Welcome to the Treasury Committee on Wednesday 10 June 2026. We are delighted to have our final panel on our investigation into student loans and the taxation of graduates. I am pleased to welcome two Ministers. Lucy Rigby, formerly of this Committee, is now the Chief Secretary to the Treasury—the Minister responsible for overseeing and agreeing all public spending at the Treasury. She is joined by the right hon. Baroness Jacqui Smith, who is the Minister for Skills at the Department for Education.

I am also formerly of this Committee, although a very long time ago.

It seems that all the best people come to the Treasury Committee—let us agree on that. I am also pleased to welcome Peter Swallow MP, who is guesting from our sister Committee, the Education Committee. A warm welcome to you, Mr Swallow.

The context in which I made that statement was the point at which the Government decided to cap the maximum interest rate from the next academic year. Given that it had gone well above 7% on previous occasions, given the concern within the system and given the risk that global shocks were potentially going to impact UK inflation, we felt that it would be unfair if it went up to what would have been 7.1%. That also recognised the concerns being expressed about the level of interest. For that reason, and in that context, we felt that it was fairer to put the cap on in the way we did.

As I have suggested, the decision was based on the context in which we made it. At that point, given the potential inflation risks that the Chancellor had identified, interest rates would potentially have increased—we now know they would have given the April inflation figures—in a way that would have understandably brought concern to graduates repaying their loans. That was the context in which the decision was taken and the reason for focusing on the interest rate cap.

Certainly in the sense of the inherent unfairness in interest rates ticking upwards because of the situation in the middle east. As Baroness Smith said, that was the wholehearted motivation behind capping at 6%.

No. It was a reaction to the position in the middle east: a view was taken that this was something that we could do. Taking a step back and thinking about the fairness of the system as a whole, and to be very candid with you, there are a number of things that, in an ideal, perfect world, I would like to change about it; I am pretty sure that many others would say the same. We inherited this situation and, as you know very well, a number of levers could in theory be pulled, each of which would have different effects, but the overall context is that we have to bear the overall fiscal position in mind. If I may go into the fairness of the system as a whole, I don’t mind saying that I have been giving this some quite deep thought—not least because I anticipated appearing here, but also because I have always considered education to be a fundamental public good, and more people are now going to university. It is right that we have a student finance system that means people are enabled to go to university without the upfront costs; otherwise, only wealthy people would be able to go to university. I think the right way to look at the question of fairness is as fairness to taxpayers as a whole. There are a number of aspects of student loans and student finance that are fundamentally very different from a commercial loan: the fact of the debt being written off after a set period, but most fundamentally the fact of their being income-contingent, so you are repaying only if your income hits a certain level. In all considerations about the fairness of the system, we have to bear in mind fairness to taxpayers as a whole. Of course, the majority of young people do not go to university.

We will continue to keep everything under review, as I hope you would expect us to. As I said, we inherited a system. We can talk specifically about plan 2, the various parameters and everything that has happened, but it is not a system that, on our side, we necessarily would have designed. We would not necessarily have taken some of the decisions that the coalition Government took, in particular in relation to plan 2. Where we can and in the context of a fiscally responsible approach, we have sought to do things like capping interest rates, but we also unfroze the repayment thresholds for 2025 and 2026. Baroness Smith can talk more about the reintroduction of maintenance grants. There is a host of things that we have been able to do, but obviously politics is about choices, and the Chancellor has chosen to prioritise a host of things including lifting the two-child cap, funding free breakfast clubs, SEND reform—I know you do not want me to list all the things, so I won’t. I suppose my point is that some decisions have been taken that will help graduates, like our renters’ rights reform and the money we are taking off energy bills. The decisions vis-à-vis student finance are taken in the round—I suppose that is the short version of what I am trying to say.

First of all, to reiterate the point that the Chief Secretary made, when we came into Government, we took a series of actions to try to make the system fairer: a threshold increase for the first time since 2021, capping the interest rates and reintroducing maintenance grants. Those were important decisions. The other important point is that plan 2 remains, as we have seen from your inquiry, very live for those in repayment for plan 2 loans, but of course it is not the case now that anybody going to university and taking out a loan would be facing the same terms. They would not be facing, for example, a rate of interest above RPI, because in plan 5 the rate of interest is already capped at RPI. That is one of the ways in which the system is already changing, but in terms of higher education finance, we will also be wanting to look at how we can ensure that the system in the future better supports disadvantaged students. That is the reason for bringing back maintenance grants, which were stopped 10 years ago in 2016. As the Chief Secretary says, we will want to continue thinking about what more we can do, within the confines of the fiscal challenges that we face and the decisions we want to make about other areas of policy—and, by the way, other areas of education and skills policy, where there has been considerable investment. This year, we are introducing a new system of student finance through the lifelong learning entitlement, which will provide considerably more flexibility for people around how they study, and the ability to come back to study at different points in their lives and to do shorter courses. That, of course, has implications for how much you need to borrow and how much you will therefore need to repay. It means that you can make your higher education study fit more around your circumstances and the point in your life that it makes sense to do it.

As I said, I have been trying to give this some really deep thought. The assessment as to fairness is multi-layered. Intergenerational fairness, when it comes to students specifically—when I think about myself as a student, I had a plan 1 loan; my situation relative to someone on plan 2 and indeed relative to my mum, who received a grant—

I am not quite old enough to be your mum, but I was in that group!

If you look at students in each of those cohorts, you can make a case to say that the situation of people on plan 2 has elements of unfairness relative to those other generations. I do not mean in anything that I have said so far that I am unappreciative or am not acknowledging the really tough circumstances that some graduates are in. We have seen that in the material that has come back to the Committee.

Can I add something on the intergenerational point? I have the charge made to me that I went to university at a time when nobody needed to take out loans, but of course I also went to university at a time when fewer than one in five young people went to university. If we want a system in which we provide opportunities to take part in higher education to more people, and I believe in that both in terms of opportunity for people and the growth we need to see in the economy, then we have to find a way of funding the higher education system that is fair and sustainable and allows us to provide those opportunities to far more people.

That is interesting, because the Government gave evidence to the Committee that: “This Government inherited the broken student loans system”. We have heard from the Chief Secretary about the challenges financially of dealing with this, about choices and so on. Baroness Smith, if it is broken, how will you be fixing it? What is the long-term plan for sorting this out?

The plan is some of the things that I talked about previously. It is about what more we can do to support disadvantaged students, which includes the action that we are taking on maintenance grants and the action that we are promoting in universities, supported with some Government funding, to make sure that, once disadvantaged students get to university, the student experience is as effective as it can be, and that students are essentially supported to make the most of their education. It is about the support that universities themselves can provide in bursaries and particular support for students to be able to access higher education. It is also about the targeted grants that the Government provide. I said that it is important that we make things fairer for graduates. As we just discussed, this Government have already increased the threshold of the cap. It is then about the future and how we create a more flexible student finance system while nevertheless ensuring that the system remains sustainable. This is also about recognising that people will come through different routes to enter higher education; that comes back to the point that the Chief Secretary rightly made about the choices that we make, even in where we focus post-16 education funding. Over the course of this spending review period, we are spending over £18 billion per year on post-16 education and skills. People on the Committee may well have lobbied us about this: that means we need more sustainable 16-to-19 education, particularly in further education; that is why we have increased investment by £800 million.

This is all great, but it is not about the broken student loans system, directly, is it?

Well, Chair, with respect I think it is because it demonstrates where the Government are putting their money to support individual students to be able to proceed to higher education and to support the financial stability of the sector as a whole. It demonstrates the choices that, as a Government, we have made.

Do you know how many disadvantaged students are benefiting from increased maintenance loans and grants? What is the percentage, roughly?

We will introduce those in academic year ’28-29 and they will be £1,000 a year for students whose family income is below £25,000, and they will be in particular areas that support industrial strategy areas. We will have more to say about how that will be determined, in terms of courses, as we get closer to delivering those grants.

Is that £1,000 flat cash, or is it inflation indexed?

That is £1,000 at the point when the grants are introduced in ’28-29: £1,000 for year one and for year two, and £750 for the third year for an individual student.

So that is what it will be. There is no inflation link for ’29.

We are funding it through the introduction of the international student levy. By our current calculation that amount is what we will be able to do as, if you like, the first tranche of maintenance grants.

Do you know how much that might make a difference to repayments on a loan for that cohort? I am not expecting you to, between you, have that direct figure in front of you right now. If you do not have it could you send us it?

I am happy to provide further information to the Committee about the impact that it might have but, quite straightforwardly, it means a student would need to take out £1,000 less per year on a loan.

My point is that if you are paying off a loan over 30 or 40 years, that grant is not an insignificant measure because it helps people at the point of making a choice—but nevertheless it is not, I would suggest, a massive saving over a lifetime. It is not for that reason that you are putting it in place.

No, it is for the practical reason of putting £1,000 into the pockets of the most disadvantaged students, who would not otherwise have it. An element of it is about saying that we want to begin to bring down barriers that might exist to disadvantaged students.

Okay. You also mentioned university bursaries. Are they paid for by universities or are you talking about bursaries for particular subjects through Government funding?

It can be both. Some universities provide bursaries from their funding for students in particularly disadvantaged circumstances. Some of that is funded by Government money that comes through the strategic priorities grant.

Okay, so some of that is not Government money. And by “targeted” do you mean for particular courses or particular students?

No. In the system there are grants that are available to students who are disabled, for example. Those are what we call “targeted” grants.

Okay, fine. That is the jargon of the Education Committee rather than the Treasury Committee.

Yes, sorry.

It is all very well to talk about the student experience, but the evidence is saying that the loan system is broken. You talk about having a sustainable and flexible future student financial system. Can you give us a couple of examples? You are sitting next to the Chief Secretary to the Treasury, so you could count it as a bid for the next spending review—although they are probably dealing with other issues right now. We know about the funding situation; the Chief Secretary has been very clear about that and we also heard what the Chancellor said about it. What would you like to see in an ideal world? What is your vision of a sustainable and flexible future student finance system?

It means the lifelong learning entitlement system that we are introducing. It also means ongoing Government commitment, which is already in the student finance system. Let us not forget that at the moment, on average, 30% of the money loaned to students is never repaid, so there is already a considerable Government subsidy going into the student finance system.

We are going to come on to the balance of the Government and private sector.

That is a Government investment into the student finance and loan system.

You have talked quite a lot about the post-16 agenda. Clearly, you are very proud of that, and it is very much at the core of your portfolio. The White Paper you published last October contained no mention of the student loan system being broken, yet in evidence to us recently, you said that that was the case. Did last November’s freezing of the thresholds where graduates have to start repaying make you think that it was broken?

No, I do not think that is what broke it. It is some of the elements of unfairness that I was talking about earlier. In that White Paper, we talked about the range of other things that we were doing to improve the student finance system. It is not that we did not mention it.

It was not criticised as much as it has been in the evidence to this Committee and the change of tone is interesting. It is quite trenchant for a Department or the Government to write to a Committee saying that the system is “broken”. We do not usually get language quite that frank and that is why we are interested.

We sit in Government Departments, and although I no longer do, lots of people are listening to their constituents and receiving correspondence. In my case, from listening to my children, it is obvious that people at this point, for whatever reason, feel concerned about the impact of their plan 2 repayments. It would be false of me to say that that is not something that people are concerned about.

We have got a lot of further detail to get into and on that I am going to bring in Dame Harriett Baldwin MP.

I am fascinated by the frequent use of the word “fair”, because it is obviously a very subjective term. Is a 6% interest rate “fair”?

Well, put it this way: it is interesting and important that nowadays students with plan 5 student loans they began repaying in 2023-24 face the retail price index interest rate, which is already lower than 6%. To come back to the point that we made earlier, the context for what is fair is in the decisions that you make as a Government about where to focus your resources. It would have a very big impact on the public finances if, for example, we reduced interest rates in the way that some people have suggested we should for plan 2 loans; that would cost a considerable amount of money. Those are the decisions we have had to weigh up in relation to the fairness of the interest rate. We were clear that we did not think that an increase in the plan 2 loans, where you could pay RPI plus up to 3%, caused by external events that impacted inflation in this country was fair, so we took action to cap the rate at 6%.

You said in your written submission that 7% was unfair. I think I just heard you not say that 6% is fair. You do not think 6% is fair either do you, Baroness Smith?

No, that is not what I said. I think that 6% is fair in the context in which we capped it. My first point is that students taking out loans now will be paying a lower interest rate than that at this point. Secondly, the reason I used the 7% figure was that if we had not capped for the forthcoming academic year, as we did back in April, graduates repaying a plan 2 loan would face a 7.1% interest rate. That was the comparison I made; it was not about one being fair and one not.

Is it fair to have frozen the thresholds in the way that the Chancellor did? That is another £7.5 billion that will be asked of students in one stroke of the pen.

I have to point out that this Government have increased the thresholds two years in a row, after a period since 2021 in which they were frozen. Also, since they were brought into existence in 2012, under the Government in which you were a Minister, Dame Harriett, they have been frozen more often than they have been increased.

I know there will be more questions about those retrospective changes, but I will carry on asking about interest rates. The Committee has received evidence suggesting the interest rate really should be just a pass-through of what the Government themselves pay. Would that be practical, Chief Secretary?

The starting point on the interest rates—to partially address some of the points made by Baroness Smith—is that they are not design choices that we made. They are design choices that we inherited. Interest rates, repayment thresholds, repayment rate and the length of the repayment term—each of those parameters of the scheme are things that we inherited. I accept that they are levers that could be altered such that students repay less, or repay less over the long term, or whatever it is, but each of those choices has to be made in a fiscally responsible way. On the interest rate specifically, Baroness Smith referred to the fact that many graduates simply never pay off their loan. The interest rate does not make a difference to those graduates because of that key difference between student finance and a commercial loan, in addition to the lack of requirement for collateral or a credit history. Those are the key terms under which student loans are made available for the express purpose of allowing people from all sorts of backgrounds to go to university.

You say it is a system you inherited, and of course that is the case, but the changes you have made include reducing the interest rate, which as we heard earlier actually benefits those on higher incomes. Is that fair?

In theory it benefits all but that is, as you say, subject to the fact that those who do not earn above the payment threshold, or who do not pay the loan off over the loan period, will eventually have their loan written off. The key thing is that we made the change of capping at 6% because we took the view, in the context of what was happening in the middle east, that there would be an inherent element of unfairness in the system if interest rates were to skyrocket. For what it is worth, I also think it was unfair to graduates—indeed, to all my constituents—when certain events under the last Government, not least Liz Truss’s mini-Budget, impacted our economy. It is really important to bear in mind exactly why we put that 6% cap on interest rates. You mentioned repayment thresholds, which I will address directly. I come back to the things we were talking about at the start. We have to have fiscal responsibility and look at these things in the round. The Chancellor made a series of choices at the most recent Budget and previous ones to fund lifting the two-child cap, free breakfast clubs and free childcare.

We heard that list before. I am going to put on the record, Chair, my concern that the Chief Secretary is not aware that interest rates are now considerably higher than they were under that 49-day premiership that she alluded to. On the point about the evidence that the Committee received, I want to highlight the fact what the 52,000 people who have written in to us say concerns them the most about their student loan is the fact that every time they look at their statement, the balance has increased. I just want to point that out as you think through the different options. That is very much the overall theme.

The psychological pressure that people felt was significant. Ms Rigby, do you want to come back on that point?

I think there is a broader point—I come back to what we talked about at the start. Dame Harriett, you referred to fairness. Because of the nature of the student loan system, which has all the characteristics that we described, the right way to think about fairness is as fairness to taxpayers as a whole. As I said, more than half of young people are not going to university. What would be unfair to graduates, my constituents and others would be losing control of the public finances, because that has very negative consequences.

Baroness Smith, you mentioned in your earlier remarks the difference between when you were a graduate and when I was a graduate roughly a decade later.

Woah! Baroness Smith is getting a beating today.

I didn’t mean it like that.

Oh, to be old!

The point I want to get to is that I totally respect your saying there was a different volume of people going to university than there is now. But we also have the evidence that 39%—I think—of people never pay off their student debt. What do you think about the narrative implicit in what you say that more graduates in all disciplines in all courses is good for the economy? Do you have any comments on the range of options around the different courses and whether they provide value for money, given that striking statistic? Obviously, some will go into vocations that do not give them higher salaries—we expect that—but many do not. What do you think about that?

I will come to that, but just to be clear: the idea that you do not pay off your student loan because of the income that you earn would not necessarily correlate with whether or not you were doing something worthwhile.

I did acknowledge that. I am just saying there has been a massive shift in the volume of people, and I think people would expect us to ask about your view of the validity of that.

I certainly think we need to do more in the system. We have clearly informed young people who are thinking about what they want to do at university, or whether that is the right route for them, about what the potential outcomes course by course, subject by subject. We will be providing more information for students thinking about those options through UCAS, for example, and by bringing together the information that we have about graduate outcomes so that their decision making is more informed. That might, of course, mean that they want to look for alternatives. They might say, “Okay, well, perhaps an apprenticeship route is more suitable to the course through life that I want to take.” That is why we have seen investment in the apprenticeship system and a pivot back towards young people. We will also take a stronger approach to how we tackle the quality of courses that are being offered. We have already said that, as we increase tuition fees, we will link that to the quality. We will link the ability to index-link your tuition fee cap to the quality of what is being produced in your university. Particularly given some of the concerns about the quality of what is being offered in franchised provision, where there has been a very big expansion of the number of students going into higher education, we have already said that we will expect any franchise provider with 300 or more students to be registered with the Office for Students. We will look very carefully at the quality of what is being offered there.

Thank you for that. In some countries, such as France, vastly higher numbers of people go to university near to their home, which removes some of the significant burdens of maintenance costs and so on. We heard evidence from the previous panel that the UK system has significant wraparound costs, in terms of what is offered to a student. Do you see any means of reducing those costs to create a lower burden for the state and the individual?

On the point about being nearer to home, in this country we are already seeing a big increase in the number of students who commute and live at home. That might be for a variety of reasons. I would have to go back and read the evidence about what people meant by wraparound support. I have pushed quite hard for appropriate wraparound support to be put in place for students, because it is a waste of everybody’s money if somebody—

Drops out.

Gets into university and then drops out—exactly. We have done work on mental health support, the targeted grants that I was talking about, and the expectation that we are putting on universities in terms of student experience. Those things are not just some option that we can do away with; they are part of making a success of the system.

Thank you very much. Chief Secretary, congratulations on your latest promotion. From your previous role as Economic Secretary, you will be very familiar with the terms that exist in financial services for loans and so on, and yet we seem to have an anomaly. The Treasury has for years, under all Governments, had PFI deals and contracts for difference that, when we have looked back on them—the Chair probably looked through them in her role as Chair of the Public Accounts Committee—we have seen that they do not provide value for money. The unusual situation with student loans is that any Government can vary the terms using the carve-out in the higher education Act of, I think, the late ’80s. Do you think that is fair?

I think this comes down to what student loans are as a product.

You mentioned the write-off and the income contingency thing in your earlier answer. Your argument is that it is a different sort of product, and therefore the Government can vary those terms freely.

It is a different sort of product, yes. I mentioned those key characteristics. The other side that is worth emphasising is the fact that, at the point at which most people go to university, they cannot get a commercial loan because they do not have the credit history or the collateral. They certainly would not be able to get something that they could write off if they do not hit certain repayment thresholds. My point is that student loans, despite having the name that they have, are very different as a product from a commercial loan. You are right that inherent in there is the fact that, because they are so heavily subsidised by the Government, the Government have the right to change some of the terms of the loan, as previous Governments have done.

Do you think, therefore, it would be better to rebrand the loans as a university education contribution, because it is not really a loan in the conventional sense? Would that not do justice to the essential co-payment that exists between the state and the individual?

I have seen that argument being made. Personally, I am not sure I see the value in changing the name to a graduate contribution. Despite me saying that it has those key differences from a commercial loan, it is still a loan—it is something that students are expected to pay back—

But nearly 40% do not.

That differs according to cohort and yes, you are absolutely right, some people—a large number of people—can never pay it all back, but I am not sure it is necessarily right to characterise it as a contribution when a sum of money has been loaned with expectation that it would be paid back, if only on certain terms.

Don’t you think, though, that students have seen the history of different schemes over time and the changes in the thresholds, rates and so on, so a point will come when their level of confidence in what they sign up to will diminish? Therefore, people will not have confidence, which is not a good start to a young adult’s relationship with the state, is it—to have a dicey product that any Government can change?

I would not characterise it as a dicey product—I feel I should push back specifically on that. I have talked, and I will not repeat myself, about why I think student finance is a good in and of itself, in the sense that you do not have to pay up front to be able to go to university, education is a public good, and so on and so forth. I will not repeat myself, but I do think that, because of the very large nature of the Government subsidy, you need a means by which the Government—obviously, when I say “the Government”, I am saying subject to parliamentary scrutiny, which is important—can change those terms.

Okay. I believe that one of the retrospective changes to the student loans was the freezing of the thresholds that determine the graduate student loan interest rate. That was not disclosed in the Budget document, yet it was scored at £1 billion. I know that you were not responsible for this at the time, but why do you think that that was not in the Budget document? It was £1 billion on the scorecard subsequently.

I am afraid I am going to have to come back to you in writing as to exactly what was there and what was not.

I will be grateful if you could, because that is a significant number, which was not declared. In terms of transparency, that does not do the Government or the Treasury any credit.

Let me come back in writing on that precise point, if I may, but I should say that my understanding was that everything was done in the right way. I will come back in writing.

If you could. Thank you.

I have two questions for both Ministers. First, data from the OECD shows that the UK now has the highest private contribution to higher education, the highest levels of student debt in the world, and staff facing redundancy and universities insolvency. Can either Minister identify a major stakeholder group that is actually benefiting from the present funding model?

Yes. First of all, on the point about the OECD, the way in which the OECD classifies student debt, or loan debt in the student finance system, is to allocate it as private, despite the fact that this is a debt that is backed by the Government, as the Chief Secretary said, and largely subsidised by Government. So I am not sure that I quite accept the characterisation of the extent to which that then implies that the UK system is private. I think you are linking the system to the financial sustainability of the sector, and I accept your point that the higher education sector is under considerable financial pressure at the moment. I argue that that is less to do with the structure of the system and more to do with decisions made in recent years. For example, as a considerable part of the finance of higher education institutions comes from tuition fees, the decision by the last Government to freeze tuition fees for a period essentially led to a fall in the real value of the unit of income that universities were receiving. That is why, when we came into government, we made the decision to increase, in the first year, tuition fee income by the rate of inflation. We have subsequently taken through Parliament the ability to do that again—I think for the next two years—and we will, as we have said, legislate in order to link that increase to inflation over time. I am not arguing, by the way, that the higher education system is out of the difficult time, but we have already seen in the analysis by the Office for Students of the financial sustainability of higher education institutions a small improvement in the levels of deficit that higher education institutions are facing.

May I just chip in there? We have seen Governments legislate before to make sure that the thresholds are kept, but then the law just changes when Government want to change the threshold. Governments of different colours have done that. So what guarantee is legislation in this context?

I think we have made a pretty clear commitment. We have done it for three years. We will legislate to put an indexation into legislation. Governments who chose not to stick with that would have to answer for their decisions, wouldn’t they, Chair?

Okay, but what about the freezing last autumn?

That is a different question. It relates to the threshold at which you start repaying your student loan. We have talked about that already and we have—

I suppose my point is this. You say, on the one hand, we can be sure of this under this Government. You are very clear that this is a commitment by this Government that will stick on that end, but not on the thresholds, as that was changed.

The terms on which students enter into their student loan are quite clear: it is possible that regulations will change the basis on which that collection is done. But the question I was being asked was: is the system working for the financial sustainability of higher education? And I was pointing out how it was, because of decisions that this Government have made. [Interruption.]

Order. Sitting suspended. On resuming—

Welcome back to the Treasury Committee.

Picking up the international comparisons, I have a question for the Treasury Minister: why can other competing economies manage to provide higher education at a lower price point for the student?

I think in the question you asked at the outset you referred to partially privatise being a feature as well. My understanding of the classification is such that, for methodological reasons, our system is characterised as having a higher contribution, but obviously it is the state fronting the money in the way that we have been discussing. But that classification makes those international comparisons a bit trickier than it would otherwise be. It is interesting to look across at other jurisdictions and how they are doing this. We should all be rightfully curious about ways in which we can improve the system. Clearly, part of that curiosity is about looking elsewhere at who does what. I know from my own experiences over many years that there are different models available, including things like a graduate tax. We can get into detail about why I don’t think that is the right answer, but obviously there are other ways of doing it.

We had Vivienne Stern from Universities UK in last week talking about the Government and student funding elements and how one is going right down and the other is inching up. Is there any more money from the Treasury? That conversation will definitely come up at some point. We know that student education is one of the jewels in the crown of our trading partnerships and we need to be aware that there must be a Government interest and funding at some point for a good university education.

More money, Chief Secretary.

That is absolutely right. I have not, to date, waxed lyrical about just how incredible our university sector is. We have four of the 10 leading universities in the world, and the sector is a huge contributor to economic growth domestically, in addition to all the other reasons why education is a huge contributor to economic growth.

I simply add that when making international comparisons, it is probably worthwhile putting alongside the cost and public subsidy of other systems the quality of what they produce. What we have in the UK is a world-renowned higher education system with some of the best outcomes anywhere in the world, including among other systems in which there is a larger public contribution. That goes back to the point about quality, which is an important one. If you want, I could also take on the point that has been made about the proportion of funding.

If you could briefly, because it would answer the point from UUK last week about how that slide is completely different from how it was 10 or 20 years ago.

As I have suggested, that is due to some of the decisions made by the last Government. It means that we now find ourselves in a position where around 30% of the annual student loan outlay in any financial year is forecast not to be repaid. That is therefore a 30% Government subsidy. If you then add additional money from some of the grants that I was talking about—and the strategic priorities grant, which is Government support for universities—we then have an overall Government contribution in the region of 35% to 40%. I have heard Philip Augar make an argument for 50:50. One part of me has sympathy for the idea that the Government might fund higher education more—but that is what it is. It is a request for more public investment into higher education, which, as the Chief Secretary has quite rightly said, needs to be weighed up against the other priorities not just of the Treasury but of the Department for Education. We have made decisions about where we invest money.

It is all about choices, as the Chancellor repeatedly says.

It has been in early years, in special educational needs and in 16-to-18 education. Those are the choices that we are employed to make in Government.

Another warm welcome to Peter Swallow from the Education Committee.

As a member of the Education Committee, you will not be shocked to hear, Baroness Smith, that I am very interested in the issue around the financial stability of the sector. Indeed, we look forward to receiving your response to our report on higher education and funding in due course. You mentioned in your previous responses about how the loss of revenue from tuition fees under the previous Government had increased instability in the sector, if I can paraphrase your words. The latest British attitudes survey shows that the proportion of people who believe a university degree is not value for money has jumped from 14% in 2005 to 34% in 2025. I, and I am sure many colleagues around this table, have had conversations with young people in our constituencies telling us that they are choosing not to go to university, in part because they are very anxious about the high repayments of student loans. Is there a risk to the financial stability of the sector, if young people take a look at the products on offer and simply say, “I do not think that that is value for money for me”?

I very much hope not. First, it is important that we are clear that what young people are being offered in higher education is of high quality. That refers to some of the points that I was making earlier. It is important that it is the right choice for an individual, and that is why we will provide more information for young people thinking about their choices. That will enable them to look at what sort of opportunities they might expect—in the broadest possible terms—a particular course to open up for them, including in terms of earnings and their contribution to the economy. But that comes back to the point about how we ensure that students understand the range of choices available to them within the needs of the country. The Prime Minister has set a clear target: two thirds of young people should be able to do qualifications at level 4 or above by the age of 25. Those level 4 or above qualifications include a range of things. Of course, they include a traditional route through higher education. They include a level 4, 5 or 6 apprenticeship. They include higher technical qualifications offered by universities. That range of choice, which we need to make sure students understand, is the best way to ensure the right things for students who want to make the choice that works for them. We need to ensure those are backed up by information that tells them about what it will do for their prospects as an individual if they do those particular courses.

Including, presumably, good information about what it means to take out a student loan.

Absolutely, and that is an important point that I want to come back to from earlier. There is a lot of information out there for students at the point at which they make a decision about whether they take out a student loan. I am very open to the idea that we should think even more about how we can improve that. For example, the Student Loans Company has an advisory group that includes students on it to help to think through the information that is provided. On gov.uk, as well as on the SLC website, there is information about what you are taking on when you take on a student loan. They describe it as speed bumps. That means that you are forced to slow down and accept that you understand the terms and conditions that you are entering into in a student loan before you are able to go on to the next stage. There is lots of non-Government information out there about the nature of the loan and what you are taking on, but I am very open to any ideas that come out of this inquiry or any other suggestions that people have about how we can improve information. I talk regularly with the Student Loans Company and I am more than happy to talk to it about that.

Baroness Smith, I want to ask you about some of the evidence we have received, particularly from the Student Loans Company, about the level of understanding that students have about the loans they are taking out. It appears that the vast majority, or a lot of them, did not know about those loans. What do you think about that evidence?

What I saw in the Student Loans Company evidence, and what I see when I look at what is being provided for students, goes back to my previous response. As of this moment, quite a lot of work rightly happens to make sure that people, particularly young people as they enter into a student loan arrangement, understand the terms and conditions and the nature of what they are doing. I know that the Student Loans Company also wants to use—I am not a comms person—what it would describe as multi-channel approaches to ensuring that targeted information gets to particular groups of students, such as estranged students. The company wants to make sure that it uses different ways of communicating that. As I said earlier, when you take on a student loan, you have to sign to say that you have understood the terms and conditions. I have to confess to not having always read all the terms and conditions of every financial arrangement that I have entered into. That is why it is quite important that there are other routes for students to understand both the quality and value of what it is they are undertaking and the nature of what they are entering into when they take on a student loan. We have already talked about some of the important positives, such as the fact that, if your income drops below a certain level, you will not be expected to make repayments. If you have not repaid, your loan will be written off after 30 years for plan 2 or 40 years for plan 5. That is quite important information.

I accept that, but there is uncertainty and apparent evidence that, despite the stipulation that you have to tick that box, people did not grasp that any future Government could materially change the terms and conditions of the loan. Would it not be wise to instruct the Student Loans Company to make that a very explicit, clear condition that is made transparent to all those who take on a loan, alongside those other things that you mentioned, quite reasonably, about things being written off and so on?

It is obvious that there are lots of people who feel that they did not realise that that was potentially going to happen. It is completely fair to say that. I would just, in evidence, point to page 1 of the student loans guide to terms and conditions 2026 to 2027, where it says: “The regulations may change from time to time, which means the terms of your loan may also change.” It then gives quite a lot of further information about the nature of that.

That clearly has not been effective as a communications mechanism.

Which is why I say that I would be more than happy to hear any further suggestions about what more we or the Student Loans Company could do to make sure that the messages about student finance are communicated.

I think the Minister is giving us an opportunity for a recommendation, Chair. Can I turn to earnings to pay off the loan? This is another point about transparency. I understand that the Department was unable to give us the number of how much a graduate would have to earn in their lifetime to pay back their loan on average. That seems a bit odd. It is quite a key part of the system. Does the Department know what that number is now? You do it for the top three lifetime earnings groups, but not as a whole.

I think we can go further than we have gone to provide information to support the Committee. It is important, though, to be clear that I would not be comfortable with saying, “If you earn x over your lifetime, you will therefore be able to repay your loan.” I will explain why not in a moment. Of course, as we have already pointed out, unlike a mortgage, this is not a loan where you repay whatever the level of your income is and you have to have repaid it in a certain period of time.

It is not a conventional loan, is it?

There are all sorts of things that will impact the extent to which you are repaying. Each year, the Department produces—here is my second document—a publication called “Student loan forecasts for England”. That includes information on the average borrowing per student and the average repayment per student. We publish it around July. When we do it this July, given the interest of the Committee, we are working to be in a position to publish more information on that relationship between borrower earnings and loan repayments—for example, presenting the proportion of borrowers in different post-study earnings bands, with pound values, who are forecast to finish repaying their loan before it is written off. I hope that we will be able to deliver the ability for people to say, “If your post-study earnings amount to x number of pounds, above that almost all borrowers will repay their loans.” Just to come back to the point about how I would not want that to be turned into an, “If you earn this amount, you will repay your loan—”

They will be illustrative guides.

Yes, they will be illustrative. Just to explain why I would not want us to get into the position we have been talking about of misleading potential students about that, let me give you two examples about the way the system works. You could be in a position where one plan 5 borrower had earnings of £1.74 million. Their earnings were £25,000 and, over their working life, they tracked the repayment threshold. Despite earning £1.74 million over their life, they would repay nothing, because they would never get above the repayment threshold. But you could have somebody who earned less than £550,000 over their working life but, because they earned it at a very high income for a few years—

Five years or something.

They might repay all their student loan. That is just a way of saying that I do not want us to be in a position where we are saying, “This number means you would repay your loan,” because I think that would risk misleading people in the way that we have obviously been talking about not wanting to.

It sounds like the Department, and probably the Treasury as well, can do that calculation, but for presentational reasons it is undesirable to publish it.

That is not quite what I said.

I wasn’t trying to misrepresent it; I was trying to get to the heart of it. It seems that you can do the calculation for the top three deciles of earning. You have produced a table that tells us that those in the top three lifetime earnings groups will pay off their loan in full, which implies that you could proceed and do that data for everyone in the remaining seven deciles.

What I am committing to doing is going further than we have done to say, “For different levels of earnings, what would be the extent of the amount that would be paid, and above what level would the majority of people therefore repay their loan?” That goes further than anything we have produced before, and we can do that alongside the student forecast publication that we publish in July. But you are right: if somebody then said, “If you earn that amount of money, you will repay your loan,” they would be wrong in any particular individual case.

Because the point you have very clearly made is that the distribution of when over a working life you earn that money in that total materially changes the amount that you pay back. You would therefore have misleading headlines; that is what you are saying.

And because it interacts with the fact that, unlike other loans where you might be more able to do that, you are not paying below a certain income level, so the trajectory of your earnings impacts on it. I think that is the important point.

Obviously, we were very grateful to receive the promotional materials from the 2010s and the early 2020s from your Department. That didn’t mention that the terms and conditions could be changed. Is that new document the modern version?

This is the current one.

So is it now set that the Department will continue to do that? Because that was quite a concern for us when we were looking at this information.

I can’t answer confidently for what was available at the time, but I do not think it was the case—certainly the legislation on which the loans were based was clear that regulations could change the terms and conditions. To that extent it was known, but I can be confident that it is clearer now.

There is challenge here, isn’t there? What you read out is true, but if you are a student—a 17-year-old—and perhaps their family and teachers, there is a lot else that is going on. You will not be able to go to university without a loan in most cases, so it is Hobson’s choice. Even if you read the terms and conditions, that is quite a lot to understand for a lot of young people. The Department at the time put this forward by comparing the cost of student loan repayments to a mobile phone contract. In fact, in one extraordinary thing, it also compared it to £12 a month to go to nightclubs, which we all think is quite cheap for a nightclub—maybe we are living in a different world. Do you think that there is a real sense that they were mis-sold at the time? They cannot legally be mis-sold because the law does not allow the Government to do that, but those comparisons seem extraordinary. Do you think that that was fair to students?

I think the Student Loan Company has apologised for some of the comparisons that it made at the time.

On the benevolent thing, it was trying to make it simple.

Yes.

So where do you get the balance?

I think you get the balance through all the information that I have talked about. Also, given that, as you say, these are young people who may well want to engage in a conversation or see a range of information, things like the Student Room website, where the SLC facilitates part of the conversations that might go on, might well be a way that people could ask questions about things that they did not understand about the loans, or about the terms and conditions, and get more of a hopefully accurate but also helpful way to think about it.

So it is like a webinar, but with a sort of question and answer session. There is a danger there: in the financial world, if you had an unqualified person trying to sell people advice—

That is why I would not do it, but this particular bit, as I understand it, is staffed and facilitated by Student Loan Company people.

Okay. That is something to find out more about. When we had Sir Philip Augar in front of us, he compared the selling of student loans to the PPI and car loan mis-selling cases. Do you have a response to that?

Well, I think he is wrong, for reasons that I have already said.

You think he is wrong. Okay; that was very categoric. But do you think it is now a problem? You have talked about being very clear on this, and you have talked about the interest rates and tying things down in law. Do you think there is confidence out there that what the Government say today will be upheld in future, given what the history is—particularly of plan 2 loans?

We have looked at the response that you got to your survey. We have listened to what people have said about the way that they feel, both about the situation that they are in now and their confidence in the system. We have talked quite a lot about the choices that would need to be made and the consequences of changes to that system over and above what we have already done—the cost, for example, and therefore the opportunity cost to other things that we might invest in. I have said that I think it is important that we keep thinking about how we communicate and give people confidence about what it is that they are entering into. Just as I can’t answer for past Governments, I can’t answer for future Governments either, I’m afraid, but people need to—

Sir Philip Augar is very highly respected in this area. He was very clear and he looked into this into great detail. Why do you think he is wrong?

Because I do not believe that this is equivalent to the illegality or the nature of what happened—you used the comparison of the PPI position, for example, and I do not think this is equivalent to that.

For what reason?

However difficult they might have been to see, the terms and conditions and the nature of the legislation, which was clear that regulation could change provisions in the future, existed at the time.

I think there is a disconnect between the world of Whitehall and the world of 17-year-olds. In Whitehall, it seemed logical; the boxes were ticked, the information was on the website, there was small print and the legislation said that these things can happen. It was all perfectly watertight and wrapped up with a bow in Government, but when you launch it out there and 17-year-olds have a look at this, they do not read it in the same way at all. Do you think both those positions could be true at the same time?

Yes, and that is why I said that I think the range of different ways in which information is provided both by Government and the SLC and more widely is important, and that we keep thinking about how we can improve it.

Your Department is introducing financial education training. A Minister told me that they had been to visit one where year 6 students were being taught all sorts of interesting things. Will the whole issue around student loans be part of that?

I would not like to rewrite the national curriculum in this Committee at this point, but you are right that better financial literacy will be part of the changes that we make to the curriculum.

Maybe there will be another opportunity for another Committee to make a recommendation.

That is a really good question, and it goes back to the issues that we were discussing at the outset about the value of education to society as a whole but also to individuals who take out loans and go to university. As we have been discussing, we are still in a position where less than half of young people go to university—the majority do not. That is the current position; that ratio has been different over previous generations. You come back to the question about fairness not only to current and former students but to taxpayers as a whole. That goes to the question about the overall contribution, but that is not just about student finance; it is about the additional areas of funding that Baroness Smith has been referring to—the further ways in which her Department supports the sector.

The blunt answer is that we inherited what we inherited, and that is how we arrived at the situation that we are in. As we have talked through, we would not have designed some of these parameters in the way they currently exist otherwise. The more direct answer to your question is that none of us are sat with a blank sheet of paper able to design a system. We are dealing with what we have.

I do not mind answering. I think the Chancellor has said this as well, but if it was open to us from the wider point of view within the envelope of fiscal responsibility to make some of these changes to the levers that we have been discussing, I certainly would push us to do that. I would come back to some of the responses that you have had.

More from the point of view of easing the position that some graduates are in, particularly those on plan 2. That would be the driver from my point of view.

You are of course right that there is an element of higher education that is a public good. There is also quite a considerable element that is a private good. That is where the design of the student finance system is rightly and fairly based on a contribution from the student, who will receive those private benefits in terms of their life-long earnings—if they do, they will repay; if they do not, they will not. There is also an element of public good, and that is the reason for some of the ratios that I talked about earlier. It is already the case that for full-time undergraduates the Government’s overall contribution is in the region of 35% to 40%. That is a considerable Government subsidy. It recognises the point that you raised, as does the fact that overall higher education income in the 2024-25 financial year was £46.1 billion, which was divided between tuition fees—student and international student contributions—and research. Out of that £46.1 billion, the Government were responsible for £16.4 billion. In other words, 36% of what was funding universities was coming from the Government contribution.

I should declare that I am the chair of the APPG on social mobility, and I want to raise the issue of social mobility. Baroness Smith, you have spoken eloquently about the benefits to the individual of a university degree, which in many cases remains a very powerful tool of social mobility. Imagine for a second two students going to university from my constituency. Student A is fortunate enough to come from a very advantaged background, and their parents can afford to pay their student loans upfront. They graduate with a good degree and enter the workforce without student loan repayments ever being on their plate. Student B is not in a similar position and—imagining that they get the same job, move through the same career path and are at the same point in their career as student A—will spend a considerable period of the rest of their lives earning 9% less in take-home pay. In many instances, that will happen for the rest of their careers. That is a barrier to social mobility, is it not?

Obviously that would be the case in any system that includes an element of loan finance. To that extent, ever since 1990, when loans were first introduced into the student finance system, that discrepancy has occurred. You are right, and the only way to get around that would be to move to a fully funded grant system. In doing that, of course, you would be making a very big fiscal commitment, which, given the other things we have talked about and some of the choices that the Government have made, would imply fewer people going to university, potentially far less money for universities, and far less ability to get people to a position of being likely to get into university in the first place if they had special educational needs, or they needed an NFE or to benefit from the start in life that early years investment gives them. So, the answer is yes, but the way in which you solve that is problematic.

I think I am right in saying that having a student loan adds about 9%. Ultimately, at root, we as a Government want to see a progressive system for income tax, which we have. We also want to be able to provide student finance in as fair a way as possible, with the aims that Baroness Smith has set out: to allow people to access higher education, no matter their background. Obviously, given that we want to ensure that we have a progressive system, it is right that graduates who earn more once they have left university contribute more to the system, as is the case for any graduate or non-graduate whose earnings meet a certain level. As I said, the fact that we want student finance and our taxation system to be progressive is at the root of that.

That I appreciate it, as I hope I have made clear in my answers, but that it is important to bear in mind some of the features of student finance that we have discussed: the repayment rate of 9%, the thresholds being set where they are on the interest rates and the various parameters of the loans. A key feature is that lower earners are protected because we have these repayment thresholds, which is really important. Although I acknowledge and understand the concern, if you are attached to having a progressive system and you want to protect the lower earners, the system has to reflect that in other ways as well.

Something that came through in the evidence we had was the psychological pressure from the notion of repaying a loan that will be there for a long time, no matter what you earn. One thought, which has occurred to others before—Sir Philip Augar was clear on this—but which also came through in people’s suggestions for how the system might change, is to accept that this is not a conventional loan in the normal sense. You do not have to pay the whole thing off and it does not require a credit history, so various aspects of it mean that it does not resemble that financial product. Baroness Smith, would it not be a good idea to just call it a graduate contribution or something of that nature, rather than trying to pretend that it is a loan, with all the pressures that that creates, given people’s experiences of loans in other parts of their lives are?

I thought that the Chief Secretary very clearly explained why that would not necessarily be the right thing to do. Given that we have spent quite a lot of time, understandably, talking about the clarity and transparency of the information we are giving to people when they take out a student loan, the fact is that this has the elements of a loan in that you have borrowed money and are expected to repay it under a set of terms and conditions that do protect you in the way we have described. Secondly, it is a loan in legislative terms and that is the basis on which it is paid by the Government. I am not sure that all the problems this inquiry has identified are solved—if only they were solved—by renaming it. I noted and thought it was interesting that the representatives of the campaigns and the NUS in their evidence also did not think that renaming was the answer.

Certainly not on its own. If it was just a case of legislation, it presumably would not be that difficult to rename it in the legislation.

I was not saying that the legislation calls it a loan; I was saying that the basis on which it is paid legislatively is that it is a loan. In fact, it is paid on the expectation that it will be repaid, with a set of things that limit you having to repay depending on your income and it being written off after a period of time, but it acts like a loan in that you borrow the money and are expected to repay it.

One other idea—again, it is about the way the transaction that people engage in is described, but I think that it is still quite important—is that the Student Loans Company, when it provides its annual statements to people on their repayments and how much they still have to repay, could include a statement about how much of the loan might be written off if that particular person continues to repay at the rate they are. People will then find it easier to understand that, although it seems like a large amount of money, around 50% of people do not—and it may well be the case for the individual receiving the statement that they will not have to—pay the whole thing off. That is made a bit clearer and easier for people to deal with.

I understand the point, and I very much understand the Committee’s point about the psychology of seeing your debt going up. Let me think about it more. But I fear that the problem might be what I was talking about earlier, which is that there are an awful lot of moving parts in saying to an individual, “You will definitely not have to repay if X but you definitely will have to repay if Y.” I am not sure whether that actually helps people to understand. We should probably be clearer about what the mitigations are. We should keep reminding people that, if you earn below a certain level, you pay nothing. If you still have loan debt after 30 years for plan 2, it is completely written off, unlike any other sort of debt or loan you might enter into. We need to keep making that clear, but I am not sure that individual numbers for individual people help them; it might risk misleading them.

Ms Rigby, we have heard a lot about how it is described and about mis-selling. In your former job as Economic Secretary to the Treasury, and indeed in your current role, would you be happy for a financial product being sold by a finance company—

I thought you were going to mention my role prior to that, which was Solicitor General, and ask if I had a legal assessment.

Whatever hat you wish to wear; you are multi-talented. Would you have been happy for a product to be sold in the financial sector in the way this has been sold to prospective students?

I have to be honest that I am not as familiar as Baroness Smith is with the historical nature of the—[Interruption.]

“I haven’t been around as long as Baroness Smith!”

I didn’t mean that! Baroness Smith was speaking with a degree of familiarity as to how loans have been provided, and the documentation. Indeed, she made the good point, of course, that she cannot answer for decisions that previous Governments have made. But I am simply not familiar with exactly what information was provided—

But information was provided. Then the thresholds have changed under different Governments, and interest rates have changed. Changes—good and bad—have been made because when interest rates reduce, people are happier about that, obviously. But would you be happy if a financial product had been sold in this way?

I think I am right in saying that the CCA does not apply to—

It does not; there is a special legislative carve-out for the Government. Nevertheless, if this was the approach taken—

Again, I defer to your understanding and indeed to Baroness Smith’s understanding, but I think I am right in saying that the general principles of the FCA should apply and indeed do apply to student finance. In that context, if you wanted to make a judgment about this, you could. But I am simply telling you that I do not have all the—

In legislation, there is no ability—in fact, you cannot mis-sell this product, because legislatively that is not possible. Nevertheless, we have seen changes of terms and conditions. Information was factually provided—I am not attempting to pull any wool over your eyes—by the Department, saying things that just were not 100% accurate. I think it was probably with the best intent to try and make it easier for people to understand, but it was written by policy officials, rather than by people with a financial background. We are guessing that; that is a surmise, because of what we have seen. Do you think that the Government should have a duty of care to young people, as you have already highlighted, without a credit history? They were very young when they were making these decisions. And they did so in the context that it was a Hobson’s choice: for most of them, if they do not take a loan, they probably would not be able to go to university. Do you think there is a stronger duty of care that should be taken on board by the Government?

I think it is critically important that the information that is provided to students is accurate and done so in a plain-English version, which is indeed the standard you would expect in other contexts as well. I wholly appreciate the strength of feeling that the Committee has heard in relation to this issue and it is incredibly important that that we get this right going forward.

Because a very high percentage of people say they would not have done it if they had known what they would land themselves with.

Yes, I saw that.

And others are saying that, even knowing then what they know now, they would still grudgingly have gone because they would not have had the opportunity to do so otherwise, but they would rather have known more.

I saw.

I appreciate the Minister’s time. We are going to move on to defence matters. So, Baroness Smith, if you wish to leave, you may, but if you—

Or answer some questions.

In a sort of supportive role.

We can throw you some questions on defence! [Laughter.] There are just some quick factual questions. We are obviously all expecting—indeed, we await it with bated breath—the announcement of the defence investment plan. We appreciate that there was an urgent question in the House. However, all the talk is that this will be before the NATO summit. Can you give any clarity on the date that we might hear about the defence investment plan?

Of all the people I would consider gazumping on an announcement, the Prime Minister would be the last. I know that he has been clear that, exactly as you said Chair, the defence investment plan will be published before the NATO summit.

Which, for the record, is on 7 and 8 July. So, thank you for clarifying that. Also, there has been speculation about how the commitment to move from spending 2.6% of GDP on defence to spending 3.5% will be funded. Obviously, there has been a big and long-standing hole in the defence budget, and there are lots of challenges about spending there. However, the speculation is that, in order to fund this—understandably, the money has to come from somewhere—each Department will have to give up some of its capital spending. Is that a reasonable assumption?

I am afraid that you will have to forgive me, Chair. I do not think it would be right for me to comment on that, or indeed—

Okay. Given that we have had the spending review and all the settlements were made for Departments, could you perhaps explain what the mechanism is if that were to be the case and a Department had to give that up? Do you, as Chief Secretary, simply click your fingers and Departments have to do what you tell them? Or do you have to go through some more formal mechanism if they were to be asked—in a hypothetical situation—to give up some of their capital spending towards defence?

Sorry. I am contemplating legislation to that effect.

If only you could do that!

Look, it is a fair question about process and how all of this will be done, but again, I hope you will forgive me, Chair; I really do not want to get ahead of this.

Normally, when a spending review is settled, it is settled. To do this, you would have to open it up again, wouldn’t you—within certain parameters?

When the DIP is published, all the surrounding information as to how the further money for defence will be funded will be made clear.

Just for context, we heard very clear evidence last week. As many of us know, there has been a long-standing gap in the defence budget between what the country needs and the money available. That was before the increase in defence spending. An increase from 2.5% to 3.6% of GDP equates to £500 per person in the UK, or the whole of the transport budget. That is just setting it in context. You also have across your desk, presumably, discussions about the multilateral defence mechanism and the defence, security and resilience bank. It seems that the Government are tending towards the MDM—the European model. What conversations are you having with the Canadians in particular about the defence, security and resilience bank, and is it something on your agenda?

I am happy to confirm that that we are having discussions with various parties about how we can collaborate to ensure that we are better defending and enforcing our collective security. You are absolutely right to refer to the MDM, and indeed to Finland, the Netherlands and other partners. Those discussions are ongoing.

What about the defence, security and resilience bank? Is that something that has come across your desk? Are you talking to people about that as well?

As I think you know, Chair, we are currently not part of that.

We are not part of it now, but it is an interesting mechanism. Mark Carney has been leading on it as Prime Minister of Canada, and it has been made very clear that funds in the DSRB will be spent only within the industries of member nations of that bank, so if the UK is not in it, it will not use any of that credit support for British businesses. Are you aware of that?

As I said, there are many, many discussions in this space that are ongoing. Clearly, the objective among allies is to make sure that each of the bits of kit that we have all work together, and that we are all securing the best value for money that we can. We are not currently part of the DSRB. We have talked about the MDM. As I said, we will continue to have discussions with our allies because our interests are as I set them out, and they are shared interests.

We have had evidence of, for example, a business that has a £2 million turnover but can only get £15,000 worth of credit from a normal high street bank. You are acknowledging, I think, that there is a need for a bigger defence credit mechanism across our allies.

I think it is absolutely right that we are having discussions that go to ameliorating that problem. You are rightly questioning me on defence; I appreciate this is a really significant matter of public interest. The Chancellor has already committed to spending an additional £270 billion on defence over the course of this Parliament, and the Prime Minister has been clear, not least in his speech at the Munich security conference, that we will spend more money on defence. To come back to where you started, Chair, the DIP will be published in a few weeks’ time, and you will see that.

The Chancellor has also been very clear about buying British and has talked about this in defence, but with the defence value chains and supply chains some things just cannot be bought British because our allies and our relationships mean that we will do other things. Do you think there is likely to be any change? If we are not in the DSRB and it has money to spend, it will not be buying British, so are any conversations going on about supporting British industry in defence procurement?

Buying British is an important consideration, not only in this context but, as the Chancellor has made clear, in all procurement contexts, because it is a key means by which we can support our economy domestically.

Is there a plan to try to mandate that in the defence sector, which has many complications?

You will forgive me, Chair—I keep saying you will forgive me; you have not told me that you are going to forgive me, but I hope that you will—for not wanting to delve into the subject matter of discussions. As I said, the DIP will be published in due course.

Chief Secretary, we have discussed many times the economic benefit of increased defence spending, if done correctly. I was very concerned to see the reports in The Sunday Times about cutting capital spending elsewhere, which I understand you cannot comment on. If the Government were to cut capital spending elsewhere, you take the risk that the net economic impact of the DIP is negative, if that results in lower capital spending overall, especially on R&D. Given everything that we have discussed, would you share my frustration if the DIP actually has a negative economic impact on the UK overall?

I am very clear that—as indeed we have been discussing in relation to student finance—the Chancellor’s view on the public finances to continue to adhere to her fiscal rules. It is important to bear that in mind when considering what may or may not happen in future.

Of course, but there are different types of public spending. There is capital spending and current spending. Capital spending has far more economic impact—positive economic impact—than current spending. Would you agree that, in an ideal scenario, at a minimum there should be no net decrease in capital spending in Government expenditure, which would have a fiscally neutral impact?

Look, I am a huge proponent of more capital spending. Putting an extra £120 billion into capital spending is something that marks out this Government as different from the last, so this is an important consideration across the piece.

How carefully are the Government considering the advice of Draghi, which of course was to the EU, that you can raise economic growth for all by borrowing for defence R&D, and decrease debt, because growth increases faster than debt, in terms of thinking about the impact on the defence investment plan?

Again, you will have to forgive me, Mr Coghlan; I am very reluctant to get into any level of detail at all about something that is yet to be published.

That brings us to my final question. I am sure that you are aware that we are trying to secure your presence and the presence of the defence procurement Minister in front of us, with our sister Committee, the Defence Committee, to discuss this once it is published. He is very keen to come once it has been published; I am sure you are too.

I understand, Chair, that you have asked me for a formal response, and that will be provided.

We would hope to do that before the end of the summer recess, though, given the timetable on this very important issue, which is incredibly important to the security of the nation. Obviously, we recognise that it is a huge challenge for any Government to increase defence spending to the level that is now required. I thank our witnesses, Baroness Jacqui Smith, formerly of this parish, and Lucy Rigby MP, Chief Secretary to the Treasury, formerly of this parish, very much indeed for their time. The transcript of this session will be available on the website uncorrected in the next couple of days, and we are aiming to produce a report on the issue of student loans and student finance before the summer recess, with a fair wind behind us.