Education (Graduate Endowment and Student Support) (Scotland) (No 2) Bill: Stage 2
Welcome to the seventh meeting of the Enterprise and Lifelong Learning Committee in 2001. As members know, item 1 on our agenda will be our first stage 2 discussion of the Education (Graduate Endowment and Student Support) (Scotland) (No 2) Bill. Before we move on to that item, I advise that we have received apologies from five members: Annabel Goldie, Nick Johnston, Duncan Hamilton, George Lyon and Marilyn Livingstone. I believe that three of them are still snowed in.
I welcome Alasdair Morrison, the Deputy Minister for Enterprise and Lifelong Learning and Gaelic, and his officials. The deputy minister is present for our stage 2 discussion. I also welcome Brian Monteith, who is not a member of the Enterprise and Lifelong Learning Committee, but who will be taking part in our proceedings this afternoon.
As this is our first stage 2 consideration of the bill, I will read out a statement to explain how we will handle the process, so that everyone is sure of the procedure, which may be new to members who have not been involved in stage 2 proceedings before. I will read out the statement only once, but we will circulate copies of it to members who are not present.
Members should have before them a copy of the bill and the marshalled list of amendments, which was published this morning. I would appreciate it if members would check that they have those papers; if not, we have spare copies.
Members will recall that, at our meeting on 7 February, the committee agreed to consider the bill at stage 2 in the following order: section 3, section 4, section 1, section 2 and section 5. As announced in the business bulletin, we are considering amendments to sections 3 and 4 today. At our next meeting, on Wednesday 7 March, we will consider amendments to sections 1, 2 and 5. Members are reminded that the deadline for all other amendments to the bill is therefore Monday 5 March.
Although only two amendments are before us today, I will explain how I intend to tackle them, as the procedure is not wholly straightforward. We will start with section 3, as previously agreed. I will ask Kenny MacAskill to move amendment 1, which is in his name, and to speak to it. Then I will ask Brian Monteith to move amendment 1A, which is in his name, as amendment 1A amends amendment 1 and will be voted on first. Then we will debate both amendments together, as they relate to the same issue—the threshold for payment of student loans taken out to repay the graduate endowment.
At that point, I will invite members of the committee or other MSPs who are present to contribute—although today, apart from Brian Monteith, only committee members are present. Members should indicate, in the usual way, their wish to speak. Once other members have contributed, I will invite the minister to respond to both amendments and then ask Mr Monteith to conclude on his amendment. I will then put the question on amendment 1A and we will move to a vote, should that prove necessary. Voting will be by show of hands. Following that, I will ask Kenny MacAskill to conclude on his amendment and I will then put the question on amendment 1—if necessary, we will move to a vote.
After we have debated the amendments, the committee must decide whether to agree to sections 3 and 4. Before I put the question on those sections, I am happy to allow a short, general debate, which may be useful in allowing discussion of matters that were not raised in our consideration of the amendments, although members may feel that they have said enough—we pray.
Members should be aware that the only way in which it is permitted to disagree to a section is by lodging an amendment to leave out the section. Therefore, if members want to delete an entire section, they must have lodged an amendment to that effect. A section cannot be opposed if such an amendment has not been lodged. No such amendments have been lodged to sections 3 and 4 so, if any member wants to disagree to a section, he or she has the option to propose a manuscript amendment. If that happens, it is my decision, as convener, whether to allow that amendment to be lodged.
When we come to a vote, I intend in the first instance to cast my vote in line with my personal and party political beliefs. However, I share the view of the Presiding Officer that the convener should use his or her casting vote in line with the status quo, which would mean that I would use my casting vote against any amendment, whether it is in the name of the minister or any other member.
If members are clear on the procedure, I propose that we move to consider the amendments to section 3.
Section 3—Financial support for students
Amendment 1, in the name of Kenny MacAskill, is grouped with amendment 1A, in the name of Brian Monteith. I ask Kenny MacAskill to move amendment 1 and to speak to both amendments.
The SNP disagrees with the concept of a graduate endowment. We are on record as saying that it remains a tuition fee whether it is paid at the end of or prior to a university education. However, if it is to be introduced, we feel certain that it should reflect the terms of the inquiry that was carried out over a significant period—and at a not insignificant cost—involving a significant section of people involved in education in Scotland both as users and as administrators. I will attempt to keep my remarks relatively short, because this matter has been debated pre-Cubie, as part of Cubie, post-Cubie and at stage 1.
The bill is brief; it contains little detail. That has been commented on by this committee and by the Subordinate Legislation Committee. We are awaiting regulations that will run in tandem with the bill and are probably just as important as the bill. We have also had intimation from the minister's colleague that it is likely that the threshold will increase.
The amendment seeks to ensure that Cubie is implemented—he was after all the one who investigated the matter. We believe that the bill should reflect—in part, if not in whole—the wishes of Andrew Cubie and his committee. After all, Cubie was sanctioned, paid for and promoted. We seek to confirm the recommendations made by Cubie's report and the evidence that he gave to the committee regarding the bill. He indicated that the threshold that was being proposed was far too low.
The basis of the amendment is to ensure that matters are brought into line with what the Cubie committee indicated was the threshold at which a graduate endowment should be paid. We have added the question of the average earnings index, as we believe that students should not, in four or five years' time, be prejudiced by inflation, whether it remains low or returns to the higher levels of the past. Andrew Cubie and his colleagues selected a figure after much consideration, so we believe that that figure should remain and that we should tie it in with the average earnings index.
The intention of amendment 1 is not to dilute what the Executive is introducing with the bill; it is to add to the Executive's intention by returning to the first principles and basis of Andrew Cubie's inquiry. The amendment will provide further beef to the skeleton that the bill currently is. In doing so, it will reflect the wishes of the Cubie committee, whose inquiry took place with the support of the other parties. My party's position was that we did not see the need for that inquiry. However, as that inquiry has now been carried out, I shall move the amendment that I believe adds to the bill and provides protection for the student community in Scotland.
I move amendment 1.
I call Brian Monteith to speak to and move amendment 1A.
I am pleased to explain the thinking behind amendment 1A. In part, it is designed to create a debate about the threshold. At stage 1, there was some discussion about that, but we now have a chance to look at things in more detail.
It is quite appropriate for Mr MacAskill to propose a threshold of £25,000, and I respect the position that he has outlined. It is a position that reflects the arguments of the Cubie report and those who supported that report.
The Conservative party does not support the Education (Graduate Endowment and Student Support) (Scotland) (No 2) Bill. However, I accept that the bill is likely to be passed and I lodged amendment 1A because I feel that it is important to try to improve it. As a member of a party that did not support Cubie—the mother of the bill—and that felt that the Cubie inquiry had faults, I do not take everything in the Cubie report as read.
One problem is the likelihood of the threshold being as low as £10,000. Although it has been indicated that that may increase, I think that the increase is likely to be marginal. Mr MacAskill's attempt to define more closely what the amount should be is admirable, but I do not accept his figure of £25,000. I argue that the threshold should be £20,000 because, from what I can see of the evidence, the £25,000 figure is based on average earnings and I think that it would be more appropriate to base the figure on the average earnings of a graduate.
If we were to use the labour force survey, we would find that the average earnings of a graduate, by the age of about 26, have risen to somewhere in the region of £20,300. The average earnings of a graduate do not reach more than £25,000 until the age of 30. It is quite appropriate that we should consider the difference between average earnings and average earnings of graduates. A £25,000 threshold would mean that graduates would be kicking into the repayments at a time when they are more likely to have families, mortgages and greater financial responsibilities.
I suggest that it is sensible to make the threshold £20,000. That is not designed to penalise anyone; I think that it will make no difference to the number of people who will pay and I do not think that the difference between £20,000 and £25,000 will act as a disincentive. The level that I have suggested is still double the initial suggestion for the threshold—£10,000—so it is an improvement of 100 per cent. It reflects the nature of the earnings of graduates, who are the people we are dealing with in the bill. It would be more appropriate for graduates to be faced with beginning repayment when they are 26, when they are more likely to have the freedom to begin the payments but not the heavy responsibilities that they might have later in life. That might be more amenable.
I lodged the amendment to encourage debate about an appropriate threshold, accepting that it should be far higher than the suggested £10,000.
I move amendment 1A.
I open the debate to other members of the committee. The debate will cover amendments 1 and 1A.
I am slightly surprised that amendment 1 should have been applied to section 3, as I thought that it would be applied to a different section.
Kenny MacAskill said that we have had this discussion at various stages of the bill. I do not think that my position or Kenny's position has carried the day at any point. There is a simplicity about the system that the Executive is proposing, whereby we use the threshold that is currently in place for collecting student loans, which works in practice and under which there is a good collection rate.
The level of the threshold does not affect the amount of debt that a student has—students leave university with the same amount of debt and the issue is when they start repaying it. I suggest that there is at least as much logic to starting to repay it at a low level as soon as possible. For that reason, it makes sense to have one simple system. People want to start repaying the debt right away. It would be unhelpful to put the threshold up to £25,000 or £20,000.
Other arguments are to be had about increasing the threshold in line with inflation, but I do not think that consideration of section 3 is the appropriate place at which to have that discussion. I have some sympathy with that part of amendment 1, but not with the increased threshold.
I, too, oppose both amendments. Over the past few weeks, we have discussed the threshold in some depth. As Ken Macintosh said, it has been made clear—on the several occasions on which we have taken evidence—that there is a lot going for having a clear, straightforward system.
Relatively recently, we discussed the prospective cost of setting up an alternative collection scheme; I believe that it would be about £1 million, if not more. The unit cost of the current collection system is low, so money is going towards supporting students—as is the intention—and not towards extra layers of bureaucracy.
The minister and others have at various times said that it is likely that the current threshold will be reviewed. No student will repay into the graduate endowment until 2004. It is likely that a review will have taken place by then; it is unlikely that a student will ever pay back into it at the current level.
It has been made clear that about 99 per cent of students will be better off under the proposals and will have increased support. I oppose both amendments.
I oppose both amendments. The current system results in 0.01 per cent of defaulters. That adds to the argument it has a simplicity, efficiency and cost-effectiveness that commends it.
It is a false position to be in the midst of a Dutch auction about the level of the threshold in the context of a process in which we are considering passing legislation. As Elaine Thomson said, when the endowment scheme comes into effect, a judgment will have to be made about the appropriate balance between affordability and responsibility. That issue must be considered not only in the narrow context of what students can afford to pay, but in a broader context. Whatever happens with the bill, people who go to university will be subsidised by general taxpayers and will benefit in ways in which people who do not go to university will not. The Government must make a series of judgments at that point. The issue is not really whether we decide that the threshold should be £20,000, £25,000 or £10,000; it is the process that we follow to establish the appropriate arrangement.
I understand where Kenny MacAskill is coming from. I am slightly confused about Brian Monteith's position, because I had understood that the Conservative party wanted to introduce a system whereby the interest rates on student loans would be increased by market rates. Given the market disposition of the Conservative party's general philosophy, I am surprised that it wants to establish an exact level in legislation.
As I understand the Conservative party's proposals, they would be more expensive to administer than the system that the taxation scheme would establish, so a higher proportion of what students would be expected to pay would go towards administration costs. We have not dealt with those issues, because they are not raised by amendment 1A.
We are not the Executive; we have not proposed a bill.
That is true.
Wait until next year.
I am simply making the point that a bit of opportunism is attached to the amendment and that it calls to mind a Dutch auction.
Every member of the committee has commented and I, too, am entitled to comment. I support Kenny MacAskill's amendment, because I believe that Cubie's case for the £25,000 threshold was strong and is the only way of eliminating unfairness and inequality in the system. We have still not received detailed information on the cost of collection, but even if a slightly higher cost would be incurred, my view is that that would be a small price to pay for equity in the system. I ask the minister to comment.
As Mr MacAskill said at the outset, the issues that are raised by amendments 1 and 1A have been well aired. I am happy to have the opportunity to repeat why the Executive believes that its proposals are right and why we cannot support the amendments.
Were we to vary the threshold for repayment through the Education (Scotland) Act 1980, as Mr Monteith's and Mr MacAskill's amendments suggest, we would need a completely different repayment system for the graduate endowment. The current threshold for repayment of income-contingent loans is set by regulation 15 of the Education (Student Loans) (Repayment) Regulations 2000. That imposes a duty on the Inland Revenue to collect loan repayments when the borrower's income reaches a set level. As the committee can appreciate, the imposition of such duties is a reserved matter.
The amendments would require Scottish ministers to make a regulation of similar effect. Regulations made under the amendments would deal with reserved matters and would therefore be ultra vires. Neither the Scottish ministers nor the Scottish Parliament can require the Inland Revenue to collect the endowment under a different threshold for us. To make regulations to implement the proposals in the amendments and stay within the powers of the Scottish Parliament, we would have to establish a new system of collection.
As has been said, the use of the Inland Revenue to collect income-contingent loans is efficient and simple. The long-term default rate is estimated to be negligible because the Inland Revenue collects the majority of repayments. Although a few borrowers outside the pay-as-you-earn system may go into arrears, most of those borrowers repay later. The system is simple, easily understood and already in place. Indeed, it was campaigned for as an alternative to the old mortgage-style system.
On the use of two different collection systems, my colleague Nicol Stephen has explained on other occasions that, in practice, if there were a system of two repayments—one for the student loan and one for the endowment—people would still pay 9 per cent of their monthly income above £10,000 to repay their student loan, and would have a separate, extra payment for the endowment. No student would benefit from such a proposal.
Although I understand that the amendments seek to amend the threshold for repayment of graduate endowment-linked student loans only, we can speculate on the effect of raising the threshold for all loans to a very high level. Extraordinary marginal rates that were much higher than the current 9 per cent would be needed on incomes over £25,000. The current scheme works on a gently graduating scale, which keeps repayments manageable and avoids sudden step jumps in required payments.
Amendment 1 proposes £25,000 as the threshold, as originally suggested by Andrew Cubie. Cubie reached that figure by adding together the average Scottish wage and the premium that it is estimated that graduates earn. That is not rocket science and we should be wary of sticking too rigidly to that sum, without considering the alternatives.
Amendment 1A proposes that the threshold should be £20,000. I understand that that is consistent with Conservative policy, as outlined by Mr Monteith. The Conservative policy package includes market-rate interest rates and the old mortgage-style loan. Even taking into account proposed tax breaks, that would lead to far higher monthly repayments once the threshold was reached, and a far heavier burden of debt overall. For example, we estimate that it would take a typical student 18 years to repay a £10,000 loan, based on a market rate of 10.5 per cent, and that a graduate would pay £17,474 more than they would under the current system. That is because the student would accrue interest at high street rates before beginning repayment, so the amount of loan that had to be repaid would be greater. Monthly repayments would be about 85 per cent of income over £20,000.
The convener raised the question of administration costs. As he will know from meetings with Nicol Stephen, we have been in close discussion with the Student Loans Company and the Student Awards Agency for Scotland to establish best estimates of the costs that are associated with introducing the graduate endowment on the Executive's collection scheme or on a separate collection scheme. I fully intend to write to the committee on that matter before next week's meeting and regret that members do not have my letter today. Those discussions confirm that building on existing schemes will be simpler and cheaper than setting up a whole new alternative system.
We are listening to the criticisms that have been levelled at the threshold during the progress of the bill. We think that there is a case for revisiting the threshold and we are considering the position with our colleagues in other UK departments. I remind the committee that no one will make graduate endowment payments for a few years.
I invite the committee to reject the amendments.
We are talking about amendments that try to give shape to the regulations. Many members feel that, if that is not done, the regulations will easily be amended to mean anything that the politician in charge, whoever that happens to be at the time, wants them to. It is important that Kenny MacAskill has introduced amendment 1 to try to do that. I have sought to point out that, although it is important to try to improve the bill, one should examine the detail of the threshold figure.
A student has the option of paying off the endowment immediately and therefore does not have to take out a loan, which means that the criticism that the endowment will have to be repaid after graduation does not apply. The threshold is important. The claim is that the endowment should be repaid because the student has benefited from higher education, but setting that threshold at £10,000 denies that there has been any benefit. As I said earlier, the labour force survey shows that the average starting salary of a graduate with a three-year degree is £11,900 or, for a graduate with a four-year degree, possibly as high as £14,800. That means that the £10,000 threshold is already below the average earnings for graduates who, without showing any real benefit from their education, immediately go into employment.
The threshold creates problems of disincentive for students; indeed, that was one of the attractions of the issue to the political firmament in the run-up to the Scottish Parliament elections. The Scottish Government has even admitted that such a disincentive exists. For example, the graduate endowment is being waived for so many students because it is feared that they will receive a disincentive if they have to pay back into the endowment fund.
It has been suggested that we trust the Government's review of the threshold level. Well, I am sorry, but I recall that the Westminster Government changed the threshold for student loans from about £17,000 to £10,000. I would be interested to hear that this Government—which is the sister, brother or cousin of the Westminster Government—will raise the level of the threshold to £17,000. The level is likely to change only at the margins. Furthermore, if the politicians who previously said that they would not introduce tuition fees cannot be trusted on that issue, they can hardly be trusted about the level at which the threshold might be set after a review.
Des McNulty mentioned Dutch auctions; fortunately, as I am not from the Netherlands, I will not take offence at that comment. All the kite-flying about the Conservative proposals and the introduction of commercial interest rates is meant to deflect attention from the bill's failings. I will send the minister a copy of the freely available tables of figures that back up our proposals. They show that, after tax deductions, graduates will be better off; that the nominal increase in debt will be due only when they reach £20,000 instead of £10,000, which means a considerable time delay; and that not only will they experience tax cuts under a Conservative government, but they will make a saving after the tax allowances are taken into account. However, that is all a red herring—whether one believes that the Conservatives will gain power has nothing to do with this bill.
It has been suggested that Kenny MacAskill's amendment will make it difficult to collect the endowment at that threshold, but the £20,000 threshold proposed by the Conservatives not only fits in with a proper and appropriate survey of salaries, but—ingeniously—ties in with the amount that we have suggested for the collection of loans. That proposal is simpler than what the bill suggests, which is why I recommend it to the committee. The only problem is that I cannot vote for the amendment.
I take it that you are pressing amendment 1A.
Indeed I am.
I am disappointed by the comments made by my new Labour colleagues and the minister, which go against the ethos of Cubie that society benefits from higher education. Higher education is an individual right that is in the national interest and that is why I have proposed the repayment at a higher threshold. There is an irony that the other member seeking to come to the aid of students in Scotland by putting a threshold far higher than that proposed by the new Labour-Liberal Democrat Executive is a Conservative.
The amendments take us back to first principles. Brian Monteith said that Cubie was the mother of the bill; we accept that and therefore seek to stick with it. Subject to the ability to lodge amendments, the SNP will seek to delete any concept of the graduate endowment. However, if those amendments fail and the endowment is to be introduced, we want the bill to reflect Cubie as far as possible. I agree with Brian Monteith that the threshold currently being proposed is far too low.
Ken Macintosh talked about simplicity. It seems to me that Nicol Stephen had already opened up the matter when he indicated that the threshold would be increased. The Deputy Minister for Enterprise and Lifelong Learning and Gaelic has also said that the threshold would be increased. I do not see why it cannot be increased to £25,000. The debate has been opened up.
Ken Macintosh said that the threshold would not affect the levels of debt and Bill Butler said that there were other factors to be considered. That is the case. However, as Brian Monteith pointed out, it is not simply the effect that the endowment has on the level of debt, but the disincentive it may present to young people from poorer backgrounds from going into higher education. That is important not just for those people, but for the Scottish economy in the 21st century. If young people believe that as soon as they hit the wage level that could be acquired by working in a burger bar they will have to repay a considerable amount of debt, they will be dissuaded from going into higher education. Cubie was quite clear that the threshold was too low.
The minister's statements are disingenuous. We are advised that the threshold is currently being considered. The Executive has had since the summer of 1999 to consider it, yet the best that it can come up with is a threshold of £10,000. That proposal was met with uproar in the student community and was rubbished by Andrew Cubie for being too low. In response, the Executive has said that it will consider increasing the threshold and perhaps—I cannot remember the exact adjective used by the minister—offer some additional largesse or bounty. The debate has been open since the summer of 1999.
The Executive has argued against the £25,000 threshold, yet it also argues that nothing will happen until 2004. The Executive cannot have it both ways. If it has not managed to get its act together, the least it can do is to implement the report that was the result of great consideration by people who were charged with carrying out an independent and impartial inquiry.
The Executive has until 2004 to work out the mechanism that is needed to implement that. It is surely not beyond the wit and competence of the new Labour-Liberal Democrat Executive to work out some mechanism to ensure that collection processes are dovetailed or to vary significantly the current method of collection. Nicol Stephen issued a letter to the Finance Committee stating that the level and extent of the sum to be made available and the cost of collection are already substantial. It is a red herring to suggest that a threshold of £25,000 would require an alternative method of collection and that that would be significantly more expensive. What the Executive is lacking is not the way, but the will. To ensure that the letter of Cubie, not just its spirit is implemented, I will press my amendment.
The question is, that amendment 1A be agreed to. Are we agreed?
No.
There will be a division.
Against
Butler, Bill (Glasgow Anniesland) (Lab)
MacAskill, Mr Kenny (Lothians) (SNP)
Macintosh, Mr Kenneth (Eastwood) (Lab)
McNulty, Des (Clydebank and Milngavie) (Lab)
Neil, Alex (Central Scotland) (SNP)
Thomson, Elaine (Aberdeen North) (Lab)
The result of the division is: For 0, Against 6, Abstentions 0.
Amendment 1A disagreed to.
The next question is, that amendment 1 be agreed to. Are we agreed?
No.
There will be a division.
For
MacAskill, Mr Kenny (Lothians) (SNP)
Neil, Alex (Central Scotland) (SNP)
Against
Butler, Bill (Glasgow Anniesland) (Lab)
Macintosh, Mr Kenneth (Eastwood) (Lab)
McNulty, Des (Clydebank and Milngavie) (Lab)
Thomson, Elaine (Aberdeen North) (Lab)
The result of the division is: For 2, Against 4, Abstentions 0.
Amendment 1 disagreed to.
Section 3 agreed to.
Section 4 agreed to.
The next time that we consider stage 2 of the Education (Graduate Endowment and Student Support) (Scotland) (No 2) Bill will be 7 March. We look forward to seeing the minister then.
Meeting continued in private until 15:45.