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Higher Education Reforms

Tony Blair

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Now I just want to focus for one moment also on the higher education reforms. There is actually a triple lot for fairness in the proposals we are making. First, it is important to emphasise the existing up-front fees are going to be abolished under these proposals. There will be no charges at the point of access, either for students or parents. On the contrary, we are actually reintroducing grants so that the least advantaged third of students are at least £1,000 a year better off than now, as well as getting part or all of their fee written off at the outset. Secondly, the existing uniform fee system is going to be abolished. Students don't want all the same standard course at a uniform price. Variable fees will oblige universities to take more account of student demand and the value for money frankly of the course. Third, students will not have to pay a penny until they have actually graduated and are in work on a decent salary. Nothing will be paid until a graduate's income reaches £15,000 a year, as opposed to £10,000 a year incidentally at the moment with the existing maintenance loans, and above that graduates will only pay a small increment of their additional income. It works out at something like £5 a week if you are earning £18,000 a year, and no rate of interest will be charged. So there is no penalty for paying more slowly, or taking a lower paid job, or taking a career break. I believe thanks to what I have described as a triple lot for fairness, there is nothing in these reforms to put students off going to university; on the contrary, university education will be free at the point of study, but fair at the point of repayment, linked to people's ability to pay, and that is the principle of the scheme. The second reading will be by the end of January for the Bill. There will be absolutely no retreat from it. Everyone is going to have to make up their mind, because this is a reform that is utterly essential to widen access to university in a 21st century where more and more people will want to go to university, it is essential to keep up the quality of what our universities offer, and it is therefore essential for the future of the British economy in which our universities will play a major part.

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Today the government will introduce a bill to reform higher education. Before we do so, I wish to make a statement about the related matter of student support.

Change in higher education is necessary because:

· The barriers to access to university need to be lowered. The measures I'm announcing today mean that disadvantaged students will get financial support to study what they want where they want.

· Universities need more investment. Vice-chancellors will tell you that these proposals generate hundreds of millions of pounds new money for them to spend on improving the quality of teaching and compete with the best universities in the world.

· We need to move towards treating students as financially independent from the age of 18

I believe that there is a broad consensus that universities need more resources and that it is reasonable for students to make some contribution, after they have graduated, to those resources.

Where there has not been consensus is about the fairest way to raise this new funding, so that access from the poorest communities is promoted and not undermined. The government has listened carefully to the concerns which have been raised and has discussed this matter widely. These concerns very much inform the proposals I make today.

Our original proposals were set out in the white paper I presented to the house on January 22 last year.

· We will remove up-front fees for full-time undergraduates, so that higher education is free at the point of entry.

· We will provide loans with a zero real rate of interest, paid back through the tax system at a rate dependent upon earnings, beginning at a threshold of £15,000 per year rather than the current £10,000.

· We will introduce the new higher education grant from September this year.

· We will establish the new Office for Fair Access, to ensure universities support students from the poorest backgrounds. The focus of OFFA's work will be those universities with the poorest track record in widening participation. No university will be able to put up its fee without OFFA's agreement. OFFA will not concern itself with admissions.

· Universities will be able to set fees from £0 to £3,000. We will maintain the £3,000 cap in real terms, through the next parliament.

Today I add the following commitments to meet concerns which have been expressed by some colleagues.

First on variable fees, I accept that some colleagues have genuine concerns about their impact upon our university system. Therefore the government will establish an independent review, working with OFFA, to report to this house, based upon the first three years of their operation.

Moreover our legislation will require that any proposal to raise the fee cap in real terms is subject to affirmative resolution. There will be the opportunity for a debate on the floor of both houses so that every member can vote upon such a proposal, dependent on discussions through the usual channels.

However I have to make clear that we do not agree that a substantially higher fixed fee would be the way to raise additional resources. It would be deeply damaging. We would be denying universities the freedom to incentivise industrial, vocational, scientific, technical, engineering and sandwich courses, or foundation degrees, which are vital for the economic future of this country.

Second I want to emphasise the government's strong commitment to promoting access to higher education by part-time and mature students. We will provide from September 2004 improved fee support and a grant for part time students. I welcome the changes recently announced by HEFCE to support part-time and foundation degree courses. My right honourable friend the minister for higher education and the Funding Council will consult on how the funding system might further support the development of part time study in higher education.

Third, for full-time undergraduates entering higher education from 2006 we will write off any student loan repayment which is still outstanding after 25 years. On average, we expect graduates to repay their loans in 13 years, but those who have taken on family responsibilities or are on low incomes could need more time. This does give rise to real concerns and I think that a 25 year limit is fair.

Fourth, from September 2006 maintenance loans will be raised to the median level of students' basic living costs, as reported by the Student Income and Expenditure Survey. This increase will be modest for most students, but it will be significant for those studying away from home in London. This principle will ensure that students have enough money to meet their basic living costs.

I should emphasise that this student loan is free of real interest. Repayments will be based upon money earned not money owed. It is much better for students to be able to borrow on these terms than at commercial rates.

Over time, though this cannot be afforded at this stage, the government's aspiration is to move to a position where the loan is no-longer means tested and is available in full to all full time undergraduates, so that students will be treated as financially independent from the age of 18.

My fifth and final intention, Mr Speaker, is to ensure that every student from a poor economic background has enough resources to meet even the highest course fee without incurring additional debt.

This £3,000 package is achieved by maintaining fee remission at around £1,200; by raising the new Higher Education grant from the £1,000 which I originally proposed to £1,500 a year for new students from 2006; and by, through OFFA, requiring universities to offer bursaries to students from the poorest backgrounds, so that the full fee cost of the course will be covered, which means, for example, a minimum bursary of £300 for a course whose fee is £3,000.

The effect of this commitment is that no student from a poor background will be worse off as a result of our proposals, whichever university they attend and whatever the fee charged for the course.

Moreover, this commitment will align the level of the HE grant with that of the education maintenance allowance for 16-18 year olds. Around 30% of students will receive a full grant and a further 10% a partial grant.

A major advantage of this approach is that those modern universities which have strong records in recruiting students from poorer backgrounds, will be able to use at least 90% of any increased income from fees to improve course quality, rather than the about 70% which was implied in some earlier discussions. These universities have made, and are making, a first-class contribution to this country's higher education and economy and I want to encourage, and not discourage, that commitment.

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Now I just want to focus for one moment also on the higher education reforms. There is actually a triple lot for fairness in the proposals we are making. First, it is important to emphasise the existing up-front fees are going to be abolished under these proposals. There will be no charges at the point of access, either for students or parents. On the contrary, we are actually reintroducing grants so that the least advantaged third of students are at least £1,000 a year better off than now, as well as getting part or all of their fee written off at the outset. Secondly, the existing uniform fee system is going to be abolished. Students don't want all the same standard course at a uniform price. Variable fees will oblige universities to take more account of student demand and the value for money frankly of the course. Third, students will not have to pay a penny until they have actually graduated and are in work on a decent salary. Nothing will be paid until a graduate's income reaches £15,000 a year, as opposed to £10,000 a year incidentally at the moment with the existing maintenance loans, and above that graduates will only pay a small increment of their additional income.

There is no doubt that universities are currently under-funded. I would have thought that the fairest answer to this problem is for university education to be paid for through increases in income tax.

You will know (well I hope you do) that the Labour Party has always been concerned about means tested benefits. The principles of the welfare state was laid out in Tom Paine’s Rights of Man. The idea is that benefits are universal and these are paid for by progressive taxation. As Paine argued, this will result in the redistribution of wealth.

This process was started with David Lloyd George’s People’s Budget in 1909. To pay for these new old age pensions Lloyd George had to raise government revenues by an additional £16 million a year. Whereas people on lower incomes were to pay 9d. in the pound, those on annual incomes of over £3,000 had to pay 1s. 2d. in the pound. Lloyd George also introduced a new supertax of 6d. in the pound for those earning £5,000 a year. Other measures included an increase in death duties on the estates of the rich and heavy taxes on profits gained from the ownership and sale of property.

All the research shows that a large proportion of the population (especially older members of society) are reluctant to claim means tested benefits. This was a big issue in the 1930s and is becoming one today. Currently over 50% of senior citizens are on means tested benefits and over the next couple of years this figure is predicted to reach 75%.

Attempts to remove the redistribution of income factor from the welfare state was started by Thatcher in the 1980s. You enthusiastically carried the baton for this policy. This is why the gap between the rich and the poor is greater now than at anytime since the introduction of the welfare state in 1909.

You argue that means tested benefits are the best way of targeting those that most need our help in society. That is of course the same argument that was made in the 1930s. People were more politically aware in the 1930s and it was opposed for the very reason they were being targeted. It was the consequences of the means test in the 1930s that inspired those Labour and Liberal politicians to introduce the modern welfare state after the Second World War. The Conservative Party fought the initial introduction of the welfare state but it was so popular that they were forced to back down on this issue. It was only with the arrival of Thatcher that the Conservatives had the courage to begin dismantling the welfare state. Unfortunately, this policy has been continued by your government.

The reason for the increase in means tested benefits is your unwillingness to increase the higher rates of income tax. Not that you have a good record for keeping taxes low. You still tax the population more than previous governments. However, because of your dislike of equality by outcome, you prefer increases in indirect taxes because they are regressive rather than progressive.

I therefore support those politicians who are arguing that the extra money needed for university education should come from increases in progressive taxation. I have no problem with the sons and daughters of the wealthy receiving a free education as their parents will have paid their fair share of the cost of that service.

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Having read alot of the press coverage about the Higher Education reforms I can only come to the conclusion that the only fair solution is a graduate tax or an increase in income tax (they effectively mean the same thing as graduates earn higher incomes than no graduates). I don't believe this will happen. The sector is in desperate need of funding and the reality is that most students are currently not getting a good deal. The right wing press / conservative party is more than happy to attack 'mickey mouse' courses and hark back to a return to fewer numbers at University. I think this would be a mistake - it is surely better to have people in education for longer.

One of the possible changes in the future of University education is the distinction between Universities that will focus on research and those that will focus on teaching - the former will no doubt charge higher tuition fees to cover the cost of their research. This is again wrong - Academics should keep up their research along side their teaching, but this will have to mean changes in the ways that Universities are assessed - currently academics are expected to produce 4 pieces of published (peer refereed) work every 4 years which is a ridiculous pressure. hopefully greater funding will lead to an increase in the numbers of staff to share the load.

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Universities need more investment. Vice-chancellors will tell you that these proposals generate hundreds of millions of pounds new money for them to spend on improving the quality of teaching and compete with the best universities in the world.

It might well be worth considering how we paid for free education in the past. In the 1960s and 1970s the top rate of income tax was 83%. This was cut by Thatcher in 1979 to 60%. It remained at that level until 1988 when it was reduced to 40%, its current level.

In 1979 Thatcher reduced the basic rate of income tax down from 33% to 30%. Successive governments have brought this down to its current rate of 22%.

As a result of these reforms there is no distinction made between middle earners and the very rich. The top rate now begins for incomes of about £35,000.

At the same time corporation tax has dropped to the lowest in the OECD. Money for our public services has to come from somewhere so during the same period we have seen a dramatic increase in direct taxation. As this tax is regressive it is the direct cause of the widening gap between rich and the poor. This, under a Labour Government, has mean the gap is greater than at any time since the 19th century. Other than the United States, Britain has the greatest inequality in the industrialised world.

Our tax system is the main reason for this. For example, the richest 20% of people in Britain pay 34% of their income in taxes, while the poorest 20% pay 42%.

Despite this appalling record Tony Blair refuses to allow his party to discuss the possibility of increasing income-tax. When Peter Hain suggested in June that the country should have “a grown-up and honest debate about tax” he was threatened with the sack and he was forced to withdraw his statement.

Gordon Brown argues that it is unfair to ask people like him and Tony Blair to pay a 50% tax on their earnings over £100,000. However, under the current proposals, in a couple of years time, a graduate teacher, on just over £35,000 will be paying 50% of their marginal income in tax and top up fees.

What impact will this have on the teaching profession? One consequence of this legislation will be the growing financial inequality within the profession. Those who entered the profession several years ago will be reasonable well-off. Young members of staff (without the support of rich parents) will be living on the poverty line. Burdened by debt, they will never be in a position to contemplate buying their own home or all the other things that the profession has taken for granted over the last 30 years.

Another result of this policy will be a decline in the numbers of teachers entering the profession. In the past this would have meant an increase in wages in order to attract more recruits. However, under recent agreements signed by the various trade unions, this problem will be solved by an increase in the number of unqualified teachers. As these people will not be burdened by student debt they will find the wages fairly attractive.

For further details of this see the recently leaked report, Workforce Reform - Blue Skies.


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Speech by the Prime Minister, Tony Blair, at the

IPPR conference on higher education reform on Wednesday 14 January 2004

Labour was elected to extend opportunity. This is our defining mission in politics, to secure a future fair for all. Our higher education proposals mark a radical extension of opportunity. They are probably the most progressive university reforms ever presented to Parliament. And the choice facing Parliament when it votes on them is precisely this: whether to support Labour in extending opportunity, or back the Tories in rationing opportunity; whether to support Labour in rebuilding our universities for the future, or back the Tories in cutting the funding of higher education and undermining one of Britain’s most essential public services.

I make no apology for presenting the issue in such stark terms. Because it is this stark. There is no Plan B. There is no pain free option of extending opportunity and building a quality higher education system for the many – not just the few – without someone paying for it. By far the fairest way of paying for it is I believe the one we are putting forward – a new partnership between the government and the student who benefits directly, who will make a fair contribution to the cost but only after graduation, through the tax system, on the basis of ability to pay.

These proposals are a prime example of the modern path to social justice, opening up opportunity in the early 21st century – not to a few but to all.

They help all families by abolishing altogether up-front fees.

They help poorer students go to university by introducing grants.

They help universities by increasing substantially their funding.

They do not penalise the ordinary taxpayer.

Instead they represent a fair way to meet the future challenge of getting more of our young people better educated than ever before. This is a tough decision taken for the right reasons which will make Britain fairer and more prosperous in years to come.

With each day that passes, I am more confident we can win this argument and more convinced that it is essential for our country’s future that we do win it.

I am in good company. Almost every serious commentator supports our proposals as necessary and fair. Concerns were expressed about the position of poorer students and the position of the new universities, which Charles Clarke addressed in the final package set out last week. There is now general agreement amongst those who have engaged with the issues that taken as a whole this package is highly progressive – with a graduate contribution of up to £3,000 a year towards the cost of a course, but only alongside the abolition of all up-front fees, with contributions paid through the tax system after graduation related to income, a radically improved £3,000 support package for poorer students, a parliamentary cap on future fee increases beyond £3,000, and a commitment by Labour to continue investing more in higher education.

So in this speech I want to set why these changes are imperative for Britain’s future; why they are in tune with Labour values; and why they go to the heart of our public service reform priorities.

1. Higher education and Britain’s future

In some of the criticism of our reforms the subtext has been: ‘why are they staking so much on universities?’ – the assumption being that higher education isn’t of real importance and surely isn’t worth all this flak.

But it is. As one commentator puts it graphically, universities are ‘the coalmines of the 21st century’. Higher education is no longer simply an adornment to our national life – of immense value and prestige, but only to a small privileged minority. It is now a sector as important to our society and economy as the big ‘extractive’ industries of the past – and just as important to our nation’s future in providing the raw material, in terms of skills and innovation, that individuals and whole industries will require to succeed.

Consider these facts. Universities now educate 43 per cent of all under-30 year-olds – six times the proportion when Harold Wilson came to power 40 years ago, with most professions now graduate-only. They employ more than 300,000 people – and for every 100 jobs in the universities themselves, it is estimated that 89 are generated through knock-on effects elsewhere in the economy. They generate over £35 billion in output, and it is estimated that for each £1 billion they generate, a further £1.5 billion is generated in other sectors of the economy. Higher education is not incidental, but central, to Britain’s future, and responsible political leaders have a duty to see that it thrives.

The debate today is in some ways reminiscent of the debate a decade ago when, as the new leader of the Labour party, I put schools at the top of our national reform agenda. I said – in those days of the soundbite – that Labour’s priorities in government would be: ‘education, education, education’. At the time, this was regarded as a novel, if not quite eccentric, ordering of priorities. But over the past decade, governments worldwide – particularly of the left – have been doing the same, placing higher school success rates, particularly for children from less advantaged families, at the top of their reform agendas, recognising that nothing is more important to social justice and national prosperity. I recall that by 1997 John Major was saying he had the same three priorities as me, but not necessarily in the same order.

It is the same with universities today. The world over, higher education is increasingly regarded on a par with school-level education as a motor of opportunity and prosperity.

I noticed a Tory education spokesman write the other day, justifying their decision to oppose our reforms: ‘It is increasingly unrealistic to expect our universities to compete globally for the best minds’. This is a statement of defeatism I entirely reject; and which if accepted would consign Britain and its next generation of young people to mediocrity as an act of national will. It mirrors so much of received opinion a decade ago about our schools: that they were behind those of other countries, but it was just one of those things that had to be accepted – except of course by those who could afford to go private. It was defeatism then, and it is defeatism now. We can, and with the right policies we will, sustain a university system as good as any in the world, for the many not the few.

2. Reform from strength

Britain is well placed to be a world leader in higher education, because we start with so many strengths. Those strengths are seriously at risk, but let me first highlight them – to make the point that higher education is a huge asset for this country not to be squandered.

First, we have one of the most efficient university systems in the world, and one of the most highly valued by students and employers alike. Our drop-out rate is comparatively low and declining, despite the rapid increase in student numbers in the last two decades. Yet the value of a British degree, in terms of the financial benefit it brings its holder, is comparatively high – the highest in Europe, according to one study of 10 European countries. The same study showed that university students in this country were more satisfied with their university experience than in any other country in Europe.

Second, our research base is strong. Research in our universities, as judged by international peers, is second only to the United States in almost all subjects. In terms of Nobel prizes and citations too we are also second only to the United States. Investment by business and industry in university research has grown rapidly, with a big rise in the number of spin-off companies. There has been a terrific culture shift in our universities, old and new alike; and as Richard Lambert’s recent report showed, there is much more to achieve if we give universities better tools for the job.

A good test of our universities is their success against the international competition in attracting overseas students, who of course have the entire developed world to choose from. Forty years ago there were 28,000 overseas students studying in Britain; today there are 230,000 – second again to the United States internationally – and the number is rising steadily.

Five years ago I launched an initiative to increase the number of overseas students studying in Britain by 50,000 in the decade to 2005-06. The universities are well on track to meet that target. Overseas students are worth more than £900m a year to our universities in fees alone quite apart from the huge benefits they bring to our economy as the cream of international talent, many of them staying to work here for at least a period after their studies.

There are two further points of importance here. Fees for overseas students are fully variable, determined by the universities themselves course by course, and universities keep the full proceeds. This is a huge incentive to them to develop their courses and facilities to the needs of international students. Secondly, in this area as in so many others it is not an issue of ‘old’ versus’ ‘new’ universities. The ‘new’ universities have been among the most entrepreneurial and successful in meeting the international challenge: the second biggest recruiter of overseas students is in fact the University of Middlesex, with 3,500 overseas students, and many others are succeeding well in this area. Our new universities are one of our great national success stories of the past decade. In a host of ways – including many of their vocational degree courses and part-time programmes, where incidentally variable fees also already apply – our new universities are as world class as their older counterparts, and have as much to gain from our proposed reforms.

3. A system at risk

So we have a successful higher education system. It is one of the strengths of this country. But it is also at risk, and if it is to retain a strong competitive edge, and meet the needs of the next generation of young people of all backgrounds, then it needs reform.

First, and most obviously, there is a serious funding shortfall. Funding per student fell catastrophically under the last government – by 36 per cent in just the eight years running up to 1997. The collapse only stopped with the rise in public investment after we came to power, and the introduction of tuition fees following Ron Dearing’s report in 1997. This is, I should add, the answer to those who are worried that we might use the excuse of tuition fees to reduce state funding: the previous Government reduced per capita funding to universities even without tuition fees. Since 1997 tuition fees and higher government spending have together halted the decline of per capita funding even as expansion has continued. Our current plans have higher fees introduced alongside a 6 per cent real annual increase in government funding for higher education, which is the same increase as we are putting into the schools system, and we will continue to stand by the universities in this year’s spending review.

The funding backlog for university infrastructure, estimated at £8bn, is damaging facilities for students and researchers. The shortfall of teaching funding has badly hit the salaries of academic staff, which have shown practically no increase in real terms over two decades. This at a time when professionals in virtually every other sector, including school teaching and the health professions, have improved their positions significantly; and when competition among graduate employers at home and abroad for the most talented potential university researchers and teachers is greater than ever. An estimated 1,000 UK academics have left jobs here for universities abroad, a quarter alone going to the US.

The funding shortfall becomes still more acute as we expand higher education in line with improved school standards and rising economic requirements and social aspirations. There is nothing off-beam about our target of 50% participation by under-30 year-olds by 2010. We are already at 43 per cent, thanks to the huge but under-funded expansion which took place largely under the Conservatives. 50% is well within the mainstream projections of developed countries and many already have participation rates well above ours. The independent Higher Education Policy Institute projects that on the basis of the improved qualifications of school-leavers alone there will be additional demand for higher education from between 180,000 and 250,000 by the end of the decade, which takes us to about 50 per cent.

Let me emphasise what is at stake here, because there is an absurd idea around that somehow if we scrapped the 50% target all our problems would vanish. Most of our proposed expansion from 43% to 50% is focused on vocational courses including new foundation degrees, building on HNDs and developed in partnership with employers. If there was no higher education for this group – all of whom have good school qualifications – this would simply require government to finance more vocational education through routes such as modern apprenticeships. Vocational education isn’t a free good: it is expensive, and rightly so because for the individuals involved, and their economic potential, it is vital they get the skills they need. It is hardly conceivable that even a Tory government in the 21st century could provide university for a minority and nothing at all for the rest.

Let me highlight one further reform imperative. Among those from the poorest backgrounds there are still inadequate rates of staying-on at school beyond 16 and proceeding to higher education. One of the most striking statistics in this whole debate is that 90 per cent of all school-leavers who get two A-levels or more go on to university, completely irrespective of their family background. But while 79% of the children of professional parents do so, only 15% of children of unskilled parents do so. For a Labour party committed to a fair future for all, this is simply unacceptable. Changing it requires a transformation of our schools – on which we are embarked. It requires our universities to raise their game in attracting the brightest and best of all backgrounds – as they are doing. But it also requires a student finance system which gives special incentives and support to the poorest students who don’t have the parental means which many of us took – and our children take – for granted. That is why we have introduced Education Maintenance Allowances for 6th formers from poorer families, which are already having a significant effect in boosting staying-on at 16. And it is why we have frankly accepted the case for reversing our decision in 1998 – one forced on us by budgetary considerations – to withdraw the maintenance grant entirely for poorer students, which we did against the advice of Ron Dearing. Yet this too comes at a cost, and is not sustainable without the other reforms in our package.

So much for the domestic challenges, which are serious enough. But the challenge of change – and the scale of risk we face – is greater still as we take account of the international position.

Looking abroad, two conclusions are inescapable. First, the competition for graduate skills – and the competition between universities for talent – is tough and set to get much tougher. And second, virtually all other developed countries are either well advanced on higher education reform or about to embark on it seriously. Both of these are flashing warning lights as we take our own decisions.

Only a short time ago, China, Taiwan, India and Korea were insignificant on the higher education map. Now there is a revolution taking place in Asian universities. Today our universities may be home to the best graduate students from China and Asia. But when these graduates return home, many of them will be staffing new universities in their countries competing fiercely against us tomorrow. They are even developing their capacity to teach degrees in English, so they can tap into the global market. China has set itself the ambition, which it is pursuing single-mindedly, to raise the quality of just ten universities to match that of the best in the world.

As for the developed countries, few would now deny that the United States is the university capital of the world. This is not only because of its size and its famous Ivy League universities. Arguably more important is the remarkably successful diversity of its higher education sector, in particular its state universities, the backbone of American higher education, which work in partnership with local community colleges promoting vocational education and progression from high school and employment for people of all backgrounds.

There are some aspects of the US system which we emphatically do not want to emulate, in particular escalating fees to attend certain universities, and the absence of a proper nationwide grant and deferred fee scheme. But taking stock of the US and other successful systems, we simply cannot duck the funding issue. For it is the ability to lever in funding from private sources, including student contributions on a widely varying basis, which is one of the underpinnings of the US system. In terms of public funding as a proportion of national income, we are behind, but not massively behind the United States. But when public and private funding are added together, the gap becomes a gulf. Our total investment in higher education, public and private, amounts to 1 per cent of GDP; that is not much more than one third of the investment in the United States, at 2.7 per cent of a much larger GDP. The average fee in US state universities – leaving aside completely the Ivy League – is now just higher than the £3,000 cap we are proposing for 2006; and the success of US state universities in building up endowments over the past 20 years is such that, according to the Sutton Trust, Britain now has only two universities which match the endowments of the top 150 US universities.

And it is not just the US. Australia, which also bit the bullet of student contributions earlier than us, is at 1.6 per cent public and private investment. Korea, a rapidly developing economy, is at 2.6 per cent.

A recent study of our main OECD competitors showed that eight out of 13 charge tuition fees of some sort – the US, Australia, Canada, Italy, Japan, the Netherlands, New Zealand and Spain – and all but one of them also allows variability in fees to some extent. Of those which do not charge fees at the moment, Germany – the most notable – is discussing the issue intensively. University reform is one of the most hotly debated issues with the German SPD – only last week a conference of SPD leaders highlighted it as a key future priority.

Furthermore, there is no evidence from these countries that tuition contributions limit access. In Canada, Australia and New Zealand there is in fact good evidence that following student finance reforms participation from lower income families has risen in line with others, if not more so. Canada, for example, has seen faster growth in participation from lower income groups than higher in the past decade, despite a doubling of fee levels, because of what one commentator calls ‘a democratising of expectations’. ‘Recall’, he adds, ‘that even in the days of cheap tuition, university was the domain of the privileged few’ – exactly the same as here in Britain.

The Australian precedent is particularly significant for the UK. It was an Australian Labour government which 15 years ago introduced a deferred fee regime – usually dubbed a ‘graduate tax’ – under which charges are set at different levels by course, repaid through the tax system after graduation at a set proportion of income by ability to pay. This reform helped Australia’s higher education system become one of the most dynamic for its size in the world, and has enabled expansion to take place on a properly funded basis. Australia has just carried through a further reform to make fees largely variable, to be set on a course by course basis by individual universities up to a national cap. The system we are proposing is very similar.

4. Our reforms

All that I have said so far is not only the case for change. It is also, to be frank, a fair description of the learning process over the past two years which convinced us, as a government, that there was an imperative need for change to promote both equity and excellence; and that this was a first-order priority for the future which, if rejected, would set the country seriously back. If we were after a quiet life, it would have been easy to have done nothing – nothing about access, nothing to stop our universities sinking, probably leaving a future Tory government to allow a few universities to go wholly private and break away from a declining mass.

This would have been disastrous. Instead we decided to act, and during the course of the long debate that followed two things have become very clear.

First, that only two alternatives have been put forward – from the Liberal Democrats that instead of a fair graduate contributions we make up the missing £2 billion from a new higher rate of tax; and from the Tories, that we put a cap on any additional student numbers, denying 250,000 the opportunity to go to university in a decade’s time; and – to pay for their elimination even of the £450m raised from the existing flat-rate – that universities be forced to cut about 100,000 existing student places.

I don’t believe either of these policies is credible. It is almost inconceivable that any party in the early 21st century could propose slashing numbers in the way the Conservatives propose; even if they succeeded, it isn’t the case – as I have said – that switching to vocational education fills the funding gap. As for the Lib Dems, they have already spent their higher tax revenue several times over and we are still months of Lib Dem promises away from the election.

But whether credible or not, neither of these policies is desirable – either for a Labour party committed to fairness or a university system desperate for a stable source of extra revenue. No Labour government would deny opportunity in the way the Tories envisage. As for a higher tax band, raised from graduates and non-graduates alike, if we did this, which we won’t, would universities necessarily be the first priority – even within education, over and above schools and under-fives, where we spend less per head than on university students and where there is less or no scope for private contributions? And in a context where we are already increasing state higher education funding by as much as we are increasing school funding?

By contrast, our policy is good for universities; good for poorer students; and good for middle and higher income students alike.

For universities, it gives an essential and secure source of funding – whatever happens to public spending in the long term – worth £1.8 billion a year, paid directly to the universities, on our central assumption about the pattern of fees. For a course set at the full £3,000, this represents a more than 30 per cent increase in the average funding per student – so either that or a lesser figure represents a step-change in the real resources available to the university.

For poorer students, the £3,000 support package, half of which can be taken as a straight maintenance grant over and above the existing maintenance loan, represents a big improvement on the status quo and a significant incentive – together with Education Maintenance Allowances – to stay at school, get A-levels, and go on to university. It also enables a student to pay off any level of fee, right up to £3,000, without affecting their entitlement to the existing maintenance loan – so overcoming any disincentive to take up a more expensive course, even though they do not need to pay any fees up front in any case.

And for all students and their families – including the better off – there is the complete abolition of up-front fees and the introduction of a new graduate contribution system whereby any fees are paid back interest-free through the tax system on an income-related basis when the graduate is in work, at a lesser rate than existing maintenance loans. This is about as good a deal as it is possible to devise. For a graduate on £20,000 the repayment obligation is less than £9 a week.

This is a system free at the point of use, fair at the point of repayment; where payments by graduates are related to the amount you earn, not the amount you owe; where access to university is by merit not by wealth or class; and where less advantaged students are strongly incentivised to stay-on at school and get the qualifications they need to go on to college. It is hard to think of a package more in tune with Labour values of equity, inclusion, and high quality public services open to all.

This leaves the remaining issue, which I know is of concern to some of my parliamentary colleagues, about variability in the fee level up to £3,000 that a university is permitted to charge.

The concern about this is twofold. The first is that £3,000 today could be £10,000 or more tomorrow. To that I simply say: there can be no increase without explicit parliamentary approval, and I have pledged that we will not propose any further increase – let alone some of the wild figures bandied about – during the lifetime of the next Parliament. So judge the £3,000 on its merits. Nothing could be more perverse than to deny universities the funding we all agree they need now, because of fears about future changes which are not part of the plan and for which Parliament has to give explicit approval in any event.

The second concern is that it is somehow unfair – and will lead to a two-tier system – unless all students are forced to pay the same fee regardless of the course they follow or the institution they attend. This has led to an alternative proposal which recognises that there is an urgent funding need, but proposes to meet it through a much higher flat fee of between £2,500 and £3,000.

However, the effect of this seems to me deeply inequitable. It would in effect ban a university from charging a lower fee than £2,500 or £3,000 for any course, regardless of whether, in response to student demand or for other reasons, it was prepared to settle for a lesser fee. And this despite the fact that most vice-chancellors, when consulted, have said that they believe their universities would charge less than £3,000 for at least some of their courses.

They have particularly highlighted foundation degrees, sandwich courses, less popular but essential courses such as physics, and the development of new degree programmes in vocational and technical fields. These are among the highest priority areas for the development of our university system as it meets future economic needs – in new and old universities alike. It would be deeply damaging to force every university into a straight jacket which restricted their ability to meet student needs in this way.

And this goes to the heart of the wider debate on public service reform. For those wishing to ban any variability in the fee can’t realistically claim that it is fairer to students as consumers of higher education. On the contrary, students are the losers, because a lot of them will be forced to pay more. The real intention is to constrain so far as possible diversity within and between universities as suppliers – by treating them all as formally alike, and not allowing any one of them, or any one part of a university, whatever its strengths, to charge a fee unless all others do precisely the same.

It is a classic case of uniformity being put above fairness – when the fair outcome, encouraging the maximum possible participation and the best possible provision tailored to the needs of the individual, ought surely to be our over-riding concern. And this isn’t a theoretical issue. Most university leaders – including the leaders of the new universities themselves – embrace diversity, including the power to vary fees for full-time courses in the way they and the Open University already do for part-time and overseas students courses. It is their very capacity to meet student demand in a flexible way which is essential to their ability to develop and thrive.

I know there was concern among the new universities, and some of my parliamentary colleagues, that without a better grant package for poorer students there would be unfairness to universities recruiting a larger proportion of less affluent students, because they would have to use a far larger share of their new income to fund bursaries. We listened to this concern very carefully, and as a result of our discussions with colleagues and the leaders of the new universities we have significantly improved the grant and bursary package. We have also said that we will study very carefully a further improvement to roll up the new grant together with the existing fee remission to provide a single larger higher education grant for students from poorer families. On this basis, I hope that my colleagues who were concerned about variability will see that it can now be permitted without unfairness.

We have also said that we will set up an independent review into the working of the new system within three years of it starting in 2006, to that we can assess the precise impact of a reform the impact of which, by its very nature, is hard to predict in advance.

Remaining opposition to allowing universities to reduce their fees below £3,000 if they so wish isn’t therefore a question of fairness, but a straight political objection to diversity and flexibility as a matter of principle, irrespective of the regressive impact that a flat fee would have in practice.

And let me end on this wider political note. Our whole public service reform programme is intended to level up, not level down. To open up the system to innovation and flexibility, not to hold back necessary change. To build services around the needs of the individual, particularly the needs of those who have been so badly failed by education and other services in the past, and not to insist on one-size-fits-all and deny individuals the tailor-made provision they need.

These principles are essential to our success as a Labour government true to Labour values. They are indispensable to widening opportunity and promoting fairness. And they are enshrined in these university reforms, which are essential next steps on the road to first-class public services open to all.

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It occurs to me that the proposed new fee regime will have at least the following 2 undesirable consequences:

1. There will be a significant down turn in University applications from working class communities enjoying full employment.

2. There will be a significant down turn in University applications from women who plan to have children - there being simply not enough working years to recover financially from both the debt and maternity

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There is no Plan B. There is no pain free option of extending opportunity and building a quality higher education system for the many – not just the few – without someone paying for it. By far the fairest way of paying for it is I believe the one we are putting forward – a new partnership between the government and the student who benefits directly, who will make a fair contribution to the cost but only after graduation, through the tax system, on the basis of ability to pay.

Our policy on Top Up Fees might well be the best way of increasing the funding of university education. However, you are clearly wrong to suggest there is no alternative. It is estimated that a 50% tax band for incomes over £100,000 would raise £5bn. You answer this with the claim that it would not raise as much as this as the wealthy would avoid paying this extra tax by exploiting loopholes in the tax system. This seems an amazing thing for any prime minister to say. If that is the case, why don’t you close these loopholes?

In an interview yesterday you said: "Every single piece of analysis that has ever been done indicates that… large numbers of those taxpayers… would hire a whole lot of new accountants to do this and that. And actually your tax take would be a lot less.” This is of course the argument that was used by that other conservative prime minister, Margaret Thatcher. However, as Richard Adams points out in an excellent article in today’s Guardian, this is not true. What you are referring to is the Laffer Curve”. This was a theory proposed by the American economist, Arthur Laffer, in 1974. The idea is that growth in tax revenue falls away after a certain point, as higher rates of tax give people less incentive to work and a stronger incentive to evade paying. This argument is very appealing to those right wing politicians who seek to protect the wealth of the rich. However, Laffer never actually stated when this point was reached. What we do know is that he was referring to those tax rates of over 90% that was fairly common in some European countries in the 1970s. He definitely was not talking about a 50% tax band.

As Richard Adams points out, the very rich, already live in tax havens. Those earning £100,000 do not have that option. Even someone earning £250,000 a year would only pay an extra £20,000 a year if the top tax band was increased from 40% to 50%. This is not enough to get them to flee the country.

In the last election you argued that you were against raising the top rate of income tax because you did not want to force people like David Beckham to leave the country. Britain’s upper rate remains at 40% but Beckham still decided to move to Spain. He does not seem particularly concerned that the top rate of income tax in his new country is 50%.

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  • 4 weeks later...

What an interesting debate - I wonder if Tony Blair and Charles Clarke actually wrote their contributions themselves …

Let me give you a Swedish perspective.

In Sweden, income tax is worked out on a local basis. In my area, this means around 32%. If you're a high earner (a bit higher than most teachers), you might pay an extra 10% as State income tax, but very few people are in that situation. And, er, that's about it. No Council Tax and only a modest pension contribution.

At the end of each year, there's a tax return to be filled in (although most people just sign the one the tax authorities have already worked out), and there's a chance of claiming back any extra tax you've paid.

Education is 'free at the point of delivery', including school dinners (the menus for which get published in the local newspapers each week) and 'fritidsgårdar' (after school clubs), at least in my area. There are no fees for higher education, and the student loan system is state-financed and -run, and has been around for a long time. Students repay their loans over their whole lifetime of work. There's a limit to the length of time they're allowed to keep loaning money, though, and they only get the next term's loan if they've passed last term's exams.


Now, of course, there's another side to it all. Sweden's a small country, with a long history of centralisation. There are all sorts of taxes which don't impinge on people's consciousness very much, such as the payroll taxes paid by employers and VAT, which is a fairly flat 25% (there are several bands, but most goods and services end up in the 25% band).

On the other hand, Sweden's credit rating with Standard and Poor's was restored to the highest possible rating today (the country dropped back one notch in 1993, as it was dealing with the fairly disastrous state of the economy in the period 1991-1993).


It's difficult to make straight country-to-country comparisons, but it does at least seem to me that there are several alternatives … if the political will is there.

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