HL Deb 19 April 2004 vol 660 cc12-27

3.10 p.m.

Baroness Ashton of Upholland

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

I am delighted today to speak about the most progressive university reforms in decades. Our higher education system is one of which we as a nation are rightly proud. We have a university tradition stretching back for centuries and a history of success in developing the talents of students and pushing back the frontiers of human knowledge.

That history was acknowledged and celebrated in the White Paper, The Future of Higher Education, which was published on 22 January 2003, and for which the Bill provides the legislative underpinning. However, that paper also recognised that the system faces ever greater challenges. Our universities and colleges find themselves in a time of rapid change. We are under ever greater pressure to compete on an international scale in a developing global economy. Our universities are a powerhouse for that competition, ensuring the availability of the most advanced knowledge and technology and the strongest skills base for industry and academia to draw on.

More people are now entering higher education in this country than at any time in the past: 43 per cent of those aged 18 to 30 now enter each year, and the numbers continue to rise. It has never been more important that we invest in and support our higher education system. We must ensure that higher education has the funding and the independence to fulfil its many roles. Many noble Lords sitting here today have a personal interest in the subject, having pursued distinguished careers in academia, and will join me in calling for greater support for the sector, but that support must be balanced with a determination to open up opportunities to all.

Higher education is not only a driver of the economy and a source of knowledge, critical as those roles are; it is also a pillar of our society. It educates and socialises those who pass through it, teaching them the value of independent thought and analysis and of understanding and recognising different viewpoints. It has a proud tradition of independent consideration of the issues facing our society. Our universities have always been the custodians of our intellectual heritage, and we will always need them to fulfil the function of speaking truth to power.

Sadly, while the importance of higher education has never been in doubt, there has been a history of underfunding, with a backlog of about £8 billion. With ever greater demand for higher education and the skills it can provide, it is essential that that underfunding is addressed. That is why the Bill provides greater support to our higher education system, while ensuring that it remains inclusive, and open to all those talented enough to aspire to it.

The principle of graduates making a contribution to the cost of their studies was established some time ago by the noble Lord, Lord Dearing, through an extremely learned and well considered report by his National Committee of Enquiry into Higher Education. It is a credit to him and to the thoroughness of that report that when it was published in 1997, it received the support of all parties, and that it remains a significant source of information and well informed opinion on the issue of funding in higher education. I know that that remains a subject close to the heart of the noble Lord, Lord Dearing, and look forward to the contributions that he will make to our debates on the Bill.

The report established the principle that higher education should be funded by those who benefit from it—that is, society, industry, and graduates. The benefits of higher education to our society are well established and well documented, but cannot be repeated often enough. It is the foundation and the driver of our understanding of the world around us. The report of the committee chaired by the noble Lord, Lord Dearing, put that better than I can. It states: Their time in higher education provides students with an opportunity to consider for themselves the values needed in a democratic society; a willingness to debate issues rationally and openly, and a commitment to a pluralistic society, the rule of law and the protection of personal liberties". Research in universities has developed many of the medicines and technologies that we take for granted in supporting the way we live. It is for those reasons, and many more, that the state is and should always remain the largest funder of higher education, on behalf of the society that it serves. By 2006, we will be investing about £10 billion a year in our higher education system.

Employers and industry already contribute through payment of higher wages to graduates and, increasingly, through the provision of recruitment incentives such as paying off student loans or offering golden hellos. There is, however, much more to be done. In the longer term, institutions will look to employers to make a greater contribution to building up university endowments, helping to safeguard the independence of the sector by providing a discrete source of funding. A taskforce headed by Eric Thomas, vice-chancellor of Bristol University, is looking at how best to increase giving, looking at the actions both institutions and Government can take.

Finally, there is the contribution to be made by graduates, who gain a personal benefit. Once again, that cannot be understated. It is true that their earning power is substantially enhanced. Graduates earn, on average, 50 per cent more than non-graduates. But that is only part of the benefit. Research has shown that graduates tend to have better health, lower prospects of unemployment and greater wealth than non-graduates.

That, then, is the context in which the Bill comes before your Lordships' House. It is a Bill with profound implications for the future of higher education, and one which has won broad support among our universities.

Turning now to the detail of the Bill, Part 1 implements another of the recommendations of the noble Lord, Lord Dearing: the creation of a research council for the arts and humanities. It provides the foundation for the new research council to be created by Royal Charter and has been universally welcomed by the arts and humanities community across the UK. That move is long overdue, and will provide greater prestige for arts and humanities research, as well as encouraging interdisciplinary work with subjects governed by the science research councils—something which has been of growing importance as the traditional boundaries between disciplines have become blurred by developing research.

Part 2 will, I know, be of particular interest to some noble Lords who serve in the role of university visitors. The institution of the visitor is a longstanding and valuable tradition. But there are human rights issues regarding the specific role that it plays in relation to student complaints, since the exclusivity of the visitor's jurisdiction means that students are effectively denied access to the courts. That part of the Bill therefore excludes student complaints from the jurisdiction of the visitor.

In place of the visitor's consideration of student complaints, there will be a system of independent review, which we intend to be performed through the Office of the Independent Adjudicator, already set up by the sector and headed by Dame Ruth Deech. We believe it right to create legislative underpinning for a scheme set up by and for the sector and with student representation on its board, rather than to seek to implement such a scheme from the centre.

Part 3 implements our commitment to offer greater freedom to universities by permitting them to set their own fees, up to a limit of £3,000. Those fees, instead of being payable at the beginning of the course, will be repaid after graduation. It is a fundamental principle of our approach that universities should be able to determine the level of fee themselves. Offering them that freedom recognises that they are autonomous institutions and should be given a real choice about how they respond to the circumstances in which they find themselves.

That step is likely to be of real and lasting benefit to the higher education sector. We estimate that it will raise about £1 billion a year in additional income. For institutions charging the full £3,000, that is equivalent to an increase of about 30 per cent in the average funding per student, which by any measure is a substantial gain.

Lord Roberts of Conwy

My Lords, will the Minister explain what will happen to student support in Wales, because the clauses relating to Wales are all only permissive and the National Assembly for Wales has pledged itself not to introduce variable fees until at least 2007? Will there be additional funding from another stream?

Baroness Ashton of Upholland

My Lords, if the noble Lord will allow me to continue with my speech, I will at least attempt to answer that in part, and I will of course do so in winding up. Did the noble Baroness wish to intervene?

Baroness Boothroyd

My Lords, I thank the noble Baroness. She has just informed the House that, through this legislation, universities will be receiving something like £1 billion, which, of course, will be of great assistance to them. As she knows, not one penny of that money will go to the Open University, the largest in this country. I would like to hear her comments on that, because it places the Open University in a disadvantaged position.

Baroness Ashton of Upholland

My Lords, there is much that we have to offer the Open University in the passage of this Bill. There is much that we have to offer in terms of support for part-time students. If the noble Baroness will allow me to finish my speech, I will ensure that in the course of our deliberations today, and beyond, I answer her point. I am mindful, as are my colleagues in the department, of the issues that she will represent well on behalf of the Open University.

Set against this benefit, of course, must be considerations of access. It is essential to the success of our higher education system, and of our economy, that universities are able to recruit the very best and most talented students, whatever their backgrounds. That is why this part of the Bill also contains provision for a director of fair access, who will be charged with promoting and safeguarding fair access to higher education.

Any institution wishing to set fees above the equivalent of the present standard level for full-time undergraduate students will be required to enter into an access plan. Plans will set out the measures that the institution intends to take in order to safeguard and widen access, including outreach work with schools and colleges, the provision of financial support—for instance in the form of bursaries—and the institution's own milestones, showing what it hopes the plan will achieve.

Let me give a complete assurance that these plans will belong to the institutions themselves. The measures that they contain, and the milestones that they set, will be ones that the institution believes are right to support access, taking into account its unique circumstances and access record. The director's role will be to determine whether the measures in the plan are sufficient to ensure fair access, taking into account the fee levels that the institution intends to set. This is an important role. Fair access is not only a matter of social justice. Without it, the pool of talent for our universities to draw on is restricted and, ultimately, so is their success. For the director to play his part unhindered, his independence of judgment must be assured. That is why we are creating the post as a separate legal entity.

There are those who have argued that the role of an access regulator should be taken on by HEFCE. I understand the concerns, some of which will be expressed in the passage of this Bill, that we should not create new bodies that duplicate one another, but in the case of the director that is not what we are doing. The Bill contains provisions that will allow the director to obtain staff and services from HEFCE. This means that he will be able to draw on its expertise and systems, ensuring that there is no duplication of effort and minimising bureaucracy. At the same time, the final decision over access plans rests with the director, whose judgment is wholly independent, and whose first concern is for fair access and for prospective students, not for the funding needs of institutions. Independence is the critical factor.

There will be limits on the director's sphere of influence. I hope that it will help if I clarify now, at the outset of our debate, that the director's remit will not extend to university admissions. Decisions over who to admit are entirely the business of institutions themselves and should be based on the merit and talent of the applicant. Such matters should not be the concern of the director, who will focus on measures to attract applications from those who might otherwise decide not to go to university. This work will go hand in hand with the work that is done by schools, even in the early years. A combination of raising attainment and raising aspirations is needed to ensure fair access, and this work must begin the moment a child sets foot in school, or even in nursery. We have made great strides forward in raising attainment. We have an impressive track record. It is a testament to the work and dedication of teachers and students.

The director will build on these efforts, working with universities to help young people to fulfil their potential. Institutions such as those in Cambridge, Exeter, and Imperial College have already announced that they will introduce bursary schemes of up to £4,000 a year when variable fees are introduced. This represents a huge stride forward for access and for securing the best talent for our universities, and for our country.

We are mindful, of course, that this Bill proposes significant reforms and that we would be remiss if we did not seek to monitor the progress of our work to make sure that it takes us in the right direction. For that reason, we have announced that an independent commission will review the effect of the policies in this Bill, based on the first three years of their operation. In the more immediate future, a review led by Sir Alan Langlands will examine best practice in recruitment to the professions in the public, voluntary and private sectors.

Part 4 of the Bill contains a number of important measures. The first of these is to close a loophole in the existing law relating to bankruptcy. I am grateful to the noble Lord, Lord Hunt of Wirral, who is not in his place, for raising this issue during the passage of the Enterprise Bill. He questioned whether student loans were protected from the effects of bankruptcy. That was our intention, but his inquiries resulted in our obtaining legal advice that student loans were not protected. Student debt, as many noble Lords will be aware, is unlike commercial debt, in that repayments are linked to income. If a graduate is not earning at any time, there is no requirement to make repayments. Neither is there any real rate of interest charged, meaning that there is no need to be concerned if repayments stop for a time because of lack of earnings. There is no reason for student debt to be discharged on bankruptcy, and this clause ensures that that will not be the case. Clause 40 enables us to provide loans so that students can defer their tuition fees. It is our intention that contributions should be made by graduates, not students, based on their earnings after completing their course. No graduate will need to pay anything at all until they are earning at least £15,000 a year.

Clause 41 devolves responsibility for student support to the National Assembly for Wales. This, along with the powers that the Bill provides in relation to fees, completes the devolution of higher education to Wales. This step is in line with the logic of the devolution settlement, and it corrects an odd situation—referred to by the noble Lord, Lord Roberts—whereby the National Assembly is responsible for part of the higher education funding system, but not all of it. The National Assembly will, as a result of these changes, for the first time have the power to determine its own policy for higher education, based on what is right for Wales. The policies of the Assembly will be informed by the review to be undertaken by Professor Teresa Rees, which will report by April 2005 on the most appropriate use of the newly transferred student support powers. Finally, this part of the Bill contains provision for the sharing of information related to student support. This is intended to reduce bureaucracy and help to ensure that individuals need not provide the same information twice, or even three or four times, in their dealings with education authorities, the Student Loans Company, UCAS, and universities. It is important that I make it clear that this measure is entirely compatible with the safeguards in the Data Protection Act. The Bill makes it clear that information cannot be shared without the consent of the individual to whom it relates.

This Bill marks a significant moment in the history of our education system. Our universities need more and better funding, and if we do not provide it, we risk falling behind the rest of the world at a time when so many countries are surging forwards towards the vision of a learning society. Today, we are offered the chance to take a great step towards that vision, and to do so in a way that protects the interests of students and universities alike, recognising that they are ultimately one and the same. It is a bold step, but it is the right one for us to take if we are to secure a better future for higher education in this country. The Bill before us today will do that, offering the chance for our universities to compete with the best in the world, and for our society to harness the talents of some of its most gifted members. I commend it to your Lordships' House.

Moved, That the Bill be now read a second time.— (Baroness Ashton of Upholland.)

3.29 p.m.

Lord Forsyth of Drumlean

My Lords, it is at least seven years since I last spoke from the Front Bench, and although I must have taken at least a dozen Bills through the other place in government, I have never had the experience of doing so in Opposition, or in your Lordships' House. Both are pretty terrifying, but are mitigated by the splendid support of my noble friend Lady Seccombe, who will wind up the debate, no doubt in the early hours of this morning. Taking this Bill through your Lordships' House is a one-off, guest appearance from me. I am solely here to assist my noble friend Lady Blatch, and I am sure that I speak for everyone in the House in wishing her a speedy and full recovery.

Noble Lords

Hear, hear!

Lord Forsyth of Drumlean

My Lords, I should also place on record my thanks to the Minister, who was extremely helpful and attentive in sending me information—the reading of which took up all my Easter holiday.

I suspect that the Minister must have a heavy heart in defending the Bill, which is the product of a political fix between the Government and their revolting Back-Benchers and universities desperate for cash. It delivers poor value for the taxpayer, is a bad deal for students and their families and is an unwarranted attack on the freedom and independence of our universities. In short, it is a bad Bill that does not resolve the serious difficulties and long-term funding problems facing our universities.

In recent years, there has been much debate in the House about the Salisbury convention, which restrains the House from opposing legislation that implements manifesto commitments. What are we to make of this Bill, which repudiates the clear and specific manifesto commitments made by the Government and the other political parties in the House of Commons? It is no wonder that voters are cynical, as a poll published today shows, when more than 600 Members of Parliament stand for election declaring that they will not introduce top-up fees and then legislation doing so is dragooned through the House of Commons by a government with a majority of 161 and presented to this House having only just survived its Second Reading by a majority of five.

The noble Baroness must be ashamed of her Government. What exactly did Labour's 2001 manifesto mean, when it said: We will not introduce 'top-up' fees and have legislated to prevent them"? What did the then education Minister, Mr Blunkett, mean when he said to the House of Commons that, the Teaching and Higher Education Act 1998 permits us to rule out top-up fees…As I have just said, with our majority in the House after the next general election, we shall ensure that those fees are not levied"?—[Official Report, Commons, 8/2/01; col. 1061.] I was a casualty of the 1997 election campaign. I remember a specific pledge not to introduce fees at all. Within three months of victory, this Government announced that they would do so after all, in order to increase the income of the universities.

I am not just scoring political points, for there are two lessons to be drawn from that. First, we cannot believe a word that the Government say. All those in the universities and elsewhere who mysteriously believe that the ceiling on top-up fees will be lifted and all those Back-Benchers and others who believe that they will not should take note. The second lesson is that the universities did not benefit from the introduction of fees, because there is no guarantee of additionality. The Treasury has simply pocketed the cash. For all the crowing about "Education, education, education", government funding per student—according to the Government's own figures—has fallen by 10 per cent.

In every year since 1997, funding per student has been less than in any of the 18 years of Conservative government. I saw the Minister shake her head, but she will find the figures in the 2003 report issued by her own department. I think that they are in table 3.8. Those who believe that top-up fees will mean more cash should consider the Government's past conduct and ask themselves what is in the Bill to make things any different. Even Universities UK, whose briefings must bring joy to the Labour Benches, acknowledges the danger that additional income will be clawed back by the Treasury.

The Government have a manifesto target to get 50 per cent of those under 30 in England into higher education by 2010. The Secretary of State should abandon arbitrary targets and concentrate on ensuring that our young people have the opportunities that are best suited to them in higher and further education, including the Open University, as the noble Baroness, Lady Boothroyd, indicated. The institutions must be properly funded to meet the task.

According to Universities UK, the size of the funding gap, including capital, is around £10 billion. Top-up fees will provide additional income of about £900 million. The Minister said that it would be £1 billion, but she neglected to mention the money that will have to be paid back in bursaries. The net position is £900 million, after bursaries are paid out. That will come at considerable cost to the taxpayer. The cost to the taxpayer of getting students to contribute £900 million will be more than £1.1 billion. That includes £445 million for subsidised loans on top-up fees; £190 million on loans to replace current tuition fees; £25 million on limiting debt repayment to 25 years; £450 million on reintroducing the maintenance grants that this Government abolished; and £1 million for OFFA and student complaints. In other words, the costs to the taxpayer exceed the revenue obtained by the universities from fees by £200 million. That is just mad. We need a well thought-out plan to fill the funding gap. That is the Government's responsibility, and the Bill does not meet it.

Having got the Bill through the Commons using the votes of Scottish MPs, Labour now plans, with its Liberal coalition colleagues in the Scottish Parliament, to prevent so-called "fee refugees" from England flooding Scottish universities. Jim Wallace, the Liberal higher education Minister is quoted as saying: Our first priority, our prime responsibility as an executive must be to protect the interest of Scottish domiciled students wherever they choose to study in the UK". Can the Minister tell us whether it is true that the Scottish Executive plans to raise the fees charged to English students, while charging other EU students—from France, Germany and the new entrant countries—the same as Scottish students? I am a proud Scot, but who will speak for England in the Government?

Earl Russell

My Lords, I am enjoying what the noble Lord is saying, but I do not think that he need worry about that particular differential. Article 7 of the Treaty of Rome will prevent it very effectively.

Lord Forsyth of Drumlean

My Lords, I am not known for my belief in relying on the Treaty of Rome. If a government bring legislation before the House, I believe that they should have thought it through. No one knows what will be the position of English students going to Scottish universities. The position of Scottish students, who, at the moment, receive no package, is equally uncertain. As my noble friend said, the position of the Welsh is uncertain. The position of the English is clear: they will lose out. For all those reasons, the Minister ought to think again. I hope that, in her winding-up speech, she will give us some answers to those important points.

The universities' desperation for cash has seen them bludgeoned into accepting the access regulator. That is a direct assault on their independence as the political price of appeasing the prejudices of the Government's Back-Benchers along the Corridor. Once again, the Government appear to have different audiences believing different things about the impact of the measure. Universities have been assured by Ministers that OFFA will be independent and will not interfere in admissions policy. We intend to take the Minister at her word and seek to amend the Bill to ensure that assurances given are enshrined in primary legislation.

What on earth do the Government think that they are doing producing primary legislation that places duties on universities that are woolly and undefined? Universities are required to present access plans to OFFA, showing that they have taken measures to attract applications from groups that are "underrepresented in higher education". What does that mean? It just will not do for Ministers belatedly to write letters to Standing Committees of the House of Commons giving their interpretation. Universities are entitled to clarity in the Bill and to protection from exposure to litigation from disgruntled students.

The Minister kindly sent me the draft letter of statutory guidance to OFFA. It was not encouraging and, to speak frankly, was downright dishonest. Although the Government disingenuously declare that admissions policy will be outside the remit of OFFA, everything in the requirements placed on the universities points to them altering their admissions criteria. The Minister looks puzzled. I quote: I would expect that OFFA would expect the most, in terms of outreach and financial support, from institutions whose records suggest that they have furthest to go in securing a broadly-based intake of students". I believe that children are innocent of the schools that they attend or the wealth and background of their parents. Universities should assess achievement and potential on an individual basis. The places should go to those students best able to succeed in them. No one suggests that the World Cup winning English rugby team was unrepresentative, that there were too many people from independent schools, and that the criteria for selection should be more broadly based composition.

The criteria are skills, aptitude, ability and excellence. That is how to get a world-class team. Of course, it is legitimate to ask why more young people from state schools do not achieve their potential. But the Government should not seek to make our universities the scapegoat for their failure to deliver a schools system that gives all our youngsters the necessary skills and aspirations to be all that they can be.

To describe the director of OFFA as independent is laughable. He is appointed by the Secretary of State, is answerable to the Secretary of State—not to Parliament—and receives guidance from the Secretary of State. He has very punitive powers to levy huge fines on universities, to suspend their income stream and to direct HEFCE on provision of grant, all of which can be exercised without any right of appeal.

On a practical matter, perhaps the Minister could outline how universities are expected to meet the requirements of OFFA in time for 2006. Applications will be made in the summer of 2005, which means that the universities have to prepare their publications in January 2005. There is no director in place, nor any advice being given on a process that needs to be completed in less than nine months' time. Is that reasonable?

Even more bizarre is the assertion that the universities that have done the most in respect of access should be required to do more than those that have done the least: It is clearly in the spirit of our policy that the money that institutions commit in their access agreements should be additional to the financial support and access measures they are already providing". The Government describe all of that as regulation with a light touch. Heaven help higher education if Ministers decide to take the gloves off and this Bill reaches the statute book unamended.

There are some aspects in Parts 1 and 2 of the Bill that I support in principle. The proposal to create an arts and humanities research council is particularly welcome. Perhaps the Minister can confirm that the board will now be given the funding received by other research councils to implement the Roberts review. However, overall, this is a sorry performance from a Government who have lost their way, forgotten their principles and seem increasingly incompetent and accident-prone. I suspect that the Prime Minister's slogan, "Education, education, education.' had its roots in Othello—that is, "Reputation, reputation, reputation". The Government have lost their reputation: a reputation that was got without merit and the loss of which this Bill alone makes thoroughly deserved.

Lord Holme of Cheltenham

My Lords, I have enjoyed the noble Lord's speech enormously. But, before the noble Lord sits down, I hope that we shall be given a tiny, weeny hint of the Conservative Party's policies on this issue.

Lord Forsyth of Drumlean

My Lords, I am most grateful for that very helpful intervention. I am quite new to this House and the Front Bench, but I thought that the business being discussed was this Bill and why it should be on the statute book. I can understand why Liberal Democrats wish to divert the business given their record north of the Border where I live.

3.44 p.m.

Baroness Sharp of Guildford

My Lords, I, too, should like to thank the Minister for her detailed explanation. I declare an interest as a past fellow and a continuing visiting fellow of the science policy research unit at the University of Sussex. By today's standards, this is a relatively short Bill. However, it is not uncontroversial. Like the noble Lord, Lord Forsyth, I, too, welcome some aspects of the Bill. I am delighted to see, finally, the setting up of the arts and humanities research council. I also welcome the new arrangements for the resolution of student complaints and the replacement of the archaic visitor system. In Committee, we shall perhaps be arguing for a rather wider remit for the independent adjudicator, but that does not take away our welcome for this part of the Bill. We also applaud the moving of responsibility for the provision of higher education and student support in Wales to the Welsh Assembly where it should properly have been some time ago.

However, the parts of the Bill covered by those provisions are not the key parts. Part 3, which deals with top-up fees and the Office for Fair Access, is the key part. Even in Part 3 there are aspects that we welcome. If there is to be payment, we welcome the shift of payment to post-graduation. In all respects, it is better that the responsibility should lie with the graduate rather than with the student's parents. We welcome that shift, although it comes in regulations rather than in the Bill itself.

We also welcome the reintroduction of up-front maintenance grants, which also come in regulations, although, to some extent, the pleasure is offset by the fact that those receiving the grant will be incurring equivalent debts as a result of having to pay course fees.

However, it is no secret whatever that on these Benches we have opposed fees and we oppose top-up fees. In 1998, we opposed the introduction of the then £1,000 Dearing fee. In those days, in some senses, our objections were the same as some of our continuing objections today. There are four issues of principle. First, these Benches believe that tuition should be free. We make a distinction at university level between the costs of maintenance—that is, hotel costs, if one likes, which largely should be met by the student—and tuition costs, or the cost of providing teaching and the necessary back-up to teaching.

Perhaps that position is idealistic, but this party firmly believes that no one should be inhibited from fulfilling himself in educational terms by cost. The easiest and most effective way of achieving that objective is to make tuition free.

Secondly, we argued in 1998 and we argue today that once tuition fees are introduced they are bound to be increased. In 1998, we were assured by Ministers that that would not be so. The introduction of the £1,000 Dearing fee was not a prelude to further top-up fees. The Secretary of State, David Blunkett, said: We introduced the new funding arrangements for students and for repayment precisely to avoid the universities having to levy extra charges … I have made my position clear … I am against the levying of top-up fees".—[Official Report, Commons, 8/2/01; col. 1061.] On 26 July 2000, the noble Baroness, Lady Blackstone, who I see here today, said before the Select Committee on Education and Employment: Top-up fees would, I think, introduce a free for all that would be very, very difficult to operate in this country. There is no tradition of this sort of totally free market tradition in higher education. I think we would find great disparities between different institutions in the kind of income they were able to generate, also in what they were charging. We would have students very confused by the range of possible charges they might have to pay. The Government have made it absolutely clear. It is no part of our policy to promote or introduce top-up fees. I cannot make my position or that of the Government clearer". The noble Lord, Lord Forsyth, reminded us of the Government's manifesto promise in the 2001 general election; that is: We will not introduce top-up fees and have legislated to prevent them". What can we believe of promises made that top-up fees will not be increased during the next Parliament? Given that it is now proposed that any increase during this or the coming Parliament should be subject to amendable affirmative resolution, I suppose the answer is that it is up to Parliament itself. However, given the pressure coming from some universities to raise the cap, what we fear is that once the cap is off, whether at the end of the next Parliament or the beginning of the following, we shall see emerge exactly the kind of free-for-all that the noble Baroness, Lady Blackstone, foresaw.

We shall have a "premier league" of universities attracting the best academics and students from high-income families. It should be remembered that, for all their bursaries, the Ivy League universities in the United States take fewer than 10 per cent of their students from low-income families. Indeed, Harvard takes only 4.7 of its students from such families, a record I should say that is far worse than that of our Russell Group in this country. However, once the premier league has been established, the remaining universities will be left to languish in the lower leagues, publicly funded but with little hope of promotion.

The prospect of a two-tier university system, divided not by academic ability as it is now on the whole, but by class, is not one we relish. Members on these Benches believe that the curse of the British education system has been the deep, class-ridden divide between private and public education in this country. We do not want to see that divide being mirrored in our universities.

Fourthly, we object to the "marketisation" of knowledge that is implicit in this proposal. We fear that variable fees will introduce an element whereby learning and scholarship are made part of the financial marketplace. On other occasions in this House I have argued that there is a market in academia, but to date it has been dominated by ability. Places in the top departments of the best universities are rationed by ability, as are the top graduate studentships, academic jobs and research grants. Peer review, which grades according to perceived academic excellence, effectively replaces the market in much of academia and has its own rewards in terms of status and promotion.

Now another market is to be introduced, one that encourages students to choose subjects on the basis not of interest and ability but of costs and monetary rewards after graduation. As the present Secretary of State is famously said to have remarked, "I don't mind there being some medievalists around for ornamental purposes, but there is no reason for the state to pay for them". Our civilisation has got itself into a sorry state if that is really the case—one in which knowledge is valued only for its contribution to competitiveness.

The proposals also present very real problems in attracting bright students into postgraduate research. We should heed the warning of Professor Robert Reich in his recent lecture to the Higher Education Policy Institute: Be careful about going down the American road of the marketisation of knowledge. Don't give up the public vision of higher education. Don't allow it to become a private good". Those are our objections to the principle of paying fees, but we also have three practical objections to the Bill. We believe that the proposals are ineffective, inefficient and unfair. They are ineffective because they will not raise the money that universities need. When asked how much our universities need, the noble Baroness came up with a figure of £8 billion, but I believe that I am right in saying that that figure embraces a three-year span of time. Various figures have been bandied about, but it is important to take an annual figure and not to mix it up with the science budget. Science needs more money and, thanks to the efforts of the noble Lord, Lord Sainsbury, it has been securing much more in the way of funds. Rather, the teaching budget has been squeezed and it is that budget which will be affected by top-up fees.

Returning to the question of how much the universities need, the current briefing produced by Universities UK states that the annual deficit in the teaching budget is running at £2 billion. How much will top-up fees bring in? At most, they will generate around £1 billion a year. Therefore in terms of the prime objective being sought by the Bill—that of bringing in new money to universities—only half of that objective will be realised. Universities will receive £1 billion a year rather than the £2 billion they require.

Top-up fees are ineffective in that they are not fulfilling their primary function and they are very inefficient. Some noble Lords may have managed to get their heads around the extremely complicated arrangements now in place to help students from poor homes to pay their tuition fees. The Government have rightly been persuaded by the wealth of evidence put forward showing that young people from such homes are put off from applying to university by the perception of the debt that they might incur. So, in effect, the Government are now paying those students so that they can meet their tuition fees and thus not incur any more debt. But the system of grants and loans that is being introduced is so complicated that it will in fact cost more to administer than the fees will generate. The noble Lord, Lord Forsyth, mentioned the figure of £1.1 billion, while the Higher Education Policy Institute puts the costs at £1.4 billion. Therefore it will cost £1.4 billion to raise £1 billion. Surely that is the economics of madness. Students and universities would be better off if no fees were charged and the £1.4 billion was put directly into university coffers.

Our third practical objection is that we think that this is very tough on young graduates. The Government have stressed the fact that with the annual income threshold rising to £15,000 before repayments are due, students earning £18,000 a year would have to pay only £5 a week. That is fine, but what the Government omit to say is that while they are earning only £18,000 a year, the £5 repayment will not even cover the inflation-level interest charge on a debt of £20,000; in fact, the debt will be increasing. It is only when graduates earn over £30,000 a year that they will have enough money to begin to pay off the debt.

Anyone spending their working life earning less than £30,000 in present-day terms will take a full 25 years to pay off their debt—they will make repayments until they are 55 years old. Thus graduates earning less than their peers will have to pay what is, in effect, a 42 per cent marginal rate of tax, comprising 23 per cent basic rate income tax, 10 per cent national insurance and 9 per cent graduate loan repayment. We believe that it is very tough to impose what is in effect such a high marginal rate of tax on young graduates at a time when they will be struggling to establish a home and a family.

What is the Liberal Democrat alternative? It is well known that we favour a system of no tuition fees, with the Treasury directly funding the costs of university tuition at university. We would pay the necessary £2 billion a year by imposing a 50 per cent band of income tax on top earners, 82 per cent of whom are graduates. Noble Lords may be interested to know that we first considered a graduate tax, thinking that perhaps that would be the fairest way of proceeding. But we encountered a number of problems. If we levied such a tax only on new graduates, the rate would have to be very high to bring in decent revenues—rates of 9 per cent or so.

Should we ask graduates just to pay their fees or to go on paying out for the rest of their lives? The latter would have the advantage of enabling us to lower the charge, but would mean that it would take a long time to build up a decent-sized fund. Further, given that we could not make the tax retrospective, would it not be unfair that those who benefited from the most generous arrangements in the 1970s and 1980s would be exempted from having to pay anything? All those arguments led us to believe that, if people earn more—it is accepted that graduates generally do earn more—the best way of paying something hack would be through a properly progressive income tax. Some 67 per cent of those earning over £40,000 are graduates while, as I have said, 82 per cent of those earning over £100,000 are graduates.

The British tax system is not progressive. Under the current regime, the bottom 20 per cent of earners arc paying on average 40 per cent of their income in tax, while the top 20 per cent are paying only 35 per cent. Introducing a new top rate of tax at 50 per cent would raise at current prices some £4.5 billion in tax revenues.

Lord Hurd of Westwell

My Lords, I am grateful to the noble Baroness, particularly as she is trying to answer the question put to my noble friend about future policy and being rather bolder than he was in answering it. Does she accept that the Liberal Democrat proposal she is now expanding would, nevertheless, put the whole subject in the hands of the Chancellor of the Exchequer to do with as he wanted? Given all the pressures and the different claims on every Chancellor of the Exchequer, of whatever party, can she realistically suppose that any Chancellor of the Exchequer is remotely likely to provide for the universities, whatever the system of taxation, the kind of sums she is talking about? If that is also the belief of our own Opposition Front Bench, are they not united in a certain fantasy?

Baroness Sharp of Guildford

My Lords, if we were to have a Liberal Democrat Chancellor of the Exchequer I would have every confidence indeed.

Earl Russell

My Lords, would my noble friend be interested to know that this complaint that the taxpayer had been taken to the limit of what he could support began when taxation was probably about 9 per cent of GDP?

Baroness Sharp of Guildford

My Lords, I agree with my noble friend. But, as I have said, we need to look at the situation as it stands today. It is clear that we do not have a particularly progressive tax system— indeed, we have at the moment a regressive one—and it is about time that we looked to a more progressive system.

I shall say little about OFFA because the noble Lord, Lord Forsyth, spent most of his time discussing it. We on these Benches share with the Government a desire to widen access and to see more people from low income families participating in higher education, but ever since it was proposed we have seen little reason for OFFA to exist independently. We see it only as a totally unnecessary piece of bureaucracy, one that exemplifies the Government's desire constantly to micro-manage everything.

We believe that the universities have in the past responded extraordinarily well to the challenges they have been set—to increase their numbers, to improve their research gain and to become more entrepreneurial—so why cannot the Government accept that universities, like other institutions, respond better when set general targets and are allowed and trusted to get on with the job?

Finally, I would make a plea for part-time and older students. As I have indicated, we believe that the future in this country lies in offering students a much wider choice as to when and how they study. It is absurd that the system being introduced discriminates against institutions such as the Open University and Birkbeck, which have pioneered the development of part-time, more flexible arrangements. There will, I know, be a series of amendments which seek to put such institutions on an equal basis to the mainstream universities. I hope that the Minister will look favourably on these amendments and help the Bill to create a more flexible, forward-looking structure than the one originally envisioned in the white Paper.

I use the American term "envision" deliberately. To my mind, as I have made clear, the problem with the White Paper and the Bill as originally conceived is a complete lack of vision. I hope that as a result of its passage through the House we may be able to inject a little more reality and little more vision into the Bill.