central (Mr. McLeish) appeared to accept the validity of that concept, as did my hon. Friend the Member for Cambridge (Mr. Rhodes James), although he was otherwise opposed to these proposals. Provided that the amount of the loan is not too great, I suspect that most people would see the advantages that such a scheme would provide in dealing with the problem of unpaid parental contribution and with the myriad cases that are not adequately covered by the existing system. I agree with my hon. Friend the Member for Rugby and Kenilworth (Mr. Pawsey) that the access funds will have to be looked at, and almost certainly increased. I would not be surprised if they had to double.

The House divides on a point that is both interesting for the future of the scheme and important—the balance between grants and loans. I urge my right hon. Friend the new Secretary of State for Education and Science to give further thought to that balance. I went to university only because I received a 100 per cent. grant, and I believe that the scheme should not deter suitably motivated and qualified people, particularly those from families who are not well off and who have no previous experience of university education. It is also important that the balance of the scheme should be best calculated to attract additional resources into higher education and to achieve the object of self-reliance, as far as that can be achieved among students.

I believe that most good parents, whether they are well off or badly off, if they are able to choose, would not wish their children to finish their education saddled with debt, and if this is the attitude of a good parent, it should also be the attitude of an enlightened state. When students go to university, the future for them is, in many cases, uncertain. They are uncertain how they will finish up eventually, and it is better for them to decide what they will do in life as free as possible from the burdens of debt.

Account should be taken of the financial cost to students of going to university, and this has not been mentioned sufficiently, either in the White Paper or the speech of my right hon. Friend. By the age of 22, as compared with someone who went to work at 16 or 18, students are considerably worse off. I accept that they make the decision with their eyes open, and this is a thoroughly sensible decision, but they are making a personal financial contribution towards the cost of their further education.

Whatever my right hon. and hon. Friends in the Department of Education and Science say in these debates, I hope that, behind the scenes, in the discussions that they have with the Treasury, they will make it clear that if graduates earn more as a result of higher education—and that is by no means certain, because many would have earned large sums anyway—they will pay, in the course of their work by way of income tax, more to the Government. Therefore, there will be a financial reward for the Government. If they do not earn more as a result of higher education, the Department of Education and Science can fall back on the argument that was employed this morning that higher education benefits society as a whole.

Whatever the comparable figures tell us, the Department should consider the cost of benefits in kind in other European countries. I am familiar especially with France, Spain and Germany, which all have elaborate systems of subsidising students by means of cheap accommodation, cheap meals and many other direct benefits of that sort. I do not believe—indeed, the White Paper accepts this—that such benefits are taken fully into account when comparisons are made.

The Government have carried out an excellent exercise in investigating the welfare of old people. They have done so to ascertain how much we spend on direct benefits such as sheltered housing and meals on wheels. There is room for a similar exercise, in comparative terms, in the reverse direction that deals with benefits in kind in education in other European countries. Direct subsidies should be identified in the calculations.

Within the financial disciplines that my right hon. Friend the Secretary of State has outlined, I believe that the grant element in the scheme should be as large as possible. I follow the suggestion made by my right hon. Friend the Member for Brent, North (Sir R. Boyson) that there should be some grants that constitute 100 per cent. of cost as a result of awards. The loan element should be as small as possible.

The White Paper tells us that the Government are open to suggestions for adaptation and replacement of provisions. I should like the Government to consider two changes. First, for those who are in receipt of maintenance grants, which are means tested, I should like there to be a cash option in lieu of a loan for those who do not wish to take up a loan. There is a substantial cost element in the administration of the loan scheme, and considerable cost over the period of the loan. If someone by his own efforts and initiative is able to do without a loan, there should be a financial reward for doing so. A cash option would take the student further towards the needs of his course without there being the need to take a loan. Secondly, I believe that universities should be encouraged by such means to provide more scholarships, in the way that they used to, to make it easier for people to take up work in the university, as is done in American universities.

For example, it is not sensible that students should have automatically to pay to have their beds made when at university. Some undergraduates are embarassed that they have to depend on someone for making their beds and must pay them for doing so. Changes could be made that would make life cheaper for students, and the univerisites should be encouraged to make them. Another option is the provision of part-time work.

I have referred to some of the benefits that might accrue from the provision of a cash option. Parents might be encouraged to contribute more if they thought that their children were getting benefit out of not taking up a loan. I hope that this consideration will be taken into account. It might be considered that it is a way of encouraging greater self-reliance, bringing more funds into the system and freeing young people from the burden of debt.

1.50 pm

Mr. Win Griffiths (Bridgend)

Our debate today is, in some senses, pointless because most of the statistical information in the White Paper about the cost of the scheme is meaningless and suitable for consumption only at a mad hatter's tea party or a gathering of the Chancellor's economic forecasters.

Let us imagine that the proposed scheme began in 1966–67 and was based on the grant scheme at that time. Let us now take the assumptions in the White Paper, apply them to that time, and work out what would have happened over the next 20 years. The Government's scheme includes the hypothetical inflation assumption of 5 per cent., 3.5 per cent. and 3 per cent. thereafter. By 1986–87, each student would have required a loan of £172.05, and that loan would have been less than half of the Government grant. However, if we take the actual sum of money expended by the Government on the award scheme over the 20-year period, freeze the grant contribution in the first year—that is, 1967–68—and then top up the loan, by 1986–87 the student would have required a loan of £1,023.67. Let us take what happened to the retail prices index and top up the loan on that basis —by 1986–87 the student would have required a loan of £1,227.45.

Of course, the Government's scheme has a provision for a 50–50 split between grant and loan. In the real world of the 1970s and the 1980s, that provision would have come into effect in 1975–76. If those two components had been kept level until 1986–87, the student would have required a loan of £651 and the Government would have had to have pumped an additional £175 million into the grant scheme. If that was worked out on the RPI, the student loan would have been £729.37 and the Government would have had to have put an additional £220 million into the grant scheme.

If we take the hypothetical scheme proposed by the Government and measure it against the reality of Government expenditure on the student grant scheme or against the retail prices index over that 20-year period we see that the Government would have had to have spent an additional £400 million to £500 million. The House can write off the statistics in the White Paper; they are meaningless.

1.53 pm

Mr. Andrew Smith (Oxford, East)

In the four hours of this debate, as in the 11 months that we have been waiting for it, many questions have been raised on both sides of the House that are crucial to the future of student support and, indeed, to the whole of higher education. Those questions deserve answers, but none have been given. As the hon. Member for Leeds, North-West (Dr. Hampson) said, the Government have been short on effective detail.

Such is the dogmatic drive of Ministers to have their scheme in place—for reasons that have everything to do with ideology and nothing to do with practicality or economy—the Secretary of State has had the nerve to come here and tell us nothing new, yet expect the House to take on trust a scheme which is so deeply flawed that it negates even the very purposes for which the Government claimed they were introducing it. The first purpose was supposed to be to reduce the cost of student support on the public purse. The former Secretary of State said that the whole essence of the scheme was that the burden of student support on taxpayers and parents will be reduced. The second stated aim was to increase access. The former Secretary of State said: I confidently expect that the numbers in higher education, in polytechnics and universities will increase because of our proposals."—[Official Report, 9 November 1988; Vol. 140. c. 320.] However, even the Minister conceded in a written answer that the cumulative cost to the taxpayer over the next 19 years will be £1.62 billion, and that defaults and deferrals will cost the public £4.2 billion by 2027.

The hon. Members for Leeds, North-West and for Sevenoaks (Mr. Wolfson) rightly pressed Ministers for details of the scheme's administrative costs, which are over and above the horrendous figures that I have already mentioned. The Government have become very secretive about how all the figures add up. In written non-answers this week, the Under-Secretary of State, the hon. Member for Wantage (Mr. Jackson) refused to reveal how the Government intend to reimburse the banks and how they will assess recurrent costs beyond 1995. He stated: I cannot comment at this stage on matters which are subject to contractual negotiations. As we have made clear, the House will be informed of the major steps in the preparations for administration of the loans."—[Official Report, 17 October 1989; Vol. 158, c. 89.] What about the details? What about the real costs? What about how they all add up? The reality is that the banks and building societies have the Government over a barrel, because they were foolish enough to invest reckless amounts of political capital in the scheme before the financial institutions were made to sign on the dotted line.

The House rightly demands to be told when the full cost will be announced. I hope that the Minister, when he replies, will give a categorical assurance that those figures will be put before the House before the Second Reading of any legislation to give effect to the scheme. When will we be told the true interest subsidy costs? We have pressed the Government for those figures for months, because they could account for as much as £3.75 million for each 5 per cent. of interest rate subsidy when the scheme matures.

I am not surprised by the distinct and striking lack of enthusiasm for the scheme that has been shown by Conservative Members.

Dame Elaine Kellett-Bowman

I am very enthusiastic about it.

Mr. Smith

That makes only three Conservative Members in favour so far. Deep concern was expressed by the hon. Members for Cambridge (Mr. Rhodes James) and for Leeds, North-West and, in a fine speech, by the hon. Member for Chichester (Mr. Nelson), which I ask the Government to heed most carefully in their own interest. I do not blame Conservative Members for being so worried, because they are being invited by the Secretary of State and by the Under-Secretary to jump into a lake without even being told how much concrete is being tied round their necks.

Will the Minister give details of the indemnities being conceded to the financial institutions? I refer especially to that relating to a change of Government. Does the premium increase as Labour's lead in the opinion polls manifests itself to the financial institutions? Right hon. and hon. Members are right to question the constitutional propriety of indemnities being guaranteed by this House in advance of legislation—to say nothing of advance expenditure of the order of £7.5 million, including the salary of £55,000 plus a car, to which my right hon. Friend the Member for Chesterfield (Mr. Benn) referred. How can it be right to commit and to spend large sums of public money to the scheme even before the House has been given an opportunity to vote on its general principles?

As to the £55,000 job already mentioned, what scale of priorities and values is it that pays to the managing director of a loan scheme that will cause so much damage to higher education a salary that is double that paid to a professor in a British university who is a Nobel prize winner? What reflection is that of the Government's real values?

My hon. Friend the Member for Sheffield, Hillsborough (Mr. Flannery) pointed out with his customary vigour that, in respect of access to higher education, there is every reason to question the curious doctrine that by increasing the price of a service—as the scheme will do—demand and take-up will increase, especially among those who find that price most onerous in the first place.

I dare say we shall hear something about international comparisons from the Minister. I hope that he will accept, from the outset, that Britain's present grant system has the considerable advantage of being very cost effective. The cost per graduate, at £9,000 is far lower than that in the United States where it is £19,000, and Japan where it is £14,000. I hope that he will also accept that loan schemes overseas in general suffer from high administrative and default costs.

All the evidence shows that the high levels of student debt involved in loans schemes act as a disincentive to the disadvantaged. During the Reagan years in America, the federal grant programme was cut, and participation by black students, among others, declined. Dissatisfaction with loans has reached the point where even the highly conservative state of Arizona has now decided to supplement the loans scheme with grants. My hon. Friend the Member for Denton and Reddish (Mr. Bennett) referred to West Germany, where the scheme is being changed because poor students are being discouraged by the way in which loans operate.

I fear that the Under-Secretary gave the game away about access to education by his language when he said to The Independent on 17 August: The American loans are available to a much wider range of students. You can imagine a 16 year old hairdresser will get a loan in the US. Most defaulters are in vocational colleges where you get those sort of people. What sort of people does the Minister have in mind? They are clearly not the sort of people to whom access will be extended by his scheme.

Hon. Members will judge for themselves whether this is truly the language of opportunity, as the Minister would have us believe, or the haughty protection of privilege, as many of us suspect.

We have yet to be told how the whole bizarre scheme relates to the previous Secretary of State's commitment to double the participation in higher education over the next 25 years. I challenged the Under-Secretary on this in my letter of 19 July, but he has not yet been able to supply me with an answer. Given the Secretary of State's staggering inability to deal with the basic question of how to double access, while maintaining that higher education cannot reasonably expect a greater share of public expenditure, frankly I am not surprised that he has a problem responding to our questions.

I challenged the Under-Secretary on his estimate of the effects of withdrawing benefit from students, to which many right hon. and hon. Members have drawn attention. That singularly punitive policy would have catastrophic effects on the already meagre living standards of many students, especially in areas where accommodation costs are high, as my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) said.

The Minister ought to supply to the House this afternoon the answers that he has hitherto refused to give. It is particularly curious that a Government who profess to attach such importance to targeting, and to ensuring that money reaches those who really need it, attack support for students by getting rid of targeted housing benefit and promise to bring in a loans scheme which indiscriminately provides loans to wealthier students, as the hon. Member for Chichester said.

What it comes down to is that the Government are so obsessed with their private market dogma that they are wantonly and expensively setting out to destroy the ladder of opportunity provided by the right to grants which many right hon. and hon. Members on both sides of the House have been fortunate enough to benefit.

Why will the Government not listen and learn? Why will they not listen to the clear message coming from their own Back Benches? Why are the Government so determined to take so little notice of the responses they have received to the White Paper that they will not even publish them? It was left to me to write round, to analyse the replies and to deposit the information in the Library. Could that have had anything to do with the fact that 95 per cent. of the respondents opposed the scheme?

Is the Secretary of State aware that the former special adviser to his Department, Mr. Stuart Sexton described the scheme in yesterday's edition of The Daily Telegraph as a bureaucratic nightmare, and one which produces no immediate savings for the public purse"? What is it, I wonder, that makes this Government and their Education Ministers so special that they think that they are right about student loans and everyone else is wrong? What do Ministers have to say to those in their own party who have grave reservations, as we have heard today, about the scheme? What do they have to say to their predecessors who took pride in the opportunities that the extension of grants opened up to people? My hon. Friend the Member for Blackburn (Mr. Straw) quoted from the pamphlet issued by the Tory Reform Group, of which I understand the former Secretary of State, who initiated the idea of a loans scheme, is a patron. The Tory Reform Group pamphlet said: The results of changing the system would be to reduce working class access to higher education, to lower standards and to produce a new class of poor graduates. What do the Government have to say to a former Chairman of the Select Committee on Education, Science and Arts and chairman of the Conservative parliamentary education committee, Sir William van Straubenzee? In his 1987 submission to the Government review of student finance, Sir William wrote of student loans: It is no good encouraging children from low income families to stay on at school until they are 16 or 18 if you are going to slam the door in their face at the precise moment when they are in greatest need of tangible financial assistance. I can think of no policy which would be more successful in shattering the aspirations of young people. What do Ministers have to say to the people of Scotland, with their fine educational tradition, which—as my hon. Friends the Members for Fife, Central (Mr. McLeish) and for Glasgow, Hillhead (Mr. Galloway) pointed out—is particularly threatened by loans?

What do they have to say to medical students for whom loans could mean debts of £14,000 or more? The hon. Member for Sevenoaks rightly mentioned the problems facing paramedical staff entering the Health Service. What do Ministers have to say to student nurses? In responses to me the Minister for Health has persistently refused to rule out the possibility that Project 2000 nurses will find their bursaries changed into loans. Do Ministers honestly believe that the public want student nurses to be burdened with such debts? Will the Minister take the opportunity today to give the House a categorical assurance that student nurses will not be burdened with debt under the Government's loans scheme?

The scheme is already discredited. It is unpopular and shot through with contradictions. It is a mortgage on knowledge—costly, inefficient and a barrier to access. It is with the tuition fees proposal—the thin end of the wedge in the drive towards a private market in higher education that is not wanted and which will not work in any way consistent with the full and fair educational opportunities that Britain needs.

Opposition Members believe that the future of our people—as individuals and as a community—depends on opening up opportunities on the basis of ability to benefit, not on restricting them on the basis of ability to pay. As the party of opportunity, the Labour party will oppose this mean-spirited and damaging scheme every inch of the way.

If the Government will not listen to representations and respond to the numerous letters and petitions that they have received, if they will not listen to reason and drop it now and if Conservative Members cannot make Ministers see sense, it will be left to a Labour Government to repeal this appalling students loans scheme when we are in office —and repeal it we shall.

2.9 pm

The Parliamentary Under-Secretary of State for Education and Science (Mr. Robert Jackson)

I want first to congratulate my constituency neighbour and good friend, the hon. Member for Oxford, East (Mr. Smith), on his first appearance at the Dispatch Box as Opposition spokesman. Long may he continue to adorn that position.

One of the most fascinating features of this debate has been the undercurrent of bad conscience on the Labour Benches. That was highlighted by my hon. Friend the Member for Leeds, North-West (Dr. Hampson) in his excellent contribution to the debate. I am grateful to him and to my colleagues who supported the principle of the Government's policy.

The first undercurrent among Opposition Members is that although they try to deceive themselves, they appreciate full well the way in which the present grants system takes from the have-nots and gives to the haves. A quarter of all income tax is paid by individuals with incomes below £10,300, but the average income of a working male graduate in his thirties is about £20,000 and 25 per cent. of dependent students come from families with incomes in excess of £20,000. That is the first reason why there is a certain unease among Opposition Members. They are in the false position of defending policies which tax the poor to support the better off.

Mr. Straw

There is no unease on the Opposition Benches. The Parliamentary Under-Secretary of State has described the disgraceful circumstances achieved after 10 years of Conservative rule. The burden of taxation has been shifted from the rich to the poor. In case he is not aware of it, the Opposition have opposed that shift at every Budget and we believe that those with the broadest backs, who earn the greatest incomes—as a result of being graduates as for any other reason—should pay much higher rates of taxation and that those on the lowest incomes should have much lower rates of taxation.

Mr. Jackson

The hon. Gentleman knows perfectly well that Labour Governments have taken a considerable interest in the idea of student loans and that is one reason why there is unease.

Another reason for unease on the Opposition Benches is that the Labour party policy in Opposition is one which they will not be able to sustain when they enter Government. That is reflected by the evasiveness exhibited by the hon. Member for Blackburn (Mr. Straw) in relation to the cost and funding of Labour's plans about which we heard so little.

Some hon. Members on the Labour Benches, if not the hon. Member for Blackburn, will understand the significance of the statement made by the right hon. and learned Member for Monklands, East (Mr. Smith) when he told the Labour party conference: We are all agreed that we cannot spend what we have not earned … if that means we have to postpone some of our social ambitions, then we may have to do so". What is the consistency between that statement and the line being taken on student support by the Opposition? They will abolish the student loan, which presumably means that they will continue to pay to students the welfare benefits which our top-up loan scheme is designed to replace. Now it is true that that would save the Exchequer some money—the difference between the cost of welfare benefits for students and the cost of our top-up scheme; a difference which represents extra money for students provided by our scheme.

However, the Opposition are not claiming that they will merely dispense with the top-up loan. They will at least have to match the net addition to student resources which our top-up loan represents. The hon. Member for Southwark and Bermondsey (Mr. Hughes) must be aware that, far from cutting the resource available for students, our proposal will restore student total resource to its 1979 level and also cut the parental contribution almost in half. That point is significant for my hon. Friends.

Dame Elaine Kellett-Bowman

I have sat through the whole of this debate and I have not even had a cup of tea. I must make two points. I hope that my hon. Friend the Parliamentary Under-Secretary of State will consider increasing the access funds and will also adopt a system of remitting the loans of those in the top 20 per cent. of results at the end of the time. That would be a very valuable incentive.

Mr. Jackson

I note my hon. Friend's points. I have some sympathy with them, but they must be considered with the opportunities that are available.

The Opposition are following in the Government's footsteps and are talking about doubling the number of students in higher education. Student grants at 1989 levels cost the taxpayer about £500 million a year. Double that —very crudely—is £1,000 million.

Is that implied promise of grant expenditure of £1,000 million a year credible? To get a fix on this, let me remind the House that, on the unlikely assumption that taxpayers' behaviour would not change, the total revenue generated by Labour's plans to increase the top rate of tax by 10p will probably yield little more than some £2 billion of new revenue. Is it credible that they should spend more than half of this on student support? And all for what? Presumably, its purpose is to enhance access through a grant system which has encouraged only 6.9 per cent. of the children of manual working class parents to gain access to full-time higher education. My right hon. Friend the Member for Brent, North (Sir R. Boyson) made some penetrating remarks on that point and my hon. Friend the Member for Chichester (Mr. Nelson) should take note of them.

No wonder there are bad consciences on the Labour Benches. Her Majesty's Opposition know—I detected some hints of this in the speech of the hon. Member for Denton and Reddish (Mr. Bennett)—that if there is to be a substantial expansion of higher education and that if the participation of all social groups in higher education is to be expanded, it can only be by doing what every other advanced country does. What is necessary is that students should be enabled to anticipate a fraction of their future earnings as graduates to pay a fraction of the costs of undertaking their studies.

Faced by that proposition, which is well understood by all men and women of goodwill, including many of Labour's academic sympathisers, the Opposition have decided, to their shame, to fall back on an entirely opportunistic attack on a policy which they know in their hearts to be right.

In this debate, Opposition spokesmen—I am thinking particularly of the hon. Members for Blackburn and for Oxford, East—have made much play of their interpretation of the costs of the Government's proposed scheme.

Mr. Straw

Before the Minister deals with that point, will he deal with funding the expansion of higher education? I put that central question to the Secretary of State who, even with the aid of a script provided by the Parliamentary Under-Secretary of State, could not answer me. The Conservative Government propose to double the numbers in higher education over a 25-year period. The greater part of the cost of doing that will be in tuition, not maintenance. How do the Government propose to pay for it? Will any part of it be paid for from the public purse? What is the trend of public spending? Are we to assume from the evasive answers of the Secretary of State that the Government plan to make students pay the full costs of their tuition as well as their maintenance, but that they do not have the guts to say so?

Mr. Jackson

The words of the Secretary of State are clear and I am happy to echo them. I have nothing to add to what he said.

We have heard much talk about costs. There has been some criticism from Conservative Members and not much frankness from Opposition Members. I ask the House to bear in mind three points when it looks at the complex issues involved in the assessment of the costs of our proposed student loans scheme. All hon. Members will be able to assess the scheme when our negotiations with the financial institutions are reported. We are not ready yet but we will be shortly.

First, all reasonable men will know that making projections of matters of this kind is an art and not a science. For example, the Government have used an assumption of an 80 per cent. take-up. My personal view, for what it is worth, is that because student loans will be popular, the take-up is likely to be higher than 80 per cent. At the same time I believe, in common with my hon. Friend the Member for Rugby and Kenilworth (Mr. Pawsey), that the default rate is likely to be considerably less than the 10 per cent. that we are illustrating. One factor tends to increase costs; the other tends to reduce them. Obviously, it is impossible to construct infallible predictions and that applies as much to the Opposition as to the Government.

However, the difference between the Government and the Opposition is that our proposals will produce savings for potential redeployment, whereas the Opposition's proposals will simply continue to increase expenditure indefinitely. [Interruption.] I should not have thought that the hon. Member for Blackburn would want to pursue that point, having been so worsted on it during his speech.

The second point which I hope that hon. Members will bear in mind when they assess the cost of the scheme is the distinction between default and deferral. The Government's scheme provides generous arrangements for deferral, but we will be tough on default. We envisage that all graduates with an income of 85 per cent. of the national average income will be able to defer their obligation to repay. Such deferral will affect not the costs of the scheme but only the profile of repayments. Default is another matter. As I have said, I believe that the default rate in our scheme is likely to be well below the 10 per cent. which we have illustrated in our projections. Frankly, I do not believe that British graduates will be more dishonest than are those in Scandinvia, where default is no more than 1 or 2 per cent.

A third aspect of costs is crucial. We have had some exchanges about this point. The Opposition are seeking to blur a vital distinction between the two different ways of defining the point at which savings arise under any loan scheme—not just this one. The first and most important point is that at which the balance between current outgoings and current income from the scheme has moved from red to black—the point at which there is more money coming in by way of repayments than money going out in the way of disbursals. The other way of looking at this matter is to focus on that point at which the total flow of funds coming in exceeds the total outgoings since the inception of the scheme.

The second point—the point at which cumulative savings will occur—will obviously come later than the first point. Whether disingenuously or perhaps because of simple intellectual failure—I think it is probably disingenuously—the hon. Member for Blackburn and his colleagues have focused on when cumulative savings, rather than current savings, will occur. Which is the more important of those two—current or cumulative? On the argument about freeing financial resources for redeployment—the essential point—it is current savings that matter; the savings that arise when the scheme goes from red to black. That point will almost certainly be reached near the turn of the century, in time to provide additional resources for the expansion of higher education and for the promotion of access which we anticipate as the number of 18-year-olds starts to rise again after the demographic dip of the mid 1990s. [Interruption.] Opposition Members should pay me the courtesy of at least listening to what I am saying, rather than continuing ceaseless chattering.

Let me now say a few words about the London School of Economics scheme from Messrs Barnes and Barr, which has attracted the support of my hon. Friends the Members for Cambridge (Mr. Rhodes James), for Leeds, North-West, and for Sevenoaks (Mr. Wolfson). In response to the political advice that we got from the hon. Members for Glasgow, Hillhead (Mr. Galloway) and for Newcastle upon Tyne, Central (Mr. Cousins), all hon. Members apart from my hon. Friend the Member for Chichester, supported the principle of the Government's policy.

On Barnes and Barr, my right hon. Friend the Secretary of State has set out some of the reasons why we reject their approach. Let me amplify. The Barnes and Barr scheme has two components. First, they evisage that the money for the student loan should be provided by the private sector, on the argument that this would immediately release funds for redeployment elsewhere in higher education; and secondly, that the employers of graduate manpower, and perhaps also the graduates themselves, should be responsible for the repayment of the loan, using the mechanism of the national insurance contribution.

The Government looked carefully at the idea of using private sector money. As it happens, like my hon. Friend the Member for Leeds, North-West, that was my personal preference when I started work on this issue after my appointment. The reason that approach was rejected is quite simple. From the beginning we believed that three political requirements must be met in the interests of students: first, that all full-time students should be entitled to the loan irrespective of their credit rating; secondly, that no positive interest rate should be charged; and, thirdly, that the obligation to repay should be deferrable if a graduate's income is below a certain level.

My right hon. Friend the Member for Brent, North, in an admirable speech, was mistaken when he thought that our plans might contain some negative dowry. I noticed that my hon. Friend the Member for Rugby and Kenilworth corrected him on that point.

I wonder whether any of us could get a loan on terms such as these from any private bank. I imagine that a request for such a loan would fall on deaf ears from even the most listening of banks.

In short, the Government decided that the money committed to this loan scheme would have to be public money because of the need to structure the scheme to the advantage of students in ways which would be inconsistent with the principle of private sector funding.

Meanwhile, quite apart from considerations pertaining to the theory of public finance, there is a purely practical point. Is there any serious reason to believe that operating a loan scheme on the terms envisaged by Messrs Barnes and Barr—including the arrangements the Government propose in the interests of students—would attract the willingness of any private sector financial operator to lend? It is certainly worth noting that there is not a single student loan scheme anywhere in the world built on Barnes and Barr lines—but there are many which have operated successfully for years on the principle of loan rather than tax, which underlies the Government's proposals.

No, I fear that there is a blunt message for all supporters of the principle of student loans, wherever they stand in the political spectrum. Barnes and Barr have constructed one of those "fudge and mudge" positions beloved of the chattering classes—in favour of a graduate contribution, but against the Government's way of implementing it.

The essential fact that must be appreciated is that this Government have at long last grasped the hoary nettle of student loans. The Government's scheme is the only scheme in town. Those who wish to see the introduction of student loans must think long and hard about how far they press their preferred nostrums. I hope that they will not put their panaceas before the basic principles.

I turn briefly to the other Barnes and Barr argument about using the national insurance system as the mechanism for repayments. My right hon. Friend the Member for Brent, North linked repayments and the tax system, but as my right hon. Friend the Secretary of State pointed out, there are practical difficulties with that, notably the importance of not introducing new complexities into the national insurance systems and the need to avoid imposing additional burdens on employers.

Let me focus, however, on the issue of principle. From the point of view of the student, the mechanism of the tax system, or of national insurance—especially if paid by the employer—is a very remote mechanism. If we employ it, the fact of an obligation to repay something of the costs of undertaking their studies will tend to escape the attention of the student. But is this desirable?

In this context, let me quote the view of another figure associated with the London School of Economics, Professor Ashworth, who recently commented in a letter to The Guardian: Students who pay…are, in my experience, more critical and demanding of the teaching that they are offered…allowing not only for the maintenance of standards but also for their increase. I ask the House which approach to student loans is most likely to realise professor Ashworth's desired effects. Will the new student attitudes he wishes to promote be best secured by the remote mechanisms of the NIC or the tax system, coming into operation years after a student enters higher education or will they be better promoted by the Government's proposed scheme, which will operate to affect student attitudes from the first week of the first term?

In this debate we have heard many theoretical arguments against the principle of student loans. Those who argue in that way should remember that the Government are not producing a never-before-heard-of adventure in launching a programme of student loans. Many countries operate the system and we should consider how the British system compares with the systems of other countries. We are offering one of the most generous student loan schemes anywhere in the world. It will be available to a higher proportion of the student body than is the case almost anywhere else. In the Federal Republic of Germany, for example, it applies to only 33 per cent. of students and to only 12 per cent. in Japan. The loan and parental contribution together will give the British student a larger total resource than elsewhere. Similarly, if we look at details, our scheme is more generous. We are envisaging a 0 per cent. real interest rate, unlike student loans in Norway, Sweden, the Netherlands and the United States.

Our plan envisages arrangements for deferment when income falls below a certan level, unlike the United States. We are providing that mature students can borrow up to the age of 50, unlike other countries that have an age cut-off of 30.

The most cursory study of other countries' experience will provide evidence of the fallaciousness of much of the reasoning we have heard from Opposition Members. Let me sum up the international experience of student loans by reporting on the experience of my hon. Friend the Member for Buckingham (Mr. Walden) who preceded me in my job and who started the work on the student loan scheme. He visited Sweden and he asked the Socialist Minister for Education why Socialist Sweden was so attached to student loans. He was told that there were two reasons—

It being half past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.