Members will recall that we considered the Education (Graduate Endowment and Student Support) (Scotland) (No 2) Bill at our meeting on 19 December. Subsequently, I wrote to the Minister for Enterprise and Lifelong Learning, Wendy Alexander. Members have in front of them the response, which is in the name of the junior minister, Nicol Stephen. I am pleased that we have with us Lucy Hunter—who is head of higher education, science and student support at the Scottish Executive—and Gillian Thompson, who is head of the student support branch. I would like to put on record that Nicol Stephen's letter was a very full response to the committee's concerns, especially in its detailed breakdown of the £53 million of additional funding. I have no points to put, because in my view the committee's questions were, on the whole, dealt with. However, if members wish to follow the letter up, I invite them to do so.
I agree with Mike Watson. Nicol Stephen's letter—in the detail and information it provides—is excellent. We should seek to set such a standard in future financial memorandums. I wonder why the information was not in the initial documentation.
That is our current modelling. The model is quite sensitive to various changes of assumption on student numbers, loan take-up percentages and students' position on the income continuum. There is a little variation, but the highest figure that the Executive has ever given on the net cost of abolishing fees is £27 million. That figure has come down a little in recent modelling, but it is still in broadly the same position.
It is not a priority, but it would be useful to have an explanation of that.
It is a little lower than some of the early estimates. I will ask Gillian Thompson to say a word about how that figure has been reached.
As we explained in the letter, the assumption is that students will want to take out a loan to pay their graduate endowment. The actual income that we anticipate receiving is the number of students multiplied by £2,000, which is about £30 million. There would be a cost for making the loan; because of the assumption that we have made about the modelling, we estimate that the cost to us will be 50 per cent of that. We are working on the basis that the true cost of the income will be £15 million.
Have you netted from that the administrative costs of the entire system?
No.
Would the cost of administration—which will not be substantial, but which will, however, be tangible—be subtracted from the £15 million income?
Yes. We are building on the current mechanisms. Therefore, the costs of that will be the Students Awards Agency for Scotland's additional costs. We have not taken that further reduction in income into account.
That is reasonable, but £15 million is hardly a startling level of income. The cost of having no endowment at all would be the net of the £15 million.
That is assuming that every person who is liable takes out a loan—
Which is the assumption that you are putting into the bill.
No. The bill allows us to do certain things in relation to how we deal with the income that arises. I am talking about straightforward consideration of £2,000 from each liable graduate. The least amount that we would get back would involve assuming that every liable graduate will want to take out a loan—
So you are making the conservative assumption.
Yes.
So the income will be £15 million if everyone takes a loan and £30 million if no one takes a loan.
Yes. The figure will be somewhere in between those figures.
So the figures are subject to a sensitivity factor of 100 per cent. Can you tell us the administration costs of the system?
We are working on that. Recently, the SAAS gave us the provisional costs of changing its system to flag up the students involved; it estimates that the cost, including VAT, will be about £200,000. There are possible running costs of about £50,000, but we have still to discuss with the agency what they would entail. That figure may be a little on the high side.
Is the £200,000 a one-off cost?
Yes. It is suggested that the £50,000 would be an annual cost, but we need to get to the thinking that underlies it. We knew that committee members would ask about that, so we have pressed for information in the past couple of days.
The £50,000 would cover labour costs for only one or two individuals. Do you expect to employ only two people to chase income from the endowment?
The arrangement of the requirements is fairly complicated. A process will identify the liable students—that is the system to flag up individuals. Another process will involve asking liable individuals how they wish to make a payment, because we think that it is important that there is some information exchange between the SAAS and the student. There will be some information about the graduate at the end of the process and about whether they are liable—they may no longer be liable if their circumstances have changed. The interlinking between the SAAS and the Student Loans Company at the end of the process also raises some issues.
Given that the cost of chasing up the bill is coming in at just over £3 per student, it will be a feat of wonderful efficiency if you pull off the task, from which much of the public sector will do well to learn. Compared with the system for collecting council tax, the arrangements would be groundbreaking. If you pull it off, you will deserve congratulations. I would like some more information when you have evidence about the cost.
We are still negotiating what will be required with the Student Loans Company. We will need to come back to those figures in a little while.
In his letter, the Deputy Minister for Education, Europe and External Affairs said that he expected more robust figures to be available at stage 2.
The key point is that the ambition throughout the scheme is to build on existing processes such as the application form that students must use to apply to the SAAS every year that they study. We hope that what is required will be a matter of adding a page to a document or a little bit to a computer system that already exists and that wholly new processes will not have to be built in to any great extent. That is why the numbers are so low.
The figures show the advantage of the decision to build on the existing systems rather than having a totally separate system. The efficiency should be high.
Yes.
What evidence do you have and what variables have you taken into account in making that assumption?
The background is that there has recently been a steep increase of £6 million—Gillian Thompson will correct me if I am wrong—in the amount of money devoted to the hardship fund. I am thinking of the figures for 1998.
Yes—the 1998 session.
The access funds are therefore already a lot higher than they were. There is an intention and expectation that, by increasing the amount of money available to young students and through the mature students bursary fund, we will relieve pressure on the access funds, so that we can bring those funds back down to previous levels. That is the broad assumption that has been made. We cannot show you detailed models or costings to get a more detailed breakdown. The assumption is a broad one—the introduction of the new system will relieve the pressure on the access funds.
I am not sure that I am clear about that, particularly about how you reach the figure of £8 million for the saving that is expected to be made in access funds. I understand what you are saying—that the new system is designed to reduce hardship and therefore the need for funds. However, I find it a little hard to follow how you come to the conclusion that you will reduce the call on access funds by £8 million. I remain a little concerned that that expectation will not be met and that the demand for hardship funds will probably not decrease as much as you suggest. I do not follow the variables and workings that have led to the figure of £8 million. I understand the basic assumptions that you have enunciated, but do not see how you have translated that into sums of money.
I am not sure that I can say anything to make you feel you more confident about that. Data on the access funds have historically been difficult to gauge. It is only in the past full year that we have improved and expanded the survey information. Institutions require to have their accounts audited at the end of the academic year, and we are now getting better data on what the access funds have been used for. We have not had as good a handle on what institutions have spent—that is very much a discretionary arrangement.
So the—
Sorry—I think that we have gone as far as we can on that point and that the committee has sufficient detail on it. Donald Gorrie has a final question.
This is a sort of standard grade question. I have never properly understood how the loans are dealt with. Am I right in thinking that, if the Government or Executive uses £1 million for bursaries or for loans, that will be the same this year from an accounting point of view?
No. Under resource accounting and budgeting, student loans are recognised as one of the most complex items. The cost of a loan includes a cash amount, which we keep track of in our cash outflows and inflows. That would be the same pound for pound, provided that we could assume that the uptake of loans and bursaries among students was the same in practice. We know that only 75p of every pound that we are prepared to lend people is actually sought, so the uptake on student loans is below the potential total amount. When we model those things, we tend to assume that we will not save a pound of loan for every pound of grant that we issue. Grant uptake tends to be very close to 100 per cent; loan uptake tends to be lower.
If I understand what you have said, the net cost to the Government or Executive in the long run—20 or 30 years down the line—is estimated at 50 per cent. In the shorter term, before repayment on the loan starts, the Government is paying interest on the loan. Does £1 million of loans cost more over the next three or four years than £1 million of grant?
The £1 million of grant would simply be recorded in the accounts as £1 million of outgoing or of resource that has been deployed. If £1 million of loan were to be issued, the whole £1 million would not be scored as the resource cost, because it would be anticipated that some of that sum would be returned. In the year when the loan is issued, an allowance—called a RAB charge—would be made in the account for the loan. The amount of that charge would depend on the best estimates at the time of collection rates and of the cost of the interest subsidy. The model that we have produced is based on the figure of 50 per cent. However, if the collection rate is better—for which there seems to be evidence—by the time the package is rolled out, we might be able to score a more optimistic assumption about the collection rate. That would affect some of our costings.
I was disturbed by your saying that not all the loan money is taken up. That seems extraordinary in the light of the visible poverty of students.
Since the start of the income-contingent loan scheme in 1998-99, we have moved to a loan take-up of 75 per cent. That is predicated on United Kingdom figures. We are not clear why there has not been a greater uptake of loans, but we had forecast a figure of 72 per cent; the real figure turned out to be 75 per cent.
I thank Ms Thompson and Ms Hunter for coming to answer our questions today.
Thank you. We will now go back into private session for agenda items 6 and 7.
Meeting continued in private until 12:31.
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