HL Deb 25 October 2001 vol 627 cc1140-62

5.52 p.m.

Earl Russell rose to ask Her Majesty's Government what principles will underlie their review of student finance.

The noble Earl said: My Lords, it is a matter of pleasure and, indeed, a matter of pride to speak from the Benches of a party of which an academic need never be ashamed. Nevertheless, what I offer today is a personal speech. It is based on individual experience as a university tutor and would be better compared with a constituency speech in another place. If the Minister should be eagle-eyed enough to spot some trivial difference between what I have to say and Liberal Democrat Party policy, he will note that my noble friend Lady Sharp of Guildford is to speak for the party. I shall speak from my experience.

I declare an interest as a serving professor of history at King's College, London; a member of one of the best departments of the one of the best colleges of one of the best universities in the United Kingdom. But when, at the end of the debate, the Minister reaches for his Roget's Thesaurus for some adjectives, I do not think that "rosy tinted" will be near the top of his list.

I welcome also the long and distinguished list of speakers who have been attracted to contribute to the Question. I mean no derogation of anyone else if I offer a special welcome to the noble Lord, Lord Morgan. My son was a pupil in the Department of International Politics at the University of Aberystwyth when the noble Lord was in charge. My son received what would have been a world-class education by the standards upheld before 1979. I should like to say that that is appreciated.

I welcome the fact that there is to be a review. I have asked a Question because one cannot get right a review unless one appreciates what was wrong in the first place. I am not sure whether that knowledge exists in the Government, and it is principally to probe that point that I have tabled the Question.

The rumour working its way along the grapevine suggests that we may be moving in something of a Cubie direction; away from the up-front payment of a tuition fee and towards a graduate tax. Should that be the case, there will be many reasons for welcoming it. Averages, like fig leaves, conceal more than they reveal. Many graduates, in particular those who go on to choose professions such as teaching—and we need more of them—earn a great deal less than those averages. The case for gearing more closely than before repayment to the graduate salary is strong.

During the last election I recall sharing a platform with one of our more promising parliamentary candidates. She was a solicitor and a graduate of Cambridge. She told me that one of her best friends and colleagues had a younger sister even more able than herself. The sister had to face the prospect of paying the tuition fee. The family had decided collectively that they simply could not raise the money. Now, that extremely able sister is working in a menial job, testing brakes for Ford. First, that is a waste; secondly, it means that when the Secretary of State criticises universities for the high percentage of middle-class intake, she is demonstrating what John Stuart Mill described as, the inability of the unanalytic mind to recognise its own handiwork".

But what is most wrong with this package is its size. If that is all that is to be put right, all we shall achieve is putting student finances back to the position they were left in by John Major. If, after two full terms, that is the best that this Government have to offer, they can do as much as they like to make voting easier, but I do not think that they will be able to persuade many of my pupils to do so.

The main reason for saying that this package is not enough is the number of people who have to take paid employment during term time in order to sustain themselves. Before 1990, that was almost unknown. Now it is almost universal. I do not think that noble Lords realise quite how serious it is. That is because we observe the practice in America, where it does not do desperate damage. But American students take on over four years the amount of work that English graduates are required to undertake in three. The three-year intensive English degree is compatible only with the full-time student. But the full-time student is now very nearly extinct.

The only full-time students to be found are those with rich parents who receive from them financial support, very often in the order of £2,000 a year, over and above the package of finance provided by the state. This is simply another way in which middle-class children enter university with a special advantage, and it is not the doing of the universities. We shall not take the blame for it. It is a point about which we have protested since the very beginning.

I wish also to ask the Government—I have given the Minister's office notice of this—whether they will look again at the application to students of the Housing Act 1988. That is the legislation which requires halls of residence to charge market rates. A number of cases are known to me where the rent charged by the hall of residence is greater than the whole of the student financial package put together. In those circumstances, I should have thought that it was quite easy to argue that the package is not large enough. As a trustee of the National Portrait Gallery, I shall declare an interest in the view that London students should not be entirely confined to areas such as Whitechapel. They should not be ghettoised; they should be able to live in the same range of areas as the rest of us. But until the 1988 Act is tackled, they will not be able to do so. Furthermore, until the Act is tackled, vice-chancellors will continue to get the blame for something over which they have absolutely no control. One can say, as I once said of Queen Elizabeth I: she left her officials to collect the unpopularity. Those who suffer that do not forget it in a hurry.

Everyone, at one stage or another, suffers some kind of special financial misfortune. That is why I think that everyone should have the right of access to the social security safety net. The absence of that net is causing gross and extreme hardship in some cases. The worst examples are those students who are estranged from their parents. I am responsible for two such cases at present. One student has recently failed to obtain a degree when he should have ended up with a First. That I regard as entirely a government responsibility. If you are working in the part-time labour market, at low wages, without housing benefit, you simply cannot earn enough money to house yourself. In my opinion, people in that position would be well advised not to attempt to come to university. I know that that is also the view of the student concerned, who has expressed it to me in words of one syllable or occasionally less.

The same problem arises with single parents. The cost of childcare is a familiar problem. I had a student in that position. We even managed to get the whole of her year to club together to provide an organisation for baby sitting for her—we could not have done much more—but it still was not enough and she withdrew. I regard that as a failure, but it is a failure that I do not have the power to put right.

Before the Minister starts to give a reply about providing university nurseries or crèches, he should consider the pressure put on university space by expansion. That is extreme. I do not know whether the remarks attributed to the Chancellor of the Exchequer on the Sunday before last in the Independent on Sunday that there was no new money for this package were official, speculative or entirely mistaken. That matters because the Prime Minister is committing himself to further expansion. That simply cannot be done without expenditure. If I say that in my lectures there is standing room only, I am being optimistic; I am not even sure that there is standing room. But before the Minister replies to that with a graceful compliment, it is also the case with all my colleagues to whom I have spoken. I do not take it as a personal tribute.

If there is not to be additional money, there must be a scaling back of expansion; otherwise we shall not be giving students higher education but a mockery that pretends to be higher education.

Clearly the Prime Minister and the Chancellor of the Exchequer have got to get their act together. I believe that they are on worse terms than any pair of senior Ministers since Russell and Palmerston. But Russell and Palmerston could talk to each other. Can they?

6.2 p.m.

The Lord Bishop of Lichfield

My Lords, I am honoured to speak early in the debate and I thank the noble Earl. Lord Russell, for introducing it. My particular concern is very close to that of the noble Earl, which is to draw government attention to some of the personal and pastoral needs of students at new universities—I am thinking of new universities in my own region of the West Midlands—needs arising in part from precisely that wider access to university education in which we rejoice.

In their review of student finance, therefore, perhaps I may ask the Government to remember someone like Malcolm. Malcolm is an intelligent mature student who wanted to do better for his own family and for his future. He gained entrance to his regional university and now travels 15 miles a day to study there. But his initial small amount of debt has escalated, and despite hardship funds and other sources, plus working for 20 hours per week in paid employment—a point underlined by the noble Earl—Malcolm is now unable to pay his rent regularly. In the middle of his second year, therefore, he is being counselled for stress. Just the other day, I heard of his decision to withdraw. For him, university will be an experience of failure which may last for the rest of his life. I hope that the Government review of student finance will consider the Malcolms.

And also the Cathys. Cathy is a younger student of 18. For her first two years she worked as a waitress, part time, to make ends meet. But her strength and concentration ran out, and university, again, has become a place from which she has withdrawn. Should this happen in a decent society which made wider access in the first place?

In one way, I am rather proud to report that some students are receiving regular food pa reels from local churches, along with the covert collusion, I am glad to say, of college chaplains.

In conclusion, I remind the Government—they should need no reminding—of the three key players they should consider in the review. I have already mentioned the students but I shall say a further word about them. Many years back, in the 1960s, I was a university chaplain in Cambridge. As I look back to those years, one of my overwhelming remaining impressions is that of vulnerability. At that time, Cambridge had one of the highest suicide rates in the UK. Universities can provide some of the most creative times but also some of the most stressful and anxious.

But in the Midlands, the Malcolms and the Cathys do not even start from a level playing field. They did not grow up in families accustomed to mortgages and investments. Such students, if they graduate, do not walk into highly paid jobs. They do not expect to pay back their student loans within five years. They do not receive usually a golden handshake from an employer to pay off their student loan and bank overdraft on the first day of employment.

That is the students. But there are also the employers. What will be the role of the employers as the new government review goes forward? Many employers are beneficiaries of the new wider access to education; in what ways can they become contributors? I recall attending, several years ago, a memorable lunch meeting on a sunny day in the Birmingham boardroom of a highly successful manufacturing company. The lunch guest and speaker, whom I remember hearing with delight, was the noble Lord, Lord Dearing, who is in his place today. He held us in thrall by his vision for the renewal of school education.

Can the Government now take such firms into effective partnership in funding this crucial, exciting stage of regional university education itself? Is the contribution of such employers fairly distributed? Should those employers who can afford golden handshakes contribute more towards the whole?

Finally, what of society's contribution. I believe that some countries raise financial contributions from former students by collecting a graduate tax spread throughout their employment life. Others within higher education call for the reinstatement of government grants. These questions are too high for me; they are for others present today in your Lordships' House. I simply ask the Government in their review not to forget the Malcolms and the Cathys. They are there because of that very widening access which the Government have done so well to bring about in the first place.

6.9 p.m.

Lord Morgan

My Lords, I thank the noble Earl, Lord Russell, for introducing the debate. I also thank him for his extraordinarily warm tribute to the Department of International Politics at Aberystwyth. It is deeply gratifying. It was the first such department in the world. It has produced many brilliant students, including, as it happens, my immediate neighbour, the noble Baroness, Lady Andrews. I am much gratified by what the noble Earl said.

Like the noble Earl, I am an academic. Academics have been accused this week in The Times Higher Education Supplement of being whingers, comparable only to farmers. So let me begin by not whinging but by stating that the Government have been very positive in many ways about higher education. They have tried to increase the participation rate and to link universities with a process of lifelong learning. They have introduced some new money. And they have provided stability in terms of the horizon for funding, which I never experienced as a vice-chancellor in six and half years.

The Government do not always help themselves. There was the Laura Spence affair of ill memory, which was dreadfully unfair to Oxford. Even Estelle Morris's speech a few days ago combined some sensible observations with references to "ivory towers" and "elitism"—a term which politicians have almost drained of meaning. However, the Government have done many good things. I am delighted that my noble friend Lord Davies, who is a former university teacher and chairman of a funding council, will be able to elaborate on them.

But one of the good policies has not been student finance, which is the nub of the Question. It is clear that, perhaps for the best reasons, the policy that the Government introduced has not worked. No one need be smug about this. University finance, like housing finance, is an extremely technical matter. There are no quick fixes, no easy options for the Government. I do not believe that they have found the right one. The Dearing proposals—I am honoured that the noble Lord is to speak next—were not adopted. The maintenance grant, which the noble Lord wanted to be preserved, has been abolished and the system has been described by a Minister as "an administrative nightmare".

We have a situation that was intended to assist the deserving poor while removing a subsidy for the apparently not-so-deserving middle class. What has in fact happened is that students over a wide range of social categories have been discouraged and are certainly accumulating debts. The Secretary of State referred the other day to the "perception of debt". "Perception" is a word that might be dropped, along with "elitism", in the dustbin of history. The difficulties are not a matter of "perception"; they are real. Students are penalised. The right reverend Prelate has given a moving example of the kind of problems that occur.

The additional money has not affected the universities in the way that was intended. Many of the most impoverished universities are those that are the most deserving. They have suffered from a fall in student recruitment, with the result that they have been penalised in failing to recruit in sufficient numbers. Yet these are commonly the universities that are doing most in an attempt to promote social inclusion, to bring in ethnic minorities, to work among those in inner cities, former mining valleys or whatever.

The effect has been to widen the differential between those universities which are successful and the majority which are not. In 1991, when I was vice-chancellor, it was thought that all institutions would have parity of esteem as the binary division was removed. In fact, levels of inequality are worse than they were in a variety of measurable ways.

Tuition fees may not be the main hardship. The sum of £1,000 must be paid up-front, but it is commonly paid by the student's parents. It was thought for some time that having to pay the fees had deterred students and harmed recruitment. It is good to see that the recruitment figure has risen this year—to 18,000—although it is the first time for some years that it has occurred. So that vital principle—although I regretted it at the time—has been surrendered.

The ending of the maintenance grant has been harmful. It has produced the effects indicated by the two previous speakers. It has diminished the whole point and quality of the university experience. The fact that students commonly have to engage in other activities during university vacations means that a three-year university course is cut back by half. Essential reading and preparation has to be done during term time, not in the vacations. So if one thinks of universities in terms of quality rather than simply the quantity of warm bodies which can be inserted on the campus, that seems to me less satisfactory. We have Walter Bagehot's famous doctrine of "mere numbers" in place in this context.

The noble Earl, Lord Russell, mentioned the Cubie report. England may increasingly be the odd man out. The Northern Ireland Education Committee has voted in favour of the Cubie principle. In Scotland, the means-testing of grants is already in operation; tuition fees are not paid by the students themselves; and finance is provided through student endowments. I have spoken to Mr Cubie and he appears to be perfectly content with the financial basis from which that position derives. There is certainly some support for this approach in Wales, notably from the Welsh teachers' union, Undeb Cenedlaethol Athrawon Cymru.

Scotland takes a different view on these matters. It seems to regard higher education as a public good, a basic component of social citizenship. There is no cheap talk about it being the "birthright of the middle class" or use of the kind of slogans that we have heard on this side of the Border. Higher education is seen as an essential feature of citizenship which will repay society many times over through a skilled and cultured population. I wish that the same view could be imported here. Among other things, it is an example of the liberated and refreshing effect of devolution bringing in different philosophies about education.

The Question refers to "principles". I shall briefly suggest four. Clearly, access must be widened. We are well short of achieving that: an extra 100,000 places and a 50 per cent participation range are far in the distance. Any payment by students through fees, loans or endowments should be geared to means and spread out over a long period. That is a problem, as indicated in the report on social justice chaired by my noble friend Lord Borne some years ago—the problem being that if students are charged initially, they are the least equipped to pay. Equally, if the payments are phased over a long period, the funds are slow coming in. Clearly, the present system is not geared to means, although the intention is that it should be.

Thirdly, the principles should be nationally comparable across England and Wales. The system should not depend on the vagaries of local circumstances, including the policies of local authorities, which can vary considerably—for example, with regard to the recruitment and support of mature students.

Finally, I say with feeling as someone who was in charge of a university for six and half years, if there is extra money—please—the university ought to get the benefit. The funds are so often clawed back by the Treasury and by funding councils. Universities experience precisely the kind of problems in relation to their facilities and infrastructure that were described by the two previous speakers. I hope that that will be so. I should) like to believe that universities are still free, autonomous institutions, able to spend their money as they themselves see fit, as professional agencies. They are not nationalised creators of wealth, as they were in the past—but as a historian, I tend to be in favour of the past.

6.18 p.m.

Lord Dearing

My Lords, I join in the thanks to the noble Earl for initiating the debate, so that our collective experience and wisdom may contribute to guide the moving finger in the department—which, once having writ, we may not change a word. I hope that we have got in first!

I am no philosopher, but I remember the saying of George Santayana: Those who cannot remember the past are condemned to repeat it". The House may remember the circumstances that led the committee that I chaired to offer some recommendations regarding contributions from students. We commented that over the preceding 20 years there had been a 40 per cent reduction in the unit of funding for students in our institutions of higher education. On the then government's planned expenditure up to the year 1999–00 there would have been a fall of 50 per cent. In 1995, 41 institutions were in deficit. In 1996, the figure had risen to 66. Capital expenditure on buildings and equipment was being deferred, as was course maintenance. Research in our greatest research universities was imperilled by the decay of their infrastructure. Other universities from overseas said, "Unless you can remedy this we cannot see ourselves continuing to be research partners with you". There was, in short, a crisis in funding.

Against that background there was an accumulating view that there needed to be a new source of funding. People looked to industry but, of course, also to students who, as research has shown, are the major beneficiaries of higher education. After consulting its members the National Union of Students came to the conclusion—I believe I am right in this—that, while a minority of the members of that union were opposed to any change in the then maintenance grants, a majority were prepared to recognise that they should make some contribution, possibly through a loan.

Many others were also of that view. My committee came down against the abolition of maintenance grants because the great problem in our society is the imbalance between representation in higher education according to social class. If you were born into a family of professional middle class parents, the odds were that you went to university. If you were not born into such a family, the strong odds were that you did not go to university. I say from memory that those in social class 5 provided about 2 per cent of the university population. Our view was that to remove the one special grant that favoured those people would make it that much more unlikely that we would solve that problem. Therefore, we chose instead the concept of a postgraduation income contingent contribution to the cost of tuition. We thought that that was equitable because the prime beneficiaries of that public expenditure were those who enjoyed the benefits of higher education in terms of greater security of employment and higher pay. There was a return on their investment, including forgone income, of 11 to 14 per cent in real terms. However, that benefit was not available to all members of society; it was available only to those who had the right DNA and the right parents to give them the best chance of qualifying for higher education while those who were not so gifted did not benefit from that opportunity.

The great issue today is to maintain quality and to increase participation. I say in parentheses that the first big battle that has to be fought in that context is to improve participation in continuing education at 17. Our participation rate is 72 per cent; in the OECD it is over 80 per cent. In France, Germany and Japan it is over 90 per cent. We must lift the perfonnance there and commit the resources to secure major improvement if we are to have any hope of obtaining the 50 per cent participation rate in higher education and involving more people from less well-off homes—that is the big battle that must be fought.

I turn to the particular matter of the Question of the noble Earl, Lord Russell; that is, the matter of principles. I have seen and welcome the four principles offered by the Government as the foundation for the review. I can identify with those of the noble Lord, Lord Morgan. I have written down five of my own—I have a little list—which I offer to the department through the House: first, recognition of the equity of a post-graduate contribution to the cost of tuition on an income contingent basis; secondly, recognition that the form of post-graduation contribution should reflect the need to minimise the risk of deterring students from the sections of society which have historically—and still do so today—participated least in higher education; thirdly, recognition of the principle that students should not be denied access to higher education through lack of access to funding; fourthly, recognition that higher education needs to be adequately funded to maintain quality while continuing to expand student numbers; and, fifthly—the noble Lord, Lord Morgan, made this point—recognition that the graduate contribution should supplement and not replace state funding, and, I add, should supplement the cost of tuition rather than research because under-graduates come to university essentially to receive tuition.

I do not claim that my committee got the matter completely right as we came late in the day to the idea of a differential rate of tax. I confess that we did not evaluate that option adequately and did not have time to address its difficulties. There may be a better way to meet the criteria I have mentioned. However, I believe that my committee got the principle right. Now we have to get right the practice. I offer three key rallying points in three words: access, equity and quality.

6.26 p.m.

Lord Borrie

My Lords, it is a quarter of a century since I last held a university post and nearer to half a century since I was an officer of the National Union of Students. Therefore, I have no interest to declare today. However, I have a general interest which is probably shared by all of your Lordships here this evening, and that is an interest in trying to ensure that all those who are capable of benefiting from higher education have a reasonable chance to obtain it.

This is an extremely timely debate and I am grateful to the noble Earl for initiating it as all the signs are that there is to be some kind of major shift in government policy. In recent years one of the biggest factors that has influenced government policy has been the fact that, by and large, graduates are more likely to earn more substantial salaries over their lifetime than their non-graduate contemporaries. If that is so, the argument goes, because the community has assisted them financially in enabling them to become graduates through the payment of tuition fees and the availability of grants, they should pay something back to the community. That argument has been used to justify a shift to loans from grants and a belief in the right of the community to obtain a repayment of those loans over the graduates' years of earnings.

It is also pointed out how unfair it has been in the past that taxpayers, who provided out of their taxes for the non-repayable fees and grants, should be left with the bill when so many taxpayers earn less than graduates are likely to do. Unfortunately, despite what I still consider the reasonableness of the idea of graduates paying more of the costs of their university education out of their higher and rising earnings as graduates, potential university students and their parents have viewed the prospect of substantial debt hanging around their necks as a major turn-off. In an adjournment debate in the other place in June, soon after the general election, my honourable friend the Minister responsible for lifelong learning, Margaret Hodge, admitted that the rate of participation in higher education among people from the lower socioeconomic groups had remained, as she put it, "stubbornly low" since 1993 at about 25 per cent. In contrast the proportion of people from professional backgrounds going into higher education has gone up from about 55 per cent in 1991 to 70 per cent in 2001.

It is evident that despite the various forms of increased funding for students from disadvantaged groups made available by this Government, the prospect of starting one's working life with debt is a major deterrent. Other noble Lords, including the right reverend Prelate the Bishop of Lichfield, have mentioned that during one's university life the fact of debt is a real hardship and has created a seriously wasteful drop-out rate.

It may well be that students from poorer backgrounds are risk averse to an unreasonable extent. It may be, as the Minister reminded us in the debate in another place in June, that, set against an average increase in earnings over a lifetime of £400,000 for a graduate, a debt of, say, £10,000 is surely manageable. However, it is the prospect of debt—I hesitate to use the word "perception" in view of what my noble friend Lord Morgan said—that matters to a 20 year-old and his or her parents. The prospect of what seems to them a great burden of debt is putting off too many potential students, especially from families with no history of higher education and who are unconvinced, or only partially convinced, of the value of higher education.

The way forward—it is a bigger question than I can manage in a minute or two so noble Lords must forgive my shortening what I should like to say—must be some way of eliminating any element of debt that is likely to be perceived as serious or substantial. Instead of loans and the burden of repayment, we should think in terms of an adequate means-tested grant and a graduate tax for graduates who receive such grants when, in due course, they are earning above a certain income. As a starting point, I suggest something like twice average earnings.

At the initiative of the noble Earl, we are talking today about the financing of students. However, it is important that improving student finances, enabling them to cope with life while they are students, is not carried forward at the expense of basic university funding bearing in mind the present backlog of building maintenance work, the need for replacement of equipment and the continuing low level of staff salaries. It is no good reaching the government target of 50 per cent of everyone under 30 in higher education by 2010 if that higher education is an impoverished, low quality, shadow of what it ought to be.

6.33 p.m.

Lord Griffiths of Fforestfach

My Lords, I add my thanks to the noble Earl, Lord Russell, for this Question. He said that he spoke from a personal perspective: that if he were in another place it would be at the time of an election. It was a speech from the hustings, from the strand. However, I felt at times that it was also a speech from the trenches. I was moved by the way in which he related the experience of individual students and their hardships. I wish to speak about principles but I do not want to do so from the point of view of triumphalism or suggesting that there is an easy answer. I do not think that there is an easy answer but we should know where we are going.

I mention three principles. I do so against the background of having been a university teacher for 20 years—I did not go back into university teaching after having been an adviser at No. 10 because I found the situation so demoralising—and having given lectures at a number of foreign universities.

One important principle is that the review should be conducted in the context of universities as a whole and not student finance as a stand-alone issue. The form of student finance has a profound implication for the character of the university system which emerges. I give two examples. When I was an undergraduate at the London School of Economics, we had a maintenance grant and no fees. That system relied heavily on government. When I became part of that system, I found that managing a university department and then running a business school was intolerable. One was squeezed by the Treasury. Whether it was payment of staff, the ratio of senior to junior staff, student numbers (even if one was running successful courses), one felt that one was part of a mini-soviet, a planned economy where creativity and initiative were totally penned in.

The alternative is a world where universities are free to set their own fees, where they attract a considerable number of students who are in some way or another raising the money themselves through loans, savings, scholarships and so on, and where the university sector as a result is freed up. I see those as two alternatives. I do not think that governments of either persuasion over the past 30 to 40 years have chosen between one or the other. Part of the desperate problem of our universities is that we are in between.

I empathise with the situation of the students the noble Earl mentioned. However, I felt that simply saying that we need a little more money was a quick fix to solve a short term problem. The real issue involves a longer term problem. In undertaking the review, we should be thinking along that horizon. The universities have become demoralised. They are not attracting the right quality of staff, and there seems to be an increasing divergence between us and the United States. That is one important principle.

On my second principle, I agree with the noble Lord, Lord Dearing, that students should pay a significant proportion of the cost of their education. I have never believed that the primary purpose of a university education was to enable an individual to earn more money. If it came, so be it. I believe that the purpose of a university education is to teach people how to think, opening them up to a different world and encouraging them to move outside their subject.

I specialised in teaching economics, money and banking. I had the greatest difficulty including in courses the fact that people should look at the history of monetary thought which is so important to understanding the present. However, it has also to be recognised that having a university degree tends to increase the income of that student. It seems only fair that those people should be asked to pay something for that. The present loan scheme has disadvantages. Those can be changed. I agree with the idea of the noble Lord, Lord Dearing, of an income-contingent loan over a much longer period of time. However, I should be nervous about the introduction of a graduate income tax. There is no complete correlation between the amount of higher education which someone receives and the extra income they earn. It would be a wonderful idea. But because there is no such correlation I prefer to stick with the present.

The third principle—it is one in which I very much believe—is that of encouraging access. It is important that students of parents who did not go to university are not discouraged because of a system of finance.

Having said that universities should be free to set fees, that should be done on condition that there is something in place to ensure that students will be looked after. We could return to the system of maintenance grants that we had, which was effectively free education. We could have a system of means-tested grants, which would be better.

I should like a system whereby every university has an endowment fund that is kicked off by central government but to which the business community and alumni can make contributions. That happens in America and is successful in helping marginal students and those who might be deterred from going to university.

As I said, I do not think that the review will solve all problems. But it would be a terrible misfortune if it reached a conclusion that sent us back in the direction from which we have emerged in which the state unfortunately cast such a shadow over university faculties that they became a depressing environment.

6.41 p.m.

Baroness Warwick of Undereliffe

My Lords, I join other noble Lords in complimenting the noble Earl, Lord Russell, on raising this timely issue.

I should declare an interest as chief executive of Universities UK. In this capacity, I can bring to the debate a view from university heads about an issue that has concerned them for some time. It led to their call for a rethink on student support at our annual conference last month.

Vice-chancellors have seen growing evidence of students facing hardship, particularly in the longer hours that students are having to work in paid jobs to support themselves. The noble Earl, Lord Russell, referred to that problem. Vice-chancellors are also concerned about the adverse prospect as well as perception of debt. For many potential students. debt is indeed a perception. They are the very people whom we want to encourage into higher education. Universities UK was therefore delighted to see the Government responding to the call for a review of student support. From what we have read in the newspapers—I can think of the Guardian today—there is clearly detailed debate behind the doors of government on the best way of proceeding. I hope that the Minister will agree to share some of these ideas with universities, through Universities UK and, of course, the House, to ensure that they are workable. I hope that the Government will address the needs of the worst-off students.

What is needed? First, it is vital that the review focuses on the needs of students from poorer backgrounds. They are the students who need to be attracted to university if we are to meet the target of 50 per cent participation. At the moment, 74 per cent of students from the more affluent backgrounds enter higher education, yet only 15 per cent of young people from working class backgrounds do so. One has to reflect that despite the current situation, we used to have one of the most generous support systems for students in developed countries, but we have still not been successful in attracting those very students whom we want to attract now.

These are the students who are likely to struggle financially and they are also most likely to drop out. The UK has a good record on student retention but any student lost to the system because of financial hardship is a bitter loss. It is therefore important that the review considers how to retain students, as well as how to encourage them to enter higher education. It is inevitable that there will need to be a return to some form of mandatory maintenance support scheme for students.

My second principle is simplicity. Students need to be able to understand what they are entitled to. The current plethora of schemes—a staggering 21 at the last count—is ridiculously complex, difficult to navigate and expensive for universities to administer. The higher education Minister said to our members in September that the current system was a nightmare. The Secretary of State said on Monday that one needed a degree to understand how to access the support that is available.

Any new scheme of student support must be easily understood, well publicised and easy to access. We also need to be clear about what we mean by student support. There has been much confusion about tuition fees and we need to separate the issues of tuition fees and student support. Using tuition fees as a shorthand for the whole debate is unhelpful if we want to set up a new system that encourages wider participation in higher education.

Too many people from lower socio-economic groups believe that they have to pay fees when they do not. The Government have ensured that 50 per cent of all students will be exempt from paying fees. For those students, it is not tuition fees that lead to hardship, but the cost of supporting themselves.

Universities UK is opposed to scrapping means-tested tuition fee contributions. We believe that those students and families who can afford to make an upfront contribution to the costs of their higher education should do so. They receive a real tangible benefit in return. Universities rely on that substantial income stream. We should not forget that this now raises £350 million a year. Without that money, the funding that universities receive per student would have continued its historic decline. Any radical change in the system would jeopardise universities' financial stability, unless the Government are prepared to fill that gap in income.

It is important when considering the issue of student funding not to forget funding for institutions. If we are to widen participation in higher education, further investment in institutions is essential. All noble Lords who have spoken have reinforced that point. It is vital that once we have attracted students into higher education we do not short-change them when they get there. It is for that reason that Owain James of the National Union of Students backed Universities UK's view about investment in universities at the recent party conferences.

It is for that reason, too, that we shall be making the case for extra investment in high education institutions in the forthcoming spending review. Earlier this year, Universities UK report, New Directions for Higher Education Funding, showed that higher education needs at least an extra £900 million each year.

The findings that are emerging from the research that we are conducting for the spending review submissions show that the final figure may be a great deal more. I mention the figures to set in context the £350 million that is generated by the current tuition fee contribution scheme.

It is crucial that the much-needed shake-up in student support funding is not achieved at the expense of the student experience. Universities UK will be making it very clear in our submission to the forthcoming spending review that we need significant additional investment in our universities to ensure that the students whom we want to attract are well served; otherwise the world-class provision of which this country can be so proud will be in jeopardy.

In urging the Government to make access and simplicity the two guiding principles of their review, perhaps I may add a third, which is the quality of the student experience.

6.49 p.m.

Baroness Sharp of Guildford

My Lords, I join others in thanking my noble friend Lord Russell for initiating this debate on this important subject. I must also declare an interest as a fairly recently retired university teacher with a continuing interest in the university sector.

From these Benches, we welcome the Government's change of mind about student finance. Perhaps I should say that there is a certain amount of schadenfreude. For at least two years we have been saying to the Government that there was inconsistency in their stance. While pursuing a policy of widening access to university, they imposed tuition fees simultaneously. Above all, as the noble Baroness, Lady Warwick, said, maintenance grants were replaced by loans. That impacted particularly on the poorer students. The net effect has been that, whereas under the old regime of grants topped up by loans the average student emerged from university with debts of £5,000 to £7,000, they now emerge with debts of £12,000 and a probable burden of £.16,000 or even £20,000 in the future, unless daddy is wealthy enough to pay for it all.

The Liberal Democrats have pointed out time after time that the people who were hit hardest by the change were precisely those whom the Government were trying to entice into higher education. I do not understand why the Secretary of State was so surprised to find that some of those in the lower income brackets were risk-averse. Your Lordships have probably all heard of the law of diminishing returns, which is a fundamental principle for economists. There is also a law of diminishing utility. The more money that someone has, the less utility. For those who have very little money, it has very great utility. I am astonished by the figures for savings and assets held in this country, because a remarkable number of people have remarkably little in the way of savings. For many people in the lower income brackets, even finding £300 to mend the car when it breaks down is very difficult. For such people, the concept of an unsecured loan of £12,000 or £15,000 was a very difficult prospect.

As a consequence, many students are now in debt and working very long hours, to the detriment of their studies, trying to find a way out of their debt. This debate is about the principles that should underlie the new student finance system. The principles that I have jotted down accord very well with those of the noble Lords, Lord Dearing and Lord Griffiths.

The Liberal Democrats are committed to widening access to our universities. The noble Baroness, Lady Warwick, quoted the figures. Some 74 per cent of those from professional families now go to university, but from families of manual workers in the lowest income bracket the figure is only 13 per cent. That is an unacceptable differential. It is very important to find ways of widening access, particularly for those in the lower income brackets.

However, we find it difficult to accept the 50 per cent target unless there is more money in the system. My noble friend Lord Russell pointed out that he and his colleagues now face overcrowded lecture rooms with standing room only. That situation is repeated in university after university, and not just in lecture rooms, but seminar rooms and everything else. Everywhere is overcrowded and the facilities are rundown and crummy. We cannot take on the proposed extra 250,000 students because there is no room for them at the moment. We will have to spend more money. By all means let us have the 50 per cent target—although we cannot see any particular rhyme or reason for the figure—but not without more funding.

We also echo the words of the noble Lord, Lord Dearing, that the highest priority at the moment is the shortages in vocational education. We need to look at the education framework for 16 to 19 year-olds and do something about vocational education. In summary, we want increased access, but not at any cost.

Our second principle is equity. I pose to your Lordships two concepts of equity. The first is called vertical equity—to those according to need, from those according to ability. By all means let us pay according to ability. It makes more sense for there to be some income contingency in whatever loan repayment method is adopted, whether it is in the form of the Cubie endowment, or a graduate tax. However, we have to ask whose income it is anyhow. Do we look to the parents' income or to the student's income?

That brings us to the other concept of equity, which is also very important. Many of those who have taught in universities know that many parents do not pay up according to their assessment under the maintenance grant. It is very important that we have some mechanism whereby those students whose parents do not pay up are able to take out loans and pay them back afterwards.

From a Liberal Democrat point of view, it is also important to distinguish between tuition and maintenance. Our view is similar to that of the Scottish Executive, which was enunciated by the noble Lord, Lord Morgan: there is a public good element to higher education, tuition should be free, those who benefit should pay and there should be some repayment after the event either through the endowment, as in Scotland, or through some form of graduate tax. At the moment, we favour the Cubie type of endowment. From the point of view of access, it is vital that we tackle the maintenance element of student finance properly.

My final plea to the Government is that, in looking at the issue, they should take account of the current inequity between part-time and full-time students. Many students these days work 16 or 20 hours a week. They are, in effect, part-time students, but because they do not check in as part-time students, they get most of their tuition fees paid. Those who are registered as part-time students pay full tuition fees. Mothers who are part-time students do not get the benefit of all the childcare allowances that are available. There is great inequity here. Increasingly we shall have to look to a world in which students fund themselves through college. We need horizontal equity between the part-timers and the full-timers.

I welcome this timely debate and I hope that the Government will listen to some of the advice that they are given.

6.58 p.m.

Baroness Blatch

My Lords, I, too, thank the noble Earl, Lord Russell, for this timely debate. These short debates are always very valuable. As the noble Lord, Lord Dearing, said, I hope that the Government will inwardly digest before the onset of the review.

Before the 1997 election, I attended a meeting with sixth-formers, together with candidates from other parties who were contesting that election. Among the questions asked of each candidate was whether they had any plans to introduce tuition fees. It was not a surprising question, because there were rumours around at the time to that effect. The Dearing committee had been set up with all-party support and was also considering the financing of the higher education sector, and student finance in particular.

However, the then Labour Party candidate gave an assurance that his party had no plans to introduce tuition fees. His views were endorsed by the Prime Minister—then Leader of the Opposition—in an article under his name in the Evening Standard on 14th April 1997. He said: Labour has no plans to introduce tuition fees for higher education". That was further supported by the right honourable Robin Cook MP, who also agreed that his party was clear that tuition fees must be met by the state.

In July 1997, the Dearing report was published. Among its many recommendations was that students should pay a flat tuition fee and that the maintenance grant should be retained for students from low-income families. Within a matter of days, and without any consultation, the Government ignored the advice of the Dearing report. They reneged on those promises by announcing the introduction of tuition fees and, I believe more significantly, the wholesale abolition of maintenance grants. I said then, and subsequently during the passage of the Bill giving effect to those measures, that students could be forgiven for feeling that they had been double-crossed by the Government and by the Prime Minister in particular.

I also said then—I stand by it today—that the greatest impact on students from low-income families was the abolition of maintenance grants. That now accounts for £12,000-plus of accumulated debt after three years. Not only that, but the implementation date announced by the noble Baroness, Lady Blackstone—the Minister at that time—and its impact on students who were taking a gap year had to be retracted and modified to take the gap year into account.

All that was further complicated by the unfortunate effect that followed concerning what came to be known as the "Scottish anomaly". The tuition fees for Scottish students were waived and the concession was awarded to students from all other European countries but not to students from England, Wales or Northern Ireland. Again, students from England, Wales and Northern Ireland can be forgiven for believing that, as British citizens and as citizens of the European Union, they would be treated equally with, for example, southern Irish, French and Italian students.

A number of concessionary arrangements were also put in place which created even more unfairness; for example, four-year Bachelor of Education student teachers received no help whatever, but teachers doing a PGCE course had their fees waived.

The 1997 proposals have now been in place for three years and many of the predictions have come to pass. Poorer students are leaving university with a higher level of debt than their more affluent colleagues. Many students are inhibited from entering higher education, particularly the poorest and many from ethnic communities, by the fear of mounting debt. Contrary to government predictions, the result has not been massive additional funding for universities.

Alongside that unsatisfactory state of affairs, the Government have set a target for 50 per cent of young people under the age of 30 to enter higher education. The limit on time in this debate does not allow for any expansion on this policy. Suffice it to say that the appropriateness of degree courses, the quality of the experience for the student in higher education, the quality of degree courses themselves, academic freedom, academic standards and the resources needed to deliver the 50 per cent target are all very real issues which, I believe, require further discussion on another occasion.

With regard to the issue of access, my noble friend Lord Norton, who, sadly, has had to leave, particularly wanted a point to be made about access to PhD courses, which he considers to be critical at this time. However, what are we now to believe? A review has been proposed, and perhaps tonight all will be revealed. It is clear that very late in the day the Government, or, at least if we are to believe what we read and hear in the media, 10 Downing Street, have accepted that concern among young people and their families, especially those on low incomes, is considerable.

First, we heard that all options were to be considered. Then we heard that only two systems were under discussion. Therefore, my first question tonight is: which of those is correct? On the one hand, we hear that grants are to be reintroduced, tuition fees are to be scrapped and a graduate tax is to be introduced. However, now we also understand that the dead hand of the Treasury has intervened. This morning, the Guardian published an interesting article setting out Treasury-led proposals.

On first reading, I must say that one bad set of proposals is in danger of being replaced by another, hastily thought-out, bad set of proposals. As I said, we understand that there is to be a review. Like the noble Earl, Lord Russell, I want to ask the Government what principles they will put in place to underpin the review. Who will carry it out? I hope that it will not merely be an exchange between officials within the education department and behind closed doors. What evidence has been collected and analysed to inform the review, and can that evidence be made public?

What outside influence will be brought to bear on the review? In particular, will students, higher education and parental interests be taken into account and, if so, how? What is the time-scale for the outcome of the review, and when is it envisaged that the changes in the present system can be brought into effect? In the mean time, what will be the position of students under the present system who have already left and are still leaving higher education with debt?

As the present target is for a percentage of young people to enter higher education, a point that may need to be revisited by the review—it has been repeated today by the noble Lord, Lord Dearing—is the argument that a graduate has greater security of employment and higher pay. Increasingly, that is not the case. As the mother of a graduate doctor, I can tell the House that academic salaries do not put him in the category of earning a great deal extra and, certainly, security of employment does not feature at all for him.

Finally, just as the Dearing report was set up with the support of all parties, why do we not take an all-party approach to the issue of student finance? More particularly, why do we not take that approach to the funding of higher education? As the noble Lord, Lord Morgan, said, it is a challenge for all of us and for all parties, and it is a subject that would benefit from a much wider discussion. I, too, thank the noble Earl for providing the opportunity to discuss this issue.

7.6 p.m.

Lord Davies of Oldham

My Lords, it is customary, as many noble Lords who have contributed to this debate have done, to congratulate the originator of the debate on its timeliness. On this occasion, I do not believe that we are merely going through the form and courtesy of doing so but I consider that we are reflecting the fact that this debate is, indeed, timely.

The review to which reference has been made will continue over the next few months. The deliberations of this House will, of course, be taken into consideration. I very much doubt whether this will be the last occasion on which this House will discuss these important topics, not least because it is recognised that many noble Lords have a great interest in higher education and because debates such as these help to enlighten all of us about the way in which we may proceed.

The question addressed by the noble Earl, Lord Russell, concerns the principles that will underlie the review. Therefore, I shall do him the courtesy of seeking to respond immediately to the forthrightness and straightforwardness of that question. The aim of the review, and the principles on which it will be based, is to tackle concerns about student debt, especially among students from lower-income backgrounds. It will aim to reflect the general view expressed by many contributors to the debate that a perception exists that debt may deter students, particularly those from poorer backgrounds.

Against that perspective, it should be recognised that student applications have not reduced in number since the introduction of the present financial arrangements. Indeed, the position this year gives the lie to the concept that debt is a major deterrent to students. Nevertheless, in so far as it raises serious questions and discussion, it is important that we get this factor right. It is certainly important in relation to the second principle that will underline the review; namely, that the Government are committed to a target of 50 per cent participation in higher education by the year 2010. Therefore, so far as possible, any barriers which may obstruct application to higher education should be removed.

Against that background, I detected in the speech of the noble Baroness, Lady Blatch, some anxiety about whether that target could be reached without having deleterious effects on higher education. That is not the Government's view. We do not see why we should present to young people and mature students a lesser prospect of enjoying higher education than is common among their counterparts in other countries. However, we recognise that that makes a substantial charge on resources because, as my noble friend Lady Warwick and the noble Lord, Lord Dearing, emphasised, the quality of the experience must receive due attention. That means that we have to consider what resources are available.

The third principle must be that we provide sufficient resources to continue the standard of excellence in our universities. The right reverend Prelate discussed the difficulties experienced by students on courses. We must ensure that adequate resources are available during the years of study so that students can fulfil their course requirements. We should maintain that which we have delighted in for many decades; namely, a relatively low drop-out rate, which has shown no sign of increasing, among students in higher education. I am seeking to identify and to make clear the four principles that underpin the review. They represent a response to all the contributions that have been made in this debate.

I have a slight reservation—the noble Lord, Lord Griffiths, may have identified the strategy about which the Government are unconvinced. I refer to what is vulgarly called top-up fees, although the noble Lord used much more delicate terms, and to freeing certain universities so that they can obtain resources—the market—rather more readily than they can at present. The Government are not persuaded by that argument although we have heard what the noble Lord said. Others have articulated that case, which will no doubt be taken into consideration in the review.

I hasten to add, lest it be thought otherwise, that the review will not be conducted solely behind closed doors; full consultation will take place. It may be suggested that the Government appear to be engaging in such an important issue without the adequate participation of the wider community, not least of higher education institutions. However, I have only to look around the Chamber to recognise that there is small chance of the Government being able to evade their responsibility, which is to ensure that the review is open and that the issues are widely discussed. That will allow us to reach a due consensus and a proper solution to what we all recognise is an immensely thorny problem.

The only other jarring note to which, I confess, I have to respond was the suggestion—I believe that it was made by the noble Baroness, Lady Sharp—that different arrangements in different parts of the United Kingdom had been arrived at, and that that was a disadvantage to students in general. The consequences of devolution are bound to work their way through in that regard. We all recognise that difficulties are attendant upon that. We hope that there is a solution that commands assent across the different parts of the UK. However, it has not been so thus far. The objective relating to the situation in England and with regard to the review lies within the proper provenance of the Department for Education and Skills.

The review is taking place because the Government have no intention of letting obstacles get in the way of the goal of successful expansion. The noble Baroness, Lady Blatch, expressed reservations about certain matters relating to employment. Despite that, all noble Lords who contributed to this debate recognised that there is a gain to be had from higher education—a utilitarian gain. Earnings for graduates are still significantly above earnings for people who have not graduated, and unemployment levels are also lower among graduates than among others. Real utilitarian advantages, if I may use the phrase, can be gained from graduate status. The noble Earl, Lord Russell, may think that it is typical that I, a product of University College, London, should stress that which is utilitarian. That is the nature of our debate. I hasten to add that I recognise that the advantages of higher education involve much more than the way in which one earns one's living.

The fact that those advantages obtain encourages us in our view of the expansion of higher education. The background to that is the fact that we cannot possibly accept the situation in which, although a reasonable percentage of people from homes of relatively high incomes expect almost automatically to achieve the A-levels and entry requirements that are needed to get into higher education, the level of participation among our lower socio-economic groups is well below international comparisons. That is intolerable. That is why the issue needs to be addressed.

Earl Russell

My Lords, does the Minister accept that that undesirable situation will persist until the total package of student support is big enough for people not to need to depend on their parents for support while they are students?

Lord Davies of Oldham

My Lords, we have to recognise that this situation will be long running in terms of participation in higher education. As the noble Lord, Lord Dearing, identified, the problem goes back to the time when a maintenance grant system was in place and when there were no tuition fees. We should not exaggerate the extent to which the issue of student maintenance plays a part in this crucial aspect of how we advance educational opportunities.

Increased resources are needed and that is why some of the resources should come in the form of contributions from those who are the beneficiaries; namely, the students. We must ensure that more students are able to position themselves for entry into higher education. A major emphasis of the Government is to ensure that hard-won and important resources are directed towards schools and further education colleges to ensure that an increasing percentage of our young people are able to present themselves for entry into higher education because at present the figures are too low.

That is why the foundation degree, which creates a bridge, has been introduced. I believe that the noble Baroness, Lady Sharp, referred to the issue of vocational education, which is of significant importance. The foundation degree is meant to act as a bridge to encourage those who are committed to advancing their vocational skills, but at present do not do so, to take the opportunity of raising their skill level to graduate level.

We should also recognise that the Government have been concerned to increase investment in higher education. The investment in universities and HE colleges has been an extra £1.7 billion of publicly planned expenditure, 18 per cent in real terms, over the six years to 2003–04. There is not a noble Lord who does not recognise that that money could be spent usefully and intelligently. That is always the case with as good a cause as higher education, but there is no doubt that the Government are concerned to ensure that additional resources are placed in the system.

As a prudent Government, we have been monitoring the effects of the changes brought about by our policies. Demand for places is buoyant. UCAS showed an increase in allocated places of 5.5 per cent this year compared with last year. None the less, the Government have announced that they are undertaking a student review. I have set out the aims of the review and I have given a clear undertaking that consultation will take place. This debate has given us a good start in identifying some of the key issues that need to be addressed in the review.

Baroness Blatch

My Lords, can the Minister say who is to carry out the review?

Lord Davies of Oldham

My Lords, the review is to be conducted by the Department for Education and Skills, the department responsible for higher education policy. That does not alter the fact that the department will be open to consultation and will ensure that consultation takes place.

House adjourned at twenty-two minutes past seven o'clock.