The old, old question: how to pay

Even thirty years on, Yes, Minister captures something both funny and profound about government. If the stereotypical civil servant Sir Humphrey Appleby really wanted to warn his hapless minister Jim Hacker off a course of action, he would simply tell him ‘that’s very brave, minister’. Sometime over the weekend during which I write this, or perhaps on the Monday on which it is published, the Government will launch its “major review” of university funding and student finance. I’m pretty sure that over the past few weeks civil servants have been telling ministers that this is “very brave”.

I’ve written before about the basic problem of university funding. Eighteen-year-old students bring many things with them: energy, enthusiasm, commitment, diversity, but the other thing they have in common is that they tend not to have any money. Universities, on the other hand, are expensive to run: staff, not unreasonably, want paying; utility companies, not unreasonably, expect bills to be settled; libraries, laboratories, computer suites all cost money. Around the world, governments solve this problem in radically different ways. All have unanticipated consequences. In largely private systems, access to universities is socially selective: in the United States there is an almost perfect correlation between family income and university participation – which is inefficient, unfair and regressive. In wholly publicly-funded systems, universities join the queue for funding with schools, defence, hospitals, and so on. Universities in these systems are normally underfunded with no ability to plan ahead. The 2012 reforms in England introduced by David Willetts built an ingenious solution, providing students with access to publicly-underwritten loans. Universities got the resources needed to invest and students repaid once their income rose above a threshold, with debt written off after thirty years, so retaining public interest in the system. But the language of loans, indebtedness and default has proved toxic. This toxicity is compounded by subsequent ill-advised decisions to raise the interest rate and to abolish residual maintenance loans. Wider developments, in the housing market and availability of pensions, have fed a perception of inter-generational inequality – the subject of a challenging book, The Pinch, by none other than David Willetts.

The Government’s review means hard choices – and, as we have seen elsewhere, hard choices are difficult for a minority government to make. There is understandable pressure to cut fees, which at £9250 are amongst the highest in the world. But, apparently counter-intuitively, cutting fees is socially regressive. It will benefit most those students who progress to the highest-paid jobs and so are most likely to pay off their loan. Unless any cut is made up by government it will reduce resource to universities. Reducing fees without such public investment would make it more difficult to resource high-cost subjects, including science and engineering. A decision which would effectively devastate the nation’s science base makes no sense. Setting different fees for different subjects – despite its superficial ‘person on the Clapham omnibus’ attractiveness – builds in perverse incentives for student choice and, worse, assumes that adults can make students’ choices for them. The argument that differential fees for different subjects would model the likely economic returns of studying different subjects fails on two grounds: first, the current regime essentially does that through the repayment system, and, secondly, there is no guarantee that subjects which have produced a high return in the past will continue to do so in the future.  The current regime, again, is more market-sensitive in this regard. Another possibility, which looms behind this debate, is to cut the number of students. This was the policy choice in the early 1980s. It would be wrong. There’s good evidence that restricting student numbers means that fewer students from disadvantaged backgrounds go to university – and social mobility is the Prime Minister’s great domestic policy priority. It would also undermine national competitiveness. Around the world, governments are investing in their universities because they know, as Andreas Schleicher from the OECD puts it “you can go in to the race to the bottom… lowering wages for low-skill jobs. Or you can try to win in innovation and competitiveness”. Universities are part of the national skills system, not, as some commentators appear to imply, an alternative to it.

Cutting fees will benefit most those students who progress to the highest-paid jobs and so are most likely to pay off their loan.

I spent time last week talking to journalists, many of whom frame the choice as being between students and universities – and more of their readers are parents than university staff. But the real question for a finance review is different. It’s how we ensure that universities are funded properly to teach, research and innovate. If I were advising the Government on its review, this is where I’d focus. I’d make five changes to rebalance the system which reflects the strong public interest in properly resourced universities. I’d ensure there was core infrastructure funding to underpin the research and innovation base across the university sector, which should be treated as the investment in national prosperity that it is. I’d address the challenge of students’ day-to-day living costs through a means-tested maintenance grant, which should be framed as a social mobility investment. I would reduce the real interest rate on post-graduation repayments – in practice this makes little real difference but sends a strong signal to students. I would expand sub-degree provision in universities through incentives to students and universities. And I’d make sure that the changes were enough to replace the language of loan, debt and repayment with the language of contribution, investment and return.

I’m not optimistic about these suggestions. Politicians who have decided to be ‘brave’ can easily become gung-ho. The past year has been dreadful for the image of universities. I expect the review to be fraught and to produce straitened times for universities. I expect it to reinforce and emphasise divisions between universities or between subject areas rather than to think coherently about the economic, social and cultural value of higher education. I expect it to pose tough questions about resourcing: no-one leading any part of a university has had to deal with serious funding reductions for a generation.

It’s now a year since we launched Transforming Lives, this university’s new strategy, with its four clear priorities: shaping futures, creating knowledge, leading locally and engaging globally, and on building a great university. It’s a strategy I am passionate about, grounded in the core values of the University and using them to chart our future. I’m not naïve: the funding review is likely to mean fewer resources. We may need to find new ways to realise our aspirations, and we’ll certainly need to be brave. We’ll succeed by being the very best we can be in our mission and our ambition, remembering that transforming lives is built into our institutional DNA.

2 thoughts on “The old, old question: how to pay

  1. Interesting piece. Two comments:
    1. Does the argument re national competitiveness stand up? Is there any evidence that the massive expansion in UG education over last 2 decades has pushed the UK towards the high-road economic growth path? With around a third of graduates now estimated to be in non graduate jobs, it seems unlikely. And arguments for the graduate wage premium are on thin ice. Linking of NI records to university course level data could be a game changer.
    2. What of the German solution to university funding? No fees, funded out of general taxation. Isn’t it merely a question of blinkered/timid political thinking (perhaps blinded by a relentless stream of market ideology) that this option is not on the table in the UK?

    • Thank you for this comment. None of these issues are straightforward, which was the argument of the blog. On the national competitiveness, there is good evidence (qv Treasury 2017 budget report) that productivity improvements tracked participation increase through to the 2008 economic crisis. The mystery of productivity since the 2008 crash is exercising academics. The figure on a third of graduates in non-graduate jobs is derived from the DLHE survey which is taken at graduation plus six months – no-one thinks that that is a good way to understand graduate trajectories into the labour market. On the German (fund out of general taxation) model: yes, this could be done but, as argued in the blog it does mean that funding for universities is entirely dependent on political decision-making – international experience is that this does not produce adequately funded universities which is one reason why models which shift onto some form of graduate repayment model have become more prevalent.

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