Gordon McKenzie draws on 18 years’ experience of higher education finance to predict future policy
Higher education funding is simple—that’s what I was told when I started working on higher education policy as a civil servant in 2006. It’s a compound, they said, of number of students, unit of resource for teaching, and terms and conditions of student finance. So simple, and so contentious in the 18 years since.
As I retire from working in the sector, higher education funding is still being debated, and the stakes seem higher than ever.
“Right system, wrong parameters.” This (from Nicholas Barr, quoting Anna Vignoles) is a good description of the state of income-contingent loans now. Right system because there is no financial barrier to access and, as Karl Marx pointed out, “free” higher education is just a middle-class subsidy from taxes. Wrong parameters because the various changes since 2012 mean that in England we are loaning too much, for too long, in a regressive system with far too little direct government subsidy.
Higher education provides public, as well as private, benefits and the balance of funding should reflect that. But with public subsidy at just 16 per cent, students and graduates are, pretty much, paying for higher education themselves. Yet ministers have moaned about the choices students and graduates make and what the system delivers.
In The Blunders of our Governments, Anthony King and Ivor Crewe show how the Treasury’s zeal for savings destroyed the potential social policy benefits of the child support reforms of the early 1990s. At the time, the Labour spokesman Michael Meacher quipped that the 1994 white paper, Children Come First, should have been called, The Treasury Comes First. While it has taken longer, given where we have ended up, you could make the same joke about the 2011 white paper, Students at the Heart of the System.
The combination of accounting trickery that flattered the national accounts and (full-time) students’ willingness to take out the loans proved addictive. Fees of £6,000 and a smaller reduction in teaching grant? No, push it to £9,000. Keep some level of maintenance grants? No. Like Lou Reed, the Treasury was rushing on its run. Reinstate maintenance as well as extend the repayment period as the Augar panel recommended? No. And after all those changes to loan terms and conditions, the right system for funding mass higher education is now described as not working by the new government. I guess the Treasury just didn’t know.
Public priorities
In between dropping out of one university course and starting another, I worked in a West Midlands factory making plastic bags. The chargehand, Keith, asked what I was studying and I made the mistake of telling him. After a long, incredulous pause he replied: “****ing drama? You ****ing ****er!”
Apart from any personal animosity, I think Keith was making a broader point about the extent to which certain subjects, qualifications or students should be prioritised for publicly supported higher education. At different times, I have met politicians from all three main parties who held broadly similar views to Keith (although not necessarily expressed in the same language)––some scepticism about the number of students and what they study.
In the 11 years since George Osborne said he was ending the cap on aspiration, government policy has enabled anyone suitably qualified to enter higher education if accepted and to study what they choose. The “number of students” factor in the funding calculation has been set aside.
Government rhetoric, particularly in recent years, has been rather different. By the time the 2017 Higher Education and Research Act put in place the legislative underpinning for a regulated market (legislation blocked during the coalition years to save Liberal Democrat blushes), the Conservatives had fallen out of love with expansion. But while ministers trash-talked degrees, they did not restrict student numbers––perhaps because, despite their magical policy thinking, even they could see that 30,000 degree apprenticeship starts was no alternative to a higher education system enrolling half a million new first-degree students.
Getting it right
Yet calls for a re-introduction of student number controls continue to come from both the political left and right. Many taxpayer-supported goods and services are rationed explicitly (e.g. means testing) or as a result of underfunding, so there is nothing wicked in asking whether higher education has got it right––although I would have more sympathy if the system had a much higher level of public subsidy than it does.
Arguments for number controls tend to be around teaching quality (if there is only so much to go around then having fewer students would allow government to spend more per head); questions about whether students are “suitably qualified” (the view that providers have a financial incentive to recruit those who are not); or a mismatch with the labour market (reported under-utilisation of skills, falling graduate premium, absence of promised productivity increases).
And I suspect the arguments won’t go away, despite the Labour manifesto promising to “continue to support the aspirations of every person who meets the requirements and wants to go to university”. Labour wants a skills strategy, supporting an industrial strategy, supporting growth. If new ministers think the system is failing to produce what the country needs at the right price, then they may return to the question, “How many students, studying what?”
Figure 1 in the recent Office for Students publication on the financial sustainability of English providers shows the real-terms value of the unit of resource for teaching over time. And it is now pretty much where it was in 1997 when Labour came to power, accepted the need for top-up fees and subsequently introduced them––first at £1,000 and then £3,000.
Fee levels
Some commentators have suggested that a Labour government may well raise fees to just under £10,000 early in the Parliament. This is because a) Labour has talked––although not in the manifesto––about a fairer deal for students and graduates, and if that means increased maintenance and/or decreased repayments then it would be the least-worst time politically to increase fees as well; b) Labour will have to do something about university finances as “universities going under” is on Sue Gray’s list of potential crises facing the new government and c) while Bridget Phillipson has said there are “no plans” for fee rises, she has not ruled them out.
I get the political timing point but I’m not convinced the Labour Treasury team will think the risk that some universities may fail is best addressed by giving all universities a 5-6 per cent fee increase. They may instead agree with the OfS that the “sector as a whole has been in a relatively strong financial position for much of the past decade” and that the “financial challenges it is facing now could be a catalyst to drive positive change and innovation”. And they may see Scotland and Northern Ireland––where very much lower levels of the unit of funding for teaching have not yet caused a university to fail––as canaries in the mine and think maybe this can wait a bit longer.
If so, I hope they also take account of the OfS’s warning that leaving sorting out sector financial crises to the individual actions of institutions risks impacts on the size, shape and reputation of UK higher education––impacts that could damage student choice, the breadth and depth of academic provision, and the ability of diverse institutions to maximise their contribution to local and national economies.
Gordon McKenzie is the former CEO of GuildHE and a former senior civil servant