Where does 2.8% fee inflation come from?

So we know that the government intend – certainly for English universities – to permit undergraduate fees for Home/EU students to grow to £9,250 for new and continuing students in 2017-18. This was set out in the BIS report ‘Teaching Excellence Framework: Provisional list of eligible providers – Year One’ published on 7 July 2016 and confirmed by Jo Johnson, Minister for Universities and Science, in a written statement to parliament on 21 July 2016:

For all new students and eligible continuing students who started their full-time courses on or after 1 September 2012 and are undertaking courses at publicly funded higher education providers that have achieved a TEF rating of Meets Expectations, maximum tuition fee caps will be increased by forecast inflation (2.8%) in 2017/18. 

The TEF rating relates to the new regime set out in the Higher Education and Research Bill, under which providers who meet certain standards of teaching excellence will be allowed to charge higher fees. The Bill is midway through its parliamentary journey, and my expectation is that at some point it will become a matter of controversy. But for now I want to focus on a different question. What is the basis for the forecast of 2.8% inflation in 2017-18? 

The Bank of England

The Bank of England is responsible for managing inflation in the UK, and in its most recent inflation report (table 5B on page 31) forecasts CPI of 1.5% in the second quarter 2017 (ie April-June 2017) and 2.0% in the second quarter 2018 (ie April-June 2018). The Bank’s model gives probability estimates for inflation differing from this forecast. For Q2 2017 the Bank places a probability of 10% that the actual rate of CPI is between 2.5% and 3.0%; for Q2 2018 the equivalent probability is 12%. (These data come from the excel file available to download from the Bank of England). So we can see that the Bank of England is not forecasting inflation of 2.8% for 2017-18.

The Bank also reports other forecasts of inflation (page 44 of the report), from over twenty other forecasters. The average of these was 1.6% for Q2 2017 and 2.0% for Q2 2018 – not a great deal different from the Bank of England’s own forecast. The key point – other forecasters are not forecasting inflation of 2.8% in 2017-18.

Is the government separately forecasting this rate of inflation? The Office for Budgetary Responsibility publishes an ‘Economic and Fiscal outlook’, the most recent of which was March 2016 (to co-incide with the budget). This reports CPI forecasts of 1.6% for 2017 and 2.0% for 2018 (page 12, table 1.1). So, the government does not forecast inflation of 2.8% for 2017-18.

This is a bit of a puzzle. Is the government using a forecast other than CPI? I don’t think that any other policy area has a separate calculation and forecast of inflation. Universities UK maintained an inflation series – the Higher Education Pay and Prices Index – but this was discontinued a few years ago. Most of the (positive) difference in HE inflation related to pay costs, and it would seem odd for the government to publicly acknowledge that a sector was likely to have higher pay than inflation. So I think we can discount the idea that the government has a separate HE cost inflator.

This leaves another possibility. Perhaps the amount of the increase - £250 – was agreed on, and then the inflation forecast adjusted to match. Universities have in the past been effective lobbyists of government, and both Universities UK and the mission groups are well connected. £250 is fractionally less than 2.8% of £9,000. So maybe that’s where the 2.8% forecast came from.

Is there another explanation? I’d like there to be one, and perhaps a more learned reader can supply it. Until then, I think I’ve got a bit more cynical about HE policy-making.

Widening participation - what do the data really say?

Earlier this month HEFCE published a monitoring report on the Student Opportunity Allocation and National Scholarship Programme for 2014-15, which contained some fascinating data on spend on widening participation by English universities and HEIs. Included was a table and graph showing how annual spend on WP had increased between 2010-11 and 2014-15 by over £150m: a good news story, surely.

Here’s the data that HEFCE presented: I’ve put it in a table rather than the graph on page 11 of the report, to make it easier to compare. It’s separated into categories; these have changed over time, with some categories added, and a miscellaneous category lost – they are the cells in the table with nothing in them. Note also that the early years’ don’t add up, and by more than just rounding errors. Consistent data collection on WP was in its infancy at this point, so some errors aren’t too surprising.

	2010-11	2011-12	2012-13	2013-14	2014-15
Outreach work with Schools and young people	82.7	67.2	108.1	122.2	124.7
Outreach work with communities and adults	31.2	28.9	32.3	34.4	35.5
Outreach work with disabled students			4.2	5.7	6.3
Strategic partnerships with schools					8.1
Support for current students (academic and pastoral)	435.2	444.2	425.1	434.2	447.0
Support for disabled students	40.5	49.9	47.5	48.4	55.6
Support for progression into employment or pg study	17.1	19	40.9	59.2	68.9
Support for progression of disabled students				4.9	5.2
WP staffing and administration	78.8	70.5	84.1	93.4	90.8
Other	2.9	0.9	0.8
Total	690.7	681.6	743.0	802.5	842.2

So it looks like, across the board, universities are spending more on widening participation. Hooray!

But hang on a minute, what about inflation? The data HEFCE report look like they are cash sums. What is it in real terms?

I calculated inflation to match University reporting years using ONS CPI data. Although inflation isn’t much now, it was higher in this period – 4.0% in 2010-11, 3.6% the following year, for instance. When the data is presented at 2010-11 constant prices, this is what the table looks like:

	2010-11	2011-12	2012-13	2013-14	2014-15
Outreach work with Schools and young people	82.7	64.9	101.6	112.7	114.6
Outreach work with communities and adults	31.2	27.9	30.4	31.7	32.6
Outreach work with disabled students			3.9	5.3	5.8
Strategic partnerships with schools					7.4
Support for current students (academic and pastoral)	435.2	428.8	399.5	400.5	410.6
Support for disabled students	40.5	48.2	44.6	44.6	51.1
Support for progression into employment or pg study	17.1	18.3	38.4	54.6	63.3
Support for progression of disabled students				4.5	4.8
WP staffing and administration	78.8	68.1	79.0	86.1	83.4
Other	2.9	0.9	0.8
Total	690.7	657.9	698.3	740.2	773.7

Now some real patterns start to emerge.

Three of the categories have seen real increases: outreach work with schools and young people; support for disabled students; and support for progression from HE into employment or postgraduate study.  Spend on outreach work with communities and adults, and WP staffing costs, have stayed pretty constant. And spend on academic and pastoral support for current students has fallen.

It seems to me that spending on support for current students – academic and pastoral – is also related to the number of students. Over the period the HE sector has grown. It’s possible to identify the total number of UK-domiciled undergraduates at English universities, so that spend per student can be calculated.

Support for current students	2010-11	2011-12	2012-13	2013-14	2014-15
Spend in 2010-11 prices (£m)	£435.2m	£428.8m	£399.5m	£400.5m	£410.6m
UK domiciled students	873,910	919,990	915,710	928,365	929,200
Spend per student, 2010-11 prices (£)	£498	£483	£464	£468	£481

The data shows that per student, spend on academic and pastoral support has reduced from £498 in 2010-11 to £481 in 2014-15.

So in conclusion, we see that rather than spend increasing in all categories, there’s actually been a focus on outreach with schools, support for students with disabilities and with post-HE progression. These are things which make a big difference to life-chances, and that’s what it’s all about.

Does this mean that HEFCE wasn’t being accurate?  I think that would be going too far, but it’s always worth looking at data carefully to see what it really means, and what it really says. If spend per student on actual support is really declining, not increasing, isn’t that worth knowing? 

Brexit - bad news for conservatoires

A lot of people within the HE sector are shocked by the Brexit vote, and the impact is beginning to be felt. Individually, people on both sides of the issue will take time to adjust, but it’s important for institutional leaders to get quickly beyond the shock and think about how Brexit will affect them.

One obvious concern relates to students from other EU countries. Presently, such students are able to access student loans company funding, and are treated the same as students in the home nation for fees purposes. (This latter point gives some curious results: Scottish universities charge zero fees to Scottish domiciled students, and £9k for students from England, Wales and Northern Ireland. Students from other EU countries are treated the same as Scottish students, paying zero fees.)

There’s obviously big uncertainty about what happens in the future. In the short term, current EU students, and those who start in 2016-17, will continue on the same terms and conditions. Beyond this, there isn’t certainty yet. And so universities need to start contingency planning. (It’s all in the negotiations. An EEA-type outcome may include special dispensation for students, but that is simply an unknown.)

At some point it seems possible that EU students will be treated the same as any other overseas student. If that were to happen, we could expect EU student numbers to decline. Universities will need to respond, and there are fundamentally two choices – replace the ‘lost’ EU students with others, or admit fewer students. So what is the scale of the challenge, and who is most affected?

EU undergraduates comprise over 5% of the current (2014-15 HESA data) Home/EU undergraduate population. Scotland has the highest proportion – perhaps unsurprisingly as EU students pay no tuition fees – but London is not far behind.

It is reasonable to assume that some universities at least will try to make up the shortfall with UK students, and that means greater competition. Universities with stronger recruitment profiles will admit students who may have gone elsewhere, and universities which recruit less strongly will have to admit students they otherwise would not have, if they wish to remain the same size. This may not always be possible. In London this competition will possibly be intense – the number of EU students in the region - almost 17000 - is larger than most universities’ total student intakes.

It’s also useful to look at the impact on individual universities. In absolute terms, the ten universities with the most EU undergraduates are:

The three Scottish universities are unsurprising, and the differences in Scottish university finance probably mean that in purely financial terms the loss will be less significant for them than if they were in England. But the English universities in the list vary in character, some being very strong recruiters, others less so.

In proportionate terms, another issues arises. Here’s the ten institutions with the greatest percentage reduction, if EU students are lost:

This list includes the four London conservatoires – specialist music institutions – and the broader performing arts conservatoire which is the Conservatoire for Dance and Drama. These institutions don’t have a normal recruitment pattern. To gain admittance you have to already be a very capable musical performer. The number of lost students is greater than the total intake at two of these institutions. It is hard to see how the conservatoires could remain at their current size without EU students. And they probably aren't big enough to easily survive such large changes in tuition fee income.

Here is, I suspect, the first unanticipated and unintended consequence of Brexit: there’ll be fewer conservatoires. To avoid this, increased governmental support will be needed. Which won’t be straightforward in the more straitened times we face.

Proof that TEF is evil

I know a lot of you will have been thinking this, and I now have proof:

This clearly needs to factor in the debate on the HE and Research Bill, should a post-referendum government still want to address such matters.

Counting the cost

HEPI published today the outcomes of the annual Student and Academic Experience Survey, which they conduct jointly with the Higher Education Academy. It’s a really interesting survey, which allows comparison with previous years while also adding content to address current policy issues. You can read the survey here.

One issue which features prominently in the survey is student perceptions of value for money. There’s plenty in the survey about whether students think they’re getting value. Most don’t, it seems, but my experience is that the value of a university education stays with you for a long time – it isn’t a good which you consume, it’s an investment which stays with you. We’ll get more relevant data if we ask these students the same question in 40 years.

It takes a lot of these to make a building

All well and good, or not. But there’s another aspect of this question which I find fascinating. The survey asked students to identify their preference for what universities should spend less money on, in order to be able to reduce the cost. There were two clear favourites here: Spending less on buildings (49% of respondents) and spending less on sport and social facilities (46%).

This is a genuinely hard challenge for universities to address, for three reasons.

Firstly, let’s look at the money. Buildings last a long time, and money spent on buildings is regarded as being spent over the lifetime of the building. It’s not unusual to see the value of a building spread over 50 years. So the value in the accounts in any one year of a £50m new build is £1m. (If you use straight-line depreciation. Ask an accountant.)

Another way of looking at it is the cost of borrowing the money. Universities get good interest rates at the moment – 4% would be at the higher end. So the loan for the £50m building would cost about £3.8m per year, if we assume repayment over twenty years.

Now neither of these numbers - £1m per year, or even £3.8m per year – is going to make a big dent in a university’s cost structure. Even if a university was minded to reduce fees (and there’s lots of reputational reasons why they shouldn’t, and market data from students that shows that there’s no point), it wouldn’t make much impact in a university big enough to need a £50m building.

But, you say, perhaps universities don’t need the shining edifices of glass and metal which spring up all over campuses. What if they had plainer buildings? What indeed.

Few university buildings are truly high specification, in terms of the extravagance of the fixtures and fittings. But for the sake of argument let’s assume that the £50m building would cost £40m if it wasn’t so luxuriously specified, or if space was better used (now that’s more likely to be an issue, I will concede). This means that the university spends less money, but – for exactly the same reasons as I set out above, not as much as would be needed to make a dent in fees. An extra £200k - £700k per year – a 20% reduction on the cost of the building – wouldn’t mean a University could do much about fees.

And thirdly, the buildings are needed. The reason university campuses are building sites today is that many university buildings had become worn out and no longer functional. Without investment to renew and replace, campuses would become progressively less welcoming, and the impact on students and staff would be serious.

But all of these don’t add up to a good reason to ignore what students are saying: regardless of the reality of the costs of running a university, students don’t share the management’s perceptions about how to spend (their!) money. I think that the survey tells us another approach.

The survey shows that only 18% of respondents think that they definitely or maybe are given enough information about how fees are spent. But interestingly, 21% first years (who will have seen universities’ response to CMA strictures about information) feel that they have had enough information. If you know what the money’s spent on, it’s easier to come to a more reasonable conclusion about the proportionality of the cost.

It’s a baby step, but it’s a significant one (significant at 99% confidence, according to the report footnote). If universities want to address student perceptions of value, one thing they could do much more of is tell students where the money goes.

On #Brexit and Universities

The EU referendum on 23 June is a timely prompt to look at what impact the EU has on universities.

There’s no doubt where Universities UK – the sector-wide representative group – sits. “The UK’s membership of the European Union makes our outstanding universities even stronger, which in turn benefits everyone in the UK.”. So that’ll be a preference for In, I guess.

No, it isn't Eurovision ...

The underlying argument is one about mobility: through schemes like ERASMUS, staff and students in UK universities get a chance to work and study at other EU universities, and vice versa. And this leads to a better education, better research, and more capable people.

The EU funds such schemes, and helps to make them happen: it is clear that there are not similar exchanges from UK universities to non-EU countries. The closest thing to such a scheme beyond the EU is the junior year abroad programme that many US universities operate, with some UK universities very happy to bring such students in for a semester or a year. But it’s one way traffic: there aren’t many UK students spend a year at an American university, and where it happens – such as American Studies at UEA – it is linked to a specific degree programme, and arises because the University has worked hard to make it so.

There’s a financial angle too. The EU funds research across its member states, often for projects done in collaboration between EU universities - and UK universities are active in this. And students from other EU nations study at the UK’s universities, on the same terms as home students. (This gives rise to some oddities: Scottish universities are free for Scottish students and non UK EU students, but students from England, Wales and Northern Ireland are liable to pay fees …)

If we left the EU, other things being equal, the research funding would stop, and EU students would be like any other overseas student – and pay the same fees. So what do UK universities currently get from these EU sources?

HESA data lets us find out. Using data for 2014-15, it is possible to calculate for each university how much they get in EU research funding (from finance table 5); and how much they get in tuition fees from EU students (finance table 4 and student table 11a). And this in turn lets you calculate what proportion of their overall income comes from EU sources.

You’ll be pleased to know that I’ve done the maths for you. Across the UK as a whole 4.7% of funding in 2014-15 came from EU sources, with research funding accounting for slightly more of the whole than tuition fees. Of the tuition fees, two thirds is accounted for by full-time undergraduate fees.

The picture varies greatly: while a few universities get less than 1% of their income from EU sources, for others it is a noticeable amount. Here’s the top 10:

What is immediately obvious is the London bias, and also the absence of the big-money research universities. None of the top 10 have medical schools, which drives a lot of UK research money. And of these 10, eight get most of their EU income via tuition fees. But for all of them, the risk of Brexit is clear: 10% of income is a lot to lose, and recovering it is uncertain.

Does this mean that universities are right to campaign for the EU? Money is uncertain, and in truth we simply don’t know what would happen, especially in the medium to long term, if the UK left the EU. To my mind, the better reasons are those of mobility and opportunity, and they are good and noble reasons. The Universities UK campaign seems to me to be based on hope and optimism about making a better tomorrow. I’m all in favour of that.