Education (Student Loans) Bill

HC Deb 27 November 1995 vol 267 cc943-1001

Order for Second Reading read.

4.19 pm

The Minister of State, Department for Education and Employment (Mr. Eric Forth)

I beg to move, That the Bill be now read a Second Time.

The Bill is about extending choice. For the first time, students will be able to choose a subsidised loan from a bank or building society. It is a short and straightforward Bill, and it will enable us to test the market to see whether a largely private sector loans scheme would work. There is no hidden agenda. What you see is what students will get—that is, choice and a better service. They can only gain through our proposals.

We are making substantial changes, while retaining key features of the current loans scheme, and I shall begin with our policy objectives for doing so. The Student Loans Company is the sole supplier of subsidised loans. It will continue, but there are few benefits to the consumer in a monopoly. We shall seek to add choice, diversity and competition through the banks and building societies.

Choice and competition will lead to direct benefits to students, in the short term through a better, more convenient and comprehensive service and, as the market develops, through a product better tailored to individual needs.

Mr. Tony Worthington (Clydebank and Milngavie)

Having that extra choice sounds like a great deal for students. How many have asked for it?

Mr. Forth

Students are not notorious for coming forward with imaginative ideas in the public arena. As we have often found, it is for the Government to give the lead. Again, as has so often been the case, we have proposed an imaginative scheme, which will benefit students in the long term. I am convinced that the wiser students will realise that immediately and the rest as time develops.

The capital investment in loans is immense—up to £5 billion by the end of the decade. We want the private sector to find much or most of that and, indeed, to take on much or most of the risk. Personal lending at that level is not a natural activity for the Government. We do not have the experience or the expertise that the banks and building societies have. That is their business. They are better at providing a service and a range of financial products. They are better at developing and marketing those products.

Mrs. Anne Campbell (Cambridge)

How much interest have the banks and building societies expressed in the scheme?

Mr. Forth

As has been made known, they have been engaged in discussions with Government officials for some time. The process is in the early stages. A draft tender document has been produced. If Second Reading is approved by the House, we propose to produce a tender document. The financial institutions will rightly want to see the fine print and how the matter develops. They will make their judgments on that basis, which is a perfectly normal aspect of the process.

Mr. Richard Tracey (Surbiton)

I suppose that in this day and age I should declare an interest. Two of my children are receiving university education. I am sure that my hon. Friend is well aware that all the high street banks offer preferential rates for overdraft facilities for students. They are all extremely helpful to university students and I am sure that they will all be extremely interested in the Government's proposal and that, overall, the students themselves will welcome it. As on so many things, the Opposition, of course, are in the dark.

Mr. Forth

Yes. When my daughter was at university, I was always intrigued at the willingness of most students to take on bank overdrafts. That was their choice and they each handled it in their own individual way. We are offering students a further choice. They can go to the Student Loans Company or use existing arrangements provided by the banks, and we are now in the business of offering them yet further choice, from which I am sure that they will benefit. Students can see the benefits of the arrangements far more quickly than Opposition Members seem to be able to do. I confidently expect that, if we get the sort of ritualistic knee-jerk opposition from Labour Members today to which we have been used, in a few weeks or months—perhaps it will take them a few years in this case—they will come round to our point of view, as they have done on almost every aspect of education.

Mr. Robert Jackson (Wantage)

Would my hon. Friend cast his memory back to the time when we introduced student loans and the opposition that we had from the Labour party and the Liberal Democrats? They declared that the effect of introducing student loans would be that no more people would come forward to be students. Since then, has there not been an enormous expansion of higher education and an increase in the participation rates of people from less privileged backgrounds, in spite of everything that was predicted by the Opposition?

Mr. Forth

Indeed. That intervention gives me the opportunity to praise the sagacity and foresight of my hon. Friend, who played such a role in the introduction of the scheme. He was right and Opposition Members were wrong. I hope that they will think carefully before they object ritualistically to this development in the market because even they would not want to be proved wrong yet again, although they must be getting used to it.

Mr. Mike Hall (Warrington, South)

In 1989, we were told that the banks were interested in student loans, but they pulled out. What is different now?

Mr. Forth

Oh dear, the hon. Gentleman has not noticed what is different between 1989 and now. Surely he cannot have failed to notice the enormous increase and development of the higher education sector. He has obviously failed to notice that many hundreds of thousands of students have freely come forward, seen the benefit of student loans and taken them up. As for the financial institutions, they will make up their own minds as to what role they wish to play and how far they wish to take up the opportunities that are being given to them. This is an enabling provision and it is a matter for them about which they can make up their minds freely.

Mr. John Gunnell (Morley and Leeds, South)

The Minister tells us about the number of students who have taken up loans. What comment has he on the number of students for whom loans have been available but who have not taken them up? Why is it that 45 per cent. of students have not taken up loans?

Mr. Forth

Those students are obviously so well catered for that they do not need to take up the loans. Opposition Members cannot have it both ways, as the hon. Gentleman seems to imply. The loans are there for those who wish to take them up, but there is no obligation. As for those who can manage perfectly well without the loans, I say well done and wish them luck.

Mr. Cynog Dafis (Ceredigion and Pembroke, North)

I shall mention this again later, but I have been speaking today to the welfare officer at the University college of Wales in Aberystwyth. He tells me that people from low-income families are fearful of taking up loans and are being forced into things such as part-time employment because of their anxiety about the debt that they will incur and the fact that they will cause difficulties for their parents as a result of taking out loans.

Mr. Forth

I understand the hon. Gentleman expressing a point of view having talked to someone directly involved with that small proportion of students who get into difficulties. That is, after all, the role of the person to whom the hon. Gentleman spoke. The overall picture, however, is quite different. The figures irrefutably show that the lower-income groups have come forward in ever greater numbers in the past few years to take advantage of higher education. Whether it is the taking out of loans—which benefits lower-income groups more—or the sheer numbers, the evidence is there.

I suspect that if the hon. Member for Ceredigion and Pembroke, North (Mr. Dafis) spoke to other Opposition Members and compared notes, he might well find that, depending on their background and the income available to them, students may or may not want to resort to the loan scheme. That is a matter of choice for them, but I do not believe that it creates any additional pressure. I am sure that hon. Members who have taken an interest will know that the average loan outstanding at the moment is some £1,400 and that the average repayment for those who have had a loan is about £18 per month. It is straining it a bit for anyone to suggest that that is particularly onerous or burdensome on individual students.

Mrs. Maria Fyfe (Glasgow, Maryhill)

Will the Minister tell the House the amount of grant available to students in each of the past five years and the amount of maximum loan available in each of those years? Is it not the case that the figures clearly demonstrate that students have been forced into loans because their grants have been smashed?

Mr. Forth

No, the figures would demonstrate—I do not have them in front of me, but I can certainly provide them to the hon. Lady either later in the debate or perhaps in writing—what we have always said as a matter of stated policy: that we wanted to shift the burden of student finance, gradually and in a controlled way, from the 100 per cent. reliance on grants, which was the case in the past, on to loans.

I should be interested to hear from Opposition Members, perhaps from the hon. Member for Glasgow, Maryhill (Mrs. Fyfe) or her colleagues on the Front Bench, whether the Opposition would do things differently or reverse the process and, if so, where they would find the money. It is a legitimate subject for debate. We have laid our cards on the table. We have said over and over again that we ought to shift the burden from grant to loan. The Bill is a further development in that process.

In the longer term, there are other advantages in having the private sector more closely involved in higher education. We are encouraging education-industry links across the board. Those links mean better understanding. The resources and expertise of the private sector will become available to education. Education will therefore meet employers' needs more effectively. In that way, there is a co-operative approach that can only benefit both business and education. Providing subsidised loans, whether public or private, entails a cost to the taxpayer, but we seek to ensure that those policy objectives are realised in the most cost-effective way.

The expansion of higher education since the Government came to power in 1979 is startling. Student numbers have doubled. Almost one in three young people now enter full-time higher education, compared with only one in eight in 1979. The number of mature entrants has risen by over 150 per cent., a rate nearly as fast as for young entrants. There were 174,000 graduates in 1993–70 per cent. more than in 1979. Among European Union countries, only Denmark has a higher graduation rate. We spend more per higher education student than any other European Union country. We run a system that is both efficient and generous. We have transformed it from an elite system to one for all, which no longer caters for a privileged few supported by privileged families and the taxpayer.

Those important changes will last as long as anything that the Government have achieved. Opposition Members say that they support expansion, but this Government have achieved it. What we need to do now is pause and consider the next steps. We are consolidating the participation rate at some 30 per cent. over the next three years, to enable universities to concentrate on maintaining and improving quality in teaching and research, which is of the highest priority. It will give us an opportunity to conduct a wide-ranging review, which will look at the purpose, size and shape of higher education. It will also look at the contribution that higher education makes to the economy, and how it prepares young people for employment and prepares people throughout their working lives for the opportunities that they seek. Those issues require careful thought and we intend to issue a consultative paper in the new year.

In the meantime, however, it makes sense to press ahead with this Bill to improve the loans system. The landscape has changed rapidly since the House debated the 1990 Act. That may be an answer to the question put by the hon. Member for Warrington, South (Mr. Hall). At that time, all we heard from Opposition Members was that it would all end in disaster, students would not take out loans and students from poorer families would be denied access. That has all turned out, patently and demonstrably, to be untrue. Student loans are a great success. Many Opposition Members—I hope that we shall hear more of this during today's debate—now believe that loans are here to stay, in one form or other. It warms my heart that this is yet another example of Opposition Members eventually coming round to accepting an established Conservative principle.

The increase in loans has been dramatic. Some 180,000 were taken out in 1990–91, which means that they were taken out by 28 per cent. of eligible students. Some 517,000 were taken out in 1994–95, which means that they were taken out by 55 per cent. of eligible students. We believe that that growth will continue and we forecast a take-up rate of some 80 per cent. by 1997–98.

There is no evidence that loans are discouraging entrants from poorer families, as the hon. Member for Ceredigion and Pembroke, North tried to suggest a moment ago. That assertion was made in 1990, when Opposition Members opposed that Act. It made no sense then and it certainly makes none now. Loans—with handsome deferment rights linked to income—help the poorest students. An increasing proportion of higher education entrants come from less well-off families.

Mr. Worthington

This is very interesting, but the central reason for the Bill is completely separate. What contact has there been between the Chancellor of the Exchequer and the Department for Education and Employment about the necessity to get student loans out of the public sector to lower the public sector borrowing requirement?

Mr. Forth

The contact between my right hon. and learned Friend the Chancellor of the Exchequer and my right hon. Friend the Secretary of State is close, harmonious and fruitful, as ever. The Government as a whole are happy and content with the thrust, direction and purpose of the Bill. They could scarcely be otherwise.

I was giving some background figures. Overall, the number of loan accounts has risen dramatically. In the first year, there were 180,000, and there were just under a million by the end of 1994–95. We believe that there will be nearly 2 million in two years' time. That represents a public sector success, but also a burden. I shall return to that point shortly.

Higher education is, of necessity, costly. The taxpayer, through the Government, has made substantial sums available—£4.7 billion in 1995–96, with a further £1.5 billion for student support. There must be a limit to what taxpayers can reasonably be expected to invest in higher education.

Given our generous student support arrangements, it is not surprising that the number of loans has increased so substantially. Outstanding loans—that is principal and interest—will total some £5 billion by the end of the decade. That is an enormous investment and why I believe it is right to seek to transfer the task of raising that capital to the private sector.

I should like to take this opportunity to pay tribute to the Student Loans Company. The Bill is not directly about the company, which has achieved a lot in a short time, remarkably efficiently. Less than 8 per cent. of borrowers were in default—two payments behind—at the end of the last financial year. A significant proportion of them will eventually correct the position. That is well below the 20 per cent. fantasy figure mentioned by the hon. Member for Bath (Mr. Foster) in the debate on the Address.

Mr. Don Foster (Bath)

Given the high regard that the Minister clearly has for the Student Loans Company, can he tell the House what its view is of the proposals?

Mr. Forth

I would characterise the view expressed by elements of the Student Loans Company as being understandably typical of anyone in a monopoly position.

There are some in the company who feel uncomfortable at the thought of having another player or players on the field. I do not blame them for that. I can assure the hon. Member for Bath, from the discussions that I have had with key figures in the company, that they accept the policy direction of the Bill. They will be more than equal to the task of making any adjustments necessary if financial institutions take up the opportunities offered in the Bill. In the Student Loans Company, there is a mixture of apprehension and a willingness to get on with the job. I am encouraged by that.

There have been a number of comments about the National Audit Office findings on the sums that will not be repaid to the company. Many have rushed to criticise us on the back of that report and we should be clear what it means. Much of the money will not be repaid because it is our policy that those who cannot afford to pay should not. There are borrowers who will never reach the repayment threshold. The critics must say what they would do. They should say whether we have to hound those borrowers or change the repayment terms. The figures have caused criticism because our repayment terms are sensitive and generous, and take full account of the needs and abilities of individuals.

The Student Loans Company has reduced its administrative costs from £48 to £14 per account over the five years of the scheme. The company has also put recent operational and staffing problems behind it. It will continue to play an important part in student loans, but it cannot provide choice and competition.

The fundamentals of our loans policy are sound and will remain unchanged. Whether public or private, we have no plans for subsidised loans for fees. I wish to make that clear. We have no plans to abolish grants. We plan to achieve broad parity between grants and loans in 1996–97 and then to maintain that parity.

Loans reduce the share of the burden falling to parents and the taxpayer. That must be fair. The main beneficiary should pay some of the costs. After all, many taxpayers earn much less than most students eventually will. Loans increase students' sense of financial responsibility and their stake in successfully completing their courses.

Loans will continue to be made on generous terms, whether public or private. Repayment could be deferred if income was less than 85 per cent. of average earnings. Interest rates are fixed to the retail prices index, and repayments do not begin until the April after graduation.

A lot of nonsense is talked about student debt. The implication of some who make those allegations is that we should be more generous. Those who say that should answer some questions. Who will pay? Should it inevitably be the taxpayer? Should it be the families of the students or the students themselves? Can they afford to pay? All those questions should be answered clearly and systematically by those who seek to criticise the present arrangements and the Bill.

Mrs. Anne Campbell

rose—

Mr. Bernard Jenkin (Colchester, North)

Will my hon. Friend give way?

Mr. Forth

I shall give way first to the hon. Member for Cambridge (Mrs. Campbell) and then to my hon. Friend.

Mrs. Campbell

As more people, particularly mature students, are coming back into higher education, it is important that there are some facilities for part-time students. Can the Minister tell us whether the new student loans scheme will cover arrangements for part-time as well as full-time students?

Mr. Forth

I should like to take advice on that and give the hon. Lady a reply during the debate or when I seek the permission of the House to reply. I do not want to give an off-the-cuff answer that might mislead. It is a very important area.

Mr. Jenkin

My hon. Friend discussed the access funds and the important role that they play. Is not it important that we make more money available to the access funds, to help the very people whom the Opposition parties say that they are worried about? However, so that we may be able to afford to do so, is not it entirely right and proper that people should become more dependent on loans and less dependent on grants at the expense of the taxpayer?

Mr. Forth

My hon. Friend makes a very important argument, which I know has worried him and many other hon. Members for some time. We must constantly make very difficult judgments about the way in which necessarily scarce moneys in higher education are used. I shall take my hon. Friend's argument under advisement, if I may, and consider it to discover what can be done to help, but I warn him, as ever I must on such occasions, that, with necessarily limited total moneys, what is allocated in one direction must come from another. That is what makes it so difficult.

Dame Elaine Kellett-Bowman (Lancaster)

Is there any possibility of giving help to the small number of students who must take a year out and then return to their studies, who at the moment find it extremely difficult, especially with the council tax and so on?

Mr. Forth

My hon. Friend has put a finger on an aspect that causes difficulty to some people. I undertake to consider that issue, to discover what help might be given, but I must repeat the health warning that I gave to my hon. Friend the Member for Colchester, North (Mr. Jenkin) a moment ago—it is always a matter of balancing what is available with the severely competing needs.

Mrs. Fyfe

I thank the hon. Gentleman for his courage in giving way once again. Has he heard of a study published by the Scottish citizens advice bureau in August, entitled "Poverty by Degrees"? It referred to the fact that students have visited citizens advice bureaux because of the poverty that they experience; the CABs have had to refer them to charities providing free food. Does the Minister believe that taxpayers are so anxious to have their tax reduced by every penny possible that they want students to be in that condition?

Mr. Forth

Taxpayers might want to know considerably more about the circumstances of students who find themselves in the position that the hon. Lady describes. When I visit campuses, I am always impressed by the number of students occupying the beer bars and enjoying many of the other benefits of higher education. The truth is that, as is the case in so many other aspects of society, the vast majority of students manage their money responsibly and manage to get by very well indeed. Although it is absolutely right that we should give sympathy, understanding and support to those who cannot do so, I find it difficult to believe, as I believe the hon. Lady is suggesting, that all students are in hardship. It is the way in which individuals manage their resources that is the problem, not all students.

Mrs. Helen Jackson (Sheffield, Hillsborough)

Given what the Minister said about the importance of mature students, under the new scheme that he is suggesting, will loans be available at the rates suggested for both women and men over the age of 50? It is often at about that age that women start to recognise that they have potential that they want to use, and that men, in cities such as Sheffield, who are skilled and well trained in industries such as steel and engineering, want to take up different careers.

Mr. Forth

In this country, unlike many other European countries, there is no upper age limit in the mandatory awards scheme. I can only say to the hon. Lady, and hon. Members present on both sides of the House, that as soon as one makes an understandable plea for one group of students, one must take the responsibility of identifying where the money would come from to fulfil that purpose.

Mr. David Blunkett (Sheffield, Brightside)

Answer the question.

Mr. Forth

The hon. Member for Sheffield, Brightside (Mr. Blunkett) is muttering across the Dispatch Box. Perhaps he would ask his hon. Friend the Member for Oldham, Central and Royton (Mr. Davies) to say, when he speaks, whether Labour Members are prepared to answer those questions themselves. [Interruption.] There is no point in the hon. Member for Brightside laughing, because if he were ever to be within a million miles of government, he would find that it was almost entirely a matter of making very difficult choices.

Mr. Blunkett

I made difficult choices for seven years.

Mr. Forth

The hon. Member for Brightside is saying, from a sedentary position, that he made difficult choices for seven years, when presumably he bore some responsibility for running Sheffield's finances. If he is suggesting that we take his track record in running Sheffield's finances as his claim to be in government, God help us if it ever happens.

Mr. Blunkett

I cannot resist placing on record what the Audit Commission said about my time as leader of Sheffield city council, which was that we delivered the best public services in Britain, and Sheffield was a shining example.

Mr. Forth

At whose expense did the hon. Gentleman deliver the best public services in Britain? The rest of the country might well have something to say about that.

Mr. Robert Jackson

rose—

Mr. Forth

I must move on.

We are already more generous than most other countries. Students with a mandatory award pay no tuition fees, which is not true of many other countries sometimes cited as paragons by those who criticise us. Our maximum grant is greater than that in France. Japan, often held up as a shining example in education, offers no grants. In some countries, interest payments are greater than inflation; in some, repayment is not income contingent. One would therefore have great difficulty in finding any country that is doing better than we are.

Our scheme provides a good balance between the needs of student, parent and taxpayer. I shall describe briefly the way in which our proposed system would work.

Private financial institutions would be invited to bid for the right to offer subsidised loans. That would probably be for a period of five years. Loans would be made on comparable terms to those offered by the Student Loans Company, and we envisage selecting up to four other lenders.

Students would then be able to choose either public or private loans. If they chose the private sector, they would choose between the successful bidders. If not, they could still opt for a public loan from the SLC. We shall make arrangements to ensure that students could not obtain a loan from more than one source in any one year.

In choosing a private loan, students would have access to a better, more convenient and comprehensive service through lenders' branch networks. They could link loans to other financial products and services.

I have no doubt that private sector competition will lead to more attractive products. What do students have to gain from the uniformity based on an equal minimum? I believe that we have moved on from that, and I believe that more and more students recognise that.

I shall summarise the Bill's provisions.

Clause 1 contains the main provisions of the Bill and specifically gives us the power to pay subsidies to private sector lenders. Subsection (1) amends section 1 of the Education (Student Loans) Act 1990 to add that power. Subsection (2) covers the Bill's schedule and makes consequential amendments to the 1990 Act and schedules. They reflect the fact that we would have twin public and private tracks for loans.

Clause 2 allows a similar provision to be made for Northern Ireland.

Mr. Harry Barnes (North-East Derbyshire)

When the Education (Student Loans) Act 1990 passed through the House, it was opposed by people of all shades of political opinion in Northern Ireland, ranging from the Democratic Unionist party to—outside the House—Sinn Fein. The only party in Northern Ireland that gave any support to the 1990 Act was the Conservative party, which was of no significance in Northern Ireland.

As clause 2 would apply the measure before us to Northern Ireland by the negative procedure, should not that clause be changed so that the House has a chance to discuss, under the affirmative procedure for statutory instruments, whether the provision should extend to Northern Ireland, where there is absolute opposition to the student loans scheme?

Mr. Forth

My opinion now—although I shall check for the hon. Gentleman—is that, as he knows, that is the usual way of dealing with Northern Ireland in most public Bills. It is generally a satisfactory arrangement, but later in the debate or during my speech in reply, if I am given permission to do so, I shall specifically discuss that matter.

However, I am not sure whether, even in the case of Northern Ireland, one wants to start singling out parts—however distinguished—of the United Kingdom and treating them differently from others. I am aware of no reason why students in Northern Ireland should not receive the benefits of the Bill's provisions that students elsewhere will receive, but I shall return to that subject later.

Clause 3 contains financial provisions in relation to subsidy and administrative costs arising from the Bill. Clause 4 contains the citation provisions and extends the Bill's provisions to Great Britain.

The 1990 Act set a framework for public loans based on regulation. That system works well for grants and loans, but I do not believe that it is appropriate for the private sector. Instead, tightly drawn contracts would protect students: in particular, deferment rights and a retail prices index maximum on interest rates would have to be safeguarded. In other respects, I consider it sensible to employ a light touch.

Student loans share the costs of student support more equitably. That is why the system is right and successful. The proposals in the Bill would add the further advantages of choice and competition. It is a straightforward Bill with, I believe, no down side, and it ought to be supported by all who want a loan scheme that is fair to both students and the taxpayer. There are valuable opportunities for the private sector and for students, and I hope and expect that those opportunities will be taken. I commend the Bill to the House.

4.50 pm

Mr. Bryan Davies (Oldham, Central and Royton)

Opposition Members recognise that the funding of students in higher education poses significant policy issues. We do not have a closed mind on those issues, but we believe in clear principles, on which the funding of such students should be established. We intend to test the Bill against those criteria.

First, any system of student funding must encourage, not discourage, access to higher education for people from all social backgrounds. Indeed, active measures should be taken to ensure that participation in higher education reflects the wider composition of society. Although the Minister pointed out that higher education opportunities had been expanded, he did not mention the fact that we have not succeeded in encouraging an increasing proportion of students from less well-off homes: the proportion of students from social classes A and B has remained relatively unchanged during the past decade, despite the changes in student numbers.

Secondly, student funding should protect, and aim to enhance, the quality of higher education, which is a vital national asset and should not be sold short.

Mr. Gyles Brandreth (City of Chester)

The hon. Gentleman may have different information from that which I received from the Department. I understood, however, that the recent survey showed that in social grades A and B, the numbers taking part in higher education had fallen by about 6 per cent., but that there had been a corresponding rise in the proportion among the lower social groups. That, I think, contradicts what the hon. Gentleman said. I am sure that he will want to put the record straight.

Mr. Davies

The hon. Gentleman should recognise how marginal the changes are. Two thirds of higher education entrants come from relatively well-off homes, and that statistic has scarcely changed throughout the period of expansion. It is clear that the Government's current system, and the system proposed in the Bill, do not significantly extend opportunities for access to higher education among many young people.

Thirdly, student funding should be equitable between different groups, rather than discriminating on the basis of, for example, modes of attendance. The Minister was unable to tell us whether the Bill would extend to part-time students. Given the issues raised by the current system, under which loans are available only to full-time students, I should have thought that such an important matter could at least have been clarified—to say nothing of the additional point made by my hon. Friend the Member for Cambridge (Mrs. Campbell) about mature students.

Fourthly, any system of student funding should be fair to both students and the taxpayer. That means that it must be efficient and progressive, and should set out to ensure that no student suffers hardship.

The Government's proposals meet none of those criteria. The Bill is ill considered and divisive; it is a pathetic response to the problems faced by higher education students, and to the global challenge that we, as a society, face to improve the performance of our education system. The Bill simply transfers to the private sector all the failings of the current student loans scheme. Instead of one good scheme, we shall have two bad schemes. Although the Minister set out to defend the existing scheme, the general experience of students, and of Opposition Members, is that it is already deeply flawed.

In fact, the scheme is universally condemned. It requires graduates to repay loans over a five-year period at the start of their careers, when their earnings are at their lowest. That places a considerable burden on graduates, and leads to high deferment and default rates. Some 43 per cent. of students defer repayments, and 7 per cent. are in default.

The system is unfair. It does nothing for further education and part-time students—unless, that is, the Minister is to announce an important new progressive stance. Such a change in his position has certainly not been heralded. We should like clarification of that before the end of the debate. Loans are concentrated among a minority of those in post-compulsory education, and only 55 per cent. of those people have taken advantage of the scheme. Students recognise its flaws.

A central plank of state support for students is simply not delivering. The scheme itself is inefficient, and the Student Loans Company has been plagued with problems. During the autumn of last year, 35,000 students experienced extensive delays in receiving their loans. There was administrative chaos. As the National Audit Office reported only last week, the company received more than 1 million calls in November 1994, but only 41,000 students succeeded in getting through. There was a complete breakdown in the company's ability to respond to students. Given the grant cuts that the Government had enforced, that meant that thousands of students were deprived of the resources that they needed to continue their studies. I recognise that the company—under its acting chief executive, Sir Eric Ash—has taken action to remedy the problems, and I welcome that; but it is not the same as tackling the problems of the scheme itself, for which the Government rather than the company are responsible.

The Government now propose to persuade the private sector to take a share of those troubles and difficulties. They have apparently not consulted anyone about their plans. Both the universities and the students deny that they have been consulted; they have simply been the unfortunate recipients of the Government's botched measures. Nor, it seems, was the company itself consulted. Its acting chief executive said as much on the radio recently. He also said: The message I'm getting from the banks … is that they're not really very interested. That message is coming across loud and clear.

Mr. Forth

I suspected that the hon. Gentleman would pick up Sir Eric's slightly unfortunate remarks, and I arranged for the position to be checked very carefully. My officials had discussions with the Student Loans Company on the subject as long ago as early August. I have personally discussed it with Sir Eric on two occasions, and my officials have had discussions with board members on at least four other occasions between August and October. I am sorry if the hon. Gentleman has been misled, but I checked the record very carefully, and those are the facts.

Mr. Davies

I accept what the Minister has said: such a meeting undoubtedly took place. "Consultation", however, suggests that someone is listening when the contrary point of view is presented. It is clear from what Sir Eric has said that the Government's proposals do not enjoy his whole-hearted support—and we should not be at all surprised at that.

It is clear that the financial institutions also have their doubts. The Woolwich and the Abbey National building societies are already reported to have turned the Government down; the Co-operative bank cannot envisage becoming involved, and neither can the Royal Bank of Scotland. A spokesman for the Midland bank has said: This is a high risk venture and we see considerable problems in managing this book. It is not the most attractive proposition in the world. You can bet your bottom dollar that it is not, given our experience of the Student Loans Company thus far. Barclays bank has said much the same thing. The House will recall that the banks pulled out of the last attempt to get them to participate in a student loans scheme. Perhaps that was a testimony to the negotiating skills of the then Chief Secretary of the Treasury, the present Prime Minister. A more charitable interpretation is that the banks predicted nothing but problems, and why should their views have changed?

Sir Christopher Johnson, the then chief economic adviser to Lloyds bank, advised his bank to have nothing to do with the last scheme. Last Friday he wrote in The Times Higher Education Supplement that the Government's new proposals made him "despair"—and who would disagree? He said: There is every sign that a half-baked idea has been launched prematurely to get it into the Queen's Speech in time. Haste born of financial desperation is not a good recipe for fundamental reform. However, the most telling testimony is that of the governing party. The Conservative national policy group on higher education has described the current loans system as "inadequate" and "highly inefficient". Why should the banks become involved when the Tory party can muster no better recommendation of Government policy than that?

The proposals are unlikely to interest the banks. Student loans are an uncertain business and the repayment mechanism is not secure or efficient. If the banks are to be involved, they will clearly need huge subsidies from the public purse. Sweeteners will be needed to cover interest rate subsidies, default levels and administration costs.

Mr. Tracey

Will the hon. Gentleman give the House straight answers to some straight questions? Would the Labour party in government return to a complete grants system? In other words, does the Labour party envisage providing more than £3,000 per year to students? How would the Labour party pay for that? Perhaps the hon. Gentleman would like to comment on the idea of a graduate tax, which the hon. Member for Sheffield, Brightside (Mr. Blunkett) has talked about.

Mr. Davies

The Labour party is engaged in a true consultation exercise: we are listening to what the wider community is saying. Whereas the Government's proposals are being roundly condemned by all relevant interest groups, our policy will be based upon a close appreciation of what will best serve the needs of education.

The legislation represents the Government's attempted solution and they are legislating in haste before they have concluded negotiations with the private sector. Can the Minister advance the name of any financial institution that is prepared to sign on the dotted line? If that is asking too much, can he name anyone who favours the proposals? I believe that he cannot, but perhaps the Minister will address those issues, and fill some of the gaps in his original contribution, if he seeks leave to wind up the debate.

The Minister wants Parliament to issue a blank cheque. The Government need something to interest the private sector as they have placed themselves at a disadvantage at the negotiating table. The Bill is already before the Parliament and, therefore, the Government have made a commitment to a policy that the private sector must underwrite.

The Minister claimed that his proposals will provide students with a choice. That should warm the hearts of Tory Back Benchers: a privatisation measure involving additional choice. Can one doubt that they will rush uniformly into the Division Lobby? However, if they ponder the facts, they will find that the measure will not give students a choice. The terms of the loan will remain basically the same. Students will have no effective choice—in fact, they will be placed at a disadvantage. The draft tender document suggests that the banks will be able to pick and choose to whom they will lend. They may even choose to negotiate a shorter repayment period. The banks can tie a bigger millstone around students' necks and the Government will call it choice.

Mr. Brandreth

I am delighted to hear the hon. Gentleman praise the notion of choice. In political terms, the electorate is faced with a choice. It is clear what the Government are setting out: £4.7 billion per year to be spent on our colleges and universities and a student loans scheme with extended opportunities. However, the hon. Gentleman has not made clear the Labour party's policy. Would £4.7 billion be sufficient? Would there be more money and, if so, how much more? What is Labour's specific proposal? The hon. Gentleman says that he likes choice; perhaps he can put a choice before those who are listening to the debate.

Mr. Davies

I am not surprised that the hon. Gentleman has intervened in my speech for a second time, as it is his last chance before tomorrow's Budget Speech to give the Chancellor some idea of where the nation's priorities should lie. He makes yet another attempt to cull from Labour answers to questions that the Government are manifestly failing to answer effectively.

As to the issue of choice for students, do the Government suggest that students will have real negotiating power when applying for loans from banks? How can a student, who is facing real hardship and who has no parental support to call upon, dictate terms to a major clearing bank? The idea is laughable. If the Government have their way, it is the banks that will choose. They will pick and choose between students. They will ask students questions such as, "What do your parents do and what do they earn? What degree are you doing? What career are you hoping to pursue?"

The Bill will create a two-tier system whereby well-off students and those with particularly good prospects will go to the banks and the rest will go to the Student Loans Company, which will be left to carry worsening default levels on its loans.

Mr. Barry Porter (Wirral, South)

I am still rather puzzled. I do not blame the Opposition for not saying what they are in favour of, but I cannot work out what they oppose. Do they oppose student loans in principle, or the proposed mechanics of delivering those loans?

Mr. Davies

We oppose the proposals in the Bill, and that is why I shall ask hon. Members to vote against the Bill at the conclusion of the Second Reading debate. I am outlining why the Bill will not offer choice to students, will not create increased opportunities and will certainly damage those students who are less well off. Under a guise of choice, the Student Loans Company will become the lender of last resort. The Bill will do nothing to alleviate student hardship.

The Minister does not seem to recognise the hardship that many students face today. He said that he meets with students in bars—and presumably he drinks at their expense because he suggested that students are rather lavish with their resources. It may simply be that they are excessively generous—even to Ministers who are not concerned about their real needs.

When the Minister visits universities, does he not talk to those who distribute hardship funds? Does he not talk to ordinary students who are trying, for example, to cope with the fact that residential costs at many of our universities exceed the grant that the Government advance to students? I suggest that the Minister be a little less selective about the places where he meets students. When students are in a less generous mood and not so involved in socializing—which he seems to encourage from time to time—they will tell him a few home truths.

We must recognise the worrying signs, such as the increasing drop-out rates at British universities. In some cases, full-time students have become part-time students. Lecturers and students will confirm the extent to which students are working part time while studying.

Mr. Jenkin

Is the hon. Gentleman reluctant to explain his own party's policy on student maintenance simply because it has no policies? Is the hon. Member for Sheffield, Brightside (Mr. Blunkett) once again in the unhappy position of being sat upon by the hon. Member for Dunfermline, East (Mr. Brown)?

Mr. Davies

The hon. Gentleman should recognise that the Bill was introduced by the Government whom he supports and that it is the issue on which we shall reach judgment this evening. He should also recognise that the Government are involved in an extensive consultation exercise on higher education. Why are they rushing to implement one particular measure when a whole range of higher education issues are part of a national debate to which the Labour party is proud to make a significant contribution? We shall continue to do so and we shall produce our policy in our own good time.

The Minister does not need to await the outcome of such a consultation process because his mind is made up, whatever anybody else has to say. In a modern democracy, an Opposition party shortly to take up the responsibility of government must adopt a different approach.

The Government have also withdrawn a whole range of student benefit entitlements. This year, they have cut the grant and, as my hon. Friend the Member for Sheffield Brightside (Mr. Blunkett) has said, they have withdrawn the mature students allowance so that, in the past year, discrete bodies of students have been suffering from policy choices by the Government.

To cap it all, the Government even overturned a High Court ruling that would have allowed students who temporarily suspend their studies to claim social security benefits. The judge ruled that if students have no entitlement to grants and loans when they temporarily withdraw, they must have some means of support. The Government did not agree and suggested that they should claim discretionary awards. What discretionary awards did they mean? Under the present privations of local government finance, the Government must surely recognise that discretionary awards have all but disappeared.

The real motive behind the Bill has nothing to do with advancing opportunities in higher education, providing adequate support to students or improving education provision. It is a way to generate public expenditure savings to pay for tax cuts in tomorrow's Budget.

Instead of seeking to lever in private finance to increase the resources invested in higher education, the Government are simply trying to divest themselves of responsibilities. Absolutely nothing in the Bill or in the Minister's speech suggests that the savings that will accrue from the privatisation of the loans will be used to tackle student hardship or to increase access to higher education. Indeed, we do not even know what the savings will be. How could we?

The financial effects of the Bill will depend on the arrangements with the private sector and the number of students who choose to take out private sector loans. Will the Minister tell the House what savings the Government expect to accrue and how? Will he guarantee that any such savings are destined to go back to higher education?

It is clear, however, that any savings will be short-term ones. In the long term, any loan scheme should reach equilibrium between inflows and outflows. It is only because the Government's original scheme proved to be such an expensive mistake that they are trying to shuffle it out of the PSBR.

The chairman of the Conservative party said that the Queen's Speech was intended to smoke out the Opposition, and that is another failure for the Government. Instead of setting out a programme to tackle the huge problems that we face in society, they are merely trying to garner each scrap of political advantage.

Mr. Jenkin

Will the hon. Gentleman give way?

Mr. Davies

No. I have already given way to the hon. Gentleman.

The Bill does not begin to address the huge global challenge that we face to improve our educational performance. The Bill provides for the privatisation of student maintenance but does nothing at all for education. It does not set out a framework for lifelong learning or for the sustained effort that we shall need to equip our people with skills and abilities for the next century; it merely builds on a scheme that is flawed and failing.

The Bill offers the Student Loans Company—itself the subject of a great deal of justified criticism—the desperate role of lender of last resort for those whom the banks reject. Far from addressing the acute problems of student hardship and the need to widen opportunity and promote a learning society, the Bill merely saves the Treasury money. It is all about diverting money to the short-term needs of the Tory party's election prospects rather than about long-term investment in our people. The Bill does not smoke out; it fiddles while Rome burns and I ask the House to reject it.

5.15 pm

Mr. Robert Jackson (Wantage)

I hope that the House will forgive me if I begin with some ancient history that, I believe, will shed light on this welcome little Bill and provide a necessary introduction to the somewhat futuristic remarks that I intend to make in concluding my speech.

When I was appointed Minister for Higher Education and Science after the 1987 election, one of my principal tasks was to devise a way of fulfilling the Conservative party's election promise to introduce a system of student loans to compensate for the proposed removal of students' entitlement to social security benefits.

When I arrived at the Department of Education and Science, some of the groundwork for that policy had been done by my predecessor, my hon. Friend the Member for Buckingham (Mr. Walden), but his work had reached an impasse because the Treasury took the line that student loans should be introduced with no net increase in public expenditure. As the savings from student disentitlement to social security benefits were worth no more than a couple of hundred million pounds, that would have meant either the provision of student loans at a wholly nugatory level, incapable of justifying the administrative costs, or an immediate move to the wholesale replacement of student grants by loans, which would have been hard to achieve politically.

For tactical reasons, so as to get the discussion going again, I decided to propose a scheme for student loans raised and provided by the private sector. My proposal was based on the premise that it would be possible for the Government to subsidise such private student loans and to treat the risk of default as an insurable risk, with the Government paying all or part of the premium for such insurance. On that basis, the social security savings could be used to pay the premium and to provide the subsidy, leaving the student loans system to be funded by the private sector, thus achieving the Treasury precondition of no net costs to public funds.

I had a further, strategic, motivation as well as that tactical motivation for proposing a private sector scheme and I shall return to that later. I am glad to say that my proposal had the desired effect of putting the Treasury on the defensive and reopening the blocked discussions.

Treasury officials had two objections. First, and rather absurdly, they argued that the student loans scheme should be publicly funded because the Government could always borrow more cheaply than the private sector—an argument for replacing all private investment by Government investment and proof of the inherently socialistic tendencies of the Treasury.

The officials' second line of argument was more interesting and more difficult to address: that even if there were only a small amount of public subsidy and risk insurance guarantee, the volume of funds from the private sector made available as a result of such subsidies and guarantees would necessarily have to count as a contingent liability and as part of public expenditure. That definition was presented as a fundamental proposition of Treasury metaphysics—one of those tablets-of-stone absolutes around which no progress can be made.

The exchanges gave me the basis for a serious discussion with Treasury Ministers and, after a tête-a-tête with Nigel Lawson, the Treasury gave up its insistence on no net additional cost, thus opening the way to the present student loans scheme, which I believe is currently costing an additional £1.3 billion of public money.

My purpose in reciting that ancient history is to draw attention to the Treasury doctrine on the way in which private sector funds, guided in a particular direction by public subsidy or risk insurance, should be counted in relation to the public sector borrowing requirement.

In introducing the Bill, my hon. Friend the Minister—and I am glad to welcome him to his position—described its purpose as being essentially to introduce an element of competition for the Student Loans Company in the provision of student loans and an element of choice for students. That is certainly very welcome, but I suspect that it looms less large in Treasury thinking than what I understand, reading between the lines, to be a further objective—to shift as much as possible of the burden of financing student loans from the PSBR to the private sector. If I am right in that understanding, it would appear that the Treasury has done some welcome rethinking about the doctrine with which I was confronted as an unrevisable absolute in 1987. I take it that the rethinking that has been occasioned by the private finance initiative now leads the Treasury to be prepared to consider as falling outwith the PSBR those funds that are generated from the private sector by an element of public subsidy and public risk guarantee.

I do not propose to press my right hon. and hon. Friends for further illumination on that point, but I guess that the critical issues will be the amount of the subsidy and the extent to which the risks will be shared. The danger will be that the Treasury's terms will be such that private operators simply will not take up the opportunities presented to them by the scheme. However, I want to stress that if the Treasury's thinking has indeed moved in that direction, whatever difficulties there may be at the start of the new scheme, it is good news and, in particular, it is good news for the universities. At first blush the universities may not recognise that, so I want to explain why I think that it is, in what some will no doubt regard as a futuristic account of the way in which I believe policy in these matters should develop in future.

I mentioned that I had a strategic as well as a tactical reason for trying, back in 1987, to press the case for a private sector student loans scheme. I promised to say more about that. My strategic concern was to promote the autonomy of the universities and to reduce the extent of their financial dependence on the state. It is a concern that I believe should be central to our higher education policies. I very much regret that it is a concern that is honoured rather by lip service from the Government, from the different parties in the House and, I sometimes think, even from the universities themselves.

I shall briefly state why I consider the financial autonomy of the universities to be important and then go on to show the link between that concern and the question of private sector loans to students. When the Government provided a measure of temporary financial support for the universities after the first world war, administered by a temporary University Grants Committee, they inadvertently laid the basis for the nationalisation of higher education. Over the years, we have reached a position where higher education costs the taxpayer some £8.5 billion a year—2.5 per cent. of total public expenditure.

In legal form our universities continue to be private corporations, but the reality of power in higher education is that the balance between the autonomy of universities and their role as the agents of Government policy has shifted steadily—and, in recent years, dramatically—against the principle of university autonomy. After a brief period during which the uncapped fee funding system, which I promoted within government, restored to universities their freedom to determine their recruitment policies, the overall size of each university is again effectively determined by Government agencies—the higher education funding councils—which fix the price that will be paid on behalf of each student and cap the level of student numbers from the United Kingdom and the European Union in each institution.

I am delighted that another policy that I introduced has survived in better shape—the separation of research funding from the funds for teaching and the more selective allocation of funds for research. That gives freedom to the universities to improve their research income from Government sources by improving their research performance. However, despite such welcome shifts, in general, over the years, the whole relationship between Government and the universities has become more and more bureaucratic, more and more impersonal, less and less flexible and less and less supportive of the idea of university self-government and self-direction.

Mr. Forth

I am following my hon. Friend's well-thought-out and erudite analysis—as ever—closely and with fascination. I wonder whether he means to suggest to the House that, over a period of time, the Government have in any way transgressed on higher education's traditional academic freedom as opposed to the financial relationship between the taxpayer, through the Government, and universities. Or does he feel that the increasing attraction of private sector money—a very successful trend recently—ameliorates the process that he has described?

Mr. Jackson

It is my argument that there should be a great deal more private funding for universities and I shall develop that point later. It is a profound mistake to think that there is no connection between funding arrangements and academic freedom—they go hand in hand. Although there is no desire, will or evidence of any policy to infringe academic freedom, the fact is that the conditions in which academic freedom could be infringed are steadily being created by the nationalisation of higher education that I have been describing. We should do something about that. I believe that in the process of the bureaucratisation of the nationalised system of higher education, values of intellectual independence and academic responsibility, which are central to liberal higher education, are increasingly at risk.

Mr. Colin Pickthall (West Lancashire)

Will the hon. Gentleman extrapolate from what he has just said, and comment on what my hon. Friend the Member for Oldham, Central and Royton (Mr. Davies) said—that the banks that will administer the loans will have a say in the courses to which they prefer to give awards? Would not that be an infringement of the liberal education that he is espousing, and with which I agree?

Mr. Jackson

To the extent that there is a reliance on private sector funding, all sorts of influences will certainly come from the prívate sector. If a higher education system is funded from a variety of different sources, public and private, and those private sources are in turn diversified, the conditions for autonomy are maximised. What is undesirable is for the university institutions to be exclusively dependent on one source of funding—the Government. That is what I am arguing against.

The universities, faced by that position, have tended to cling to traditional constitutional and legal formulae to protect their position. It is time that they recognised that their approach is obsolete. It worked for half a century in the era of the University Grants Committee, when the size of higher education—and therefore the cost to the taxpayer—was still quite small. The growth of state spending on higher education to its present volume and the development in Whitehall of a less discriminating and more unsympathetic approach to accountability have simply made the old cosy structures unviable—the old system of lunches in the Athenaeum. The best way—I now believe the only way—for university autonomy to be secured is for the universities to acquire a substantial flow of income that is essentially independent of the state. I emphasise that by this I do not mean that I believe that the whole of the present taxpayer subsidy could or should be replaced from private sources, but rather, as with the American public university system, that there should be a partnership between public and private funding, with private funding at a level sufficient to give the universities the critical extra margin of financial manoeuvre necessary to safeguard their autonomy.

Mr. Jenkin

Does my hon. Friend agree that the sort of funding system that he is advocating would also lead to a revolution in academic salaries, which we really need in this country if we are to continue to attract the best and the brightest in university teaching and research?

Mr. Jackson

My hon. Friend is absolutely right. One of the most serious social trends in society over the past 20 years has been the pauperisation of the academic profession, which has profound implications for the future of our country. I believe that one of the causes of that pauperisation has been the nationalised bureaucratic system in higher education, which I am criticising.

Before I go on to explain how I think we could get that extra margin of manoeuvre for universities by using the mechanisms provided in the Bill—I am coming back to the Bill—let me say why I believe that objective should commend itself to all hon. Members.

One of the great themes in the constitutional debate that is increasingly at the centre of British politics is the desirability of greater decentralisation in Britain. This is not just a question of devolution to Scotland and Wales or of the relations between central and local government. The Government and the Opposition need to think deeply about the relationship between the institutions of national government in Whitehall and Westminster and the whole range of non-governmental institutions that make up the fabric of our society and our culture.

If the Government and the Opposition are serious about decentralisation, we have to think about how to restore powers not only to local government but to institutions such as universities, which have recently seen their autonomy and their capacity for self-determination increasingly eroded.

To my own party I would say that I have never understood how the creeping nationalisation of our universities, which we have promoted, can be consistent with any recognisable Tory philosophy. To new Labour I would say—

Mr. Barnes

rose—

Mr. Jackson

I want to finish this point. To the new Labour party—the hon. Member for North-East Derbyshire (Mr. Barnes) is old Labour—I would say that I do not understand how sustaining and deepening the nationalisation of the universities is consistent with its new thinking about the need for a more decentralised political and civil society with greater scope and initiative for communities of which the universities are, or should be, a primordial instance.

Mr. Barnes

If the hon. Member feels that way, why did he usher through the House the original student loan scheme? According to his philosophy, that scheme was presumably a nationalised, centralised loan scheme, which is now being altered by the Bill.

Mr. Jackson

It was not the student loan scheme that I wanted. We wanted a loan scheme run by the banks, and it would have been much better if they had played the game and gone along with it. The principle of the student loan scheme, for reasons that I will show, is absolutely fundamental to the whole project of achieving greater autonomy for universities and greater decentralisation in higher education.

I shall assume that I have carried the House at least part of the way with these philosophical considerations about the need for decentralisation and university autonomy that I have outlined. My argument is that greater independence for universities cannot be secured by constitutional and legal devices alone, and that the best way to secure that greater independence is by giving them an independent source of funding. In my view—this is the answer to the hon. Member for North-East Derbyshire—fee income from students, supported by loans financed against their future income, is the only way to provide such significant independent financial resources for universities; and that brings me back to this little Bill.

A major defect in the Bill is that it does not address the central defect of the Education (Student Loans) Act 1990—against which I fought tooth and nail when I was a Minister but lost—by which the student loans scheme is limited to the provision of loans to support student maintenance only. The 1990 Act must be amended, perhaps by this Bill, to enable loans to be advanced to students to pay the fees charged by universities. Nevertheless, what is positive and significant about this Bill is that it opens the door to loans being advanced to students with private money and by the private sector. Let me explain why I think that is so important.

Even if the 1990 Act were amended to enable loans to be provided to pay fees, so long as the money being used to finance the loans was coming from the Treasury and counted against the PSBR, the Government would have a legitimate interest in limiting the overall funding provided for loans against fees. Because of the way things are in Whitehall and, indeed, in Parliament, that could all too easily turn into a Government policy on the size and shape of fees charged by universities. In that way, the top-up private fees would be not the instrument of the greater university autonomy which we should all be seeking but an instrument for a further extension of Government control of universities.

If, however, the loans to pay the fees were to come from the private sector, there could be no justification for the Government determining the fees policy of the universities, which would be private institutions deciding for themselves the terms and conditions on which they admitted their students. The strategic thought behind my initial proposal for a private sector loan scheme, which I described earlier, was precisely to give the universities that greater freedom. Although that thought came to nothing in 1987, I regard the Bill, and the relaxation of Treasury doctrine that it implies, as marking a potential step in what I consider to be fundamentally the right direction.

I believe that the Labour party is trying seriously to break away from its old image as the tax-and-spend party. In due course, that will oblige it to think more seriously about how the burden of public expenditure can be not only contained but reduced or more equitably distributed. I noted that the hon. Member for Oldham, Central and Royton (Mr. Davies) referred to the fact that so many students come from privileged backgrounds. He might like to reflect on the equity of the distributional effects that that fact poses. Meanwhile, against all its instincts and traditions, my party, in government, has been operating as a high-tax and high-spend party, but the debate is becoming increasingly serious.

Among the one-nation Tories—among whom I count myself—I notice that no less a figure than the Governor of Hong Kong has been pointing to the difference between the levels of public expenditure in the United States and Japan as compared with Europe, including Britain, and suggesting that there may be some connection between their lower levels of public spending and taxation and their greater competitiveness. The Prime Minister has recently made the same point. Can the new Labour party be far behind? I hope—

Mr. Deputy Speaker (Mr. Michael Morris)

Order. I hope that, having asked himself that question, the hon. Gentleman will revert to the Bill.

Mr. Jackson

I was about to do so and to conclude my speech. I hope that the Opposition are increasingly in a mood to recognise the force of the arguments about public expenditure.

If we are to reduce the burden of taxation and the level of public expenditure and bring them even part of the way towards the levels prevailing in the United States and Japan, it would be disastrous to do so merely by spending less on the public sector in its present shape. The result would be an unacceptable degradation in the quality of all collectively provided goods. Instead, we have to reconsider—in Europe and in Britain—which goods are collectively provided in the public sector as compared with the United States and Japan. On such a comparative list, higher education bulks large at 2.5 per cent. of public expenditure.

The United States and Japan both operate the kind of partnership system between private and public interests in higher education that I am advocating. Both have large private universities where full-cost fees are paid by students, and they include, in the United States, some of the best universities in the world. In addition, both have a huge network of public higher education institutions that are partly funded by private student fees. Incidentally, both countries have a higher proportion of their population passing through higher education than we do in Europe, combined with greater participation in higher education by people from relatively unprivileged social backgrounds.

We cannot continue with the present policy of maintaining higher education as a state responsibility while seeking to reduce the burden of taxation and public borrowing in the direction of American and Japanese levels. Under the present policy, the only way to square the circle is systematically to degrade the quality of a university system that is exclusively dependent on public funds. That would be a profound mistake, which could lead only to the progressive dismantling of one of our greatest achievements as a country, which is the culture in our institutions of higher learning.

The way out of the trap is outlined in the Bill—a private sector loan scheme, which, I believe, should be extended to cover fees. I am therefore happy to support the Bill as another modest step down a road that I hope we shall all agree to take in due course.

5. 38 pm

Mr. Colin Pickthall (West Lancashire)

The hon. Member for Wantage (Mr. Jackson) is always interesting on education. I am somewhat astonished, however, at his surprise at the Government's centralisation. He may remember saying that the possibility of students paying back student loans through the national insurance system was a very remote mechanism. He continued: 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?"—[Official Report, 20 October 1989; Vol. 158, c. 449.] With that rhetorical question, the idea of payback through the national insurance system was dismissed. Had that question been considered at the time or since, many of the problems that I want briefly to address might have been solved.

It is also interesting to note that, in almost every other field, making borrowing easier and smoother for people seems to be the order of the day, whereas the hon. Member for Wantage seems to think that it ought to be made more difficult, in order—no doubt—to teach students the cost of everything.

The Bill is shabby and open-ended, and it demonstrates that the Government have no strategy for higher education—or further education for that matter—beyond cramming in larger numbers at lower unit cost. Student financial support should be straightforward. It should be adequate and available promptly, and should bear in mind the desperate need of the country to engage with three key needs concerning higher education. They are: the need, as my hon. Friend the Member for Oldham, Central and Royton (Mr. Davies) has said, for more students from low-income backgrounds; the need for more students from groups which are not traditionally users—or are under-users—of higher education; and the need to help part-time adult students, who I believe, subject to correction by the Minister, are ruled out of the proposal. The Bill does none of those things. Indeed, its consequences might well worsen the situation.

At present, many students are struggling to balance a grant, which has been systematically reduced in level and availability over the past few years; access funds, which most students clearly consider a joke; Student Loans Company loans, which were in utter chaos last year and are—fortunately—slightly better now; parental contributions; part-time employment, which is needed by an increasing number; bank overdrafts, which many students have; and, for some, problems with grant cuts following semesterisation, when many authorities reduced grants, thinking of the semester as an old-fashioned term.

This new Government wheeze merely adds to the confusion rather than simplifying matters. My daughter, who started university this term, is, like many others, spending a great deal of her time and energy juggling her funding, and slowly embracing the virtues of debt when she does not have to. The advice from tutors at her university, like that from tutors at most universities and colleges, is to go for the loan whether it is wanted or not.

Although evidence is anecdotal, it may well be the case that students from wealthier backgrounds are more likely to take up loans at lower rates of interest, when— perhaps—they do not really need them. Students from many low-income homes often have a lively appreciation of the horrors of debt, especially since they face a future full of employment uncertainty.

Some undergraduates I know are taking out loans which they do not need at present, and are putting them into bank accounts where they earn a little interest, in order to save for a postgraduate course for which they otherwise would not be funded—whether they get on to that course eventually is another matter. Others, perhaps, put the loans aside for rather less admirable purposes.

My hon. Friend the Member for Oldham, Central and Royton referred to Christopher Johnson, the chief economic adviser to Lloyds Bank plc, who advised the banks when the student loans scheme was introduced to have nothing to do with it, which of course they did not. I, too, read the article in The Times Higher Education Supplement last week. I shall not repeat the quotation cited by my hon. Friend, as he has already put it on record, but will add to it. Mr. Johnson also described the Bill as "timid, incremental thinking", which sums it up.

Indeed, a whole string of bankers and representatives from building societies have said that, as far as they can see at the moment, they want nothing to do with the Bill. Sir Eric Ash, the acting chief executive of the Student Loans Company, raised the question of choice, of which the Minister made a great deal. Sir Eric said: the idea that this Bill introduces choice I think isn't worth examining".

Mr. Forth

Rather than just quoting Sir Eric with—presumably—approval, as if that were the end of the matter, will the hon. Gentleman expand on why he thinks that that comment was correct?

Mr. Pickthall

If the terms and conditions of loans are more or less the same, if the same people are going for the same sorts of loan, if the eventual funding provided by Government for the interest and the fall-out, and so forth, is the same, the choice is immaterial. One can go to the Student Loans Company, or one can go to one bank or another in the scheme, but the situation is still about the same for the student. There might be a marginal difference between one and the next—

Mr. Hall

There will not be any difference.

Mr. Pickthall

My hon. Friend says that there will not be any difference—perhaps that is not so. Clearly, however, there will be little difference.

It is clear that the student grant has deteriorated so dramatically over the past decade, coinciding with the increase in student numbers, that it will not be possible to restore grant levels to what they were 10 years ago. A loans or repayment system is therefore inevitable. However, that should not mean that Parliament should give the Secretary of State a blank cheque, as this Bill does, or that Parliament should ignore the impact on students in later life when they come to repay the loans.

One reason for the Bill may lie in the philosophy of the former Secretary of State for Education and Science, the right hon. Member for South Norfolk (Mr. MacGregor). He said that the fundamental reason for the introduction of student loans was that top-up loans would secure changes in student attitudes". He thought that they would get rid of students' sense of dependency on the state", and would promote a proper sense of self-reliance and responsibility."—[Official Report, 20 November 1989; Vol. 158, c. 381.] That is social engineering. It is saying that the purpose of loans is to cause problems with repayments. But loans also increase the level of debt among students, especially among those who perhaps do not need to incur it. The Government seem to have espoused in their loans system—and are espousing again in the Bill—a social corrective in the form of the discipline of debt exercised on students as they leave universities. Of course, the only real reason for this extraordinary exercise must be to massage the public sector borrowing requirement, regardless of whether the institutions later take up the Government scheme.

Presuming, however, that the institutions do take up the scheme because the bribes—subsidies, sorry—from the public purse are sufficient, a number of questions need to be addressed, and must be addressed at this stage. First, will the direct debiting for the recall of the debt be limited to one account, as is the case with the Student Loans Company? Will the banks or other institutions involved be able to sell on the debt or move it about among their partners and their subsidiaries? Will the students be guaranteed that they can always go to the same account in the same bank to service that debt?

Will students who fall behind in payments find themselves being blacklisted by the creditworthiness system, so that they cannot take part in other activities, such as mortgage borrowing? I note that the schedule would prevent the selling of information about student loans for purposes such as junk mail or approaches from other companies, but I can detect no provision to prevent the misuse of information about students and their loans, which could affect their financial lives generally.

What are the implications for student borrowers of the link-ups and takeovers of banks and insurance companies? Barring crises and scandals, most people are reluctant to change banks during their lifetime as earners. The banks know that, and are anxious to secure students, as potentially stable if not necessarily high earners. Banks have always been anxious to attract undergraduates, not to alienate them.

I do not suppose that I am untypical in having opened a bank account for the first time with my first grant cheque. I opened an account in 1963—I shudder to think how long ago that was—and, despite quarrels with my bank, I have remained with it ever since. Clearly, banks are likely to be reluctant to tangle with potentially useful customers, just as students will be reluctant to risk their financial good name.

Banks will also be aware of the possibility of exercising discrimination which could give rise to bad relations with students. There could be discrimination in terms of the subject being pursued. As my hon. Friend the Member for Oldham, Central and Royton said, there could be discrimination in terms of the stability of the student's family background and in terms of what sort of person banks judge him or her to he. They could discriminate in terms of interest. rates, as well.

My hon. Friend the Member for Oldham, Central and Royton has made the case against this poor Bill very strongly. I add some thoughts about what the Bill could and should be doing. The Government should look at a payback system which is related to the ability to pay and which comes not through the mortgage-style system, as it has been dubbed, but through national insurance or the tax system.

The Government should not encourage the take-up of debt; students should go into debt only when it is essential for their needs. The Government should try to stabilise the grant element, rather than switching student income to loans, year by year. They should address the problem of funding postgraduate studies and the problem of funding part-time adult students—those that my hon. Friend the Member for Sheffield, Hillsborough (Mrs. Jackson) mentioned, who want to get into higher education for the first time at the age of 50-plus. I have taught many such students in my time, and I found them some of the most exciting and interesting people in higher education. Although their working life afterwards may be fairly brief, they have a tremendous amount to contribute to this country.

Better still, the Government should initiate, as we have, a wide-ranging consultation on the funding of students. They should especially look at the funding of further education students, who are definitely the poor relations of the education system. FE students should not have to rely on discretionary awards, which are under intense pressure as a result of local government cuts year on year. The position will become worse if the Chancellor pays for his income tax cuts tomorrow by further huge raids on local government finance, as has been widely trailed in the press.

The changes in student and in institutional funding over the past decade have, willy-nilly, changed the whole ethos of higher education; that disturbs me perhaps more than anything else. I hate to sound as though I am talking about the good old days; I am not. I realise that old days, when old, are good. However, 20 years ago, there was an assumption that term time for a student was for exposure to ideas, for debate, for research, for analysis, for the production of assignments and for feedback from tutors and teachers. That was intended to lead to the creation of a cultured and rounded intellect.

Vacations were partly for work, to earn extra cash; in those days, part-time and temporary work was readily available. Vacations were also for an intensive slog on the subject matter and for research on dissertations. They were for wider and more intensive reading than there was time for in the day-to-day graft of the university or college term. All that has changed, not just because of lower funding and not just because of loans, but because of modular structures and semesterisation.

The struggle to keep heads above water financially by individual students and by the institutions is wearing away the learning process. Most students have to be turned round in less time and with fewer resources. The time for the production of assignments and for proper feedback on them has been eroded on many courses. Students complain, as they did not do a decade ago, that one assignment pounds on the heels of another, then another, then another.

Anxiety about having the cash to live a decent if frugal life, with far fewer opportunities to earn cash in the vacations, is forcing more students to moonlight, with a palpable effect on their ability to study. As a tutor in higher education before coming to this place, I watched that process with dismay. It has been confirmed by research at Oxford Brookes university, which estimates that 250 graduates each year gain a class lower in their degree than would have been the case if they had not had to work in the evenings. I know students who work night shifts, to pay their way, and who then go to college in the day. In some cases—I do not want to over-generalise—standards are declining because of all those factors, which sometimes leads to adjustments in the way in which final grades are put together.

Higher education and individual students are infinitely adaptable, but they can adapt only so far before a decline becomes palpable and unstoppable. The Bill does nothing to address that trend, and it will almost certainly worsen the situation.

5.57 pm

Mr. Allan Stewart (Eastwood)

What was interesting about the speech by the hon. Member for West Lancashire (Mr. Pickthall) was that he actually put forward a policy, in marked contrast to the hon. Member for Oldham, Central and Royton (Mr. Davies). After 16 years of deep thought and consideration, his policy is to say that the issues are complex. We all know that they are complex, but that hardly amounts to a policy. He was unable to tell the House whether a Labour Government would increase, maintain or reduce the total level of expenditure on higher education funding. He was unable to give the House any indication whether the Labour party in government would favour the continuation of a loan scheme, would abolish the loan scheme, would extend the loan scheme, or would bring in a graduate tax.

The hon. Members for Oldham, Central and Royton and for West Lancashire both said that they opposed the Bill. I am not yet entirely clear why. This is an extremely modest Bill. No bank or building society is forced to do anything. No student will be forced to do anything that he or she does not wish to do.

Perhaps I can help the hon. Member for Oldham, Central and Royton in his continuing consultation process by reminding him and the House of the essential case for student loans. It is really quite simple; higher education usually benefits society—although not when a student leaves the country—but it also benefits the student himself directly.

Suppose we take two 17-year-olds, one of whom—let us call him Algernon—wants to be a Labour Member of Parliament. The other, his friend Fred, wants to be a garage mechanic and owner. Under a grant system, Algernon does the obvious thing: he goes to college or university to study politics, philosophy and economics, or sociology. He then goes to London, rents a flat in Islington—to ensure that his career prospects are as bright as possible—and becomes a Labour Member of Parliament.

Fred, meanwhile, becomes a successful garage mechanic and owner. I wish to be charitable, and I will not differentiate between the benefits to society as a whole of Labour Members of Parliament and garage mechanics. Let us assume that both benefit society. But under a grant system, what in effect happens is that Fred subsidises Algernon through his tax payments. There is no social 239912 Q justice in that, and that is why I believe that there is a strong social justice argument for a loan element within the provision of finance for those in higher education.

Mrs. Fyfe

Does the hon. Gentleman think that there is a strong social justice argument for reducing the grant from £1,795 in 1993 to £1,257 in the next financial year? Have any of the hon. Gentleman's constituents complained to him that student grants are exorbitantly high? None of my constituents has done so.

Mr. Stewart

The point is that the Government have made it clear that they are aiming for a balance between the grant element and the loan element. Recent figures show that the average income of students with loans in 1992–93 was 31 per cent. up on the figure for 1988–89.

The Bill follows the Education (Student Loans) Act 1990. I was a member of the Committee which discussed the Bill, and I recall the arguments that were put again and again to the Committee. Student loans, we were told, would limit access, and would lead to lower numbers of entrants into higher education. As my hon. Friend the Minister of State has pointed out, the reverse is true. There have been steady increases in student numbers, both north and south of the border.

Hon. Members on both sides of the House have referred to the past difficulties of the Student Loans Company, and have stated—rightly and properly—that they believe that the problems are behind the company, which is located in Glasgow. I believe that that is the case, and I pay tribute to the staff working in the Student Loans Company, who have worked extremely hard.

The advantages to the student of the involvement of the banks and building societies in the loans system come from their branch networks and the possibility that the involvement of a bank gives a student to develop a relationship with a particular branch of a bank. That is an important potential benefit to students.

The House will be aware that the proportion of people participating in higher education in Scotland is higher than south of the border. It is therefore particularly important that Scottish banks, which have a well-developed branch network, are involved. I end by asking my hon. Friend the Minister of State for an assurance that he will bear in mind the special needs of Scotland, and that he will do everything possible to involve one or more of the Scottish financial institutions in the scheme when it is up and running.

6.4 pm

Mr. Don Foster (Bath)

A few minutes ago, we heard a thoughtful and provocative speech from the hon. Member for Wantage (Mr. Jackson), and I had considerable sympathy with a number of his remarks. I certainly share his view about the need to reinvigorate the powers of local government, and I accept his argument about the need for a redefinition of the public sector borrowing requirement. The hon. Gentleman might be surprised that I agree that there should be no objection in principle to transferring some of the public debt and some of the risk-taking to the private sector. I do not object to the Bill from those particular points of view.

My objections to the Bill are rather that it fails to address the problems of student poverty and hardship, and fails to address the problems with the current procedures for supporting students. The Bill does not even begin to acknowledge the concerns which have been expressed during the limited and somewhat desultory consultation process that is going on at present. The Bill simply tinkers around the edges without addressing the key issues affecting students and the higher education system today. Those problems are leading to a significant reduction in the quality of higher education provision.

That students are facing growing problems cannot be in doubt, and I hope to have an opportunity to discuss some of those points in more detail later tonight in the Adjournment debate. The problems centre on the growing level of student hardship and poverty, evidence of which is illustrated by the huge increase in the number of students suffering from stress—largely through financial worries—and seeking counselling and medical support. There has also been a huge increase in the number of students applying for access funds, designed for students with severe hardship problems.

The growth in the large number of students taking on term-time jobs has been mentioned and, sadly, the proportion of students dropping out of their courses and citing financial hardship as the main cause has grown to one in eight. All of those problems are, in part, responsible for the real concerns about the ability of students to gain the maximum benefit from their studies.

My biggest concern is the Minister's inability to respond to a number of points put to him during the debate. The Minister cannot begin to understand the problems of student hardship if he does not even know whether the Bill is, for example, designed to address the problems faced by part-time students. When the hon. Member for Lancaster (Dame E. Kellett-Bowman) raised a real concern about intercalating students, the Minister said that he would have to go away and look the matter up. When the hon. Member for Colchester, North (Mr. Jenkin) asked about the level of access funds, the Minister appeared not to know whether anything could be done about them.

Mr. Forth

The hon. Member for Bath (Mr. Foster) is exhibiting the charming naivety of those who have been in the political wilderness for many decades, but I do not hold that against him. The hon. Gentleman should think for a moment about the points he has made rather quickly. I replied to the questions by saying that they could be taken account of only against a background of the Government either redistributing the existing amount of money available in higher education or finding more. Before the hon. Gentleman says that his party would find more money for education generally—as I suspect he will in response to that point—will he tell us the amounts of money that he would allocate to pre-fives, higher education, school buildings and other matters, rather than skating over that as he usually does?

Mr. Foster

The Minister is right to say that he raised that particular point. My point about the Minister's response to his hon. Friends' questions is that in most cases he said that he did not know the answer and would have to take advice. He said that he would tell us later in the debate. A Minister who comes to the Dispatch Box without knowing whether his Bill will help or not help students studying part time or students who are intercalating has real problems with his Bill. I look forward to hearing his reply. I hope that people in the Box are preparing responses for him.

The Minister asks for a detailed breakdown of the finances of our proposals to provide more money for higher education. I am sure that you would rule me out of order, Mr. Deputy Speaker, if I went into detail. In fairness to the Minister, I promise that the detailed document that has been prepared will be in the post to him tomorrow morning for him to study. I also promise to send him, before he asks for it, a copy of our detailed consultation document on the future of higher education and how we would go about dealing with the. very problems that we are discussing tonight. Both documents will be in the post to the Minister tomorrow, so he does not have to ask that additional question.

Mr. Forth

Along with the cheque.

Mr. Foster

We will explain where the finance will come from. I shall return to whether the Minister can say where the cheque will come from at the end of my speech.

The problems that are not dealt with by the Bill lie in the current system of support that is on offer. All that the Bill does is transfer the same flawed system into the private sector. No one can deny that the Student Loans Company has had its problems in recent times. Those problems have been referred to by hon. Members on both sides of the House. Reference has been made to the National Audit Office report. I will not repeat those points, but it is worth reflecting that even the Student Loans Company's own annual report published last week acknowledged what it described as unacceptable deficiencies in performance. Like the hon. Member for Eastwood (Mr. Stewart), I acknowledge that the company is now making an effort to resolve those difficulties. It is worth reflecting on what the acting chief executive has said about the Government's proposals. He has suggested that if the proposals go ahead, they will create further problems for the Student Loans Company. He fears that its unit costs will rise and that the company will end up playing the role of safety net for the banks.

It is perhaps also worth reflecting that the Committee of Vice-Chancellors and Principals, which incidentally was not consulted about the proposals, is worried about simply transferring the current system to the private sector. While there are flaws in the mechanics of the current system, there are also flaws in the underlying principles. Those flaws will continue under the proposals.

The current approach to student support is neither equitable nor secure. To gain the confidence of all involved, a system of loans must be fair to the borrowers and secure for lenders. If the proposals had met those requirements, I might have had greater sympathy with them. Equity and security could have been achieved, for example, by basing repayments more closely on the ability to pay, using the national insurance system as the basis for collection. I am sure that the Minister will acknowledge that repayment through national insurance would have the lowest default rate of all repayment systems, even for the self-employed. Therefore, I am sure that the House would be interested to hear from the Minister whether, in developing the proposals, his Department asked the Contributions Agency to assess the feasibility and cost of using national insurance for collecting student loans for both the Student Loans Company and the envisaged private sector schemes. If it did, what costs were quoted in cash terms and as a percentage of the total cost of running the social security deductions scheme?

In view of the problems with equity and security, it is hardly surprising that banks and building societies showed reluctance the last time that they were invited to join in such a scheme. Therefore, I shall be surprised if many are interested this time round.

The Government got the students loans system wrong last time. They are getting it wrong again. If we agree to the Bill, we agree to ignore the problems of student hardship and the huge deficiencies in the current scheme. The Government have not even worked out the details of their proposals. They have no idea who within the private sector will come forward and how much they will demand. So we are being asked to write a blank cheque for the Secretary of State.

The hon. Member for Eastwood described the Bill as modest. He was right. It has much to be modest about. It certainly does not deserve a Second Reading.

6.14 pm

Mr. Jon Owen Jones (Cardiff, Central)

I shall follow the hon. Member for Bath (Mr. Foster) in arguing that the greatest difficulty with the Bill is that it does nothing to deal with the problems of the current student loans scheme. It will do nothing but exacerbate the problems of real student hardship.

I am privileged to be the Member of Parliament for Cardiff, Central, the constituency in which Cardiff university is based. In the past few years it has expanded the number of its students to about 13,500, the majority of whom live in my constituency. I believe that that gives me the honour and privilege of representing more students than any other Member of Parliament.

The increase in student numbers in the university that I represent, and in others throughout the country, has been general during the past decade. I acknowledge that the vast increase in student numbers means that we must reconsider the way in which we fund higher education. It is no longer practical to fund students in the same way as they were funded a decade ago, or even two decades ago when I was a student. However, the current arrangements place thousands of young, and sometimes not so young, people in real hardship. The value of their grants declined by 24 per cent. in the 1980s and now reaches only 18 per cent. of average earnings.

Not satisfied with reneging on their promise to freeze the grant until loans were at a comparable rate, the Government began in 1993 the process of cutting grants by 10 per cent. a year each year and projected on to the next year, until the loan levels reached the same as grant levels. The Bill does nothing to tackle existing problems. Student hardship is widespread. Drop-out rates are increasing and student indebtedness to friends, family and banks is at an all-time high.

The situation for mature students is particularly bad. They often have extensive financial responsibilities to their families. They often have mortgages and so on. They found student finances hard enough without the Treasury-led cut in the mature students allowance introduced this year. Well above half of full-time students have to get a job in term time to supplement their income. There is strong evidence that the extra demands on their time impact on their studies.

In the long summer holiday, students have no grant to cover them, but they no longer have the traditional safety net of benefits. They have to struggle through the vacation and try to get a job in the season when the market is flooded with school leavers also looking for jobs.

Last year we saw a fiasco when the Student Loans Company tried to introduce a fast-track renewal system for repeat loans. The forms were sent to students' term-time addresses over the summer. Of course, students move house every year. Most of them go home for the summer.

The result was absolute chaos, with only 19 per cent. of the applications sent out being processed by the start of term. Thousands of students were left without their loans and several who had still not managed to get their grant by Christmas came to my surgery. Because of the number of students involved and the limited number of telephone lines, it was nigh on impossible for anyone to get through, including the students union welfare officers who were trying to help. I got through and sorted out some of the cases only because I managed to find an internal number.

The Committee of Vice-Chancellors and Principals noted that about 40,000 students left their courses during 1992–93, which is a rise of 25 per cent. over the previous year. Some may return later, but that represents a 5 per cent. drop-out rate in the total student population. Although 15,000 may have left for academic reasons, 25,000 left for other reasons—a growth of 30 per cent. in one year, which is twice the rate of growth in student numbers. Although there cannot be any accurate data to calculate what percentage was due to financial hardship, anecdotal evidence strongly suggests that financial difficulties are responsible for much of that increase.

Many students turn to part-time work to see them through. In Cardiff, students run job clubs, which help to get students through when they cannot afford to do it any other way. I am sure that that work interferes with their studies. We have heard of students who have to work night shifts to get through. Even the Government party admits that the loans scheme is not working. In one document, it was suggested that the current loans scheme is highly inefficient, unlikely ever to recover its original investment and in danger of collapse.

Perhaps it is with that in mind that the Government have introduced their latest idea and intend to run down the loans company and get the banks to take over completely. Making graduates pay back loans over a fixed five-year period when they start to earn 85 per cent. of average earnings is extremely problematic and acts as a disincentive for students to take up the loans, hence the low take-up in the first few years of operation. Present take-up is much higher, but that is an indication of necessity and desperation on the part of students.

The organisation of the loans company has been appalling. Last year, it was a total shambles. So much so, that the chief executive was sacked in March. Eight months later, however, a new chief executive has not been appointed, although I believe that an appointment is imminent.

Mr. Forth

indicated assent.

Mr. Jones

I am glad that that is the case.

The great concern about these proposals is that they would create a two-tier system, with the banks creaming off the good prospects and others having lesser access to funds.

The Government's attitude to student funding is certainly questionable, as has been shown by a Tory think-tank document featured in The Times Higher Education Supplement a few weeks ago, which the Secretary of State was said to be considering. It stated: Student numbers should be free to find their own levels with students making more rational choices about the benefits of higher education, as they bear a greater proportion of the cost. That statement is not about choice, but about voluntary selection on the basis of wealth.

We oppose the Bill and will vote against it because it makes no provision for measures to improve access to higher or further education. It does not help to secure greater social equity in participation or alleviate student hardship. The present student loans scheme is inefficient and places graduates under a considerable burden of repayment at the start of their careers. Those flaws will be maintained under the provisions of the Bill, which is divisive and ill considered.

I hope that hon. Members on both sides of the House will consider the chaos of the present system and realise that, as the hon. Member for Eastwood (Mr. Stewart) said, this Bill is very modest. It will do nothing to answer the serious hardship that exists.

6.24 pm

Mr. Gyles Brandreth (City of Chester)

The hon. Member for Cardiff, Central (Mr. Jones) was long on criticism, but short on any prescription for what he and his colleagues would suggest to replace the student loans scheme, which they apparently find so unsatisfactory.

In my brief contribution I want to welcome this brief Bill, which seems straightforward, sensible and simply designed to enable students to take out private subsidised loans from banks and building societies as an alternative to public loans from the Student Loans Company.

Most, if not all, subsidised loans could and should eventually come from the private sector, but the choice should rest with the student. Personal lending is not one of the tasks that should fall naturally to the state. We are talking about a huge capital investment and I hope that it is one which, in due course, can be largely taken over by the private sector.

We have touched on the difficulties that faced the Student Loans Company in its early years. I was interested and reassured to hear of the improvement in its operation more recently. Long may that continue.

Thanks to the Bill, I trust that we shall be able to give students the opportunity to go for a private sector loan. I hope that they will be able to choose from a variety of different types that will be offered by different institutions.

Lending is not naturally an activity that belongs to Government. We must bear it in mind that the huge capital investment of which we are talking will be about £5 billion by 2000. The Opposition must deal with that and come up with some positive suggestions.

Through private sector lenders, students will have more choice and can only benefit from that. I was particularly interested in the contribution to the debate made by my hon. Friend the Member for Wantage (Mr. Jackson) about the balance between the private and the state sectors in the management of universities. Much of what he said is worth taking very seriously indeed.

Despite the opposition, no evidence has been put forward to suggest that the introduction of student loans five years ago has deterred students from going on to higher education. On the contrary, the numbers are higher than ever before. I think that I am right in saying that the Minister referred to the fact that one in three young people are now entering higher education, compared with one in eight 15 years ago. There are 1 million students on full-time higher education courses. Many of the most fortunate, of course, are at Chester college in my constituency.

I should be grateful if my hon. Friend the Minister could confirm the figure that I quoted in an intervention on the Opposition spokesman, the hon. Member for Oldham, Central and Royton (Mr. Davies). I suggested that, contrary to the talk of cuts—the mantra of Opposition Members—public funding for English universities is at record levels. I quoted a figure of about £4.7 billion for the coming year. I think that I am right in saying that another £1.5 billion is available for student support.

When my hon. Friend replies to the debate, will he also confirm that, when the maintenance grant was first introduced more than 30 years ago, it was envisaged that no more than about 170,000 students would receive it? By the end of the 1980s, 400,000 students were receiving mandatory awards. The cost to the taxpayer in real terms has increased over that period by about 250 per cent. There has been a massive expansion in higher education and a massive extra commitment by the taxpayer.

The Government were wise in 1990 to introduce the new system of student support involving loans, which has several advantages. While easing the financial burden on taxpayers and parents, it allows the Government, on behalf of the taxpayer, to use the extra resources made available by the introduction of the loan scheme to fund more places. It makes more money available for students.

Loans also encourage students to spend their resources responsibly. That is a delicate area to wander into if, like me, one has three children of college or university age. They rather pull faces when I say that it is important to learn to use one's resources responsibly. I know that it is controversial, but I believe that learning about responsible financial management should be a key element in a student's life. I should like more to be done at school, and certainly at university, to encourage young people's understanding of financial management

I was struck by a recent lecture given by Jon Westling, the president elect of Boston university in Massachusetts. In his lecture, Mr. Westling talked about a range of forms of political correctness that are creeping into American academe. He highlighted a student who had sent him a letter saying that she was concerned because she was having difficulty in the area of auditory processing". This young lady, who is called Samantha, warned him that she might fall asleep in his classes and that he should be prepared to fill her in on any material that she missed while she was dozing. He explained that she had suggested that seriously. He answered that students must learn to overcome some of the challenges that face them. He ended his speech with a rousing cry that I take quite seriously. He said: We need to return to students—and to all the members of our societies—the thrilling sense that they are responsible for their own lives. That is part and parcel of making students and young people realise that there is a price to be paid for a quality education and that that price has to be paid by active citizens. That is one of the incidental reasons why I welcome the measure.

Of course, I am concerned when there is real hardship, but I do not believe that there is any solid evidence that less well-off students are being deterred from entering higher education by student loans. The hon. Member for Oldham, Central and Royton peddled that line again and when I questioned it, he did not have much to say, except to acknowledge that I was right that the evidence suggests that the proportion of students from social grades A and B has fallen since the introduction of student loans, while there has been a corresponding rise in the proportion of students from C1, C2, D and E backgrounds. It was extraordinary that he referred to that as differences at the margins. I suppose that the Opposition do not take seriously the notion of making education—and quality education at that—accessible to all.

I think I am right that 18 out of the 24 Labour Front-Bench spokesmen were offered their education at grant-maintained, grammar or public schools.

Mr. Gunnell

Will the hon. Gentleman give way?

Mr. Brandreth

I will when I have finished this flourish. Given that they are people who have climbed the ladder of opportunity and are ready to kick it away so that others cannot benefit from it, I am not surprised at their line on student loans.

Mr. Gunnell

The hon. Gentleman talks about the marginal differences mentioned by Labour Members. In considering the figures for social classes, should he not look at the difference that remains between people in social classes A and B, who have access to higher education, and those in social classes D and E? When we talk about differences at the margins, we are talking about eroding the very large gap that currently exists.

Mr. Brandreth

I want more students, from an ever-broader base, to take part in further and higher education. We can agree on that. I salute the fact that my hon. Friend the Minister and his colleagues are coming up with practical suggestions to deal with the real situation.

It is appalling that the Opposition have had an opportunity today to make some alternative suggestions, but have offered us nothing at all. It is not clear where the Opposition stand. I know that three years ago, at the time of the previous general election, the Labour party was quite clear that it would replace the student loans scheme with a new system for student grants and would offer targeted help for housing and for students during vacations. That was three years ago. I imagine that that commitment has fallen by the wayside.

A year ago, the hon. Member for Sheffield, Brightside (Mr. Blunkett), in an interview in Education Magazine, stated: student debt…needs sorting out and suggested: Imagination will be needed to find the best way through. A year later, his imagination has been at work and it appears that he and his colleagues have not found a way through, unless they are still toying with the idea—certainly they were in the past year—of some form of graduate tax. I know that the hon. Member for Brightside has said that he is interested in a tax related to income which is progressive and that he is exploring it. Perhaps the time for imagination and exploration has ended. If we are to ask people to make a choice in an election in the next 18 months or so, students will want to know exactly where they stand. At the moment, they do not.

Students know where they stand with regard to the Liberals and all credit to them for explaining that they are not in favour of the loans scheme. Their penny on income tax is being stretched ever further, rather like the Labour party's windfall tax. We have an idea of the policy of the Liberal party. It adds up and I look forward to getting the document in the post. We do not know what the Opposition's policies are, so they cannot add up. We know exactly what my hon. Friend the Minister and his colleagues have in mind. The Bill seems to me sane, sensible and concise and I welcome it.

6.36 pm

Mr. Cynog Dafis (Ceredigion and Pembroke, North)

It would be remiss of me not to speak in this debate because I have two universities in my constituency. It would also be remiss of me if I did not emphasise the crucial issue of the severe predicament of students from low-income, unprivileged backgrounds, which has already been mentioned but about which I want to be specific.

Such students from unprivileged, working-class backgrounds were the sort of students whom the University college of Wales in Aberystwyth was set up to serve. It was a college established largely with small, individual contributions from working-class communities. It is for just that category of student that the university was set up, and those students are now subject to severe pressures. Such students are subjected to those pressures because of the reduction in grant, the introduction of a loan system that requires repayment in the first five years of employment and because of their inability to call upon support from their families.

The maximum total income available to a student from both grant and loan amounts to only £3,270. In Aberystwyth, up to £1,753 per annum goes on accommodation fees. That means that about 44 per cent. of students' income goes on accommodation compared with the average citizen's expenditure on accommodation of only 33 per cent. Most of the grant goes on paying for accommodation.

If parents, as many do and as I did for my children, pay for students' accommodation and provide an allowance for them—and there are many students in that situation—there is no problem. Those students are able to live a reasonably comfortable life and get on with their studies without much difficulty. Such students, as has been emphasised, are able to obtain loans with equanimity. They can do that without having to worry about it, but for those who are not so privileged, the situation is really desperate, especially as such people are deeply anxious about taking up loans in any case.

I have spoken today not only to the welfare officer of the university at Aberystwyth, but to Ann Rhys, a consultant psychiatrist seconded to the university from the Ceredigion and Mid-Wales NHS trust for 50 per cent. of her time. The evidence that she has given to me is eloquent about the painful reality experienced by unprivileged students.

Over the past four years—she stipulated in her conversations with me that it was the past four years—Ann Rhys has noticed a great increase in the incidence of stress disorders. She listed them to me: eating disorders; panic attacks; serious anxiety symptoms; self-abusive disorders; and what she called secondary depressive illnesses. She emphasised that she was talking not about some kind of superficial psychological difficulty but about deep psychiatric illness, which was becoming much more common. As a member of a students health association, she told me that that was happening throughout the United Kingdom. That well-known fact has already been mentioned.

Ann Rhys had no doubt that all those problems were linked to the financial position of students and that that was the primary cause. In that regard, anxiety about debt is crucial. Many of those students come from families where borrowing is not part of the social culture. If borrowing occurs, it is seen as a sign that people are getting into financial difficulty. Ann Rhys finds in her conversations with students that they experience a great deal of anxiety about their parents. Many of them come from a home where the father is unemployed and the mother is overburdened by low-paid employment, as happens in many south Wales valley communities. She may have not one job but a number of part-time jobs. The option not available to such students is to ask for support from their families. Indeed, they are the kind of people who even avoid sharing the anxiety with their parents because they recognise that their parents, too, suffer from anxiety and face financial difficulties.

The majority of those students take part-time employment. They work in supermarkets or bars, often for less than £3 an hour. They work long hours, which leads to fatigue. Other hon. Members have mentioned students who work night shifts. Many of those students often work late at night. Ann Rhys pointed out that, as well as fatigue, those students suffer further anxiety because they find it more difficult to cope with their essays and the tasks set for them, and they become anxious about falling behind with their studies. She tells them that they should not go to work as they are not well enough and it is too much for them. Sadly, they are not in a position to choose. Although work exacerbates the psychiatric disorders from which they suffer, they have no choice: if they do not work, they will get deeper into debt.

Ann Rhys sometimes refers students to the psychology unit at Bronglais hospital, but the waiting list there is increasing. The waiting time is now some six to eight weeks. She claims that the length of that waiting list is, to a degree, the outcome of that very phenomenon. Thus the hospital system finds it increasingly difficult to cope, and the hospital has now devised opportunities for group therapy rather than individual consultation and treatment for those various disorders.

Those problems are bound to be a disincentive for people from working-class and less privileged backgrounds to take up higher education. If that fact has not yet begun to feed through into the statistics, it will soon do so. We heard this evening that the proportion of higher education students from the working class or social classes C and D has increased. That merits some investigation and analysis, but it is clear that a range of factors may cause such an increase, such as changes in the pattern of employment, or the reduced availability of employment in many working-class areas and therefore an aspiration to seek better occupational opportunities through higher education, which is often bitterly disappointed.

There is bound to be a disincentive, which will become increasingly evident if the picture that I am describing is true. It is small wonder that Aberystwyth university has a drop-out rate of 13 per cent. That is particularly high, which probably relates to the fact that Aberystwyth is a small town, and a huge majority of the students come from far away and a small proportion live locally. I am told that that leads to a loss of fees of some £250,000 and it can lead to reduced funding from the Higher Education Funding Council for Wales which, like all funding councils, emphasises the outcome in determining the amount of funding.

My main concern tonight, however, is the misery imposed on that category of student and the injustice perpetrated. It is particularly ironic in relation to Aberystwyth, and it must be tackled. It is unlikely to be tackled, however, when the conventional wisdom these days, as we have heard more than once tonight, is obsessed with reducing public expenditure. I do not share that obsession.

I support the demand, which comes from various directions, for an urgent and thorough review of the funding of students in higher and further education. That, rather than the privatisation of student loans, should be the priority.

6.45 pm

Mr. Mike Hall (Warrington, South)

I oppose Second Reading because, if enacted, the Bill will do nothing to improve the financial resources available to students in higher education. The Minister has confirmed that in his speech this afternoon.

It is a great pleasure to follow in this debate the hon. Member for City of Chester (Mr. Brandreth), who gave us a lecture on financial probity. Given that his track record in business is one of bankruptcy and of a business collapse, taking with it huge amounts of taxpayers' money, it was an extremely interesting lecture.

Before I explain why I oppose Second Reading, I should be grateful for a little leeway briefly to mention the results of the first opt-out ballot to take place in my constituency. Lymm high school is a successful school. Its pupils achieve excellent results, it has great facilities and its future is very secure. Over the past month or so, the parents of pupils at Lymm high school were balloted on whether they wanted to opt out of the local authority. The Minister will be delighted to know the result: 322 parents voted in favour of opting out; and 1,293 voted against. That was an emphatic rejection of opting out and an overwhelming endorsement of staying in the family of local education provision. I congratulate the parents of pupils at Lymm high school on their common sense. I thank you for your indulgence, Mr. Deputy Speaker, in allowing me to say that.

The arguments in favour of a Second Reading of the Bill are a repetition of those expressed on 5 December 1989, when the Second Reading of the current Act was debated in the House. The then Secretary of State for Education told the House that the Education (Student Loans) Bill was a scheme that would "benefit students". Some 435,000 ex-students have now had the benefit of a student loan debt: 187,000 of those have deferred the starting date of repayments and 44,000 are already in arrears on their repayments. Some £1.3 billion is now owed to the Student Loans Company and 147,459 graduates now owe £36.1 million; 11,296 students are in default as of 31 March 1995, which is 7.7 per cent. of the total.

That puts into perspective the comments of the then Secretary of State for Education and Science, the right hon. Member for South Norfolk (Mr. MacGregor), when he said that student loans were intended to reduce students' sense of dependency on the state and promote an awareness of self-reliance and investing in their future". The effect of the student loan scheme has been to transfer a considerable part of higher education costs from the Department for Education and Employment to individual students. The effect of Tory education policy has been to turn our undergraduates into debt carriers throughout their university careers and early into their years of employment.

When the student loan scheme was introduced in 1989, the House was informed that loans would top up the maintenance grant paid to students. Evidence now shows that those loans will soon supersede the maintenance grant as the main part of student funding. So much for top-up loans and the concept of loans designed to assist students during their time in higher education.

What is the purpose of the Bill? In 1989, the Government wanted to involve the high street banks in the loan scheme and the then Secretary of State for Education stated: all we have asked the banks to do is to assist in the administration, on a contractual basis. We have done so for two good reasons. Those banks have the branch network and experience of lending … Our aim is to ensure that the scheme is likely to be underpinned by a broadly based network of institutions, the services of which will be available to students. That will also be to the benefit of students."— [Official Report, 5 December 1989; Vol. 163, c. 175, 182–83.] Unfortunately, the Secretary of State then had to inform the House that Lloyds bank, and five other high street banks, had pulled out of the scheme.

During the Second Reading of the Education (Student Loans) Bill in the other place, Lord Caithness said: We saw some advantages in making the expertise and the branch network of banks available to help with administration of the scheme; but the banks decided that there was no commercial benefit for them."—[Official Report, House of Lords, 27 February 1990; Vol. 516, c. 604.] Those words will come back to haunt the current Minister as he seeks to introduce the new scheme. On 17 November, the Minister issued a press release in which he said: The expertise and experience of the private sector would mean a better loans system overall and a better deal for students. He almost repeated the argument used in 1989.

I intervened in the Minister's speech to ask what had changed. Why are the Government now trying to resurrect a failed policy of six years ago? They are like dogs returning to their vomit, and they should avoid that at all costs.

Six years ago, the Government promised to cover the loss of interest payments, pay administration costs and cover default costs, but still the high street banks did not feel able to participate, because the scheme did not suit their commercial interests. If the high street banks are now interested in such a scheme, they must have been offered a better deal. How much more money—additional sweeteners—will the Government throw at the banks to resolve the problem?

A spokesperson for Midland bank recently said of the Bill's proposals: This is a high risk venture and we see considerable problems in managing this book. It is not the most attractive proposition in the world. Sir Eric Ash—perhaps the Minister will tell us whether he is to be appointed as the chief executive of the Student Loans Company—has been consulted on the Bill's proposals and has said: The message I'm getting back from the banks that I've spoken to already … is that they're not really very interested. The explanatory and financial memorandum to the Bill notes that the extent of any overall reductions in public expenditure depends on the precise arrangements that are made with the financial institutions and the number of students who take up loans with the private sector.

The Minister must tell us how much more money and additional sweeteners the Government will offer to attract high street banks into the student loan business. The answer to that fundamental question underlines the purpose of the Bill. How much money will the Government pay to make the student loans scheme attractive to the high street banks when those banks refused to participate six years ago, despite all the guarantees offered to them? The Minister may want to intervene to answer that question, because it has been estimated that it will cost an extra £1,500 per student loan to attract the high street banks. I notice that the Minister has not got up to deny that figure at the Dispatch Box.

If the Government are prepared to spend resources on subsidising the high street banks, that money would be better spent on improving current student grants. If the Government can afford to pay £1,500 to subsidise the loans offered by high street banks, they can afford to give that money to the students direct. Instead, the Government have come up with a plan that involves the high street banks taking all the profits while the Government shoulder all the risks and the costs. The Government must consider seriously the ethics of using public money to subsidise private money lending.

What has the Minister got to say about the ethics of using taxpayers' money to bankroll high street banks? While he contemplates that question, he may be interested to hear what Lord Beloff said during the debate on the Loyal Address in 1989. On the specific issue of student loans he said: I warned the Government that if they were trying to act through a consortium of banks, they would find the banks very reluctant to co-operate. That has been borne out by their experience. After all, a fishmonger sells fish; that is his business. A banker lends money; that is his business. One does not have to bribe a fishmonger to sell fish but apparently the Government have to bribe the banks to lend money. Could we get further into absurdity?"—[Official Report, House of Lords, 23 November 1989; Vol. 513, c. 186–87.] The extra cost involved in getting the high street banks to participate in the student loans scheme is yet another example of where the Government are prepared to spend more and more money on administration and bureaucracy to feed their ideologically motivated policies.

The Government have asked the House to give the Bill a Second Reading, but they have not consulted on the issues involved. They have not offered the House any costings of the new scheme, and therefore they are asking the House for a blank cheque. The House must resist those moves.

The Government have also tried to seduce the House with arguments about choice. The Minister has claimed: Students can only benefit from the choice, diversity and competition that these changes would bring. He has also said: Private loans would be available from the beginning of the 1996/97 academic year. In due course we would expect most loans to be private ones. The Government claim that the Bill will widen the choice available to students by giving them an option of where they get their loans from. In the same breath, they tell us that, eventually, they want all loans to be provided by the private sector. In his press release, however, the Minister made it clear that the value of the loan, whether provided by the Student Loans Company or the private sector, will be exactly the same. It is therefore clear that there will be no choice and no incentive provided to students to opt for loans. That reveals, once again, the gap between the rhetoric and the practice of the Government.

It is most deceitful for the Government to talk about extending choice when it is plain to everyone that the Government want to transfer loans to the private sector. The Government will simply end up creating a two-tier system of student loans, providing the banks receive a big enough bribe. That will happen despite the Government's promise, given on Second Reading of the pervious Education (Student Loans) Bill, that students will not be excluded on the basis of their financial record and there will be no means-testing."—[Official Report, 5 December 1989; Vol. 163, c. 178.] It is clear that the Bill gives discretion to the banks to give loans to whomever they want. The problems that that will cause have already been outlined by my hon. Friends.

The introduction of the Bill signals the Government's intention to force more and more students to take up loans from the private sector. The Bill shows the way forward for the Government to pay huge amounts of taxpayers' money to the high street banks. It shows the way to force more and more students into debt during their years of higher education and early years of employment.

The Bill is ideologically motivated through and through, and does not address the problems facing either undergraduates or the Student Loans Company. It will do nothing to encourage students from less well-off backgrounds to enter education. It does not deserve to receive a Second Reading.

6.58 pm

Mr. John Gunnell (Morley and Leeds, South)

If evidence were needed that the Government have run out of steam and ideas, and are out of touch with what the British people need, it is provided by the Bill.

We are discussing the Bill on one of the first legislative days of the new Session, during which the Conservative Government will, presumably, suggest to the electorate that they should be re-elected to power and should continue in office. All the Government have so far offered to attract the electorate is a mechanism for shifting the responsibility for the failing system of student loans to the private sector. The nature of the Bill is demonstrated by the number of Conservative Members who are present to defend it, let alone to speak about it. They do not want to speak to it because there is little to say.

The Minister made no real case for the Bill, and it was left to the hon. Member for Wantage (Mr. Jackson) to make out a case for it. Unfortunately, his argument about the Bill was not in the Minister's speech because the Minister did not agree with it. The Minister did not share the hon. Gentleman's vision of universities as independent institutions, which would be freed up by the private sector and by the way in which those loans would be offered. Indeed, I am sure that the way in which the system has been structured makes it impossible for the hon. Gentleman's vision to become reality.

This is an unworthy start to a year in which, if the Bill before us is typical, unwanted legislation will be introduced. The Bill is largely irrelevant to higher education and is of no interest to private sector financial services companies. My hon. Friend the Member for Warrington, South (Mr. Hall) has just said that, as the financial services companies were not interested previously, if they are interested now, they must be interested only because of the bribes that are not made explicit in the Bill but are implied by it.

The Bill is of no interest to students; it is an attempt to pass the buck. It is uncosted and unwanted. As many hon. Members have said, the Bill has been introduced solely as a result of the effect that the student loans scheme has had on the public sector borrowing requirement. The Bill is an attempt to transfer as much as possible of that responsibility in the year to come.

We must ask who has demanded the change that the Bill will bring about. Has it been suggested by current recipients of loans? Have the universities asked for it? They have not asked for it, and they say that they are not interested in it and do not believe that it is the way to proceed. Have the banks suggested it? Have the building societies, with their increase in powers and their acquisition of banking powers, asked for such a scheme to be introduced? The answer to each of those questions is no. The reaction of the people who are most involved is, at best, apathetic and, at worst, hostile.

The change does not appear to be wanted by anyone except the Conservative party, and the Minister made out a very poor case for it. He spoke about the fact that it would encourage partnerships between universities and the private sector, but the way in which the tendering process has been set up means that that will not happen. No relationship will be set up between a bank and an individual university institution.

The other case that the Minister made out for the Bill was that, as the banks have branches in every high street, it will be easier for students to use the system. An entire piece of legislation is introduced because high street banks are in range of universities and can do dealings with them easily. That is not a sufficient reason for legislation that is a mechanism for debt transfer. It will not make any difference to our higher education system. The Bill has an especially empty ring because higher education is important to the nation. Other hon. Members, such as my hon. Friend the Member for West Lancashire (Mr. Pickthall), have said what the priorities should be.

Higher education fails many students at present. The hon. Member for Ceredigion and Pembroke, North (Mr. Dafis) clearly demonstrated that access to university continues to be determined in good measure by wealth and social background, and that those people who have the least access to resources are especially likely to be affected by the Bill.

It is wrong for the hon. Member for City of Chester (Mr. Brandreth) to suggest that that is not so, and it is a misuse of the statistics, which continue to show that access to university depends on social background, however people—especially the Labour party when in power—have tried to erode that relationship. However, other work must be undertaken, and obviously it is not the measure before us.

We know that a great gap confronts those who have been in employment and want to return to further study. The Bill is not designed to help them. The argument that the Bill does not do what it was intended to do might be regarded as a poor criticism, but we must consider the plight of many mature students nowadays. As a result of the loss of the older students allowance, there is a widespread feeling that it has become a significant hardship for people who are in one career to pursue the means to enter an alternative career.

As other hon. Members have said, and as I experienced when teaching in university, mature students have a dedication to their task—a dedication that is often very heartening to teachers—and they turn in extremely good performances. It is especially disappointing that the Bill does nothing for those aspects of real need.

There can be few hon. Members who have not been asked to help in appeals for discretionary awards. During the current year especially, and in recent years, there has been a continual decrease in the amounts of money available for discretionary awards. In entire subject areas, it is almost impossible to obtain any grant for training. For instance, it has been said several times in the House that it is impossible to obtain a grant for the dance training that is available to people who have sufficient resources. The Bill does nothing for the range of students who are handicapped by the virtual disappearance of the discretionary grant scheme.

On the tendering process in the Bill, we should persuade the Minister to tell us more about the criteria on which he will award the contracts to four financial institutions in each region. We have said that it is unlikely that any institution will be enthusiastic about winning the contracts that go with the scheme. To ensure genuine competition, the tendering process must cause people to be anxious to bid and to win the contract. Banks and building societies have demonstrated no interest in the scheme, so the likelihood of the Minister being able to choose between a series of institutions that have made competitive bids is minimal. There will be no loss leaders.

One institution will have responsibility for the loans in England and Wales, another in Scotland and another in Northern Ireland. In those circumstances, the relationship is not with the university but with the person who takes out the loan. Therefore, partnership arrangements similar to those that exist in the United States of America will not develop in the United Kingdom as a result of the measure.

The partnership arrangements in the USA exist because there is a plethora of universities—public and private—and many universities have direct links with a specific institution. Those arrangements work well in places such as Stanford university, California, and the Massachusetts Institute of Technology, where various successful companies are involved and strong relationships have developed.

However, similar arrangements will not develop as a result of the scheme proposed in the Bill. If it comes about, the scheme will be composed of arrangements between banks and a mass of borrowers. However, for the reasons given by my hon. Friend the Member for Warrington, South, obviously the enthusiasm does not exist to create a competitive position. That will lead to special hardship for those students who are least well off.

Let us consider the table that was recently supplied in the annual report of the Student Loans Company. It is interesting to note that the proportion of students deferring was 43 per cent. in the first year, 54 per cent. in the second year and 60 per cent. in the third year for which they should be making payments. Deferments will be considerable, and banks will be reluctant to take on such a scale of debt.

In returning to the issue, why have the Government not noted the fact—made clear in his memoirs—that if Kenneth Baker had known—[Interruption.] I am sorry, Mr. Deputy Speaker; I should have referred to the right hon. Member for Mole Valley (Mr. Baker), but I know that corrections are made in the record. The right hon. Member for Mole Valley made it clear that he would have persevered with a system directly involving the Inland Revenue. Why does the Minister pour scorn on the Australian system, which seems to work much better? Why do we not introduce a system aligning students' repayments with the resources available to them, enabling them to repay their loans as they progress in their careers? Given that it would involve much lower administrative costs, why do we not adopt a system that would genuinely help students?

This is a disappointing Bill, which offers nothing to the higher education system or to individual students, and which has clearly been rejected by the universities.

7.11 pm

Mrs. Maria Fyfe (Glasgow, Maryhill)

As has already been pointed out today, the subsidy from central Government to the banks that is proposed in the Bill would require £1,500 for each private loan. The Minister has not denied that. It is absurd: as I pointed out earlier, the basic grant for the next financial year will be only £1,257. We are giving more money to the banks' shareholders than to individual students. I would rather give the money to the students, and I do not think that any Opposition Member disagrees with me. It is incredible that the basic student grant should be so low. A student living away from home, moreover, is expected to cope on a grant of £1,812, plus a maximum loan of £1,380—a total of £3,192. Only weeks ago, the House had to take action to deal with certain Members who had asked parliamentary questions. The cost of the time and trouble taken to table three such questions would have put £3,000 in a student's pocket straight away.

Earlier, I mentioned the report about student poverty in Scotland that was published in August by the Scottish citizens advice bureau. The Minister said that he had seen students in beer bars. Must every student beer bar in the country close before the Minister accepts that there is such a thing as student poverty? The report demonstrated conclusively that, for all the Government's denials, student poverty exists and, indeed, is widespread. Students who are perfectly capable of achieving their degrees and diplomas are having to give up because of mounting debts.

In Scotland, there is a four-year honours degree course, because the first year is the equivalent of an A-level course in England. That means that Scottish students experience even more debt. Students who become ill fall foul of a system that does not allow for any such human frailty: grants are refused to students who wish to repeat a year because of ill health. Students have been known to leave courses because delays in getting grant cheques to them have left them with no money to live on.

According to the report, a student in Grampian sought advice from the SCAB about bankruptcy because—as a 19-year-old first-year student—he owed a total of £2,000 to the bank, the Student Loans Company and the university for accommodation. The SCAB has observed a general increase in the number of student clients seeking debt counselling. That may not be altogether surprising, but it should shock us that the bureau has had to send students to charities that provide free food.

The fact is that students are probably the only category of people who can end up with literally no income. They have no access to emergency funds, such as a crisis loan from the social fund. Grants and loans combined amount to less than the average weekly benefit. That exerts an unacceptable pressure on young men and women. We should ease their path towards higher and further education, rather then making it an obstacle course.

Conservative Members have said much about fairness to the taxpayer. No one objects to that, but I do not think that any fair-minded taxpayer wants to be unfair to students. The amount of grant currently available to students is a disgrace in a country that claims to want to encourage young people to participate in higher and further education. I look forward to my party's introduction of a scheme that will ensure that no student in the land is deterred from entering such education because of the fear of poverty or debt.

7.15 pm

Mr. Tony Worthington (Clydebank and Milngavie)

As many hon. Members have said, this is a strange Bill. There has been no demand for it from students, universities or the Student Loans Company—or, I suspect, from the Department for Education and Employment. I do not believe that the Bill has come from that Department; I believe that it has come from the Treasury. If we could debate it on that basis—on its merits, indeed—the debate would have some reality, but the Government are afraid to admit that the Bill concerns the transfer of money from the public sector borrowing requirement.

I am told that the Bill is about choice, but none of the people I have mentioned asked for it. They exercised their choice: they did not want it. The private sector, too, has exercised its choice, saying, "We want nothing to do with the Bill." The Government have said, "We will try a little sweetener. Here is a bit more: then perhaps you will exercise your choice." Public money is involved in this public Bill, whose purpose is to subsidise the private sector so that it will enter the arena.

We are to gain the expertise of the private sector. I thought that we gained that when Mr. Ronald Harrison was appointed to run the Student Loans Company. Mr. Harrison, however, was dismissed last year, after bringing the skills and expertise of the private sector to the company, and wrecking it.

I do not share the Government's respect for the banking system—their view that expertise exists and that we are not tapping into it. If we ask which sector should now be concentrating on its proper job of investing in British industry, the answer should be the banks. If we could persuade them to do that, rather than trying to entice them into using their skills, they would be doing their job.

I find it odd that, having established the Student Loans Company a few years ago in Glasgow—the jobs in Glasgow are very welcome—the Government should seek to create unemployment in that city. As the Bill states, if it succeeds, the company in Glasgow will be scaled down, and people working there will cease to be employed. That is one of the Bill's central purposes. In a policy that no one wants, the Government are seeking to endanger 3,000 jobs.

The Minister shakes his head, but it is in the explanatory and financial memorandum: The number of staff employed by the Student Loans Company will be reduced as a result of the Bill". Fewer jobs will be lost if the Bill fails.

Mr. Forth

I thought that the hon. Gentleman was above the kind of irresponsible scaremongering in which he is now indulging. To the extent that loans would be provided by the banks instead of the Student Loans Company, it is self-evident that SLC staff numbers would be reduced. There can be no doubt about that. Equally, the Student Loans Company must continue to exist, as the Government have given a guarantee that we shall always provide an alternative. Is the hon. Gentleman suggesting that it is beyond the professional expertise of the management in Glasgow to administer change?

Mr. Worthington

The Minister does not contradict what I have said. Does he deny the memorandum, which says that the legislation will lead to an increase in the number of staff employed by the Department for Education and Employment to administer the subsidies to the private sector, but to a reduction in public sector employment as fewer people will be employed by the Student Loans Company? The stated purpose of the Government's Bill is to increase the subsidy to the private sector and to run down the Student Loans Company.

Labour Members base their assertions on the evidence that they are given about student poverty. Inevitably, that is not the best-quality evidence: it tends to be anecdotal evidence from student welfare officers, for example. A defect of the Student Loans Company is that it has no responsibility for researching the consequences of its actions, and the Department for Education and Employment has also shrugged off its responsibilities in that regard. If the Government were serious about their policy, they would conduct thorough-going research into the consequences of their measures to create student support. However, the Government will not do that.

I have examined the sums of money involved. My hon. Friend the Member for Glasgow, Maryhill (Mrs. Fyfe) referred to the cost of a Scottish degree. I have examined the cost of taking a Scottish degree and going on to teacher training, which involves five years of study.

This year, a student loan is just less than £1,400. So the cost of becoming a teacher in a Scottish school is a minimum of £7,000—five times £1,400. Students must pay back that £7,000 over five years—which involves a weekly payment of £27—as soon as they receive a salary of £15,000 per year. It cannot be fair that, when a Scottish schoolteacher receives a salary of £15,000 and begins to settle down with a family, buy a house and establish a career, he or she must pay £27 per week in a totally inflexible manner. Is there any legislation to address that problem? No, we have only this nonsense legislation that does not tackle the basic issues.

The Bill does not address the quality of education in Northern Ireland. The Northern Ireland peace process is in a fragile state. As Northern Ireland has more students and fewer university places than anywhere else in the United Kingdom, 44 per cent. of Northern Ireland students must travel to mainland Britain to take up university education. For reasons associated with the troubles, many of those students do not return to Northern Ireland from mainland Britain.

It is a serious problem: 44 per cent. of higher education students leave the Province, and, overwhelmingly, they do not return. That is a serious educational consequence, but the Bill does not explore how more students from Northern Ireland could study in that country.

The Bill also fails to deal with the consequences of the fact that more Northern Ireland students come from poorer backgrounds—about 34 per cent. of students from Northern Ireland are from social classes D and E, compared with 29 per cent. in England and Wales. More students from Northern Ireland than anywhere else are recipients of full maintenance grants, and they also face the additional cost of travelling from Northern Ireland to the mainland.

Those are serious student maintenance issues, but the Bill does not address those problems; it simply enables public subsidy to go to private financial institutions. I charge the Government with being flippant: at a time when students face serious problems, the Government have introduced a Bill that is driven by dogma, and is irrelevant to students' needs.

7.24 pm

Mr. Edward O'Hara (Knowsley, South)

My hon. Friend the Member for Warrington, South (Mr. Hall) talked at some length about the supposed element of choice in the Bill. Let us judge the legislation by the Government's own terms: what choice does it offer? We have already exposed the concept of the choice that is offered to parents of schoolchildren: they may exercise a preference of school for their children, but they have no real choice—it is the schools that exercise choice.

Under the proposed student loans system, students may prefer to go to a finance house—perhaps because of the inducements that such an institution may offer them—to apply for a loan. However, any choice in the matter will be exercised by the finance house. It will be a case of selection according to creditworthiness. I assure hon. Members that a typical student from my constituency would have no choice at all.

We are talking about the proposed introduction of a two-tier system of student loans: those students who can do deals, and those who cannot; those who have the power, and those who do not. The supposed choice and diversity in respect of schools has led to divergence and division, and it is the same with the proposed dual-track system of student loans. Students will have no choice, and there will be no real diversity: there will be only divergence between those who will have the opportunity to pay off their loans at preferential rates when they start working, and those who will begin their working lives with fixed mortgages around their necks.

As my hon. Friends have said, the purpose of the Bill is to fiddle the public sector borrowing requirement and to massage the figures down. It is an exercise in creative accounting, and it will be achieved at a price. The basis of the Bill is flawed, and no less flawed are the procedures that the Bill allows the Secretary of State to follow in order to implement the new system by September 1996. The Bill gives extraordinary powers to the Secretary of State to incur expenditure when negotiating terms with finance houses. It literally offers a blank cheque, and that is a disgrace. It is necessary from the Government's point of view because, by presenting the proposal in this manner, they have passed the negotiating whip hand to the finance houses. They have loudly signalled their lack of interest, and their interest will be aroused at a price. That is not surprising, when one considers what the finance houses must risk: unpredictability of demand, risk of default and the loss of good will among valuable student clients.

Not only the finance houses, but the students and the Committee of Vice-Chancellors and Principals, reject the proposal. They recoup only half the cost of managing the present system, and they envisage an added administrative burden from managing a dual loans system.

In short, the Bill is not just mediocre: it is tawdry in its conception and in its purpose. It is unloved by both the agents and the clients of the proposed system. It is irrelevant, and it does nothing to address the faults of the present system of student financing, which is complex, confusing and inequitable, and the cause of much student hardship. Above all, the present scheme exposes the Government to the accusation that they are rationing higher education at a time of retrenchment, and are wasting a pool of national talent.

The system is complex and confusing because students are trapped in a maze of grant, loan, access funds, parental support and part-time employment. I know that certain Conservative Members believe that to be a good thing—a virtuous initiation of students into the realities of finance, self-reliance and responsibility. There is, however, another way of looking at it. There is good evidence that enforced preoccupation with financing their studies leads to many students worsening their academic performance because they cannot keep up with their studies, dropping out or deciding not to enter higher education in the first place.

The Government would have been far better occupied in undertaking a close analysis of the shortcomings of the present system and producing a Bill that attempted to address them instead of the tawdry measure that they present to us today, and that I hope will be rejected.

7.30 pm

Mr. Stephen Byers (Wallsend)

We have had an instructive and informative debate. There has been a consensus: all hon. Members recognised that, at least on public policy for student maintenance, there are no easy answers to what are difficult questions. The rest of the debate identified a gulf between the political parties on that issue.

Conservative Members believe that privatisation of the loans system will somehow, as if by magic, remedy the present weaknesses and deficiencies, whereas the Opposition regard the measure as simply tinkering with a failed and discredited system in a cynical attempt to fiddle the public sector borrowing requirement for party political purposes.

Five years ago, when the Education (Student Loans) Bill was before the House, the then Secretary of State for Education and Science, the right hon. Member for South Norfolk, (Mr. MacGregor), said that the aim of the Bill was to share the cost of student maintenance more fairly between the taxpayer, students' parents and students themselves."—[Official Report, 5 December 1989; Vol. 163, c. 174.] After five years of the operation of the student loans system, it has become clear that it provides little fairness for the taxpayer as £1.3 billion of public money remains outstanding on the loan account. The National Audit Office report on the operation of the Student Loans Company, published on 24 November, concluded that £142 million borrowed from the public purse would not be repaid. Where is the fairness to the taxpayer in that regime?

The 1988 White Paper that led to the introduction of the Education (Student Loans) Act 1990 stated that the spending outlay would not be recovered until the year 2015, when savings would start to be made. That calculation assumed a deferred repayment rate of between 10 and 15 per cent., but the National Audit Office calculated that at 31 March 1995, 45 per cent. of all borrowers had been granted deferment. Given that extremely high rate of deferment, when do the Government believe that net savings will accrue from the student loans system?

It is a great irony that a scheme that costs so much public money is supporting a system that is deeply unpopular with students. The take-up rate of eligible students is running at 55 per cent. after five years of operation. That is far lower than the Government's original prediction. The loans scheme, coupled with the withdrawal of benefits and successive reductions in the value of the grant, has resulted in many students being pushed into poverty and debt.

The Minister spoke of students swilling beer in college bars—that may be true of the few students whom he meets—but many Opposition Members know that the reality is quite different. The speeches of my hon. Friends the Members for Cardiff, Central (Mr. Jones) and for Glasgow, Maryhill (Mrs. Fyfe) illustrated the nature of student poverty. According to university vice-chancellors, the main reason for the dramatic increase in the student drop-out rate is financial stress. In the latest year for which figures are available, 40,000 students dropped out of their university courses—a 25 per cent. increase on previous years. The Bill needs to be judged against that backdrop.

All those most closely connected with higher education have been strongly critical of the Government's present approach. There is a broad consensus on the need for a fundamental review of student maintenance. The president of the National Union of Students, Jim Murphy, said: We want an urgent review of the system of student financial support and proper consultation.". That statement was supported by the Committee of Vice-Chancellors and Principals. Its chairman, Professor Gareth Roberts, called for a fundamental review of the funding of student maintenance". The committee also expressed their disappointment that the Government failed to consult them on the proposals before the House.

The Bill seeks to allow the private sector to enter the student loans market. In considering that proposal, we must briefly consider the effectiveness and efficiency of the Student Loans Company. As my hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) said, the Bill will cost jobs in Glasgow, where the unemployment rate is already well above the national average.

Hon. Members will be aware of the deficiencies of the Student Loans Company over the years, but there has been substantial improvement. The National Audit Office report concluded: Our findings show that many initiatives are now in hand to improve performance. In particular, flaws in the Repeat Application Procedure, which caused the difficulties in 1994, were fully addressed for the re-launch of the initiative in 1995 and, as at 31 October 1995, the revised procedure was operating well. More generally, initiatives have been taken to improve the clarity of business and financial performance reporting and … the Company's performance targets have been made more rigorous and precise. Those of us who make a habit of reading National Audit Office reports can confirm that its conclusion is a strong and positive statement of support for the conduct of the Student Loans Company.

Whatever reservations we have about the scheme, it is now clear that the Student Loans Company, in difficult circumstances, is on the right track. Much of the credit for that must go to Sir Eric Ash, who should be congratulated on the way in which he turned the company round.

Throughout the company there is clearly now a commitment to reduce costs, improve efficiency and offer a quality service in the public sector. The problems encountered by the Student Loans Company occurred because of the failings of the previous chief executive, who was recruited from the private sector, but that is the direction in which the Government now wish to proceed.

Why do the Government wish to privatise the student loans system now? When the Bill was published, the Department for Education and Employment issued a press notice stating that the Bill is designed to allow private sector financial institutions to enter the student loans system as major players. Yet there is little evidence—there certainly was none in the Minister's speech—of demand from the private sector to become involved in the making of loans to students.

What we now know, which we did not know before, are the terms that were available to banks in 1989 to encourage them to take part in the scheme. They were drawn up by the consultants, Price Waterhouse. At the time they were not made public because they were regarded as "commercial in confidence". Since then, and since the banks' withdrawal from the scheme, they have been published. They reveal that as part of a package of measures to encourage banks to take part, the Government said that loans would be kept off the balance sheets of participating banks, that start-up and running costs would be recouped in full from the Government—the taxpayer—and that the scheme would be funded in full by the Government, including any default liability.

That was on offer in 1989, but the banks turned their backs and walked away. What the Minister should tell the House this evening is what is on offer in 1995 to change the approach of the banks, the building societies and the credit institutions. As my hon. Friend the Member for Warrington, South (Mr. Hall) said, referring to the excellent speech by the Conservative peer Lord Beloff, if the fishmonger sells fish, that is his business; if a banker lends money, that is his business. One does not have to bribe a fishmonger to sell fish, but apparently the Government have to bribe the banks to lend money. Could there be greater absurdity? The Minister, in being honest and open with the House this evening, needs to disclose what further absurdities and what bribes will come from the Government.

The measure has little to do with tackling the problems being experienced by students and by the higher education institutions. The Government are setting up a two-tier system—not for students, but for its operators. The Student Loans Company will act as a lender of last resort, covering students who are not deemed to be desirable by the private sector. There will be no choice for students and there will be no diversity for students. The choice will rest with the private sector and the diversity will be in who runs the operation. There will be no benefit to students.

The private sector is in a favourable position, which may be the difference between now and 1989. It will have the Student Loans Company to pick up the pieces. It will be able to pick the cherries—it will offer loans only to students from suitable backgrounds who are no financial risk. If that is coupled with a subsidy from the taxpayer, the Government will hope that many banks will be prepared to say yes.

The Minister should answer the specific points made in the debate. My hon. Friend the Member for West Lancashire (Mr. Pickthall) referred to the possibility of part-time students being covered by the loans scheme. Will that be so? The hon. Member for Lancaster (Dame E. Kellett-Bowman), in an intervention, asked whether students who interrupt their studies for a responsible reason could benefit from the scheme. We hope to have a answer from the Minister on that point. As my hon. Friend the Member for Morley and Leeds, South (Mr. Gunnell) said, we need to know what savings in the PSBR the Government expect to accrue as a result of the measures in the Bill.

The Bill is a further example of this Government's lurch to the right, which is probably why the Minister is so keen to promote it. Extreme policies are being introduced in a increasingly desperate attempt to placate the demands of the right wing, both within the Cabinet and on the Back Benches. The only beneficiaries will be the Government because the privatisation will remove billions of pounds from the PSBR and give the Chancellor further room for manoeuvre. The other beneficiaries will be the banks and finance houses, which will profit from student poverty, debt and misery.

The Bill fails the taxpayer by increasing the contribution from the public purse. It fails students by promising them more but giving them less. It fails our country in that it will not open up access to higher education. It places a mortgage on knowledge and a debt charge on learning. As a result, student poverty will increase, aspirations will be frustrated and opportunities will be denied. It represents a triumph of political dogma over reason. That is why we shall vote against Second Reading.

7.45 pm

Mr. Forth

With the leave of the House, Mr. Deputy Speaker. I welcome the hon. Member for Wallsend (Mr. Byers) to the Dispatch Box, in his first contribution to these matters. I hope that he and I will be exchanging views for a long time to come—in our present capacities, of course.

The hon. Member for Oldham, Central and Royton (Mr. Davies) said that he thought that the chairman of the Conservative party had revealed that our legislative programme this year was designed to smoke out the Opposition. If that is true, I am afraid that the debate has failed to do anything of the sort. It became increasingly obvious throughout the debate, in all the speeches of Labour Members, that we would be told nothing about what the Labour party would do in this crucial area of policy. It is not good enough for Labour Members to make the sort of comments and accusations that they did about the Bill and higher education policy generally when they have not a single policy idea on how they would conduct such a crucial area of education.

We still do not know, even after the debate, whether the Labour party approves of loans as a matter of principle to supplement grant. We do not know whether it would continue with loans or whether it would abolish them and return to grants. We do not even know something as basic as that. We do not know in detail what it would do with a loans scheme. We do not know its attitude towards the participation of the banks. Some Labour Members seem to be afraid that the banks will participate, while others deride the scheme and allege that the banks would not touch it with a bargepole. They cannot have it both ways. They either fear that the banks will participate or they are confident that they will not. It should be one or the other, not both. There was a very mixed message throughout the debate.

What I want to know—and I am still waiting—is whether the Labour party, as a matter of policy, would abolish loans and return to grants. What would it do about the benefits that some Labour Members say are being denied to students? Would it restore those benefits? We did not hear anything about that. We heard no undertakings about part-time and further education students, despite the fact that some Labour Members tried to make great play of the fact that some of those students were disadvantaged. Unless the Labour party is prepared to tell us what it would do, its criticism is of no import or substance. Labour Members did not say what they would do about lower-income students or alleged student poverty.

There was a hint from some Opposition Members—I think even from the hon. Member for Wallsend, and certainly from the hon. Member for Clydebank and Milngavie (Mr. Worthingon)—that they regard the Student Loans Company as a job scheme for the people employed in it. Whatever else we are doing, we certainly are not designing the Bill simply to run down the Student Loans Company as a matter of policy. I tried to explain that the Student Loans Company will continue to exist and that its existence is an integral part of the whole thrust and philosophy of the Bill. To the extent to which the opportunities open to the banks were taken up, there would have to be some reduction in the number of people employed at the Student Loans Company, but the reduction would be gradual and would take place over a period of time. It would certainly always leave the Student Loans Company as a major provider of loans to students. That has been made perfectly clear.

I think that we must conclude that Labour Members have not yet had permission from the hon. Member for Dunfermline, East (Mr. Brown) to say anything whatsoever about education policy, higher education policy, student funding or anything else of the kind. We will have to adjust their criticisms accordingly.

I should like to give credit where credit is due. The hon. Member for Wallsend said at the beginning of his speech—this gave us some idea of the problem that he and his colleagues have—that, in this sphere, there are no easy answers and a number of difficult questions. That must certainly be so because he and his colleagues have come up with no answers at all—easy or difficult.

Mr. Blunkett

When will the Minister answer some of the difficult questions that we have put to him?

Mr. Forth

I do not know what the hon. Gentleman categorises as difficult questions. Labour Members have made a number of allegations, one of which was that the drop-out rate is increasing. I know of no evidence to support that allegation because, broadly speaking, the drop-out rate, which is difficult to define satisfactorily, has remained fairly constant. It has fluctuated somewhat over a number of years but has remained fairly constant for a long time. Indeed, it is very much lower in this country than in most of the comparable countries with which we compete.

Labour Members frequently made that point. They also made allegations about student poverty. The hon. Member for Glasgow, Maryhill (Mrs. Fyfe) made that allegation on the basis of conversations that she had had with a branch of the citizens advice bureau.

Mrs. Fyfe

Will the Minister give way?

Mr. Forth

I shall give way in a moment. I yield to none in my admiration for much of the work done by many of the people who work in the citizens advice bureaux, but I do not think it is wise to generalise on the basis of a very small and self-selecting sample of students who felt unable to deal with their financial circumstances, for whatever reason, and state that somehow all students are suffering from poverty.

Mrs. Fyfe

The Minister must avoid deliberately misunderstanding what I said. The Scottish CAB produced a report in August because it was concerned about the scale of student poverty in Scotland. It was not dreaming; it was not making it up; and it was not drawing on just a few examples. Poverty was widespread enough for it to feel that it had to produce a report on it. Is the Minister accusing it of dreaming or lying?

Mr. Forth

I am accusing it of nothing; I am simply saying that the hon. Lady is generalising from a very narrow sample. I have yet to hear a policy response from the Opposition to what they believe to be the problem of student poverty. I do not accept the accusation that there is student poverty, but some Labour Members believe it exists so I am waiting for them to say what they would do about it, were they ever to form a Government.

Another source of schizophrenia among Labour Members was the Student Loans Company. I am aware of the criticisms of the company made by the National Audit Office but I am also aware of, and pay tribute to, the substantial improvements in its performance. I was happy to hear the hon. Member for Wallsend say that the Student Loans Company is now on the right track—I think that they were his words—but his colleagues do not seem aware of that fact. They seem to be stuck in the circumstances of a year ago and have completely ignored the progress that has been made. Labour Members must be clear among themselves: has the Student Loans Company made significant progress and sorted out its problems of a year ago, or are they are stuck in a groove and unable to acknowledge the company's improvements?m

Mr. Bryan Davies

The Minister will recall that one of the main points of the debate has been to ask him whether, under the Bill, there is to be any extension of the category of students who might benefit from access to loans. Particular reference was made to part-time students. He was directly asked such questions several times: will he answer them?

Mr. Forth

Yes, I shall. The Bill is not designed to alter the qualifications for or the rights to student finance. It was designed to increase the choice of sources of finance to those who currently qualify. Labour Members have made terribly heavy weather of that question and have not answered it themselves. I have made the position perfectly clear—it was not the intention behind the Bill—but I am waiting for the hon. Member for Oldham, Central and Royton or any of his colleagues to answer the question that they have asked.

Mr. Robert Jackson

I hope that my hon. Friend the Minister will in due course extend access to loans to students on part-time courses. Meanwhile, has he taken note of the fact that the Opposition regard it as a benefit that should be extended?

Mr. Forth

My hon. Friend is absolutely right. That illustrates yet again the utter confusion among Opposition Members, who have no clear policy on the matter and no conception of what to do in this sphere. That is the one thing that has been achieved in their contributions to the debate.

I pay tribute to my hon. Friend the Member for Wantage (Mr. Jackson) who has, typically, thought through these issues clearly and carefully and made his usual well-thought-out contribution to the debate. He will understand that I cannot give a detailed response to the points that he made, but I shall certainly want to examine them carefully and consider whether they can inform the development of future policy. I hope that when we produce our further consultation paper on higher education early in the new year, my hon. Friend will reply to it. I suspect, however, that he could do no better than send a copy of the well-thought-out and worthwhile speech that he made today.

I was told several times that our policy had somehow led to a reduction in the number of students from less well-off families entering higher education. That is simply not so. The latest survey information available to me suggests that while the younger students entering higher education from less well-off backgrounds were in the minority in 1988, they are in the majority now. Our figures show that the number of students from social classes 4 and 5 accepted for undergraduate courses rose by more than 50 per cent. in just three years between 1991 and 1994. Therefore, the loose accusation repeated by the Opposition—that our regime of balancing grants and loans has disadvantaged students from lower-income families—is not true. There is no evidence to support such an allegation.

The hon. Member for West Lancashire (Mr. Pickthall) asked about direct debits. I can confirm that a student who borrowed from more than one loan provider would indeed have more than one direct debit. That is logical. The banks may assign or sell on debts, and any information available on those who have taken out such loans would, as in the normal way, be made available. I cannot for the life of me see why not; it is a perfectly normal part of the general lending regime.

This debate has been about a Bill designed to broaden the choice available to students—to set them free from the current public sector monopoly provider and to introduce important choice and new players to the market. We are in the early stages of our deliberations, but eventually this enabling Bill will allow us to carry forward an important development in policy and to seek to provide a much wider choice of loans to students. It is a sensible and modest measure, thoroughly consistent with the direction of our policies in the past, and I commend it to the House.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 285, Noes 250.

Division No. 4]	[7.59 pm
AYES
Ainsworth, Peter (East Surrey)	Evans, Jonathan (Brecon)
Aitken, Rt Hon Jonathan	Evans, Nigel (Ribble Valley)
Alexander, Richard	Evans, Roger (Monmouth)
Alison, Rt Hon Michael (Selby)	Evennett, David
Allason, Rupert (Torbay)	Faber, David
Amess, David	Fabricant, Michael
Arbuthnot, James	Fenner, Dame Peggy
Arnold, Jacques (Gravesham)	Field, Barry (Isle of Wight)
Arnold, Sir Thomas (Hazel Grv)	Forman, Nigel
Ashby, David	Forsyth, Rt Hon Michael (Stirling)
Atkins, Rt Hon Robert	Forth, Eric
Atkinson, David (Bour'mouth E)	Fowler, Rt Hon Sir Norman
Baker, Nicholas (North Dorset)	Fox, Dr Liam (Woodspring)
Baldry, Tony	Fox, Sir Marcus (Shipley)
Banks, Matthew (Southport)	Freeman, Rt Hon Roger
Banks, Robert (Harrogate)	French, Douglas
Bates, Michael	Fry, Sir Peter
Batiste, Spencer	Gale, Roger
Bellingham, Henry	Garel-Jones, Rt Hon Tristan
Bendall, Vivian	Garnier, Edward
Biffen, Rt Hon John	Gill, Christopher
Booth, Hartley	Gillan, Cheryl
Boswell, Tim	Goodson-Wickes, Dr Charles
Bottomley, Peter (Eltham)	Gorman, Mrs Teresa
Bottomley, Rt Hon Virginia	Grant, Sir A (SW Cambs)
Bowden, Sir Andrew	Greenway, Harry (Ealing N)
Bowis, John	Greenway, John (Ryedale)
Boyson, Rt Hon Sir Rhodes	Griffiths, Peter (Portsmouth, N)
Brandreth, Gyles	Grylls, Sir Michael
Brazier, Julian	Gummer, Rt Hon John Selwyn
Bright Sir Graham	Hamilton, Sir Archibald
Brooke, Rt Hon Peter	Hamilton, Neil (Tatton)
Brown, M (Brigg & Cl'thorpes)	Hampson, Dr Keith
Browning, Mrs Angela	Hannam, Sir John
Budgen, Nicholas	Hargreaves, Andrew
Butler, Peter	Harris, David
Butterfill, John	Haselhurst, Sir Alan
Carlisle, John (Luton North)	Hawkins, Nick
Carlisle, Sir Kenneth (Lincoln)	Hawksley, Warren
Carttiss, Michael	Hayes, Jerry
Cash, William	Heald, Oliver
Channon, Rt Hon Paul	Heathcoat-Amory, David
Chapman, Sir Sydney	Hendry, Charles
Churchill, Mr	Hicks, Robert
Clappison, James	Higgins, Rt Hon Sir Terence
Clark, Dr Michael (Rochford)	Hill, James (Southampton Test)
Clifton-Brown, Geoffrey	Hogg, Rt Hon Douglas (G'tham)
Coe, Sebastian	Horam, John
Colvin, Michael	Hordern, Rt Hon Sir Peter
Congdon, David	Howard, Rt Hon Michael
Coombs, Anthony (Wyre For'st)	Howell, Rt Hon David (G'dford)
Coombs, Simon (Swindon)	Hughes, Robert G (Harrow W)
Cope, Rt Hon Sir John	Hunt, Rt Hon David (Wirral W)
Cormack, Sir Patrick	Hunt, Sir John (Ravensbourne)
Couchman, James	Hunter, Andrew
Cran, James	Hurd, Rt Hon Douglas
Currie, Mrs Edwina (S D'by'ire)	Jack, Michael
Curry, David (Skipton & Ripon)	Jackson, Robert (Wantage)
Day, Stephen	Jenkin, Bernard
Deva, Nirj Joseph	Jessel, Toby
Dorrell, Rt Hon Stephen	Johnson Smith, Sir Geoffrey
Douglas-Hamilton, Lord James	Jones, Gwilym (Cardiff N)
Dover, Den	Jones, Robert B (W Hertfdshr)
Duncan, Alan	Jopling, Rt Hon Michael
Duncan-Smith, Iain	Kellett-Bowman, Dame Elaine
Dunn, Bob	Key, Robert
Durant, Sir Anthony	King, Rt Hon Tom
Dykes, Hugh	Kirkhope, Timothy
Eggar, Rt Hon Tim	Knapman, Roger
Elletson, Harold	Knight, Mrs Angela (Erewash)
Emery, Rt Hon Sir Peter	Knight, Rt Hon Greg (Derby N)
Evans, David (Welwyn Hatfield)	Knight, Dame Jill (Bir'm E'st'n)

Knox, Sir David	Sackville, Tom
Kynoch, George (Kincardine)	Sainsbury, Rt Hon Sir Timothy
Lait, Mrs Jacqui	Scott, Rt Hon Sir Nicholas
Lamont, Rt Hon Norman	Shaw, David (Dover)
Lang, Rt Hon Ian	Shaw, Sir Giles (Pudsey)
Lawrence, Sir Ivan	Shephard, Rt Hon Gillian
Legg, Barry	Shepherd, Colin (Hereford)
Leigh, Edward	Shepherd, Richard (Aldridge)
Lennox-Boyd, Sir Mark	Shersby, Sir Michael
Lester, Jim (Broxtowe)	Sims, Roger
Lidington, David	Skeet, Sir Trevor
Lightbown, Sir David	Smith, Sir Dudley (Warwick)
Lilley, Rt Hon Peter	Smith, Tim (Beaconsfield)
Lloyd, Rt Hon Sir Peter (Fareham)	Soames, Nicholas
Lord, Michael
Luff, Peter	Speed, Sir Keith
Lyell, Rt Hon Sir Nicholas	Spencer, Sir Derek
MacGregor, Rt Hon John	Spicer, Sir James (W Dorset)
MacKay, Andrew	Spicer, Michael (S Worcs)
Maclean, Rt Hon David	Spink, Dr Robert
McLoughlin, Patrick	Spring, Richard
McNair-Wilson, Sir Patrick	Sproat, Iain
Madel, Sir David	Squire, Robin (Hornchurch)
Maitland, Lady Olga	Stanley, Rt Hon Sir John
Major, Rt Hon John	Steen, Anthony
Malone, Gerald	Stern, Michael
Mans, Keith	Stewart, Allan
Marland, Paul	Streeter, Gary
Marlow, Tony	Sumberg, David
Marshall, John (Hendon S)	Sweeney, Walter
Marshall, Sir Michael (Arundel)	Sykes, John
Martin, David (Portsmouth S)	Tapsell, Sir Peter
Mates, Michael	Taylor, Ian (Esher)
Mawhinney, Rt Hon Dr Brian	Taylor, John M (Solihull)
Mellor, Rt Hon David	Taylor, Sir Teddy (Southend, E)
Merchant, Piers	Temple-Morris, Peter
Mills, Iain
Mitchell, Andrew (Gedling)	Thomason, Roy
Mitchell Sir David (NW Hants)	Thompson, Sir Donald (C'er V)
Moate, Sir Roger	Thompson, Patrick (Norwich N)
Monro, Rt Hon Sir Hector	Thornton, Sir Malcolm
Montgomery, Sir Fergus	Thurnham, Peter
Moss, Malcolm	Townend, John (Bridlington)
Neubert, Sir Michael	Townsend, Cyril D (Bexl'yh'th)
Newton, Rt Hon Tony	Tracey, Richard
Nicholson, David (Taunton)	Trend, Michael
Nicholson, Emma (Devon West)	Trotter, Neville
Norris, Steve	Twinn, Dr Ian
Onslow, Rt Hon Sir Cranley	Vaughan, Sir Gerard
Oppenheim, Phillip	Waldegrave, Rt Hon William
Ottaway, Richard	Walden, George
Page, Richard	Waller, Gary
Paice, James	Ward, John
Patnick, Sir Irvine	Wardle, Charles (Bexhill)
Patten, Rt Hon John	Waterson, Nigel
Pattie, Rt Hon Sir Geoffrey	Watts, John
Pawsey, James	Wells, Bowen
Peacock, Mrs Elizabeth
Pickles, Eric	Whitney, Ray
Porter, Barry (Wirral S)	Whittingdale, John
Porter, David (Waveney)	Widdecombe, Ann
Portillo, Rt Hon Michael	Wiggin, Sir Jerry
Rathbone, Tim	Wilkinson, John
Redwood, Rt Hon John	Willetts, David
Renton, Rt Hon Tim	Wilshire, David
Richards, Rod	Winterton, Mrs Ann (Congleton)
Riddick, Graham	Winterton, Nicholas (Macc'f'ld)
Robathan, Andrew	Wolfson, Mark
Roberts, Rt Hon Sir Wyn	Wood, Timothy
Robertson, Raymond (Ab'd'n S)	Yeo, Tim
Robinson, Mark (Somerton)
Roe, Mrs Marion (Broxbourne)	Tellers for the Ayes:
Rowe, Andrew (Mid Kent)	Mr. Derek Conway and
Rumbold, Rt Hon Dame Angela	Mr. Simon Burns.

NOES
Abbott, Ms Diane	Dunwoody, Mrs Gwyneth
Adams, Mrs Irene	Eagle, Ms Angela
Ainger, Nick	Eastham, Ken
Ainsworth, Robert (Cov'try NE)	Etherington, Bill
Allen, Graham	Evans, John (St Helens N)
Alton, David	Faulds, Andrew
Anderson, Donald (Swansea E)	Field, Frank (Birkenhead)
Anderson, Ms Janet (Ros'dale)	Flynn, Paul
Armstrong, Hilary	Foster, Rt Hon Derek
Ashdown, Rt Hon Paddy	Foster, Don (Bath)
Ashton, Joe	Fyfe, Maria
Austin-Walker, John	Galbraith, Sam
Barnes, Harry	Galloway, George
Barron, Kevin	Garrett, John
Battle, John	George, Bruce
Bayley, Hugh	Gerrard, Neil
Beckett, Rt Hon Margaret	Godsiff, Roger
Bell, Stuart	Golding, Mrs Llin
Benn, Rt Hon Tony	Gordon, Mildred
Bennett, Andrew F	Grant, Bernie (Tottenham)
Benton, Joe	Griffiths, Nigel (Edinburgh S)
Bermingham, Gerald	Griffiths, Win (Bridgend)
Berry, Roger	Grocott, Bruce
Betts, Clive	Gunnell, John
Blunkett, David	Hain, Peter
Boateng, Paul	Hall, Mike
Boyes, Roland	Hanson, David
Bradley, Keith	Hardy, Peter
Bray, Dr Jeremy	Harman, Ms Harriet
Brown, N (N'c'tle upon Tyne E)	Harvey, Nick
Bruce, Malcolm (Gordon)	Hattersley, Rt Hon Roy
Burden, Richard	Henderson, Doug
Byers, Stephen	Hill, Keith (Streatham)
Caborn, Richard	Hinchliffe, David
Callaghan, Jim	Hodge, Margaret
Campbell, Mrs Anne (C'bridge)	Hoey, Kate
Campbell, Menzies (Fife NE)	Hogg, Norman (Cumbernauld)
Campbell, Ronnie (Blyth V)	Home Robertson, John
Campbell-Savours, D N	Hood, Jimmy
Canavan, Dennis	Hoon, Geoffrey
Cann, Jamie	Howarth, Alan (Strat'rd-on-A)
Carlile, Alexander (Montgomery)	Howarth, George (Knowsley North)
Chidgey, David	Howells, Dr Kim (Pontypridd)
Chisholm, Malcolm	Hoyle, Doug
Church, Judith	Hughes, Kevin (Doncaster N)
Clapham, Michael	Hughes, Roy (Newport E)
Clark, Dr David (South Shields)	Hutton, John
Clelland, David	Ingram, Adam
Clwyd, Mrs Ann	Jackson, Glenda (H'stead)
Coffey, Ann	Jackson, Helen (Shef'ld, H)
Cohen, Harry	Jamieson, David
Connarty, Michael	Johnston, Sir Russell
Cook, Frank (Stockton N)	Jones, Barry (Alyn and D'side)
Cook, Robin (Livingston)	Jones, Jon Owen (Cardiff C)
Corbett, Robin	Jones, Lynne (B'ham S O)
Corbyn, Jeremy	Jones, Martyn (Clwyd, SW)
Corston, Jean	Jowell, Tessa
Cousins, Jim	Kaufman, Rt Hon Gerald
Cox, Tom	Keen, Alan
Cummings, John	Kennedy, Jane (L'pool Br'dg'n)
Cunliffe, Lawrence	Khabra, Piara S
Cunningham, Jim (Covy SE)	Kilfoyle, Peter
Cunningham, Rt Hon Dr John	Kirkwood, Archy
Dafis, Cynog	Lestor, Joan (Eccles)
Darling, Alistair	Lewis, Terry
Davies, Bryan (Oldham C'tral)	Liddell, Mrs Helen
Davies, Chris L'Boro & S'worth)	Litherland, Robert
Davies, Ron (Caerphilly)	Livingstone, Ken
Denham, John	Lloyd, Tony (Stretford)
Dewar, Donald	Llwyd, Elfyn
Dixon, Don	Loyden, Eddie
Dobson, Frank	McAllion, John
Donohoe, Brian H	McAvoy, Thomas
Dowd, Jim	McCartney, Ian

Macdonald, Calum	Reid, Dr John
McFall, John	Rendel, David
McLeish, Henry	Robinson, Geoffrey (Co'try NW)
Maclennan, Robert	Roche, Mrs Barbara
McNamara, Kevin	Rooker, Jeff
MacShane, Denis	Rowlands, Ted
McWilliam, John	Ruddock, Joan
Madden, Max	Sedgemore, Brian
Mahon, Alice	Sheerman, Barry
Mandelson, Peter	Shore, Rt Hon Peter
Marek, Dr John	Short, Clare
Marshall, Jim (Leicester, S)	Simpson, Alan
Martin, Michael J (Springburn)	Skinner, Dennis
Martlew, Eric	Smith, Andrew (Oxford E)
Maxton, John	Smith, Chris (Isl'ton S & F'sbury)
Meacher, Michael	Smith, Llew (Blaenau Gwent)
Meale, Alan	Smyth, The Reverend Martin
Michael, Alun	Snape, Peter
Michie, Bill (Sheffield Heeley)	Soley, Clive
Michie, Mrs Ray (Argyll & Bute)	Spearing, Nigel
Milburn, Alan	Spellar, John
Miller, Andrew	Squire, Rachel (Dunfermline W)
Mitchell, Austin (Gt Grimsby)	Steel, Rt Hon Sir David
Moonie, Dr Lewis	Steinberg, Gerry
Morley, Elliot	Stevenson, George
Morris, Estelle (B'ham Yaidley)	Stott, Roger
Morris, Rt Hon John (Aberavon)	Strang, Dr. Gavin
	Sutcliffe, Gerry
Mowlam, Marjorie	Taylor, Mrs Ann (Dewsbury)
Mudie, George	Taylor, Matthew (Truro)
Mullin, Chris	Thompson, Jack (Wansbeck)
Murphy, Paul	Tipping, Paddy
Oakes, Rt Hon Gordon	Touhig, Don
O'Brien, Mike (N W'kshire)	Turner, Dennis
O'Brien, William (Normanton)	Tyler, Paul
O'Hara, Edward	Walker, Rt Hon Sir Harold
Olner, Bill	Walley, Joan
O'Neill, Martin	Wareing, Robert N
Orme, Rt Hon Stanley	Wicks, Malcolm
Parry, Robert	Wigley, Dafydd
Pendry, Tom	Williams, Rt Hon Alan (SW'n W)
Pickthall, Colin	Williams, Alan W (Carmarthen)
Pike, Peter L	Wilson, Brian
Pope, Greg	Winnick, David
Powell, Ray (Ogmore)	Wise, Audrey
Prentice, Gordon (Pendle)	Worthington, Tony
Prescott, Rt Hon John	Wray, Jimmy
Primarolo, Dawn	Wright, Dr Tony
Purchase, Ken	Young, David (Bolton SE)
Quin, Ms Joyce
Radice, Giles	Tellers for the Noes:
Randall, Stuart	Mrs. Bridget Prentice and Mr. Eric Clarke.
Raynsford, Nick

Question accordingly agreed to.

Bill read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 61 (Committal of Bills).