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Tuition fees hike 'causing catastrophic fallout' for Lib Dems, says Labour Universities minister refuses to rule out increase in tuition fees
(about 2 hours later)
The Liberal Democrats are facing "catastrophic" embarrassment over student loans because they abandoned their election pledge to scrap tuition fees in order to vote for a new system that may not save the government any money after all, Labour has said. The Conservative universities minister has refused to rule out raising tuition fees for students after the next election, amid warnings from Labour that the current system is a "financial timebomb" that will leave a big hole in higher education funding.
Chuka Umunna, the shadow business secretary, said Nick Clegg's party would be in a particularly difficult position if the default rate on student loans passes the level at which it will have been pointless to treble tuition fees. David Willetts, who oversaw the tripling of tuition fees to a maximum of £9,000 in 2012, said the government would "have to see how the income of universities performs" when asked whether he would consider raising fees after 2015.
"I think this is actually catastrophic for the Liberal Democrats in particular because, having trebled tuition fees in the name of reducing the deficit and saving the exchequer money, you are actually at best seeing it raise little money at all, at worst actually costing more," Umunna told the BBC's Andrew Marr Show. The comments came after one of Willett's former political advisers, Nick Hillman, called for a rethink of the student loans system and admitted the government got its maths wrong by overestimating the amount of graduate debt that will be repaid.
"What this is is a student loan timebomb that is actually already exploding under the government and what the result we are left with is we've got young viewers watching this programme who are saddled, and will be saddled, with huge debts as a result." Hillman on Friday called for action to address the "big funding gap" looming in the universities sector caused by mistakes in the government's modelling and the fact that graduates are earning less than expected. Some experts believe the level of default on student loans is approaching the level at which the £9,000 fee system will not save the taxpayer any money or may even be more expensive than the old regime.
Danny Alexander, the Lib Dem chief secretary to the Treasury, insisted estimates were variable and that the higher education reforms were working and financially sustainable. Under the current system, students start repaying loans once they are earning more than £21,000, at a rate of 9% of their salary above £15,000. Ministers thought in 2010 that the taxpayer would have to provide a subsidy of 28% of the total loan book but have had to revise this upwards several times because of growing estimates of debt that will never be repaid.
"These figures are based on projections of what might happen to graduate incomes in 35 years time. So these numbers do move around a lot. The figures I'm most pleased with in higher education is that we're seeing more people going to university than ever before and particularly more children from disadvantaged backgrounds, which was our focus, applying and successfully going to university. That suggests these reforms are working for children from disadvantaged backgrounds. What it's enabled is for universities to be financially sustainable and more students to go to university. Those are both good things." Willetts told Channel 4 News the government is "committed" to the current tuition fees system, which ministers believe is "far more sustainable than any alternative". He also dismissed warnings that it will not bring in enough money to fund universities, saying the estimates of how much students will repay are likely to "bounce around" depending on what experts are forecasting for earnings over the next 35 years.
The row was fuelled when a former political adviser to the Tory universities minister, David Willetts, called for a rethink of the tuition fees system and admitted the government got its maths wrong by overestimating the amount of student debt that will be repaid. But, pressed several times on whether fees would have to rise or graduates would start having to repay money sooner, he said: "We've got a system with a £9,000 fee and a £21,000 [earnings] repayment threshold. That is our system that we are committed to. Above all it means students don't have to pay upfront... We have fixed the fees for £9,000 for this parliament.
Speaking to the Guardian, Nick Hillman called for action to address the big funding gap looming in the universities sector caused by mistakes in the government's modelling and the fact that graduates are earning less than expected. "But we will have to see how the income of universities performs. But we have a structure for £9,000 and £21,000 and that is working."
The Universities UK alliance of higher education institutions also urged the coalition to open talks with Labour on the issue, saying it was vital to think more carefully about how universities can be paid for. Cathy Newman, a Channel 4 presenter, tweeted that she asked Willetts the question again about the possibility of higher fees after 2015 as he was leaving the studio and the minister replied "could be".
Under the current fees regime, students start paying their loans back once they are earning more than £21,000 at a rate of 9% of their salary above £15,000. Ministers originally thought in 2010 that around 28% of student loans would never be repaid and have revised this upwards several times. The Guardian revealed Willetts's admission that the true figure is now more like 45% – fast approaching the 48% threshold at which experts say the benefits of raising fees to £9,000 are cancelled out. Labour's shadow business secretary, Chuka Umunna, said the fact that ministers are "now refusing to rule out further hikes in student fees less than three years after trebling the cost of a degree underlines the depth of the crisis they have created in the student finances".
Willetts has previously denied that the changing estimates are any kind of deep defect in the system, saying changes to the numbers are purely a result of people temporarily earning less than expected. The Department for Business, Innovation and Skills said that the universities sector was well funded. It added: "The estimates can and will continue to change." "Ministers need to come clean on what this timebomb will mean for the public finances, our universities and students," he told the Guardian.
But Hillman said there was no denying that the government had got it wrong and there was a big funding gap. Earlier, he said the Liberal Democrats are facing "catastrophic" embarrassment over student loans because they abandoned their election pledge to scrap tuition fees in order to vote for a system that may not save the government any money.
He said: "The thing that hasn't really entered the debate yet … is now we know how big the shortfall is, what do you do about it? How much would you need to change the loan system to actually solve the problem? I'm not defending the government. The government has got the maths wrong, plus the economy has changed. The £21,000 repayment threshold is in real terms much higher than the government expected." Danny Alexander, the Lib Dem chief secretary to the Treasury, said estimates were variable and the higher education reforms were working and financially sustainable.
Hillman, who supports the principle of fees and is now director of the Higher Education Policy Institute, the thinktank that first shone a spotlight on the problem, said it was an issue that all the leading parties needed to get to grips with. "These figures are based on projections of what might happen to graduate incomes in 35 years' time. So these numbers do move around a lot," he said. "The figures I'm most pleased with in higher education is that we're seeing more people going to university than ever before and particularly more children from disadvantaged backgrounds, which was our focus, applying and successfully going to university.
"Some of the critics of the government are not right either because their alternatives [such as a return to grants] would cost even more," he said. "Labour don't really have an answer either because their model of £6,000 fees uses the same modelling as the government. Labour are relishing this story today but it gives them a headache just as much as it gives the government a headache." The Guardian disclosed last week Willetts's admission that the true figure for the amount that the taxpayer would have to provide as a subsidy is now more like 45% of the total loan book – approaching the 48% threshold at which experts say the benefits of raising fees to £9,000 are cancelled out.
He suggested possible solutions included limits on the level of loan given to each student or freezing the repayment threshold so that graduates started repaying their loans more quickly. The Universities UK alliance of higher education institutions has now urged the coalition to open talks with Labour on the issue, saying it is vital to think more carefully about how universities can be paid for.
Any political prominence for the issue of tuition fees is likely to reopen painful wounds for the Lib Dems, who were forced to abandon their anti-fee position when they went into coalition, causing a large loss of support which they have not regained. The policy is ultimately the responsibility of Vince Cable, the business secretary, who oversaw the introduction of the higher tuition fee system from 2012.Any political prominence for the issue of tuition fees is likely to reopen painful wounds for the Lib Dems, who were forced to abandon their anti-fee position when they went into coalition, causing a large loss of support which they have not regained. The policy is ultimately the responsibility of Vince Cable, the business secretary, who oversaw the introduction of the higher tuition fee system from 2012.
Social Liberal Forum, the grassroots Lib Dem group, said the party leadership had been repeatedly warned in 2010 about the cost of the new student finance system in financial as well as political terms and suggested the party might pledge to freeze tuition fees in its 2015 manifesto.
"Whether the voters would believe us, however, is another matter," said SLF co-chairman Naomi Smith.