Education (Student Loans) Bill

HL Deb 19 February 1996 vol 569 cc912-66

6.10 p.m.

The Minister of State, Department for Education and Employment (Lord Henley)

My Lords, I beg to move that this Bill be now read a second time.

Before addressing the Bill itself it may be helpful to the House if I say a few words about a Statement that was made in another place this afternoon by my right honourable friend the Secretary of State for Education and Employment. It is not strictly speaking relevant to the Bill itself, but it may put into context some of the comments that I imagine we may hear from noble Lords this afternoon which may not relate directly to the contents of the Bill.

This afternoon my right honourable friend spoke about the Robbins Committee, which set out a vision for expanding higher education in the United Kingdom. Since then, as we all know, higher education has been transformed beyond the expectations even of Robbins. It no longer caters only for a privileged elite but provides opportunities for a significant proportion of our young people. In Robbins' day just one young person in 17 went on to higher education; now the number is approaching one in three. The number of newly qualified graduates gaining first degrees in Britain each year has doubled since 1979. Over one-third of those are science, maths and engineering graduates. Our graduation rate is now one of the highest in Europe, second only to Denmark in the European Union, and the United Kingdom produces more science graduates relative to the young workforce than any other OECD country. By the year 2001 the number of graduates in the workforce is likely to be well over 3 million—twice as high as in 1981.

Impressive though those achievements are, future success requires universities and colleges to continue to develop while preserving their best traditions. After such fast growth it is time to take stock and consider the future of higher education. The Robbins Report provided a landmark for higher education policy which has stood the test of time well, but it is time to take a fresh and comprehensive look at the challenges facing higher education in the United Kingdom as we approach the 21st century.

Therefore, with the agreement of the Prime Minister, my right honourable friend the Secretary of State for Education and Employment and the appropriate territorial Ministers, we intend to appoint a committee of inquiry into higher education. We are delighted that Sir Ron Dearing has agreed to chair it.

We propose to invite the committee to make recommendations on how the shape, structure, size and funding of higher education should develop to meet the needs of the United Kingdom over the next 20 years. We shall supply the committee with the preparatory work that has already been undertaken in the education departments as part of the Secretary of State's review. We shall consult widely on the committee's precise terms of reference and composition. In due course my right honourable friend will make a further announcement on the committee's remit and membership in the light of those consultations. We hope that the committee of inquiry will be able to start work some time after Easter and will be able to report by the summer of 1997.

With those remarks I now turn to the Bill itself.

Lord Boyd-Carpenter

My Lords, perhaps I may intervene before my noble friend moves on to the Bill. I understand that he quoted from a Statement made in another place. Can he explain why that Statement was not repeated in this House in view of its obvious importance? It appears that this House was excluded.

Lord Henley

My Lords, I did not quote the Statement but paraphrased it. In the usual way, we offered the Statement to the opposition parties. As I understand it, it is a matter for them as to whether a Statement is repeated in this House. I followed the normal convention, and as they did not wish the Statement to be repeated I did not insist on it, because I thought that there would be a suitable opportunity to give some idea of what was in the Statement when we debated the Bill.

Lord Boyd-Carpenter

My Lords, I am sure that the House is obliged to my noble friend for referring to the Statement. However, I was a little disturbed to hear him indicate that because the Opposition did not ask for the Statement to be repeated in this House it was not to be repeated here. There are parties other than the Opposition. The matter is very important and it is a great pity if a Statement which is sufficiently important to be made in another place is to be excluded from this House simply because the Opposition do not want it.

Lord Graham of Edmonton

My Lords, perhaps I may try to help the House and, in the light of his last remark, the noble Lord, Lord Boyd-Carpenter. It has been the convention for as long as I can remember—although that may not be as long as the noble Lord, Lord Boyd-Carpenter—that a Statement which is made in the other place is offered to the opposition party. It is in the Opposition's gift as to whether the Statement is taken in this House.

If the noble Lord wishes to raise this matter with the Procedure Committee or the Government Chief Whip or to have it discussed, that is perfectly fair.

We decided not to take the Statement in this House today because we knew that there was to be the Third Reading of a major Bill and that some 20 Peers were to speak in this Second Reading debate. There was not only this Statement on education but also another Statement. With due regard to the fact that there would be the opportunity to touch upon the contents of the Statement in this debate, as the Minister has done, we thought that on balance we did not wish to ask for the Statement to be repeated. I see nothing wrong with that. You make a judgment and a choice. Noble Lords can rest assured that if we had decided to take the Statement there would have been grumbles about this debate starting perhaps an hour later. You cannot win them all.

Lord Boyd-Carpenter

My Lords, with great respect, this is an important Statement. I am very disturbed to know that this House, including all the remaining parties other than the Opposition, is to be denied the opportunity to have Statements made in another place repeated here simply because the Opposition, for reasons good or bad—and I make no comment on the reasons that we have been given—do not want it.

I wish to register a protest. I also ask my noble friend the Minister to make sure that the leadership and appropriate committees of this House are informed that some of us want this House to be treated properly when Statements are important enough to be made in another place.

Lord Henley

My Lords, I note my noble friend's protest, and I shall certainly make sure that it is brought to the attention of my noble friend the Chief Whip as well as the usual channels. However, I have to say to my noble friend that what the noble Lord the Opposition Chief Whip said accords exactly with my own understanding of the convention. That is that these matters are offered to the Opposition, and if the Opposition do not wish to take it, that is a matter for them.

I thought that it was worth making some reference to the Statement at the beginning of my speech, partly because we have approximately 25 speakers in the debate, which is on a pretty narrow point, and I had a sneaking suspicion that some of them might want to expand their speeches to the more general aspects of higher education. Therefore, I felt that making some reference to that Statement and the fact that most of these matters will be a matter for that committee of inquiry might just possibly—I am an optimist—concentrate the minds of noble Lords and they might confine their remarks to the Bill itself. I certainly intend to confine my remarks to the Bill. I also intend to confine my winding up remarks to the Bill, and do not intend to have a general debate on higher education.

Baroness White

My Lords, some of us have been properly informed of the general tone and range of the Statement made in another place. We have not been left in complete ignorance, and I suppose that the Government have made arrangements for their own members.

Lord Henley

My Lords, I am sure that many noble Lords will have taken the opportunity to go down to another place and listen to the Statement made there. Certainly they will be able to obtain copies of that Statement. I can assure noble Lords that copies of the terms of reference, which are out for consultation, will be made available in the Library. We shall be more than willing to consider comments made by noble Lords.

After that rather delayed start, I intend to confine my remarks to the Bill itself. I trust that other noble Lords will do the same.

The Bill is short and straightforward with a clear and simple objective. That objective is to build further on the current student loan scheme by improving the deal for the student consumer and for the taxpayer. The Bill will do so by enabling students for the first time to take out a subsidised loan from a bank or building society. In place of the Student Loans Company monopoly there will be choice, diversity and competition. Not only that, but the student consumers will also have the benefit of private sector skills and expertise.

For the taxpayer, the private sector will be lending and risking its own rather than public money.

We have consistently given priority to extending choice at all levels of the education system. This was once thought controversial. I suspect that it is even accepted by some noble Lords opposite now. It is easy to see why. It works.

Only choice supported by competition and diversity can raise and maintain standards effectively. This Bill will mean in the short term a better, quicker, convenient, more varied and comprehensive service for student borrowers. In the longer term, as the market develops, it will mean a better loan product tailored to individual needs.

The involvement of the private sector is important for reasons other than choice and competition. The capital investment required in student loans is immense. We estimate that it will be £5 billion by the end of the decade. We want the private sector to be responsible for raising and lending much of that and for bearing most of the risk.

This is sensible in its own right. But it has another advantage. Reducing the size of the public sector and building up the private encourages individual freedom while also boosting the economy. Further, personal lending at this level is not a natural activity of Government. We do not have the experience or the expertise. The banks and building societies do. It is their business. It makes sense to make student loans their business as well.

We shall shortly invite those banks and building societies which have expressed an interest to bid for the right to offer subsidised loans. This will be for a period of five years. We envisage selecting up to four private lenders in each of England, Wales, Scotland and Northern Ireland. Students would then be able to choose between the successful bidders for a private loan; or—and I must stress this—they could still choose a public loan from the Student Loans Company.

This is a short Bill. Despite criticism in another place there is nothing sinister in this. The Bill will give us a power to pay subsidy to the private lenders. That subsidy is largely needed so that they can continue to offer loans at preferential terms.

The detailed arrangements will be set out in commercial contracts. We shall ensure that they protect the taxpayers' interest and the normal audit arrangements will apply. The invitation to tender documents will be placed in the Library.

It is striking how closely debate on the Bill in another place—and outside comment—has paralleled debate on the 1990 Act which introduced student loans. Then, as now, opponents focused on the same arguments: the Bill lacked detail; participation would be affected; hardship would be created; and other loans schemes would be better. But paradoxically underpinning all was a complete rejection of the principle of loans.

No doubt some of those arguments will shortly be put forward. Let me make two points now. First, those arguments were misplaced then. There is no hard evidence to support them. They are misplaced now. Secondly, we were right then about the principle of student loans. We are right now about the principle of this Bill. Opponents, I hope, will again come round to see that we are right.

This should not be a controversial Bill. It has no downsides for anyone—student or taxpayer. It enables us to test the market for a realistic development of our successful loans scheme. There are valuable opportunities here for the private sector and for students. I trust that they will take them up.

I commend the Bill to your Lordships' House.

Moved, That the Bill be now read a second time.—(Lord Henley.)

6.26 p.m.

Lord Morris of Castle Morris

My Lords, the House should be grateful to the Minister for introducing the Bill. I wish to congratulate him on the very professional way in which he has done what seemed to me a rather tricky job.

We have heard with a sense of enormous relief and release, (as my honourable friend emphasised in another place) from the Secretary of State this afternoon of the setting up of a committee under Sir Ron Dearing to examine the whole of higher education, and all our thinking on this Bill—to which I shall confine myself—has been transmogrified by the new gleam of hope that it may quite possibly never reach the statute book. But even when asked by my honourable friend the Member for Sheffield Brightside, the Secretary of State did not offer to withdraw the Bill, or give any prognostications of its future. So we must perforce proceed to consider it, even though the debate now, and perhaps later, will resemble nothing more than the morbid anatomy of a dead duck.

There are three questions that we must ask. Where did the Bill come from? Do we need it? Will it work? To begin at the beginning: where does it come from? Did students call for this Bill? No. Did vice-chancellors rise up and demand this Bill? No. Did the banks and building societies cry out for it? Certainly not. Did even the gurus, spin doctors and think-tank warriors of the Conservative Party recommend it? Quite the contrary, as I shall demonstrate. Whence came it, then, and where was it conceived? It was begotten by the Chancellor of the Exchequer, upon the Treasury, and it was brought forth in panic.

This Bill was inspired by the Chancellor's pre-Budget scurrying to find room for tax cuts. Ministers were attracted to the proposal because they believed it would remove some £.1.8 billion from the PSBR, including £100 million in the first year of the scheme's operation. Those sums have already gone out of the window. The Government's eagerness to have the scheme in place for the autumn, and therefore to rush this Bill through Parliament, was based on a false premise: they naively believed that the banks would jump at it. Will they never learn? When the banks were consulted before the Student Loans Bill 1990, the noble Earl, Lord Caithness said: We saw some advantage 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". They said it in 1990; and they have said it again. The chief executive of the Midland Bank, in a letter to the President of the NUS made it absolutely clear. He said: We were unable to resolve a number of concerns on such issues as administrative complexity, risk identification, profitability and customer reaction. We therefore advised the government that we did not wish to be invited to join the current formal bidding process". He spoke for many others when he said that. I hope that Sir Ron Dearing will not be impenetrable to the trumpet blast of truth from the banks and building societies. And yet the Bill ground its way through the procedures of the House of Commons until on 14th December the Minister of State had to announce, only two days after rejecting an amendment to delay implementation by a year, that it would be best all round if he delayed implementation by 12 months—and after today, probably by another 12 months. He told the Standing Committee that that was because the financial institutions needed time to adjust their information technology and because there was merger activity in the building society sector. My Lords, if you will believe that, you will believe anything.

Since then it has all gone horribly quiet. When he announced the delay, the Minister promised a new timetable for the tendering process "probably in the next few weeks". On 9th January, he said: We expect expressions of interest by the end of January and bids by Easter". At Report stage, on 17th January, he told the Commons: I believe it proper that we should now aim at the period of tendering, invitation and finalisation of contracts ending at the mid-point of 1996".—[Official Report, Commons, 17/1/96; col. 811.] Yet there is still no sign of a revised tender document. This does not suggest that the Minister's life is being made a misery by the constant interruptions of bankers knocking on his door.

However, the Government must have felt that Pelion was being piled upon Ossa when, earlier this very month, the Conservative Political Centre published the report of the CPC National Policy Group on Higher Education, entitled The Future of Britain's Universities. It is a serious and deeply researched report. It takes a wide view and it proposes many sensible developments in matters like diversity and easier access, and university funding. We in the Labour Party have read it carefully, with interest and profit. I commend it to any of your Lordships who may not have secured a copy as a powerful contribution to the debate, from the Conservative side.

We were particularly interested in its proposals for funding students which are to be found on pages 15 to 19. We read: Increased student hardship, combined with the current loan scheme, is proving a deterrent to entering university". Not my words, but the words of the Conservative report. The Policy Group believes that the present loan scheme should be replaced, as soon as possible, by a more effective system". The report offers what it regards as a superior model to the "mortgage repayment system": an income contingent loan repayment scheme—is not based on fixed equal payments, but on varying amounts, based on a given percentage of income above an agreed minimum level. Repayments can, therefore, be spread over a much longer period of time, say 20 years, requiring smaller repayments in the early years, thus lessening any deterrent to going on to higher education. Such schemes are best 'piggy-backed' on national income tax or national insurance schemes, as this minimises both the cost of administration, and the default rates. It is relevant to note that both the US and Canada are beginning to use income tax in attempts to recover defaulted loans". Not my words, but the words of a Conservative Party think-tank report. It bears remarkable similarities to the scheme preferred by the CVCP, approved by the NUS and proved to be successful in the schemes introduced in New Zealand and Australia so long ago as 1989. It is precisely the sort of scheme we in the Labour Party have been urging the Government to adopt. The letter attacking the ICL system from the Department for Education and Employment to the CVCP, dated 15th February, came my way. I read it and it is, at the very best, a feeble attempt at a miserable rejoinder and I believe that it has left the vice-chancellors profoundly unimpressed by the case it tries to make. At all events, it is clear that the Bill comes from nowhere but the Treasury and that all responsible bodies, right across the political spectrum, regard it as unnecessary because a better alternative, tested in the Antipodes, is staring us in the face.

My second question—"Do we need this Bill?"—is answered by the same evidence. We do not need it because we can do better. But we do need to be clear about the principles on which any fair scheme for student funding should be judged. I hope that the Dearing committee will be encouraged to think long and hard about the principles underlying student funding so as to avoid the specious seduction of a Treasury-inspired scheme.

The Labour Party has been engaged for some time on a consultative exercise on the subject and I commend the four clear principles on which we have worked to the Government, to Sir Ron and to your Lordships' House. They are these. First, the student funding system should encourage access to higher education for people from all social backgrounds. Secondly, it should protect and enhance the quality of higher education. Thirdly, it should not discriminate between different types of student. Those studying part-time and students over the age of 50 have needs as great as and sometimes greater than younger or full-time students—to say nothing of students in further education. Fourthly, it must be fair both to students and to the taxpayer. It must therefore be an efficient and progressive system and one which eliminates the present blight of student hardship.

On that fourth principle, may I point out that subsidising private lenders to the tune of £1,500 per loan—an estimate which Ministers have pointedly failed to deny—is clearly neither fair to taxpayers, nor efficient. The noble Lord, Lord Beloff, made the point during a debate in 1989 in words that have rung down the decade. He said: 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? His words are as true now as they were then.

The Bill, as we have it before us, unimproved by any of the amendments so clearly put and so cogently argued at the Standing Committee of another place, is unnecessary and irrelevant to the needs of students. It has been so overtaken by the flood of events consequent upon the Budget as to make it outdated and bypassed by this afternoon's events and the Statement by the Secretary of State which makes it quite clear that responsibility for the present crisis in higher education rests firmly with the Government.

My third question was: "Will it work?" The answer is equally clear and I shall list only a few of its deficiencies and leave the expounding of others to my noble friends. First, the Bill, Ministers tell us, is designed to increase the choice available to students. It will not suddenly provide them with more money for food or books and it will not relieve the problems caused by the student loans system's repayment mechanism. But it will provide students with a choice between having the logo of the Student Loans Company or the logo of a bank or building society on their loan application forms. It is nothing more. Ministers will have to forgive students if they receive news of that liberation with only modified rapture.

The real choice the Bill would provide is the right of financial institutions to choose those students who seem most likely to be profitable customers later in life, leaving those rejected to be dealt with by the Student Loans Company. The SLC would have no choice but to see its unit costs pushed up and its ability to forecast demand—already identified as a problem by the National Audit Office—diminished even further.

The Bill will not work unless it offers students a higher degree of security. Students taking out private loans would fall outside the protection of the independent loans assessor. The Minster of State tried to assure the Standing Committee in another place that they could turn to the banking ombudsman for help. Unfortunately, he had failed to read the ombudsman's terms of reference, which preclude him from such involvement. This House will therefore need to examine further the need for a proper appeals mechanism, and how we might give some protection to the privacy of loan applicants.

Vice-chancellors have also pointed out that the Bill perpetuates the anomaly which means that their institutions are paid less for certifying students' eligibility for loans than the system costs them to administer. They have been unhappy enough about subsidising the Student Loans Company: they will be even more unhappy if, while being forced to charge new students £300 each, they are made to subsidise profit-making concerns. Without their co-operation the Bill might prove difficult to administer. But, above all, it will not work without the willing co-operation of the banks. And, despite all inducements, there is no sign of this yet.

It will be difficult, at Committee stage, for us to put forward amendments to improve this Bill to any great extent. It is ideologically and implacably based on the wrong premise. The income contingent loan repayment scheme is simply better than this mortage repayment model. Every serious commentator agrees about that. The Government should have realised, after rushing the 1990 Bill through and watching the disastrous start of the Student Loans Company, which Sir Eric Ash had to rescue, that they were backing the wrong horse. But no. In the panic to reduce the PSBR they forced this miserable measure on us. If it goes through, it will be a failure. My advice to the Government, in the light of the announcement by the Secretary of State this afternoon, is, even at this late stage, withdraw it. Scrap it. Take the advice of the good old English proverb: if at first you don't succeed—give up!

6.40 p.m.

Lord Tope

My Lords, it is always a daunting prospect to follow the noble Lord, Lord Morris of Castle Morris. On this occasion it is even more so, since the noble Lord made, so much more eloquently than I could, many of the points that I intended to make. Like the noble Lord, I congratulate the Minister on his deft handling of the opening reference to the Statement in another place this afternoon. He had anticipated that much of our debate would perhaps be based around that Statement. Noble Lords may see it as some incentive if, by putting 20 or more names on the list of speakers, we can provoke the Government into setting up a long overdue committee of inquiry. The Opposition at least may wish to consider that tactic further. I do not intend to fall too far into that trap.

We welcome the committee of inquiry, not least because it is at last a recognition by the Government that something needs to be done about higher education and the funding crisis that it faces. Our concern is that the proposed committee of inquiry is not due to report until the summer of 1997 when there is a crisis that needs urgent and immediate action. Frankly, it cannot wait until the summer of 1997 (or in reality some time after that) when the inquiry report has been properly considered. For all those reasons, while welcoming the inquiry and the light that is now to be shone onto this major and important area, we regret that it may well mean the cancellation or postponement of much-needed action.

I agree with the CVCP that the Bill is "an irrelevant distraction". The comment was made on the basis that the measure does nothing to address the funding crisis in higher education or the problems of student poverty. The committee pointed out that with increasing numbers of students and a reducing amount of funding in real terms there has been an actual reduction of 28 per cent. per student in recent years. That problem needs addressing urgently; the Bill does nothing whatever to address it.

There is already a one-year postponement, for reasons mentioned by the noble Lord, Lord Morris, in the implementation of these proposals should the Bill be enacted. And the committee of inquiry will take a further 15 months to report. If the Bill was an irrelevant distraction before today, it is even more so now.

I had a faint hope that this afternoon, given the announcement in another place, the Minister might stand up and withdraw the Bill. I certainly believe that he should have done so. There is still time for that to be done in the closing speech after what I still believe will be a very useful and interesting debate. I hope that in that speech the Minister will address the much wider and extremely important issues of the funding crisis in higher education and student poverty.

Student poverty is well documented. Many Members present will be able to speak of it with greater knowledge and experience than I. Certainly, the increasing stresses on students are well known, as is the drop-out rate among students. Sadly, even the suicide rate among students is increasing. When they are asked about the reasons for stress, financial concerns are overwhelmingly the most quoted single reason. It is not the only reason but overwhelmingly the most quoted. Those reasons are greatest among mature students, yet the Bill does nothing to address the difficulty. Students increasingly have to spend time earning, not learning. The Bill will do nothing to help prevent that.

The noble Lord, Lord Morris, asked who wanted this Bill. Certainly there was no prior consultation before the announcement of the Bill—a point made by the CVCP. As the noble Lord, Lord Morris, said, it is not wanted by the universities; it is certainly not wanted by students; and, it appears, it is not even wanted by the financial institutions. I am forced to the conclusion that the only people who may have wanted the Bill are those better-off parents who can afford to invest a low-interest student loan to attract a much higher rate of interest. That is not the business we should be in.

If the measure is to go ahead, a number of important questions need to be answered. The noble Lord, Lord Morris, raised many of them. I echo those points and look forward to hearing the answers later this evening. The Minister said that a number of financial institutions had expressed interest in these measures, and that four will eventually be chosen. Will he tell us which are the institutions that have expressed interest? We have certainly heard quite a lot from all the institutions that have not expressed interest, and they have been very clear as to why. I should like to hear about those that are allegedly interested. I want to know whether arrangements to be reached with them will be subject to parliamentary scrutiny. It appears from debates in another place that that is not to be the case. But, surely, any arrangements to be made for dealing with public money should be subject to parliamentary scrutiny. Perhaps the Minister will respond to that point.

Is there to be a publicly stated limit to the subsidy that will be paid to the institutions? Or, as the National Union of Students suggested, will they receive a blank cheque? Reference was made to the fact that postponement of the implementation of the scheme has left a deficit of 100 million in the education budget for this year. How is that deficit to be funded? There is understandable concern in the education sector that it will be funded still within the education budget by making further cuts somewhere else. Will the Minister tell us how the apparent £100 million gap is to be funded? Will he confirm that it will not be funded by cuts elsewhere in the education budget?

Will the Minister tell the House what measures, if any, are to be taken to help with the very real, recognised problems that part-time students, graduate students and the over-50s have in funding? These are all important issues. Yet they are not addressed at all in the Bill and the scheme before us. I hope that in replying the Minister will comment.

I accept, as does my party, that it is reasonable for government at least to consider transferring some debt, and the associated risk, from the PSBR to commercial lending organisations. But it is important that any such a scheme must be equitable for students, and reasonably secure for lenders to be able to offer funding on that basis. The scheme before us today is neither. The present loans system is flawed. Its flaws are well known and well described. It is ludicrous to be transferring that flawed scheme to the private sector. For those reasons, we oppose the Bill.

The criticisms of the Bill are well known. I referred to its limited eligibility. Postgraduates, over-50s and part-time students, who now comprise 28 per cent. of the student body, are ignored in the proposals. The arbitrary time limits proposed for repayments will undoubtedly cause hardship. There are inadequate arrangements for repayment.

The scheme is not an equitable or efficient basis for funding student living. It is more costly and less efficient than if done through national insurance or the tax system. There has been mention of experience in New Zealand and Australia. We should certainly examine that scheme. I hope that Sir Ron Dearing's inquiry will do just that. This sort of partial privatisation does nothing to address all the serious shortcomings. As the noble Lord, Lord Morris, said, it simply represents a dogmatic approach and will do nothing to solve the problem.

The Liberal Democrats will tomorrow be announcing the party's proposals for further and higher education. I could not possibly anticipate tonight what is embargoed for 10 o'clock tomorrow morning.

Lord Graham of Edmonton

Go on!

Lord Tope

I simply offer a few personal views. Far be it from me to break an embargo. There are some principles to be mentioned. We need to see a system developed that addresses the current problems of student poverty and the inadequacy of support for part-time and mature students. We need such a scheme. The scheme should meet the criteria suggested by the CVCP, which say that, it must be simple; it must provide students with adequate support while they study; students must be able to be certain of receiving this support and the scheme must satisfy the requirements of social justice". The Bill before us fails on all those counts. We need a new learning investment partnership where the key stakeholders (we are not afraid to use the expression; indeed, we think we thought of it first) in education—the Government, the employers and the individual learners—contribute fairly and equitably to the cost. The Bill achieves none of those objectives. In view of the Statement made in another place today the Bill should be withdrawn tonight and certainly does not deserve a Second Reading.

6.50 p.m.

Lord Dainton

My Lords, when I put down my name for this Second Reading debate, I did so on the basis that it would be an opportunity—possibly the only opportunity in the near future—to draw attention to the crisis in the state funding of higher education in this country. That is something which your Lordships' House, with its abundance of Members well qualified to speak with knowledge and authority, should debate.

We now know that there is to be a committee of inquiry to begin at Easter and finish by the Summer of 1997. I understand also that there is to be a debate, on the suggestion of the noble Lord, Lord Annan, on 6th March. If that is a possibility, it should go ahead for the simple reason that it would be to the advantage of the committee's deliberations to have some of the views of this House and some of the points emphasised as they have been this evening, not only about the student loans Bill, but about the wider issues. No committee can afford to neglect any opinion at its beginning, as it should not during its proceedings.

In those circumstances, I shall confine myself narrowly to the student loans Bill in front of us today. If enacted, it would empower the Secretary of State to make financial grants to private sector financial institutions which, in turn, would make loans to students and presumably recover them.

I am in no way opposed to student loans; indeed, if I had not received one 62 years ago from my local authority to augment my college awards I would have had to withdraw from Oxford. Moreover, I have always taken the view that higher education confers a "private good" on the individual who enjoys it no less than a public good on the society to which he or she belongs. The private good comes in the form of the enhanced life chances which a graduate has compared with contemporaries who miss a university education. It is also a "public good" because well-educated citizens make greater contributions to the common weal.

When I was chairman of the University Grants Committee, I foresaw that the legislation introduced as a result of the recommendations of the Anderson Committee—now nearly 40 years ago and which most people in this House have probably forgotten—which provided that all students accepted by UK universities who had a residence qualification in this country, not less than two A-levels and who had been accepted by a university would be entitled to a means tested maintenance grant, while being a tolerable arrangement when the age participation rate was small, could well prove to be financially insupportable when the age participation rate reached 20 per cent. or more, as it is now. Therefore some form of loan scheme would be inevitable. For that reason I raised no objection at the passage of the original arrangements for making loans to students, but I was disappointed—as were other noble Lords—with the performance of the body initially set up. As we heard, Eric Ash had to rescue it from its poor if not maladministration.

The noble Lords, Lord Morris and Lord Tope, made many of the points I intended to make and I shall therefore restrict myself solely to practical matters on whether or not the Bill is passed. Whatever is the case, it will merely mean either that there is one body, the Government, or two bodies—the group of financial institutions who enter into the scheme—administering it. For both of them it is essential that the loan scheme should be inexpensive to administer and should encourage, not deter, good but poor students from entering universities. The Bill before us sheds no light on those matters, though I hope that the Minister will do so in his reply.

We all know that the major disincentives to students entering higher education relate, first, to the combined level of grant plus loan which is set, and the terms of repayment of the loan. We know the terms of repayment of the existing scheme; but we know nothing at all about the new one. Therefore, what the financial houses will arrange and agree with government as to their terms is something of a pig in a poke; unless it is the intention of government—we do not know this—not to scrutinise those terms in any degree but to give a blank cheque to the financial houses regardless of how they administer it. I hope that that is not the case.

If the grant plus loan is not big enough, the student will be discouraged and give less time to his studies by seeking and engaging in part-time work. That is a new development in our universities to which I do not entirely object. However, I fear that it may have excessive and deleterious effects on the progress of students. If the terms under which the loan is granted include a requirement to repay shortly after graduation, as does the existing scheme or the one that I had to endure did, similarly, good students will be deterred.

As was mentioned, it is ominous that, though the size of the 18 year-old group was larger in 1995 than the year before, applications to the universities in that year decreased by 1.5 per cent. I do not know whether that is the beginning of a trend or just a blip. I suspect that it may affect the older students entering our universities who have had their older student allowance withdrawn and therefore find themselves even more strapped for money.

I am very much in agreement with the Committee of Vice-Chancellors and Principals that some applicants will be deterred by the prospect of an additional financial responsibility which they would have to face early in the first years of employment. I expect that that will remain the situation even with private financing. That is a situation which is particularly acute with doctors who are dealt a "double whammy". Their much longer courses—five-and-a-half years, sometimes six—and their inability to earn in the last three of those years means that they find themselves entering the medical profession with a debt in the order of £5,000 plus. That is a considerable amount.

It has already been mentioned that the income contingent debt collection through tax or the national insurance scheme avoids many difficulties for the students. Because it removes the disincentive it ought to be seriously considered. If that can be accommodated with a private scheme, so be it. However, it seems to me that it has not been given the consideration that it deserves. I urge the Government to think again at least to see whether it can be incorporated into what one may call the residual scheme, which is a continuation of the exiting scheme.

I promised to be brief and I shall be. I turn now to the students' point of view. Students will not be particularly concerned where the money comes from—the source is of little importance to them—but they will be intensely interested in the conditions of the loan and how the debt is to be repaid. I can find nothing in the Bill or indeed in the previous Act, apart from the condition of beginning to repay as soon as one has graduated, apart from certain exceptions which relate to the practicalities of the loan and recovery.

I shall be interested to know whether the Minister can at the end of the debate—I apologise to him publicly as I have done privately for the fact that for illness reasons in my family I have to leave early and will certainly not be able to hear his response—assure us that, although the financial houses will of course be seeking a profit from any scheme—otherwise they would not go in for it—the administrative costs of private sector student loans will be no higher than public sector student loans are at present.

I heard the Minister say that the arrangements will be audited. I hope that he can give us the assurance I have asked for and say in particular that for every £1 million which the Government spend in this way at least as many, and preferably more, students will benefit from financial house arrangements than is the case at present. Otherwise, I cannot see any possible justification for this new system.

I also ask for consideration to be given to the burdensome and expensive nature of the work which the universities have to do now in responding to the existing scheme, which I do not see will be diminished in any way by going into the private sector. Can he assure the House that the Government's mind is not closed to income contingent schemes—that is of vital importance to students—and that some special consideration will be given to the plight of medical students.

Finally, can a place be found in the Bill or in the schedule relating to the administration of the scheme which meets this point and makes sure that this House fully understands what it is the Government intend to do in practical terms? The lack of information within the Bill makes it very difficult indeed to make an assessment as to its desirability or otherwise, though I have indicated what my own preference is. I hope that the Minister will be able to give us some assurance on these points.

I conclude as I began by simply saying that I found some of the points made by the noble Lords, Lord Morris and Lord Tope, very moving and very convincing indeed.

7.2 p.m.

Lord Williams of Mostyn

My Lords, I declare an interest. I am pro-chancellor of the University of Wales. My immediate predecessor was my noble friend Lord Cledwyn of Penrhos and until quite recently the president of the university council of the University College of Wales, Swansea, was my noble friend Lord Callaghan of Cardiff. My noble friend Lord Cledwyn authorises me to say that I speak for both of them as well as for a much larger constituency in the University of Wales.

It is a peculiar institution in the life of Wales since it was Prifysgol y Werin, the People's University, started on small donations of modest people, colliers, slate workers, school teachers and ministers of religion. It has a strange focus of affection therefore within the land of our country. I have never known morale to be so low among the vice-chancellors, those who teach, those who research, and those who study in the university. There is a deep, bitter, corrosive sense of anger. They are weary of no consultation. They are tired of delay and dissembling.

The Minister urged us to attend only to the Bill. Well, it would it not take long, would it? What was it that Senator Mondale said? Where's the beef? I cannot even see the crust in this Bill, let alone the beef. All it says is that the Secretary of State may make financial arrangements about student loans. What arrangements? On what basis of public scrutiny? To what effective policy or practical purpose? What are the four institutions in Wales that are thrusting themselves forward to offer these loans? What is the sensible purpose, in the conduct of academic life, to have this dual occasion—a consultation paper put out this afternoon elsewhere and in effect a two-and-a-half line Bill here? Is it simply coincidence that when the Government have no leg to stand on they look for a crutch called "consultation paper"? It seems to happen rather often now, does it not? Would any proprietor of a self-respecting though small chip shop run his affairs in this way?

These are too important matters to be dealt with in this cavalier fashion. If the funding of further and higher education is to be dealt with on a rational basis, by all means have a committee of inquiry but let it be a committee that is to report and whose findings and conclusions will be attended to as part of an overall project, and a committee which takes an overall philosophical view of how we pay for further and higher education, what it is for, and what we hope to offer those who work and study in it.

I said, accurately I believe, that I had never known morale so poor. I have never known such bitterness of feeling among people who are normally very slow to express bitterness. The vice-chancellors and others have borne a very heavy load in the heat of the day for a long time. In the end, if you treat people with no consideration, no consultation and no decency of respect, what you end up with is resentment. Resentment is no useful basis upon which to run a university system.

Baroness Carnegy of Lour

My Lords, before the noble Lord sits down, he referred to a Statement in another place. Does he appreciate that his own party refused to take the Statement here? That is why we did not discuss it. He wanted the Statement to be on a big enough subject. Does he appreciate that the Statement says: We propose to invite the committee to make recommendations on how the shape, structure, size and funding of higher education, including support for students, should develop". Does that not meet his requirements?

Lord Williams of Mostyn

My Lords, I am happy to deal with both of those points. I was present when my noble friend Lord Graham of Edmonton indicated to the noble Lord, Lord Boyd-Carpenter, precisely what had occurred this afternoon. If the noble Baroness was not then present, I regret it.

Baroness Carnegy of Lour

I was.

Lord Williams of Mostyn

The question therefore answers itself. In response to the second question, of course it ultimately meets my suggestion. What I complain of on behalf of many people in university life is that there is no coherent strategy and that one has a penny packet here and a half crown packet there. I repeat, without hyperbole or exaggeration, that there is deep resentment at the present time in university circles.

7.8 p.m.

Lord Renfrew of Kaimsthorn

My Lords, your Lordships may remember that it is almost exactly three years since this House, on 17th February 1993 to be exact, debated a Motion set down by the noble Lord, Lord Addington, to call attention to the financial difficulties of students, and the matter of student loans was then extensively debated. I made the observation then that the matter needed to be reviewed. More than five years ago, at the Second Reading of the Further and Higher Education Bill in November 1991, when supporting the Government's plans for expansion in the higher education sector, I went so far as to invite Ministers, to be wary of the several pitfalls which lie ahead", and referred to the need to ensure that the existing universities are not suffering: that this is a case of levelling up rather than levelling down".—[Official Report, 21/11/91; col. 1068.] Today they are suffering, and it should have been obvious to anyone that they would suffer if student numbers were increased without a commensurate increase in funding. The per capita funding has been reduced very significantly in real terms over the past four or five years by something of the order of 28 per cent.

The present crisis in the universities is in fact a double crisis which may soon become a catastrophe, perhaps even before the summer 1997. The first horn of the dilemma is the unsatisfactory nature of the student loan scheme itself, aspects of which we are debating today—that is to say, the manner in which student maintenance is funded. The second horn of the dilemma is the funding of the universities, in particular the failure of the tuition fees, which are payable at a level in effect set by the Government, to keep pace with inflation. As your Lordships may well know, that means that several universities are now reported to be on the brink of bankruptcy and the CVCP is contemplating the imposition of a £300 so-called "entry fee" on new students. That is unwelcome and undesirable, but it is difficult to see what alternative the Government have left the universities with. But from the student point of view it is potentially catastrophic. The issue of maintenance—that is to say, student loans and all that—now collides with university funding; namely, tuition, through the whole issue of top-up fees. That is why the issue of university funding is very pertinent to the discussion of student loans today.

The present Bill regrettably does nothing to address these problems. It simply seeks a means to transfer the administration of debt and debt recovery from the public to the private sector. One is reminded of the dictum of President Calvin Coolidge on war loans, "They hired the money didn't they?" We shall now be able to say of my right honourable friend the Secretary of State for Education and Employment, when she transfers these dubious assets to the private sector, "She rented the debts, didn't she?"

Underlying it is a very serious problem; that we risk denying access to higher education to whole sections of the population who do not have ready access to private means, and that is the nub of my remarks this evening. At present many students who are in receipt of maximum maintenance grant from their local authority must make up their finances in a number of ways; first, by the student loan; secondly, by access funds to the extent that these are available to them; thirdly, by a grant from hardship funds in college, if they are lucky enough to be in a college with hardship funds; fourthly, by a bank loan—it is estimated that already a high proportion of students take out a bank loan in addition to the official student loan before they leave university—and finally, by whatever they may be able to pick up from their parents. All this is in addition to vacation work and increasingly to work undertaken during term, generally to the detriment of their studies.

Some of these anxieties are felt in Cambridge as elsewhere. Perhaps I may speak for a moment about student difficulties in my own college and university. Here I should declare an interest as a professor of that university. Cambridge colleges are under just the same pressures as the universities since college fees have failed to keep up with inflation in just the same way, and once again there is talk of top-up fees.

Those of us who believe with commitment in what has hitherto been an excellent system of higher education, believe also that it must be open to all those with the relevant ability. We are trying hard in Cambridge to increase the number of applications from the maintained sector. There is an admirable scheme entitled "Target Schools" organised by the Cambridge University Students' Union, to encourage applications from those groups of school leavers under-represented at Cambridge University. Many students go out from many colleges to schools to try to persuade students in those schools that they would do well to apply to Oxford or Cambridge—in this case to Cambridge—because they will have a good chance of entry. We all feel that it is important to the future of the University of Cambridge that there should be wide access.

We are trying hard also to increase the number of applications from members of ethnic minorities. The GEEMA scheme, that is, the Group to Encourage Ethnic Minority Applicants, is trying very hard to encourage more applications because it is perfectly clear that if we do not have more applications we shall not have more admissions.

It is clear to us that the current student loan scheme is having a deterrent effect upon many potential applicants, especially from the maintained sector, and unfortunately from those of lower income backgrounds. It is not really surprising that the prospect of a loan, which for entrants in October 1996, by the time they graduate, will be of the order of £4,200; of the order of £5,600 for scientists; of the order of £7,000 for medics and of the order of £8,400 for architects and vets, without allowing for further inflationary increase, may have a deterrent effect.

For more than three years, and probably much more than that, Members of your Lordships' House have been urging that the alternative income contingent graduate tax approach should be explored. I believe that is what we have heard from every speaker this evening so far. It has worked well in a number of ways in Australia and other places. It pains me to quote this observation, but I am afraid that I have to do so. It was said in today's Guardian that the Government are reluctant to contemplate any kind of new tax before the next election. Perhaps that unworthy assertion was belied somewhat by the Government's evident reluctance to consider it either before or after the previous election. But there is something wrong somewhere in the Department for Education if it takes more than three years for a proposal of that kind even to be considered seriously when it has been urged on it from all sides of your Lordships' House. Moreover, there is something wrong when successive Secretaries of State have failed to address the problems of higher education or to take seriously the problems of students in higher education in the manner which I have been describing. I am not saying that the student loan scheme lacks merit. It has many merits, but the noble Lord, Lord Dainton, has already indicated some of the constraints. Many of these difficulties would be alleviated if there were an appropriate income contingent scheme.

Three years ago, in the debate initiated by the noble Lord, Lord Addington, I agreed, as most would agree, that self-financing is here to stay, and I called then for a government review. I said: However it must be a self-financing system that does not introduce the deterrent element, for I fear that there is a real danger that our fine record in developing and maintaining a higher education system open in practice to all—that is, to all students suitably qualified—may not be sustained. It would be a sad day if university education in this country were felt to be available once again only to those with the means to afford it".—[Official Report. 17/2/93; col. 1156.] That was three years ago. For the Secretary of State to announce today a review is in my view simply not good enough. To have allowed these problems to build up when they were as plain as a pikestaff three years ago to anyone who has any experience of higher education, cannot be described as far-sighted government.

I am sorry that it falls to my noble friend Lord Henley to answer these observations this evening, although he has already been good enough to say that he does not intend to answer them. It is true that I have gone a little beyond the mechanisms of funding, but since he was good enough to introduce the matter of the ministerial statement in another place, I hope that he will not object to my alluding to it even if I am not certain that I shall hear more of it in his winding-up remarks.

He is relatively new to his present ministerial position and I do not wish to be in any way critical of him. But changes of government minister or indeed changes of Secretary of State, cannot mask a deep-seated and enduring failure in the Department for Education to think coherently about problems which were as obvious three years ago as they are now. Inactivity and, I have to say, failure to see the obvious, does not become any less reprehensible with a change of Minister.

I wrote these remarks this morning before today's announcement. Nonetheless I shall read them because I fear that they have a bearing underlined by the Statement made in another place. To announce an inquiry after years of neglect is simply to compound the problem. To tinker about with the financial infrastructure of the student loan scheme, as the present Bill does, is simply fiddling while Rome burns.

I have to say to your Lordships and in particular to my noble friend on the Front Bench—I prepared these remarks this morning—that to announce an inquiry that will defer any solution to the problems until after the next election will be an abdication of responsibilities. It is clear to us that the student loan scheme is having serious deterrent effects. Although we welcome the thorough-going review which will be conducted by Sir Ron Dearing, we are told that the report will not be published until the summer of 1997. So what happens meanwhile? Eighteen more months of what one might describe as "planning blight"? In my view, that is not good enough. Damage is being done now to the higher education system and the Bill does nothing to rectify it.

7.20 p.m.

Lord Sewel

My Lords, I start by declaring an interest as Vice-Principal of the University of Aberdeen. The debate this evening must be coloured by the Statement made today in another place. That Statement allows me to be somewhat kinder in my remarks than would otherwise have been the case. It is right that the Government, if somewhat late in the day, have recognised the case for a thorough review of higher education. However, I am inclined to observe that the only consistent theme of government education policy that I can detect is first to create a mess and then to send for Sir Ron Dearing to clear it up.

The question that remains is: why do we need the Bill at this stage? If it goes through and the Government implement it, it will set up arrangements, contracts will be put in place, and very likely they will be put aside virtually as soon as they have been entered into. What a mess. What penalties will fall on the public purse if those contracts are put to one side? Why tinker with a loans system when the Government acknowledge that something far more comprehensive and far more systematic is needed? The Bill has been overtaken by events, and the Government should recognise that.

It is difficult sometimes to realise how radically higher education has changed in recent years. Since I was an undergraduate 30 years ago, higher education has been transformed from basically an elite system (where about 7 per cent. of the age group attended university) to a mass system, with about 30 per cent. now benefiting from higher education. But it has been done on the cheap. Many noble Lords have already referred to the way in which the unit of resource for teaching has been cut by 27 per cent. since 1988. That is the fundamental problem. It stems from the fact that a system of funding which could support an elite system is incapable of supporting a mass system of higher education. We have to confront that problem, and I hope that the Government will confront it via the review.

We have reached a stage where British higher education, which for so long has enjoyed a reputation for academic excellence, is in danger of falling apart—not of fraying at the edges, but of actually falling apart. Perhaps I may illustrate that point by reference to my own university. A recent survey of students at Aberdeen reported that 17 per cent. of all students, including those who have just come through the door, had debts in excess of £4,000; that 19 per cent. had considered withdrawing from their courses for financial reasons—what a waste of public investment that would have been—and that 39 per cent. had part-time term-time employment. That reliance on part-time employment has seriously degraded the student experience. All too often, late-night employment in pubs and clubs—those are often the only places in which such employment is available—leads to lack of concentration in class, and work suffers.

However, it is more than that. I am perhaps old-fashioned enough to think that many of the advantages of a university education are gained through participation in activities beyond the formal teaching experience. We are now getting to a position where many students find it impossible to become members of clubs and student societies. It is often difficult to get an audience of undergraduates for distinguished visiting speakers because they are packing shelves in supermarkets late at night. I do not think that that is the way forward.

At my university one of my responsibilities is in the area of staff recruitment. It is becoming more evident by the day that we are simply not paying our staff enough to recruit the best. Since 1988 academic staff salaries have fallen in real terms. I think that that is the only professional group for which that is the case. Given that, it is becoming increasingly difficult to attract and retain high quality staff, especially in areas such as accountancy, the law and economics where we are in direct competition with the professional salaries in the private sector.

Like other universities, Aberdeen responded to the Government's call to expand student numbers. Since 1988 we have expanded from 5,966 to 9,300 (full-time-equivalent) students. In 1988 we received £5,887 per student for teaching. If that had kept pace in real terms, it would now be £8,595; but it is in fact £5,127—an actual cash reduction. For my university the total funding gap that has opened up as a result of those policies since 1988 is that we now receive £11.5 million less per year.

Of course, with the expansion of student numbers, economies of scale are available. Nobody would deny that. It is also reasonable to look for efficiency savings. However, the scale of the reduction in funding has gone way beyond anything that could be considered reasonable. It is directly impinging on the way we teach our students—and impinging adversely. At Aberdeen, the staff:student ratio, excluding medicine, has moved from 13:1 in 1988 to 17:1 today. In my own faculty many of the departments for which I am responsible are facing staff:student ratios of 20:1. That is taking place at a time when teaching quality assessments are urging upon us the advantages of, the need for, and the benefits of small group teaching. How can we do that? How can we square that circle?

If we are to maintain a higher education system of which we can be proud, and if we are to avoid short-changing our staff, our students and ultimately the employers of our graduates, we need a thorough review of the funding of higher education. Unfortunately, when measured against that task, the present Bill is a distraction and an irrelevance.

7.29 p.m.

Lord Flowers

My Lords, I should first declare that I am Chancellor of the University of Manchester, that I am still closely connected with higher education in London, and that I am President of the Association for (Further Education) Colleges. Although I do not speak for any of them this evening, no doubt that experience will colour what I have to say. I was deeply moved by the speech of the noble Lord, Lord Sewel, but I shall not follow him.

The Bill is intended to provide alternative sources of funds for hard-pressed students in higher education. To that extent I support it. Like the noble Lord, Lord Dainton, I do not object to loans in principle. Whether the Bill can succeed where the Government's previous attempt failed remains to be seen. More to the point, however, it provides a partial privatisation of a scheme of student loans which has already been seen to be seriously flawed, and it does so in the context of financial arrangements for higher education as a whole that have become dangerously inadequate.

The present loans scheme is deficient because it does not provide an adequate basis for funding realistic living costs. It is deficient because it is limited to students under the age of 50 who meet the standard residence rules, so that, for example, part-time students (almost 30 per cent. of those nowadays attending higher education courses) are excluded. The lack of attention to part-time students, in further as well as higher education, is increasingly difficult to understand, and I would like to invite the Minister to ask his department specifically to re-examine the funding of part-time students.

The present scheme is deficient because it requires repayment from students over a short five-year period at the beginning of their careers (if they are lucky enough to find jobs), which means they have to bear a disproportionate burden early in their working lives. Indeed, the prospect of a persistent debt of many thousands of pounds, we have heard more exact figures than that, is already beginning to deter students from entering courses of higher education. And the scheme is costly for universities to administer, because they are not fully reimbursed for processing loan certificates.

The universities have pointed out many times that those deficiencies could be overcome if the Government would only adopt an income-contingent loan scheme which would link repayments directly to an individual's ability to pay. The noble Lord, Lord Morris of Castle Morris, referred to that, and I am happy to be able to leave the details to him. As the Australians have shown, it could be done through income tax or national insurance. That would avoid a predetermined repayment period, it would provide the borrower with a good measure of protection, and unlike the present scheme it would not act as a barrier to wider participation in higher education, something we all want to see happen. And it could apply to further as well as to higher education. I simply cannot understand why the Government refuse to adopt such a scheme.

Moreover, such a scheme would in itself be a fair and inconspicuous way of handling student hardship, something which cannot be said of the present access funds which help only the small proportion of students who are in the most acute difficulty, and leave unassisted the majority of those who nowadays suffer genuine hardship, who can be helped only to the extent that universities can afford to help them out of increasingly meagre central resources.

The chief importance of the Bill is that it has brought to a head the dissatisfaction of universities with the manner of their funding. As the noble Lord, Lord Renfrew, has said clearly, it has become impossible to discuss the funding of students separately from the funding of the institutions they attend. It is high time that the matter is looked at independently. I am of course delighted by this afternoon's belated announcement in another place that that is to be done by Sir Ron Dearing, a man whom we can all trust. It need not be another Robbins Report. The extent of higher education is no longer the burning issue; it is the manner of its funding. However I hope that Sir Ron will be able to examine the consequences for further education of his proposals for higher education.

I hope noble Lords will forgive me if I say just a few relevant words about the present funding system. Most people in universities nowadays accept that it is impossible for the taxpayer to shoulder the whole cost of higher education; but they also say that it is impossible for universities to cater for the present load of students, and provide education of the standard quite rightly expected of them under the present system of funding. It is true that relatively large additional sums are raised by a small number of universities for outstanding research, most of it involving postgraduate students, but that does not pay for undergraduate education.

The private finance initiative can and is being used for new buildings wherever possible, but the Government have made a gross mistake in thinking that the capital grants provided to universities are only for new buildings. On the contrary, they have to be used for equipment such as computers, and for minor adaptations to buildings, none of which could possibly attract private finance. Cutting those grants so savagely this year has merely increased the strain on the recurrent budgets intolerably, and by implication on undergraduate education.

The only other source of funding is the student himself, or herself or the student's hapless parents. There will have to be a system of student fees in addition to student maintenance grants. Despite today's announcement, I believe that if there were not an election pending the Government in power, of whatever party, would be trying to introduce them. That is why it is impossible to separate student support from support of the university itself. To a student, money is simply money, whether it is grant or fees.

Of course, nobody would wish to discriminate against those students or their parents unable to pay. The admission system would have to be blind to such considerations. If the normal annual fee were £1,000, say—I take a figure out of the air—probably half would have to go towards bursaries for those who could not pay. Some universities would charge higher fees, some perhaps lower. Some would charge higher fees because the research-intensive universities are simply more expensive to run, not least in terms of the cost of their teaching staff, who are the backbone of their research.

All that would be greatly facilitated, and cheaper to run, if there were already in place an income-contingent loan scheme, because loans could be made available for fees as well as for maintenance. Money is just money. The pressure on university budgets is now so great that universities are considering introducing some form of fee as a matter of urgency. It is in the interests of the taxpayers that they should. It is, of course, possible that the Government will claw back any earnings from such an independent move by the universities by way of retribution in order to show the electorate that this was not their wish so close to an election. Even if they did, I would still advise the universities to go ahead; at any rate, the research-intensive universities. The point must be forcefully made that the present system of funding has broken down.

I said at the beginning that I support this Bill as far as it goes. The trouble is that it goes nowhere near far enough. I hope that Sir Ron Dearing can still make good the deficiency.

7.40 p.m.

Lord Borrie

My Lords, having listened to the debate for the past hour-and-a-half I am beginning to feel sorry for Members on the Government Benches, at least on the Front Bench. After all, this appears to be a useful Bill. As the Minister said, it opens up competition, diversity and choice. Those are concepts which I spent many years promoting in one way or another. Who would object to them? But, as my noble friend Lord Morris indicated, the choice and the competition does not amount to anything very real, except the choice of a logo on an application form for a grant.

The modesty of the Bill has subjected the Government to criticism during the course of the debate because it does not deal with the real problem. It does not change the student loan scheme which has been so widely condemned and criticised not only in this House but elsewhere. The Bill proposes no substantial change and many statements have been made in the House as to why that is so unsatisfactory. Recently the Director of the London School of Economics said that the present loan scheme is: about the worst that could be devised". I feel sorry for the Government on another count. The Bill appears to be unlucky and unfortunate for them because it has provided the occasion and the opportunity to students and to vice-chancellors to level real and substantial criticisms against the Government as a result of the Bill's irrelevance to their problems. I should have thought that that was most foreseeable to the Government because they know that many students are suffering difficulties in surviving their courses and many have dropped out, as my noble friend Lord Sewel indicated.

Moreover, the vice-chancellors have naturally seized the opportunity of the Bill to make the point that they are concerned about cuts, in particular the 30 per cent. capital cuts next year. Those cuts are being made despite the fact that the vice-chancellors have done everything that the Government could have wanted as regards delivering a mass higher education system. Having done everything that the Government have asked them to do, that is what they get in return.

Since I took an interest in these matters in the 1950s as a member of the executive of the National Union of Students and through my days as a professor at the University of Birmingham, I have believed that higher education should be available to all who are capable of benefiting from it. Like many others on these Benches and elsewhere, I believe in equality of opportunity, fairness and social justice. It also makes economic good sense for this country and its competitiveness in the world if all the talents of all our people are developed to the very best.

However, whereas I used to believe that the way to achieve that was only through a generous system of non-returnable grants, I now believe for a number of reasons that I will mention that we need to be more sophisticated. If in order to obtain a more sophisticated system of supporting students and financing the universities we need a committee of inquiry such as has been announced by the Government today, that is certainly welcome. I would have preferred it some years ago, but it is better now than not at all.

The factors that I mention are well known. First, 30 per cent. of our young people go to universities compared with only 5 per cent. 35 years ago. If we are to have a proportion of our young people in higher education as compared with such countries as France and Japan, where the number is in excess of ours, we shall need a considerable expansion involving a great deal of money in terms of extra places arid vast improvements in facilities.

Of course, there are many other demands on the public purse, including demands in the world of education. Others have their own choices but I would pick out nursery education. In view of that, one needs to take into account other factors. My second consideration is that graduates can—I suppose that they always have but it is more appreciated now—expect to earn a good deal more than a non-graduate during the years that they work in the general community. The whole nation benefits from that but the whole nation—that is, all taxpayers—should not pay such a high proportion when only a particular group of taxpayers especially benefits from the education.

Thirdly, the public attitude towards having the benefits of goods and services today—and I stress this point as compared with 30 or 40 years ago—and paying for them over a period has vastly changed. If people are prepared, as most of us are, to borrow against a depreciating asset, such as a motor car, surely there is nothing strange in having the benefit of an education at a university and paying for it over a period when one is earning rather more than others. Whatever financing system we adopt, we must ensure that there are no disincentives to those coming from poorer families. Therefore, there must be a removal of the fear that exists in respect of the present system of student loans; that in the years of low earning on becoming a graduate the burden is so great that some people do not wish to embark on the journey at all.

I suggest that we need a more sensitive loan scheme and I hope that Sir Ron Dearing will look into that. We need a scheme that will involve both maintenance and a proportion of fees, that will give an adequate income to the student during his years at university, and no repayment until the contingency of income is adequate, sufficient, and earnings are above average.

I also agree with noble Lords who suggested that any new scheme that is to last for a period of time should be available to young students, mature students, full-time students and part-time students. There are various schemes in operation at present. Australia has been mentioned. I merely make the point that I believe that over the years that the scheme in Australia has been operating—an income contingent repayment scheme—the socio-economic mix of students has improved; that is, there has been a 30 per cent. rise in the number of students from poor backgrounds in the past five years.

I am not the only one who has, in effect, said that this Bill is not really worthy of a full debate. I am glad that there has been a full debate and, with the information that Sir Ron Dearing's committee of inquiry is being formed, it may well be a worthwhile debate. As this is my second speech in this House, I suppose that I am entitled to be controversial. I do not wish to be rude but I do not believe that the Bill as it stands justifies the full attention of the House or a Second Reading.

7.50 p.m.

Baroness Carnegy of Lour

My Lords, my particular interest in the Bill arises from involvement in two higher education institutions. I am a member of the Court of St. Andrews University and I am vice-chairman of the Council of the Open University.

I could follow other noble Lords and make a heart-felt speech about the current problems of those two institutions. At St. Andrews, which, although not a very large university, is extremely popular with students, there are undoubtedly pressures which could in time damage its unique tradition. At the Open University, despite the Government's request that part-time places should be supported, the funding council for England has done precisely the opposite and planning is being made extremely difficult at present. I am sure that both institutions will welcome the committee of inquiry announced in another place this afternoon and will have plenty of ideas for Sir Ron Dearing when the time comes.

Listening to the noble Lord, Lord Morris of Castle Morris, who, as one would expect, made an able, indeed brilliant, speech and hearing what one or two other noble Lords on the Labour Benches had to say, I wonder whether Mr. Tony Blair means what he says about his desire, should he come to power, not only to avoid increasing the tax burden on individuals but also to create partnerships between the public and private sectors. After all, this Bill would meet both those stated objectives. It would enable the introduction of just such a partnership in higher education funding, an area crying out for more private sector involvement. And we all know that if a growing proportion of our young people are to have the benefit of higher education, the cost will not be supportable by the taxpayer of the future.

At present, with some 30 per cent. of young people studying, the cost is £4.7 billion per year with a further £1.5 billion available for student support. Those are the figures I have. However, this afternoon in another place, I heard the Secretary of State say that the cost of higher education is now £7 billion, 21 per cent. of the total education budget. I am not sure how those two figures fit together.

As they struggle to contain their costs, the universities, we know, are deeply worried about maintaining quality. In the future, as social security and health service provision eats further into our national budget because more of us are living longer, and as international competitiveness demands more, new ways for funding higher education simply have to be found. Others have said that, and it is patently true. That being the case, what is wrong with making it possible for a private sector firm, bank or building society to offer subsidised loans to students to pay for some of their costs alongside the existing agency? What is wrong with beginning where we are, with the sort of pay-back system that we have now, and seeing what the private sector makes of it? That is all that the Bill makes possible. It seems to me not only a realistic and sensible move but one which is five years overdue.

It is still early days but having got over the agency's initial problems the current loan and pay-back scheme, contrary to what a number of noble Lords have indicated, seems to be working reasonably well. The value of the main grant and loan together is worth 50 per cent. more in cash terms than was the loan in 1989. That means that students may be less dependent on their families. Since the system was introduced, overall numbers of students entering higher education have not fallen but have increased. What is more, results of the department's survey have shown a rise in the proportion of younger students from social grades C1, C2, D and E. Indeed, by 1992–93, I understand that they formed the majority.

The Government's figures show also that the number of students taking out an agency loan has grown extremely quickly. In 1994–95 it had reached 55 per cent. of all eligible students. The forecast is that it will have reached 80 per cent. by 1997–98. The average pay-back—my noble friend Lord Renfrew quoted much higher figures but I am referring to an average—is currently running at £18 per month; that is, £216 per year. That is not an unreasonable figure when one remembers that payment may be deferred if one is earning less than £15,204 per year. I understand that over 92 per cent. of those due to make their repayments have been doing so, with defaulters amounting to no more than 7.7 per cent.

The vice-chancellors and principals have told us that they do not mind who owns the debt but they consider the pay-back system to be fundamentally flawed. In their view, and in the view, I think, of some noble Lords, who have put it somewhat differently, pay-back should be spread over as long as it takes. I am not sure whether the vice-chancellors are referring to the Australian scheme but from Australian friends I understand that the scheme has many problems. I do not believe that it is ideal although it looks very good on paper. I suspect that any government in power would find it difficult to have repayment lasting as long as it takes. That has considerable implications whether it is public money or private money.

Whatever the outcome of the committee of inquiry, the enabling of the private sector to play a part in the present system of subsidised student loans seems merely a small step but very much a step in the right direction. I had hoped that this House, unlike the other place, would see that and would give the Bill unanimously a fair wind. I hope perhaps that that may still be the case.

7.59 p.m.

Baroness David

My Lords, I think the noble Baroness is going to be very disappointed. It is very interesting that at long last, after some 10 speakers, we have heard the first attempt to justify the Bill at all. Of course, knowing the noble Baroness's stance, I am not altogether surprised; I rather expected it from her. But I would like to say that, although I have not consulted Tony Blair, I would be fairly certain that he would not, in fact, go along with this Bill.

It is really a very pointless Bill causing a ridiculous waste of parliamentary time, even more so now, I think, that we have had the Statement which was made in another place this afternoon. It will do nothing to help students who, sadly, nearly all leave their universities in debt. It will not make repayment of their debt any easier. Many of them—9,000 at the end of July last year—were in arrears and 35,000, 8 per cent., were in default; that is, over two months late in repaying. Why did the Government not take the opportunity, as they were legislating, to make repayment less difficult and off-putting to the student?

Students face a heavier burden in the earlier years of their careers, as the scheme now is, because they have to make fixed payments over a relatively short period of five years. As loan amounts increase under present government plans, the level of repayments will rise significantly. These are likely to rise to an unsustainable level and may well act as a disincentive to potential students. We do not want to discourage young people from entering higher education. At least, I do not think that the Government do, though one sometimes wonders.

Would it not be easier to encourage repayment if the graduate is earning at least the average full-time wage before he starts to pay, and that the level of repayment should not exceed a certain proportion of the excess of his income over the average wage? That would avoid the poverty trap. I believe that that point was made by my noble friend Lord Borrie. The numbers of graduates in arrears and in default suggest that the present rules are unnecessarily stringent

It would be encouraging to think that the repayments would go into a special fund for the support of higher education, but it is difficult to imagine the Treasury agreeing to such a proposition. But that is what happens in Australia. I am sure that we can all agree that the funding of higher education and of students needs a complete overhaul. I wrote that yesterday; today, apparently, we are going to have it. We all know that this is a very difficult problem, but it has to be faced by everyone. Now at last we are apparently going to have the matter inquired into. But, of course, we shall not have the results until after the next election. Therefore, the whole problem, which, as has been said by a number of speakers, is urgent, is really being postponed. That simply is not good enough.

I think it is inevitable that the students will have to pay more towards the cost of their higher education than they did in the happy and very different days of 15 or 20 years ago. The choice would seem to be between a pay-up-front scheme and a pay-back-once-you-are-earning scheme. The CVCP scheme, with its proposal to get each student to pay £300 towards the fees at the beginning of their course, was a pay-up-front scheme, because that is the only kind it could implement. But the committee would certainly prefer a pay-back-once-one-is-earning scheme. The example of Australia which is quoted so often shows that a scheme of that kind, a graduate tax, can be put into practice and that it does not discourage potential students. The CVCP was forced to take its vigorous action because of the massive cut that was made to its capital grant.

Whatever the terms of reference of the new committee, I trust that the plight of part-time students will be carefully considered. That is something that I have often said before; and, indeed, what a number of other speakers have already said this afternoon. In 1994–95, 28 per cent. of higher education students were part-time. It is grossly unfair that they should have no help. I also think that the position of postgraduates should be looked at, as should the cut-off point of 50 years of age for mature students. I understand that overall applications of mature students show a decrease of 1.6 per cent over the numbers received in 1994 for entry in 1995. The fall is due to a drop in the number of applications from mature students. Of course, last year the Government abolished the older students' allowance. No doubt that accounts for a good many mature students deciding that they cannot afford to proceed. The quite recent CVCP survey of January 1996 also showed that the number of mature students leaving their courses prematurely for non-academic reasons is rising.

I should like to say a few words about disabled students. I know that a number of people would like some reassurance from the Minister that disabled students will be treated in a generous way. I hope that the Minister will, perhaps, respond to that in his reply. I should also like to say a word about further education students as the noble Lord, Lord Flowers, mentioned them. I am sorry to say that the noble Lord has gone, but I know that he has an interest in the matter. I know that the proposed committee of inquiry is to look into higher education, but it has been hard for some time for further education students, perhaps of the same age as those in higher education, who receive very little help. Indeed, the discretionary grants which some of them used to receive have now pretty well vanished from the scene.

When he replies to the debate, I hope that the Minister will tell us rather more than he did in his opening speech about the present financial expectations. In 1988, the Government estimated that the scheme would break even by the year 2000, provided that savings in maintenance grant and social security benefits were included in the cost calculations. But there are no published figures showing the effect of the accelerated switch from grants to loans that happened as a result of the 1993 Budget. Is the student debt, which has been mounting annually—in 1994–95 it was £31.279 million—and which now has administrative costs of £19.7 million, expected to go on rising steadily? Are the universities to go on bearing the administrative costs as they now do?

I hope that the Minister will have something to say as a result of the very strong feelings which have been expressed here today on all sides of the House. The Bill is a very poor thing and, as many other speakers have said, I hope the Government will have the sense to withdraw it and not waste more parliamentary time.

8.6 p.m.

Lord Kirkwood

My Lords, the Government claim—and the Minister reiterated it—that the need for the Bill is to provide choice, diversity and competition for student loans by introducing the private sector into the situation and, simultaneously, to allow for reduction in public borrowing. As that was the original intention of the previous student loan scheme which had to be abandoned because the banks withdrew at the last moment, I, like the noble Lord, Lord Morris, am not clear as to what has now changed for the Government to believe that the private sector should be any keener this time round.

That having been said, there is almost unanimous agreement between different political parties and the educational institutions involved that student maintenance funding must be put on a more secure and permanent basis, in order that students should know in advance exactly what financial commitments they have entered into before they start their university course.

It is accepted by most people that, with the growth of the student population which is a desirable state of affairs that we all wish to see continued, the old grant system funded by the public purse is proving inadequate and unfair—unfair in the sense that the immediate tax burden falls on the present taxpayers, and the benefits in part accrue to the graduate whose future earning power has been increased by a subsidised education. I fully believe that if more public money is to be put into education—and, like the noble Lord, Lord Borrie, I think that it should be—it should be put into primary and secondary education where the benefits are obtained by all our children, rather than into higher education for the more privileged minority.

The main problem with the present loan system as I understand it, is with the collection of debt. That will not be lessened by being shared with the private sector; it may, in fact, be a further factor in discouraging them from joining such a scheme. In spite of the claims of the Student Loan Company, the facts are that in 1994–95 only 48 per cent. of borrowers were up to date with their payments or had fully repaid their debt. Most had been granted deferment and some 10 per cent. were in default. This situation is almost certain to be exacerbated with increasing numbers of students, and as more funds come from loans rather than from grants. Are we to expect, then, that graduates who are finding it more and more difficult to pay off the debt at the beginning of their careers will find themselves in court? Surely not even the present Home Secretary would relish the prospect of establishing debtors' prisons, filled to overflowing with unfortunate university graduates!

The simple, straightforward way of avoiding that scenario—this has been mentioned by a number of noble Lords and I make no apology for mentioning it once again, but it is something upon which I know the Government do not look favourably—is through the introduction of a graduate tax, or to provide repayment through national insurance contributions. Almost every Member of your Lordships' House has supported such a scheme in principle. The administrative system is already set up. As we have heard, the arrangement has been proved to work well in Australia. It is an efficient means of collecting, and it is difficult to avoid. Most importantly, it permits the debt to be repaid at a rate that the graduate can afford—for instance, over a period of 10 years or perhaps longer. That means that repayment would not impinge unfairly on those entering the less well paid public services, such as the teaching professions; otherwise, I fear that a loan system as envisaged in this Bill will further encourage graduates away from the relatively poorly paid professions such as in manufacturing industry into the City and service industries.

Why is it that the Government are so unwilling to consider such an obviously sensible scheme? I am aware that the Treasury dislikes hypothecated taxes: they remove from the Exchequer its power to negotiate spending as between different departments. However, the national insurance contribution is in fact an hypothecated tax to provide future pensions in exactly the same way as this proposal seeks to provide for future higher education. The provision of funding for universities on a long-term, stable basis is an urgent problem requiring bold solutions, not tinkering with loan schemes as envisaged in this Bill.

I make a further proposal to the Minister. A possible extension to such a scheme might be to establish a private loans company which would be jointly owned by the banks and the universities, and perhaps also by the building societies, but where the collection of debt is carried out through the agency of the taxation system. That would reduce the risk of bad debts and the banks and building societies might then be encouraged to get involved with such a scheme. This Bill, as it stands, will not solve the increasingly difficult problem of student maintenance funding. Much more drastic measures are needed.

8.13 p.m.

Baroness White

My Lords, during the past couple of decades my two noble friends who are not able to he here tonight, the noble Lords, Lord Cledwyn of Penrhos and Lord Callaghan of Cardiff, together with myself and the noble Lord, Lord Crickhowell, who is not in the Chamber at the moment, have been closely concerned with the affairs of the Federal University of Wales. We are delighted that my noble friend Lord Williams of Mostyn has joined us and—as far as I am concerned, at any rate—he will take a much more up-to-date interest in that university.

I would not have ventured to intervene in this debate at all had I not received a personal letter from the Vice-Chancellor of the University of Wales urging me in the strongest terms to oppose the line on student loans being taken by the present Government. He emphasised the general agreement reached by himself and his fellow academic colleagues in England and Wales that they would emphatically wish to accept change on the basis of something similar to the scheme which has been adopted in Australia and which has been discussed in a detailed manner by the previous speaker. It seems that Australia can provide us with good advice in matters other than the Olympic Games!

I am much indebted to the CVCP—old friends of mine—and to the Dean of Students in Cardiff and his staff for spelling out for me the official proposals and the disadvantages that they foresaw if they were adopted. As the matter has been dealt with in another place, I embarked on an exercise which I trust has been followed by at least some of the previous speakers in this debate. I have read every word of the debates held in the House of Commons, both in full House and in Standing Committee B. It was not quite a Scott Report, but it was not far from it! At the fourth sitting of Standing Committee B, Members in another place seemed to me to become rather long-winded in their speeches and I skipped a little of the debate. The result of that study is that I can see no merit whatever in our spending any more time in discussing this Bill which, as we have all said, is not due to come into force until, I believe, the autumn of 1997. Normally I do not have a suspicious mind but one cannot resist asking oneself what other legislation is being prepared which is not to come into effect until after the next general election, whenever that may be.

I must emphasise that I do not nowadays often indulge in reading the full proceedings of another place on a Bill which comes to this House. It is also quite a while since I was a Minister myself. However, I was startled to find that any Minister could present a Bill which is so inadequately prepared and expect it to be accepted by this House. I have been watching the clock. I believe there are still eight speakers in this debate. I shall not continue with what I might have said as it has been better said by others who have even greater experience than myself.

8.17 p.m.

Lord Soulsby of Swaffham Prior

My Lords, it is clearly considered by many, both in this House and in the universities, and by administrators, faculty and students that the problems of student loans and the student loans Bill are merely symptomatic of a wider and deeper malaise regarding the funding of higher education in this country and what should be done about it. Being an emeritus academic administrator in the University of Cambridge, I can assure your Lordships that I am familiar with that malaise.

We should therefore welcome the committee of inquiry that has been announced by the Minister. That committee will have to take many matters into consideration, and I am sure there will be much input from those representing all aspects of the university system. The inexorable decline in central funding to universities brings into focus the questions of who pays and who benefits from university education. Of course both society and the individual benefit. It is logical and equitable that the costs should also be shared, but the manner of this should also be logical and equitable.

However, unlike the situation of a decade ago, the majority of students now graduate in a state of indebtedness. Sometimes those who follow professional courses are indebted to the order of teens of thousands of pounds. My noble friend Lord Renfrew mentioned a scale of indebtedness. He mentioned graduates entering my profession—the veterinary profession—who had on average an indebtedness of £8,500.

More individuals now go on to higher education: the present figure is 30 per cent. of school leavers. There is now much more demand for loans, the repayment of which to the Exchequer in the present scheme is slow. It will be well into the 21st century before repayments make any significant financial impact on the present scheme. That must be a major worry to the general public and the payer of income tax.

Nevertheless, there are some major problems with the present student loan scheme. One hopes that, when we have the answers to some of the points that have been raised in this debate by other noble Lords, they will be alleviated.

One of the problems is that the present scheme does not provide an adequate maximum for some students. That is particularly so for professional students, as the noble Lord, Lord Dainton, mentioned; examples are medical students, veterinary students, dentists and those in other professions where the length of the course is five years, or even six years in some cases.

In the case of both veterinary and medical students, the final year is one of 46 weeks, so there is little time left. It is necessary for those students to undertake studies during their vacations to gain extra-mural experience. In my own profession that is 26 weeks, plus another 12 weeks of farm experience. In other words, 38 weeks have to be spent in a mandated manner as part of the course. That greatly reduces the ability of students to undertake work to assist with their fees and living costs. It also greatly reduces the ability of the students to finance themselves with respect to expensive equipment, protective clothing, travel and accommodation while they are undertaking those extra-mural assignments. Even though there are grants to cover such costs partially, they are not adequate to cover the whole cost.

The fixed payback scheme of five years also causes great hardship to young graduates, who frequently must capitalise to set up in their professions in terms of equipment, premises and so on. These matters cause great concern to students at present.

In the present Bill Her Majesty's Government propose to promote private sector loans as an alternative to, but alongside, the student loan scheme. The Minister said that that will give a better-tailored product and will allow greater choice. However, a number of questions need to be raised on this issue.

For example, will the same conditions of repayment apply to the loans from the private sector? Will the same ceiling on loans apply? Will it be possible to take loans from more than one company, or will it be restricted to one lending organisation? If the answer to those questions is that matters will remain the same except that a student can go to a private sector lender rather than the present scheme, all the Bill will do is decant the failings of the present scheme into the private sector.

Considerable attention has been paid to the possibility of income-contingent repayment. It has been said that we could glean much from the schemes that operate in Australia and New Zealand. I suggest that we could also glean a great deal from the scheme that has been operating for 25 years in the United States, where, it is well known, student loans have been used very effectively to increase the population of students in the higher education system. That is now running at 65 per cent. of high-school leavers.

I am grateful to Dr. Finney of New York University and Dr. Hart, who is director of scholarships and finances for the universities in Indiana, for details of some of the schemes they run at present. It is probably well known to some Members of this House that the present federal loans are provided by the banks but secured by the federal government in terms of interest during the time of study. The federal government may also cover the default of loans in certain circumstances. It is a standard loan, but for professional courses it is possible greatly to increase the loan to cover the extra costs of professional education. Repayment is on an income-contingent basis, usually at one point below the standard interest rate. Supplementary loans to the parents of students who find themselves in financial difficulties are also under consideration. Those will be secured against the capital of the parent. A parent will pay interest at the normal rate. The third area of interest is a direct loan to universities, administered by the colleges or universities, with payback being on an income-contingent basis up to a period of almost 20 years.

To my mind, the major source of loans must be the private sector, either the high street banks or some other similar institution, although I am aware that hitherto the high street banks have not been enthusiastic about that approach. The ideal would be for Her Majesty's Government to secure the loan and the interest payable during the period of study and for repayment, carrying interest, to be made on an income-contingent basis, as mentioned by a number of other speakers in the debate.

Students do not fear loans. There is every indication that they would wish to have greater access to them. There is every evidence that an equitable loan system will encourage a wider social span of students to undertake higher education in this country, as it does in Australia and New Zealand and most certainly in the United States.

In the formula of who benefits from and who pays for higher education, students do indeed wish to play a role. However, they see that role being played within an equitable system. I hope that that will be forthcoming by means of this Bill or as a result of the committee of inquiry.

8.28 p.m.

Lord Ponsonby of Shulbrede

My Lords, one of the advantages of speaking towards the end of the list of speakers is that many of the points that I wished to raised have been made far more ably than I could have made them. I am most pleased by the fact that my old Alma Mater, the University of Wales, has been better represented than any other university.

This morning I wrote the following: I regret that we are not having a fundamental debate about the levels of funding, we as a country should invest in our student population and the benefits we all get, graduates and non-graduates alike, through that investment". It now seems that to some extent we have had that fundamental debate tonight. Indeed, in this afternoon's Statement the Government have recognised the need for a far more wide-ranging review of the fundamental flaws within our university and student loan structures.

The Bill itself is very narrowly drawn. It is solely concerned with the administration and ownership of debt. We have heard that it does nothing for the students; it does nothing for the universities; and, if one believes what one reads in the newspapers, the banks do not believe that it will do anything for them either.

My noble friend Lord Morris of Castle Morris quoted from a recently published document on higher education by the Conservative Political Centre. I, too, wish briefly to quote from it. It states: With [the loan scheme's] high early repayments over a short period of 5 years, [the loan scheme] is a deterrent to entering university, particularly to potential students from less affluent families. As the maintenance grant is reduced and the loan increases, the levels of default are likely to rise to the high rates common in the US, and the cost of administration will escalate. It is widely felt that the present scheme will be inadequate to cope with the future demand". The Bill meets the CPC's concern about that so-called burden on the public sector. It simply privatises the debt. That is straightforward. But it goes nowhere near addressing the issue of linking repayments to the ability to pay. That is the issue that we have heard raised time and again by speakers tonight.

Many employment sectors are traditionally poor payers. I think in particular of the voluntary and charitable sectors where graduates are offered good and flexible careers. Such careers are popular and in my experience attract the highest quality graduates. However, such graduates have to think long and hard about embarking on such careers when they have the additional burden of student loan repayments, particularly when those repayments are not linked to their level of earnings. All of us, in particular the Government, rely on these low paid sectors attracting high quality graduates. I suggest that one practical method of helping those sectors is to link loan repayments to earnings.

In addressing the provisions of the Bill, I am somewhat at a loss. Surely it should be possible to quantify in cash terms the benefit of this measure to the public purse. I am not talking just about the transfer of figures from one column in the PSBR into the private sector. The Government constantly talk about efficiency savings through privatisation. Surely it would be possible to quantify those savings in such a limited area as debt administration.

I may be told that such figures are commercially sensitive, particularly when the Government are embarking on negotiations with the banks. If that be the case, it should be possible to produce indicative figures. To be asked to decide on the principle without knowing the cash benefit is a strange way to proceed. Deciding on the principle in advance of the Government's negotiations can hardly help the Government's negotiating position. Just imagine a young executive going to the main board of a high street bank and saying that it should accept student loans without any quantification of the likely benefit to the bank. The idea is laughable; and that young executive would soon find new career paths opening up to him such as a secondment to the DFEE.

Clearly the Bill has been overtaken by events. It seems to me that the criteria set out by the CVCP, and already quoted by the noble Lord, Lord Tope, are as good as any in judging a system of student support. I briefly restate them. The system should be simple, adequate, certain and just. Those criteria would, I believe, be a good guide to the committee of inquiry. They should provide the final nail in the coffin of this Bill.

8.36 p.m.

Lord Prys-Davies

My Lords, I find it quite remarkable that the CVCP was not consulted upon this short, narrow Bill. Does that omission reveal the disregard of this Government for the CVCP? I hope that the department will reflect upon what has been said by my noble friend Lord Williams of Mostyn, the noble Lord, Lord Renfrew, and the noble Lord, Lord Flowers.

Given the widespread opposition to the Bill, I am surprised that it has got as far as this—a Second Reading debate in your Lordships' House. The Bill—if we are to have this Bill—makes no effort to fill in some of the areas of need which urgently need filling and cannot wait for two or three years. At this late hour I shall obviously abstain from repeating at any length the arguments powerfully developed by so many distinguished speakers this evening. I shall merely focus on two or three of the omissions already mentioned.

It seems to me that concern over those omissions has run through almost all the speeches this evening, and, if I may say so, many of the speeches in another place. I am not sure that the Minister acknowledged that those concerns are wider in a sense and are narrower in a sense than those addressed in the 1990 Act. Can the Minister explain why the Bill does not bring part-time students of higher education within the scope of the existing loan scheme? That question has been repeatedly asked. I believe that we are entitled to an answer. It strikes many of us that to exclude part-time students from the scheme cannot be the proper basis for a modern approach to higher education.

I recall that last year I was involved in trying to find financial help to enable a part-time Welsh student of high merit to pay the university fee. Although the case seemed extremely strong, I found it difficult, and embarrassing, to shop around for help from charity to charity. Eventually we obtained help but there seems something wrong with a system of part-time education which compels the student to rely on charity for part of her fees. When the Minister replies, will he please give the department's estimate of the cost of extending the scheme to cover part-time students?

I turn briefly to another important issue which is not addressed by the Bill—the repayment formula. The existing scheme has the merit of simplicity. It may work quite well for some students. But plainly it does not achieve fairness to expect every student to repay the loan within the same period of time irrespective of his or her circumstances. Indeed, many students would be exposed to considerable difficulties if they had to repay the loan by fixed instalments over a period of five years as soon as their salary equated to 85 per cent. of the average salary. After all, students would be faced with other substantial expenditure: rent, mortgage instalments, car and furniture, and hire purchase instalments. There could be such items as house and car insurance, car and TV licences. Those are not exceptional items but common features of a young person's budget.

There are genuine concerns among students and potential students that they will be unable to see their way clear to repay the loan within five years, as required under the scheme. They are therefore reluctant to borrow. The result, as we have heard from many speakers, is that some potential students are not entering higher education. It seems a curious anomaly that that should be the case at a time when the Government claim in the current consultation document that lifetime learning is crucial to the community.

Sadly, we hear that a substantial number of students do not complete their course of higher education. The Government state that the drop-out rate is 17 per cent. or 18 per cent. and that it has been around that figure for many years. Can the Minister tell the House what is the drop-out rate for reasons of poverty? The CVCP has advised that the inordinate amount of paid work undertaken by students in order to supplement their income is disadvantageous to them. Does the department accept that conclusion? Is it examining the evidence? Alternatively, is the extent of the problem of drop-outs or failures which can be related to poverty not an issue of great concern to the Government? I plead that the issue needs to be absolutely clarified.

8.42 p.m.

Baroness Park of Monmouth

My Lords, I welcome the review which the Minister has announced. For the past five years, other impending reviews have been regularly cited to me as a reason for doing nothing about whatever I happen to be urging on the Secretary of State of the day. However, I look forward to a different outcome on this occasion since the present Secretary of State is a mover and a shaker in whom I have considerable faith.

We cannot discuss the Bill—opaque and slight as it is—without considering the background. First, there is the well-documented poverty and stress which can no longer be fobbed off as anecdotal. They have increasingly manifested themselves among poor students; that is, among at least 20 per cent. of the student body. I wish to emphasise yet again that I speak about the poor students, not all students.

Secondly, there is the disastrous impact of that poverty on the quality of academic life, and therefore students' ultimate achievement and contribution to the country as graduates, and of the underfunding of universities which, as so many have said, hits libraries, scientific equipment, funding for field work and, above all, the ratio of teacher to student. The Government's pride—and it is justified—in increasing student numbers over the past decade must be tempered by the fact that funding for students has declined by 28 per cent. over the past six years, with the prospect of further reductions. Those are deeply alarming figures.

Let me say at once that the principle of requiring students to make some, and even a substantial contribution to their university education is now widely accepted by most students as well as by many in this House. The Student Loans Company, after a disastrous performance in 1994–95, is now functioning effectively, thanks to Sir Eric Ash. That is not least because there is now regular consultation with both institutions and students which was signally lacking before.

The trouble is, first, that the maintenance grant and the maximum loan together, even with the safety net of the Access funds for a few, is not enough. Secondly, the debt incurred is now 10 times the original maximum loan (£333 in 1991, £3,201 in 1996). By the year 2000 it will be 17 times as great (£5,788). The prospect of a debt of that magnitude can only act as a deterrent to poor prospective students so long as the present mandatory system of repayment over five years remains the policy of the Government. They must consider urgently the merits of a fee contribution scheme, to recover the loan on an income-contingent basis, whether through the Inland Revenue or national insurance. Incidentally, there would be considerable advantages for the Government, as well as the students, especially if the present initiative for seeking private funding fails, as it seems not unlikely to do. A scheme which was rejected by the banks in the original consortium in 1989 because they decided, despite being offered £12 per student loan transaction, that there was no commercial benefit for them, seems utterly unlikely to attract them now. We do not know what the arrangements mentioned in the Bill are to be. Indeed, it presumably has not attracted them, since the whole exercise is now to be deferred for a year.

The Government are naturally concerned—and if they are not, they should be—at the prospect of heavy continuing investment which is not recovered. We know from the National Audit Office report on the Student Loans Company that despite a good rate of repayment (94 per cent.) so far, as at March 1995, 7.7 per cent. of repayers were in default, owing arrears of £1.8 million with a further £8.2 million due in future. The Student Loans Company estimates that by March 1998 there will be 27,800 accounts in default. Moreover, as at 31st March 1995, 45 per cent. of accounts in repayment status had had deferment of repayment approved.

Thus far, we are talking about relatively small sums because at this stage the Government are still dealing with those students who borrowed in 1990–94. The maintenance grant was far larger then and the loan far smaller. It is not surprising that the Government can speak of an average loan outstanding at present of £1,400 and an average loan repayment of £18 per month. Those are the students for whom the first loan in 1991 was £333. The total debt after three years was, in 1994, £2,015. But the Government should be thinking—students, certainly are (and it is and will be a powerful deterrent to entering higher education under the present arrangements)—about the students going down in 1998. Their debt will be £4,943, and those going down in the year 2000 will be repaying £5,788. That is an increase of over 100 per cent. in the debt which students going down this year will incur. They will incur £2,503.

All those figures relate only to three-year courses. For the four-year course, which is becoming more frequent, the debt to be repaid in the year 2000 (only five years away) will be £7,811. The CVCP calculation is that those going down in 1999–2000 will be paying over £96 per month.

I have spent so much time on the issue of the great increase in the size of the repayment, not only because of the increasing deterrent that it represents to poor students who fear debts of nearly £6,000, or nearly £8,000 for four-year courses, to be repaid so early and so fast, but also because I strongly believe that under the present system the Government will have to wait a long time for their money and may never recover much of it. It would, I submit, be a far more certain method of recovery, quite apart from removing student fears, to move to some form of income-contingent repayment scheme on the lines of the fee contribution scheme. In that way, the money would come in, as students would regard the system as fair and not frightening.

Many noble Lords have referred to the poverty which is having such a serious effect on the academic work and thus the future prospects of students. That is due directly to the fact, many times emphasised in earlier debates, that the maintenance grant and maximum loan together do not equal the former value of the maintenance grant and housing benefit. In Edinburgh rents have increased by 44.7 per cent. over the past five years. Rent alone now frequently exceeds the full maintenance grant and that obtains all over the country.

How much does that leave, even on a full loan, for books (the libraries have been cut back heavily), and field work, during which no work to earn money can be done—let alone the simple business of eating, keeping warm, travelling and staying alive. It is deeply disturbing that of 2,000 students who replied to a questionnaire in Edinburgh in 1995, 26 per cent. worked to earn money during term and 44 per cent. worked through the whole 30 weeks of the academic year for an average of 12 hours a week, but in some cases for much more. Since the work they do is often in bars or stocking shelves, the pay is very poor; 55.4 per cent. of the students had an average debt of £743 at the end of the academic year in addition to their student loan. Few could clear that non-student-loan debt by working during the summer—either because no work was available or because it was, again, very poorly paid. As one student wrote, "This year I shall have to work double my hours in paid employment to pay off my debt and, to be honest, my course is no longer my first concern". I find that a very frightening statement.

Other noble Lords referred to the growing evidence of drop-outs, especially among mature students, because of poverty rather than for academic reasons. The Minister will refer such students to the Access Funds. But we all know that they, frozen this year at £22 million, are wholly unable to meet the present level of student needs.

It is a tragedy that the Government, who have done so much to bring more students into higher education and have effectively changed the culture of complete state subsidy to one of enabling graduates to repay to the public purse a substantial part of the cost of their higher education, still fail to recognise that roughly one-fifth of the student body is insufficiently funded, so that poverty is, in its turn, impoverishing the quality of the academic experience.

It will be a culpable waste of money and human investment to create a generation of graduates who have simply not had the time or the tools to learn. They will go out into the world inadequately taught and imperfectly prepared for the intellectual challenges they ought to be fitted to meet.

It is not the least of our general regrets that this Bill still provides only for undergraduates. Nothing is available for postgraduates, nor for the large numbers in part-time education. I hope very much, with the noble Lord, Lord Flowers, and many others, that my noble friend the Minister will tell us that some account might be taken of the possibility of extending the availability of loans to them. The extra cost could well be compensated for by greater certainty of recovery of the money if the Government were to consider the income-contingent formula of repayment. I hope that they will.

8.52 p.m.

Lord Desai

My Lords, first, I congratulate the Minister. He introduced a Bill on a constitutional innovation. He managed to make a Statement to this House without having to mention it as such. He gave a very deft summary of the Statement made by his right honourable friend in another place. I admired the way in which he managed to take it in his stride. Having made the Statement before introducing the Bill, he then gave us an injunction to stick to the Bill itself. If only he had done so himself, we should have followed. However, since he did not, we do not have to do so either. We, too, can speak on other matters, and not confine our remarks to the Bill. Being the last-but-one speaker, I use that ruse in order to be able to mention the matter.

I never fail to be astonished that, in the 17th year of a Government who say they believe in the free market, again and again they push legislation before us which shows either that they are ignorant of the market or that they do not have the guts to follow their own philosophy.

When I first arrived, 31 years ago, I was astonished that one could borrow three or perhaps four times one's income to buy a house, but not to buy a race-horse. That is an imperfection in the capital market that should have been removed. What difference does it make whether I buy a house or a race-horse. A race-horse might be the better winner. It was always thought that it was good to borrow money for certain things but not for others. Therefore governments of many hues have established distortions in the capital market and have even given them support in legislation. That idea still exists. This Bill perpetuates the notion that only full-time undergraduate education is such a great good that the Government will provide precious taxpayers' money to support it under an inefficient scheme, while a variety of other demands for higher education are not thought good enough.

We do not trust the consumer to know his or her own interests, to go to the bank and ask for a loan. There is obviously a case of market failure here. Banks have no incentive to provide this money. The Government, recognising market failure, have now decided that they will perpetuate the distortion by giving support to one part of the market but not to other parts. That is anomalous, to say the least.

As this Bill stands, it perpetuates certain restrictions. For example, in the schedule (lines 23 to 26) if a loan is taken out with a private company, another cannot be taken out with a public company. I do not see why not. If someone wants to take out two loans let him take out two loans. Provided he is not cheating, what does it matter to anybody how many loans are taken out? Why should the Government say how many loans I should take out? Do they believe in the free market, or not?

Secondly, and somewhat more seriously, as the noble Lord said, quite rightly there has been an expansion in higher education. That is a very good thing. There has been practically a revolution in the context in this country. But the erosion of resources has done quite a bit of damage. I declare an interest. I have two children at university now. I teach at university and have students who tell me about their problems, and so on. The higher education system of this country, which is extraordinarily efficient and one of the most competitive on a global scale, is losing its advantage because it is under-financed. It is under-financed because, once we moved away from the system of the full grant and full fee support, the Government did not have the courage to bite the bullet and move to a fully loan-financed higher education system. Because we have been cut by bits and pieces, it has been, almost literally, death by a thousand cuts. The unit resource of education has gone down. I have 35 tutees today, when I used to have 15. I hardly know their names. In a sense, the British higher education system, which had a very small drop-out rate that was negligible in relation to the continental system, was for a time elitist. When it expanded, either the resources should have been provided publicly to maintain that efficiency or, if not provided publicly—I grant that, politically, that is a difficult task—the Government should have had the courage of their convictions to implement a shift to a fully loan-based system. Having shifted to a fully loan-based system, they should have had the courage to introduce a rational system of loans. If the housing market had been based on a five-year mortgage, it would have died before it was born.

In having a degree, I buy a piece of human capital and enhance my lifetime earnings. As anybody knows, my life-time earnings do not grow immediately because I am a graduate, but they grow over my life-time. All my life I can pay for the very precious asset I have bought. To have to repay it over five years is folly. I should be in negative equity throughout the five years, and nobody can convince me otherwise.

From any point of view a five-year loan system is irrational. I do not need to tell the Minister what Gordon Brown called the "neo-classical indigenous growth model". It shows that acquiring an education is the best guarantee of economic growth for a country. By encouraging people to acquire higher education we are improving the competitiveness of the economy in the future, and it is perfectly valid to help that along.

The subsidy need not be as large as the one the Government are about to give. That is another problem. As many noble Lords have said, an income contingent loan scheme would overcome the hump of extra payments within a short period of time. The only question is how to get the Treasury to come up with an imaginative idea in order to shift that burden in such a way that it does not appear in the PSBR to be awkward.

I suspect that there is a mole in the Government who makes them choose the electorally most unpopular loan system that could possibly be devised by a human being. By helping the Government I may be hurting my own party. I may be helping them to win the next election and so I hesitate to say anything about it.

In a sense, over a lifetime students are not poor. They will be better off than many of those who do not obtain a higher education. The kind of debt burden about which the noble Baroness, Lady Park, spoke, should be negligible within a lifetime's income, but it weighs heavily because the scheme devised makes no economic sense. We are burdening a potentially high income earning group early in life with sums of £3,000 to £5,000 which, over a lifetime, would be negligible.

Not all that long ago, 18 year-olds used to leave school and buy houses costing more than that and paid for them over their lifetime. Now we have people who cannot afford loans of that size. That is due to the term of the repayment of the loan. Having arranged an uneconomic five-year repayment term, we than have to give an uneconomic subsidy to the private sector to arrange the loan. The existing subsidy is not enough to persuade lenders to lend, so we have to increase the subsidy. It would be cheaper to give the students the money directly.

We must be clear that a student impoverishment problem is a self-created problem. It arises because of the restrictions on students borrowing against future income. It is a kind of market failure. We do not have specialised institutions to provide educational loans in the same way that we have specialised institutions to provide loans for property. It is a shortsightedness of the economy that we value bricks and mortar more than we value knowledge. Anybody can show that buying an education is a much better investment than buying bricks and mortar. Bricks and mortar are consumption goods and education is an investment. We should therefore be encouraging the buying of an education.

I see little hope that the Bill will be improved, even if we try to amend it. The Government have already scuttled it by announcing the inquiry. I see that as another sign of a lack of will to tackle the problems which could be tackled overnight if the Government wanted to do that. The income contingent loan solution has been known since 1988 when my colleagues, Dr. Nicholas Barr and John Barnes, published a paper on that topic. We have shown it to every successive Minister in the Department of Education and the Treasury. We have explained its logic. It was invented here before the Australians took it. But we have had to wait eight years while the Government continue to reject it.

It is astonishing that a low-cost, efficient solution will be rejected in favour of the present solution. "Choice" I am afraid, it is not, unless it is a choice between being hanged or being drawn and quartered. The borrower is no better off. The lender may be better off, but the borrower is not and the borrower does not have much choice. All we are doing is offering the cherry pickers an extra bonus for cherry picking. I hate to say this, but the noble Lord, Lord Renfrew, with his desire to study archaeology, would have had no chance whatever of studying that subject; he would have been rejected out of hand by the cherry pickers because clearly archaeology is not a commercial proposition. As an economist, I would have had all the cream. Perhaps lawyers would be better off, followed by the accountants, then perhaps the scientists, then the economists and last of all the humanists. There is no fun in that.

I urge the Minister to say that it is all a mistake; to say that we would be better following my suggestion. I urge him to say, "We want to win the election after all. We will try our best, despite what happens on the Back Benches in another place." Good sense may then prevail, after 17 years, and we may yet see a proper free market solution to the financing of higher education. I live in hope. But I am an optimist.

9.7 p.m.

Lord Berkeley

My Lords, I shall not detain the House for long tonight as it has been a long debate with a virtual unanimity of views on the Bill. I declare an interest as a member of the council of the University of Canterbury. I am probably one of the few speakers tonight appointed as an amateur in the academic world. I am appointed from the business community to help the university meet the needs of the community; to support its management, its efficiency and quality.

I asked my vice-chancellor for his views and he urged me strongly to speak. I have seen at first hand the frustration at all levels in the university; the lack of policy coming from the Government; the stop-go on growth—enormous growth when it levels out—and the changes and reductions in funding. We cannot separate student funding from university funding; they are inextricably linked.

While universities have been rightly introducing efficiency gains, they are lumbered with more and more government paperwork which uses up thousands of hours of staff time—assessments, benchmarking, auditing, grant applications (we all have to do that) and reporting. There is more and more of it. This is not work that clerical assistants can do. It is paperwork which requires careful judgment and non-routine responses. It is academic staff time that is absorbed in completing it; academic staff time filling in forms and not teaching or researching. Now we have further form filling exercises in the shape of the new student loan proposal.

We are told that the universities will have to certify that students are eligible for private sector loans. Who will do that? We await details with great interest but, on the basis of past experience, very considerable foreboding. There will be yet more administrative work for universities. Will the noble Lord the Minister commit the Government to reimbursing all the costs involved? Perhaps we should be told. We have heard that most students are struggling financially or are just plain broke. Perhaps the Government will say "Tough, get on your bike and look for a job", and earn £1 an hour at a burger restaurant or work 16 to 20 hours a week doing something else. We have heard all that. Now that students have one more financial juggling exercise to contend with, it is almost as if they will need financial advisers as well as the university.

To what end are the Government proposing these changes? Are they really committed to free higher education? They say that they are, but by their actions to date they make it virtually impossible for those with no outside support to receive the best quality education they can. I sometimes wonder whether the Government understand further education. Have Ministers experienced it? I hope we will hear that they have, that they enjoyed it and that they learnt from it. And now, coincidence of coincidence, on the day 20 noble Lords speak largely against the Bill, we have a new committee of inquiry. If in doubt, set up an inquiry, which will mean that nothing can happen for three years, and put off the day when a decision has to be made. In the meantime, muddle through. And, of course, there is an election coming.

Am I the only person in this Chamber to suspect that the objective of the Bill is to make next year's budget look more favourable, with no thought about what will happen thereafter? I do not know. In the meantime, I hope the Minister will be able to tell us how the Government expect the universities to fund themselves in the next three years. Do they expect the principals of universities to start charging students? Is that what they want, or do they not care?

Lastly, given all the problems now facing further education over all, as an amateur among some of the most eminent professionals in the business, I join others in calling for the Minister to withdraw the Bill.

9.10 p.m.

Lord Addington

My Lords, when discussing the student loans regulations I feel roughly the same way as I do about an old rugby injury. It comes back and it hurts, no matter how long ago it was first acquired. I cut my teeth or was blooded parliamentary-wise on the Education (Student Loans) Bill in 1990. I said then that as I was in the position of having graduated two years previously I knew more about the financial system. In a debate on a Motion which I tabled two or three years ago—the noble Lord, Lord Renfrew, mentioned it—I said that I no longer knew anything about the system because it had changed a great deal.

I caught the end of what was a golden era for students when there was a guaranteed level of income. Initially that was done by the grants system. By the time I was finishing at university it was done by the grant plus social security benefits covering up the cracks. The present scheme was first brought in by top-up loans. In the first year students received £300 or so. The system of a top-up loan plus a few hundred pounds was acceptable. It papered over the cracks. It does not work with £5,000 of debt, which is what we are getting now.

The noble Lord, Lord Desai, ran through his favourite flower patch and pulled out some of the choicest buds for us all to admire. The scheme just does not work in logical terms. The Bill itself is a small thing. It says that we should transfer some level of debt from the public sector to the private sector. The banks may be interested because the scheme may attract students to them. When a student opens a bank account he tends to stay with that bank until he becomes an economic asset. That was tried with the initial scheme but the banks said that they did not want to know. What will happen next time round, if it happens next time round—we have heard that it will not happen quickly—should the banks say no again? Will we just shrug our shoulders and bring the matter back in a few years?

There is very little one can say about the Bill except to refer to a quote from the late, great Peter Sellers, that it is interesting but stupid. It does not really make sense. We are simply shifting around the level of debt. It would look better on a balance sheet. There is no real benefit to anyone.

If the Bill addresses anything it is individual student finance. As the noble Lord, Lord Desai, and almost every other noble Lord who has spoken this evening said, it should be sufficient to allow them to graduate. We have a degree structure system, particularly in England and Wales, of intensive preparation for three years. That means that students get through the course quickly. I am a graduate of a Scottish university, and it was nice to hear one other speaker who has a more recent connection with that university. I am slightly prejudiced. There should perhaps be a more flexible road into the course with students able to decide later what subject to take on at a higher level of education.

In England and Wales the period of study is intensified. It ensures that the student goes through the system quickly. In this kind of funding one is not allowing students to subsidise their income without working. We have a system where one is borrowing and paying back over a very short period of time and at the same time we are consistently leaving students, if they cannot find work during the long vacation, worse off than they would be on social security. On numerous occasions this Chamber has pointed that out to the Government. Talk of extra funding being available was rubbish. When the system was brought in many people lost in cash terms in the first year. There has never been any real argument or dispute about that.

I feel somewhat guilty because one should not shoot the messenger. However, the noble Lord is the only one in range tonight. If the Government intend to bring in this scheme—and there are many "ifs" and "buts" about it—will the Minister consider expanding the level of funding available to students because they need extra money? Will he consider ensuring that the private sector has the opportunity of providing a longer term for repayment? If the Minister gave us that assurance there would be some point to this debate; if not, we have really wasted our time.

9.17 p.m.

Baroness Farrington of Ribbleton

My Lords, at the beginning of this Second Reading debate my noble friend Lord Morris of Castle Morris raised and identified the crucial issues underlying this Bill and the flaws in the scheme, the lack of parliamentary accountability in the detail, the failing loans policy, the F&HE funding crisis and the Government's mishandling and mistiming of the matter. All these points have been amply justified during the debate.

I for one was grateful to the Minister, the noble Lord, Lord Henley, for giving us a précis of the Statement read in the other place. I listened carefully and I shall read Hansard carefully. In his précis he read: We propose to invite the Committee to make recommendations on [how] the shape, structure and size and funding of higher education", and then left out, "including support for students" before continuing with the rest of the sentence, should develop to meet the needs of the UK over the next 20 years". The background to this debate is that the Government have accepted that a committee of inquiry is needed to look at all aspects of higher education, including student support. What is the sense in asking the taxpayer to fund costly proposals—the degree of subsidy in these proposals must be so severe that the Government will not even lay them before Parliament at this stage—for a scheme which is not intended by the Government now, as a result in the changes in timing, to be implemented until after the committee of inquiry has reported?

In presenting the proposals at this Second Reading, the Minister said that the taxpayer, private sector lending and risking its own money, were the issues before Parliament. The Government's favourite slogan is "choice, competition and diversity" and they believe that personal lending is not a natural activity for government. However, since Burke, governments have accepted that education provision is a function of government.

The Bill before us lacks details. The Minister asserted that it has no downside for anyone. How can we know when we know not the cost? The private sector, the banks and the building societies, have not come forward with bids. The Government tell us that they are considering how to bring them in.

My noble friend Lord Morris of Castle Morris referred to the important issues which the Dearing Committee will have to consider. Speaker after speaker referred to the need to protect and enhance the quality of further and higher education and to encourage access from students of all backgrounds while not discriminating between full-time and part-time students or against students on the grounds of age. Will the Minister assure us that the figure of £1,500 per student subsidy is not one that the Government intend to match by way of subsidy to the private sector to encourage it to take part?

The Minister concluded by referring to providing choice. The Bill does not provide choice for students. We are talking about a choice of students by banks, not about students choosing the system or company with which they would like to deal.

Many noble Lords have referred to unit costs per student and to the problems facing students. The noble Lord, Lord Flowers, referred to a "seriously flawed scheme of student loans to be partially privatised". He said that he could not understand why the Government were proceeding with it. Noble Lords have raised a number of anxieties which the Government have so far failed to address. The Committee of Vice-Chancellors and Principals says that the Bill does nothing to address the problems of HE funding.

My noble friend Lord Sewel asked a crucial question: why do we need the Bill at this stage? As he said, it is evident that the Bill has been overtaken by events. He said that 17 per cent. of students have debts of more than £4,000 and that 19 per cent. of students consider withdrawing from their course. I echo his words, "What a waste". This is the European "Year of Life-Long Learning". Why should we extend and develop a scheme which has been proved to discourage students from learning and from taking a degree course?

My noble friend Lord Borne referred to the fact that the Government could have foreseen the problems. Universities and students knew about the problems. My noble friend also referred to the fact that getting this right is an economic necessity for the country. No scheme should be a disincentive to students, especially those from the least well-off backgrounds. As the noble Lord, Lord Tope, said, the scheme will not solve the problems facing the sector.

Every noble Lord bar none has welcomed the committee of inquiry. What is the sense in throwing away that degree of partnership proposal and that degree of unanimity by wasting time on a Bill that has been overtaken by events?

There has been a drop in the number of student applications although there has been an increase in the age cohort. That bodes ill for the future. Mature students are dropping out of higher education.

The noble Lord, Lord Dainton, referred to private good and public good. The loans scheme does not encourage students from all backgrounds. Also, why are there no practical details on the subject of recovery?

My noble friend Lord Williams of Mostyn, one of many noble Lords who spoke with a knowledge of education in Wales, referred to the low morale in universities. Why can we not have adequate consultation on proposals as important as those contained in the Bill, albeit in only minimal form? Cavalier treatment of those with detailed knowledge—universities and students—will do little to improve that low morale.

My noble friend Lord Morris of Castle Morris referred to the fact that it is important that we work together, through consultation, to get this right. It is my understanding that my honourable friend the shadow Secretary of State has welcomed in another place the proposed bipartisan approach of the Secretary of State for Education and Employment. That is the time to give detailed evidence and to have it evaluated carefully and properly, rather than proceeding by assertion in a Bill lacking detail that flies in the face of the knowledge of all those who have spoken in the debate, bar one and the Minister.

My noble friend Lord Prys-Davies, asked why the CVCP was not consulted. He referred to poverty as a cause of drop-out. We are entitled to answers to all the detailed questions that have been asked in the debate. To offer less would be not to recognise the almost uniform failure to see any merit in the proposals before us.

The noble Baroness, Lady Park of Monmouth, and the noble Lord, Lord Addington, gave graphic illustrations of the problems facing less well-off students, the impact on their desire to go into higher education and the quality of their academic life if they do. Their serious concerns must be addressed. The Bill will not do that.

Recently I spoke to a 17 year-old student who was embarking on the first year of sixth form. He is Welsh. He had three A^*s in sciences, three As, two Bs and a C. He is seriously considering not going to university, because he comes from a single-parent household and he is terrified of debt. We need to find a scheme which will recognise the problems facing the Government but which will also ensure that such young people are not put off.

Student hardship is personally and nationally important. Parliament has a right to know what subsidies are proposed to underpin the legislation. The financial implications of any system need to be spelled out. The noble Lord, Lord Renfrew of Kaimsthorn, referred to the problems facing those students undertaking courses to become vets. A serious problem exists.

The Minister must take back to government the message that, if the Government are right, that will be confirmed by the committee of inquiry. The Government must surely have faith in the policies they are putting forward in the Bill. If that is the case, the Government should take pride in taking back the Bill, putting their views to their own committee of inquiry, and having them stand the test of detailed scrutiny rather than considering them at this stage.

As my noble friend Lady David said, student support needs a complete overhaul, She referred to the issue of students with disabilities. The noble Baroness, Lady Carnegy of Lour, hoped for support for the Bill. I am sorry, but there is no support for the Bill in this House; there is no support for the Bill in the university sector; there is no support for the Bill from the students who are experiencing hardship. Yet speaker after speaker has talked realistically about the need to face the problems. The problem facing us in this House with the Bill is that the Government solution provides too little, at the wrong time, of the wrong thing.

Knowledgable comments have been made by those with an interest in high-quality education about the importance of good access. Only one in 20 speakers has spoken in support of the Government's proposals. From my noble friend Lady White to my noble friend Lord Prys-Davies, speakers from Wales have referred to the anxiety that exists there.

For once the Government are proposing a proper evaluation of public policy. We have the opportunity for consultation and evaluation followed by good legislation with a consensual approach underpinning a good policy reached through the right processes. The Bill should be withdrawn until the committee of inquiry has reported. Many problems face this country and our system. I hope that the Minister will take away all the serious worries that have been raised and answer them in writing if he is not able to do so tonight. I hope that he will take away the message from all the speakers in the debate that the Government have come up with a good proposal with the committee of inquiry and that we can have co-operation. The answer lies with the Government.

9.30 p.m.

Lord Henley

My Lords, of course I can assure the noble Baroness, Lady Farrington, that I shall write in answer to the more detailed points as appropriate in order to keep my speech within suitable limits at this hour of the night. I welcome the noble Baroness to what I understand is the first Second Reading debate that she has wound up from the Front Bench. She will appreciate that I did not agree with absolutely everything she said, but it was a welcome relief to hear a lay voice in this House. On occasions tonight I felt that I had strayed into a branch meeting of the House of Lords chapter of the CVCP. I believe that mere mortals should be allowed to speak from time to time.

As I said in opening, I intend to focus my remarks on the Bill. I accept that certain noble Lords tried to focus on the Bill to a greater extent than my initial pessimism seemed to imply. Obviously, there will be other opportunities to debate the committee of inquiry and the future of higher education. I do not know whether a debate is being initiated by noble Lords on the Cross-Benches on 6th March, as was suggested, but I am sure that noble Lords will find ways and means of ensuring that these important matters are debated in due course. I am sure, that, as always, the usual channels will consider these matters. I noted all the comments made about the committee of inquiry and I am sure that they are matters which Sir Ron Dearing will want to examine in due course.

The noble Lord, Lord Morris, in his theatrical speech, if I can put it that way, quoted from the Conservative Political Centre. I am pleased that he found such good reading emanating from such a source. However, it is not a government body and it is not producing government policy. It is important that the noble Lord should remember that. Perhaps in order to make the point that two can play the same tune I invite the noble Lord to look at the words of his colleague, Mr. Frank Field. Only last week at what I understand was called the "Attlee Lecture for '96", he said: It will also be necessary to link in one further reform. Student grants should be converted into universal loans run by the private sector". I hope that the noble Lord will accept that there is support on his side of the House. Admittedly not in this House but among the more radical thinkers in another place.

I do not intend to focus on the wider issues that are being put before me, but I believe that two points are worth addressing before I turn to some of the detailed issues of the Bill. We have seen a massive expansion in higher education over the years. I was grateful for the welcome for that from Peers such as the noble Lord, Lord Sewel, who pointed out that it has grown since my day, 20 years ago, from approximately one in 12 to one in three. That is a record of which we can be proud because the number doubled, and doubled again since 1979.

From the doom and gloom that we heard from noble Lords, one would think that there were no students left and that it was impossible for any to survive. There were allegations that since 1990 the student loan system had deterred students, and particularly students from less well-off backgrounds, from entering university. I assure noble Lords that students from less well-off backgrounds, classified as the occupational groups Cl and C2, D and E, are not being deterred in any way from entering higher education.

The latest figures that we have are from the 1992 student income and expenditure survey. I assure the House that we are not complacent on these matters and a new survey will be starting some time in the autumn which may paint a new picture. However, that survey found that while those students were in a minority in 1988, by 1992 they were in a majority. As my noble friend Lady Carnegy made absolutely clear, the number of students from social classes 4 and 5 accepted for undergraduate courses rose by over 50 per cent. between 1991 and 1994. Those figures are just as good as the figures quoted by the noble Lord, Lord Borrie, when he talked about the Australian scheme.

Further, there has been much concern—and I appreciate that it is something about which one should be concerned—about drop-out rates. Departmental data for 1992–93 shows the overall drop-out rate to be 17 per cent. That was the same as that for the previous year. Noble Lords should remember that where students abandon their courses there is no reason to believe that finance is the primary cause. I ask noble Lords to bear in mind what happens in that regard for our partners in Europe. There we see much higher drop-out rates. Indeed, the noble Lord, Lord Borrie, mentioned the much higher numbers in higher education in France. But he failed to mention that we have a much higher graduate rate. The implication of that is that many more students in France are dropping out and many more here are completing their courses. We should be proud of that. The noble Lord, Lord Addington, may not like our student support system, but in terms of that support system, which is a mixture of grants and the loan, we probably still have one of the most generous schemes in the world available for undergraduate students.

I now move on to some of the specific points that have been put to me in relation to the Bill. The first and most important point was the allegation made by the noble Lord, Lord Morris of Castle Morris, and other noble Lords that the banks simply do not want the scheme. I assure the noble Lord that at present we are encouraged by the amount of interest shown by the banks and building societies and the numbers which have asked to receive the invitation to tender documents. I assure the House that copies of those documents will be made available in the Library.

This is a market test. We should wait to see how those establishments respond to the opportunities offered to them. All noble Lords would have to accept that at this stage I cannot begin to say which banks are interested because such matters must be conducted in confidence and they will remain in confidence until a later stage.

Lord Morris of Castle Morris

My Lords, obviously we should not expect the Minister to name names, but could he give a number?

Lord Henley

My Lords, at this stage all I say is that there are a reasonable number, but I am not prepared to give that number. I am referring to establishments which have expressed an interest in receiving the invitation to tender. I am glad that the noble Lord does not expect me to name names, but at this stage I believe it would be unwise of me to give numbers.

The noble Lord referred to the role of the banking ombudsman and the fact that he is not able to look at rejections of loan applications because such decisions are based on commercial judgments. We have discussed that with the banking ombudsman after the noble Lord's colleague, Mr. Boyes, made those allegations in another place. It is quite clear that he may look into a complaint as regards rejection if there is evidence that the decision was based on maladministration. He said also that the latter would cover apparent discrimination against an applicant on broad grounds including a rejection on the basis simply of the student's background or the course that he was following. All students would fall within the ombudsman's scheme and could complain on the grounds of unfair treatment by a bank.

A number of points were made, I believe by the noble Lord, Lord Tope, and the noble Lord, Lord Williams, about how we would set out our negotiating position and the cost to the Government. Noble Lords will have to accept that it is quite wrong at this stage for me to say what the subsidy will be, although I certainly reject the figure being bandied about by the Opposition of some £1,500. I am not prepared to speculate. Similarly, I am sure that everyone accepts that it would be naive and unbusinesslike to set out in public our negotiating position. However, I can assure noble Lords that we shall look at what steps will be necessary in the light of all the spending plans for 1996–97. We shall certainly examine most carefully just how far we can go. The same will apply to the deficit to which the noble Lord, Lord Tope, referred when he complained about the loss as a result of the delay in the Bill.

I turn now to the question of the exclusions of post-graduates, part-timers, mature students and so on. Again, that point was addressed by many speakers. I believe that the noble Lord, Lord Tope, was the first speaker to raise it, but my noble friend Lady Park and, indeed, the noble Baroness, Lady David, also mentioned it. The Bill itself is not about extending eligibility. There are powers already available under the 1990 Act to extend eligibility should we wish so to do. But those pressing the case for other constituencies—for example, for including part-timers, mature students and post-graduates—need to explain most carefully where the money is to be found to pay for such an extension. In the case of the party of the noble Lord, Lord Tope, we may hear an answer at 10 o'clock tomorrow when its fascinating document will be released. I look forward to reading it. The same applies to those who would seek longer repayment periods. Again there is power within the Act to extend that by five or seven years in the case, I believe, of medical students or those who receive—

Lord Prys-Davies

My Lords, can the Minister say whether the Government intend to exercise the powers in the 1990 Act?

Lord Henley

My Lords, as I said, the powers are there; but, in answer to the noble Lord, we have no immediate plans so to do. However, I can tell the noble Lord that, obviously, considerable concern has been expressed by a number of speakers that at present the debt burden is not an excessive one. I believe that that was the general gist of the comments. But that debt burden will increase in due course as the full take-up builds in. That might be an occasion when the Government would have to consider extending those powers. But merely to criticise the Government because there is no such provision in the Bill when we already have it in the 1990 Act is slightly unfair. Such powers could be exercised. As I said, we also have to address the question of where the money is to come from and who is to pay for it.

Perhaps I may take the matter referred to by the noble Lord, Lord Prys-Davies; namely, the extension to part-timers. We calculate that if all part-timers took out part-loans the cost would be something in the region of £200 million to £220 million. If they all took out full loans the cost, according to the figure I have, would be £637 million. Those are very considerable sums of money in the light of our total educational spend within the United Kingdom of some £35 billion of which £7 billion to £7.5 billion goes on higher education. If the noble Lord is looking to leave that much extra money in, he really should address the point as to where it will come from.

The noble Baroness, Lady David, asked what we were doing about disabled students. That was a very fair point to make and it is one which I, with my responsibilities within the department for disability matters—responsibilities which come both from the old employment side and the old DFE side—take most seriously. I shall consider it with great care. I can assure the noble Baroness that with private loans, as with the current scheme, the disabled students allowance will still provide financial help for equipment and expenses. Disabled borrowers will still be able to defer payment for longer and repay over a longer period, and disability related benefits will not be taken into account in calculating income for deferment purposes.

I come now to the question as to whether the conditions that apply will be the same. That point was put by my noble friend Lord Soulsby. I can assure him that the same loan ceiling will apply. The key elements, that is the nominal RPI interest rate and deferment, will stay, although obviously if banks wish to bring it below that they would be so entitled to do and students would be at least as well off. I stress for all those who seek the income contingency plan—no doubt this can be looked at in due course and no doubt it can be looked at by Sir Ron Dearing and his committee—that there is a degree of income contingency within the scheme as it is at the moment. I think the noble Lord, Lord Prys-Davies, ought to remember that, as it is, the repayment only starts when income reaches a certain level—85 per cent. of average earnings—and that is an income contingency element. I do not think that the noble Lord, Lord Prys-Davies, seemed to grasp that particular fact. The debt is deferred when one's income is below, currently, £15,204 a year. It only starts to bite above that figure.

Finally, I should like to address the crucially important question as to whether there is a case for delay whilst the inquiry proceeds, which I do not think to be the case. The Bill will enable us to establish arrangements characterised—as I put it—by choice, competition and diversity. It will enable us to bring in private sector capital and expertise and I believe, as I said in my opening remarks, there are real, tangible benefits here for student borrowers and for the taxpayer. We remain determined to get them as soon as possible. If we wait for the committee of inquiry to finish its work, private loans would not be available until 1998, 1999 or even later. I do not think that that delay could be justified given the benefits to be had. I do not see any difficulties in implementing our proposals while the committee does its work. We have made clear that it will need to take account of our intention to enable private financial institutions to make loans to students. This, and the extent to which the introduction of private capital for loans will reduce the burden on public spending, will be issues that the inquiry will no doubt want to consider, but that is obviously entirely a matter for the inquiry itself. The fact that we have made clear that private loans will go ahead does not mean that we have made up our minds in advance of the inquiry's recommendations. All we have said is that the inquiry does not start with a blank piece of paper; it starts from where we are, but the ground to be covered is a matter for the committee itself.

Baroness Farrington of Ribbleton

My Lords, will the Minister explain to the House what happens if the committee of inquiry suggests a completely different or a very modified scheme immediately after the Government have signed an agreement with a particular range of private banks and building societies committing everyone for five years?

Lord Henley

My Lords, we already have a scheme in operation; it is called the student loans Act of 1990. As I said, we do not start with a blank piece of paper, and that is the point I am making. It will be a matter for the Government then to consider the recommendations as appropriate. I do not think that the announcement of the inquiry will affect the responses of the banks and the building societies to our proposals. We are testing the market for a sensible and realistic development of our existing and successful loans scheme—a scheme that has been in existence since 1990 and a scheme that is now working very well. I hope and believe that the banks and building societies will take advantage of those opportunities, but obviously that is a matter for their judgment. Let us see how they respond.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

House adjourned at eleven minutes before ten o'clock.