Whose money is it anyway?

It’s hard not to notice the current focus by some in government, parliament and the media on universities, and in particular issues of value (levels of tuition fees) and accountability (how can VC’s high salaries be justified).

There’s lots to be said on this, but in this blog I want to focus on an underlying issue: whose money is it anyway? Put bluntly, if universities are spending private money, then it’s no business of the state what they spend it on, as long as it’s legal.

Universities get money from lots of sources, and they publish information annually – through their annual accounts and through statutory returns to the Higher Education Statistics Agency (HESA) – about what exactly they get and from who. The information is in a standard format, with many categories. Bear with me while I list these; it’s worth seeing to give context to the argument I’ll be making later. There are:

• Funding body grants

• Tuition fees, comprising Full-time undergraduate, Full-time postgraduate, Part-time undergraduate, Part-time postgraduate, PGCE, Non-EU domicile, Non-credit-bearing course fees, FE course fees, and Research training support grants.

• Research grants and contracts, comprising grants from: BEIS Research Councils, The Royal Society, British Academy and The Royal Society of Edinburgh; UK-based charities; UK central government bodies/local authorities, health and hospital authorities; UK central government tax credits for research and development expenditure; UK industry, commerce and public corporations; other UK sources; EU government bodies; EU-based charities; EU industry, commerce and public corporations; EU (excluding UK) other; Non-EU-based charities; Non-EU industry, commerce and public corporations; Non-EU other

• Other services rendered, comprising income from BEIS Research Councils, UK central government/local authorities, health and hospital authorities, EU government bodies and other sources

• Other income, comprising: Residences and catering operations (including conferences); Grants from local authorities; Income from health and hospital authorities (excluding teaching contracts for student provision); Other grant income; Capital grants recognised in the year; Income from intellectual property rights; and Other operating income

• Donations and endowments, comprising New endowments; Donations with restrictions and Unrestricted donations

If you’ve made it through the list (well done!) you’ll see that some of these come from public sources (eg BEIS research grants), some of these are private (eg UK industry grants). Add together all of the public income for a university, divide by the total incomer, and you can work out what percentage of the university’s income is from public sources. Which is surely relevant for understanding how accountable universities need to be with their spending choices.

For some categories, though, it isn’t obvious if it’s public money. The big one here is tuition fee income.

For income from non-EU students, it is clearly private income. Even if they’re supported by their own government, the UK government doesn’t have a duty or obligation in relation to the money.

For postgraduate tuition fees paid by home and EU students, it will be a mixed bag: some will be paid by the students themselves or their employers; some will be funded via postgraduate grants; some will be paid via public PG loans schemes.

For home and EU undergraduate fees, we need to think about it. Where students have to pay tuition fees (remember that Scottish students in Scotland pay no fees) they are able to take out a loan, on less than commercial terms, from the Student Loans Company. And students do this. After graduation, students make repayments towards the loan from their salary; the amount they repay depends on how much they earn. And after 30 years the remaining debt is cancelled. The initial funds are provided to the Student Loans Company by the state; and an allowance for the ultimately unrepaid element – called the RAB charge – is also part of government spending. So is it public or private money? With hindsight, a proportion of it is private, and a proportion public. Up front, the cash is public.

On this basis it is possible to masker the calculation about the proportion of universities income which comes from public funds. I’ve included home and EU undergraduate tuition fees; I’ve excluded postgraduate tuition fees; I’ve included research and other services rendered sources from UK government and public bodies, and from EU government and public bodies (the income for this ultimately derives from UK government funds, as we’re a net contributor to the EU budget.)

What this shows is that universities receive significant public funding. Across the UK as a whole, 58% of income in 2015-16 (the most recent year for which HESA data is available) comes from public sources. In actual money, that is £20.3 billion out of a total income of £34.7 billion. Yes, I did say billion. It is a lot of money!

Nation	% Publicly-funded
England	58%
Wales	65%
Scotland	59%
Northern Ireland	75%
Total UK	58%

Of course this varies between individual universities. Some have very little income (comparatively!) from non-public sources; a few have very little (again, comparatively!) from the public. 

The graph shows the data: each university is one of the bars; they’re rank ordered from the most dependent on the left (Plymouth College of Art, since you ask, with 96% dependency on public funding) through to Heythrop College on the right (with no public funding whatsoever.) Even the famously-private Buckingham University has a little public income - £95k in funding body grants and research income from UK public bodies. Which means that it is second from the right, with about 0.25% of its income from public sources.

Source: HESA data

What of other universities? The Russell Group members range from the mid 20s (LSe with 24%) to the high 60s (Queen’s Belfast with 69%). The big post 1992 civic universities range from the mid 50s (Sunderland with 56%) to the mid 80s (Liverpool John Moores with 86%). The smaller or specialist research intensives (the 1994 Group, as was) range from the high 30s (SOAS with 38%) to the mid 60s (Birkbeck College, with 66%).

So does the state have an interest in how universities spend their money? The data say yes: at least to the extent that the money derives from public sources.

This doesn’t mean that all of the criticisms made of universities are valid. And it doesn’t mean that university autonomy isn’t a good idea. History, and international comparisons, tell us that the best universities are those that have the most freedom to make their own academic choices.

But it does lend validity to arguments that universities need to be accountable for their spending choices. In my experience, universities don’t disagree with this need for accountability. 

What of current criticisms? The danger is that the huge good that universities do for individuals and for society as a whole is forgotten amongst the current hubbub, and damage is then done. To avoid this, those making the noise need to be careful that their criticisms are well-founded. There’s an anti-elitism in current public discourse which easily mutates into unthinking policy.

And universities themselves need to be aware that (some at least) of the criticisms come from a real point. Are student always the first thought? Sometimes research sees like it is king. And is there real transparency? A few universities have a student on their remuneration committees, and their world has not fallen down. Why not more?

Cartel schmartel

The question of university tuition fees in England is causing brouhaha again. Part of the issue seems to be some Conservative ministers wanting to catch up on an issue where the Labour Party had the edge on them at the recent General Election. Part of the issue appears to be a Damascene conversion by Andrew Adonis, the behind-the-scenes architect of the 2004-06 increases in tuition fees, and in particular his assertions that universities are operating a cartel about fees. A particular trigger appears to be recent revelations about the amount of debt that students will incur and not repayhttp://www.bbc.co.uk/news/uk-politics-40547740.

At heart, a lot of the issues appear to relate to the consistent £9k fee charged by universities in England. This costs more than the government planned (an estimated cost of £7.5k per student per year underpinned the calculations in 2010 and 2011). So why do universities charge £9,000 per year? And why do students pay?

(Cautionary note: although I graduated from LSE, I am not an economist. But I don’t think that arguments I make are bad arguments. Second cautionary note – the Higher Education and Research Act and the Office for Students changes a lot of the nomenclature in this, but the fundamentals remain the same.)

(by the way, on this general topic here is a really good article from the BBC showing some data about this complex topic)

Firstly, let’s look at the question of why students pay.

The student loans scheme in England is not like a normal loan. Repayments are contingent upon income levels (ie you don’t pay until you earn £21,000 per year; and then you pay a flat rate 9% of income over 21,000 per year.). You keep paying until you’ve paid off the debt, or until 30 years post-graduation.

This means that many won’t fully repay their student loans, as their income levels between 21 and 50 aren’t high enough to have paid for enough years. It also means that for any given level of income, the amount you repay would be the same regardless of the amount of loan you took out. Let’s show how that works:

Student A borrowed £9,000 per year - £27,000 in total – to fund tuition fees at Poppleton University. They now earn £25,000 per year, and so every year they repay £360 – that is, 9% of £4,000, which is the difference between their income (£25,000) and the threshold (£21,000).

Student B went to the Poppleton Metropolitan University which charges £6,000 fees per year, so they borrowed in total £18,000. They now earn £25,000 per year, and so every year they repay £360 – that is, 9% of £4,000, which is the difference between their income (£25,000) and the threshold (£21,000).
You can see that the annual amount of repayments is not related to the amount borrowed. Total amount repaid does relate – in principle – to the amount of borrowing, but you’ll only be expected to repay all of the debt if you earn enough.

This leads to my first proposition: the loans system does not encourage students to be price-sensitive.

The second question relates to why universities charge £9,000. It’s important to understand how this £9,000 is made up. The legislation provides for a standard amount (£6,000 per year) and a variable element (initially an additional £3,000 per year, now £3,250.)

Any approved English HE provider can charge £6,000 per year. Institutions can charge an additional fee if they have an access agreement with the Director of the Office for Fair Access (OFFA).  The Access Agreement sets out what additional fee they plan to charge, and what they’ll do to ensure that this does not militate against fair access. The assumption was that only in exceptional cases would £9,000 be payable; but there was no mechanism to enforce this. OFFA had to judge each application on its merits. And so if, say, University A had got an access agreement for £9,000 fees with fair access spend of £500 per student, then University B which proposed £9,000 fee with £500 fair access spend per student would be able to argue that to deny them the right to charge £9k would be perverse. The quality of the university was not a consideration.

In that initial round, nearly every university had its access agreement approved without conditions; a few had to make revisions. But none were turned down. £9,000 proved not to be exceptional.
Why did universities even suggest such a fee level? In part because fees act as a marker for quality. If your rival charges £9,000, why would you charge less? To do so could be to indicate that you weren’t as confident as your rival in the value of your offer.  It isn’t about greed or excess; simply about market position.

So this is my second proposition: there was no incentive for universities not to charge £9,000.

Also relevant was the actual behaviour of students. When setting higher fees for the first time, many university governing bodies recognised that they were entering the unknown. There was a recognition that student numbers might well fall. So a £9,000 fee, together within internal budgeting for fewer students, would make sense. We put on a brave face for the world, but plan for hard times. As it turned out, student numbers did not (after the first year) decline. And this is the third factor which I think is relevant.

Student recruitment has historically been controlled by the government, through a funding cap. Essentially, universities had a recruitment target set by HEFCE; there were penalties for exceeding this. When the cap was relaxed and then removed, as happened in 2013-14 onwards, universities were free to recruit as many students as they liked. This meant that a university which was growing could afford to spend resources on other activities, as in most cases the £9,000 fee was greater than the full cost of teaching. This enabled development of new subjects; investment in new buildings for teaching and research; and investment to improve reputation in, for instance, the REF.

This creates my third proposition: universities had many incentives to grow; few to remain the same size.

Put these three factors together, and a lot of the features of the current system become clear. £9,000 fees were the natural desire for universities. There was no price competition between universities, because enough students (in a growing market) were not price sensitive. So £9,000 becomes the norm.

This isn’t a cartel. Universities are by habit compliant with law and regulation, and the injunction ‘do not discuss fees with your peers’ was, in my experience, very well observed.  But it was bad regulation. The design of the system did not, beyond pious words, prevent £9k becoming the norm.

What would Nick do?

 Equally, universities had for decades been enjoined to behave more entrepreneurially. In relation to PGT fees, universities were encouraged to see these as a price, not a cost. Would students pay the fee? If so, charge it. If the fee wasn’t enough, stop teaching the programme. And this habit infused undergraduate fee decisions. It would be possible to regulate or legislate for a fee regime that reflected cost not market price. But this wasn’t done.

So what is to be done now? I’ve a simple plan. Ask Nick Barr. He’s Professor of Public Economics at LSE, knows more about higher education funding than almost anybody else in the world, and is wise and fair-minded. Ask Nick Barr how to fund students and universities on a fair and sustainable basis. And do what he says.

Increased tuition fees do not cause increased participation

Tuition fees are back on the political agenda, big time. Arguably a significant component in the unexpected relative success of the Labour Party at the 2017 General Election, there are now calls by senior Ministers for a ‘national debate’ on the issue: see, for instance, Damian Green’s speech to the Bright Blue think tank on the weekend.

One aspect of this which is worth examining is the connection between fees and access: on the one hand there us the fear that debt will put people off university (and hinder their subsequent life-chances); on the other there is the evidence that participation by students from less advantaged backgrounds has grown since the introduction of higher tuition fees in 2012. I've seen it argued - by people including a Vice-Chancellor of a UK university - that fees have helped with this process.

But of course, correlation does not imply causality. And because higher education is a devolved matter, there’s a simple experiment which can shed light on the question about whether fees encourage participation.

Scottish domiciled students pay no tuition fees if they attend Scottish universities. If they attend universities in England they pay the normal home rate – that is, £9,000. HESA data lets us see whether more Scottish students attended universities in England after fees were increased in 2012, which they should if tuition fees encouraged greater participation.

Here’s the data. It shows the number of undergraduate students attending universities in England from each of the four UK nations: England, Scotland, Wales and Northern Ireland (NI). The data covers the years 2008-09 to 2015-16: that is, four years under the £3k tuition fee regime and four years under the £9k regime. The number of English students is several orders of magnitude higher than those from Scotland, Wales and Northern Ireland, so I’ve used two vertical axes. The left had axis show student numbers from Wales, Scotland and NI; the right hand axis shows students from England.

Data from HESA Student data, table N

The chart shows that the number of English students at English universities grew over the eight years, from about 780,000 to 925,000. The number of Welsh and Northern Irish students at English Universities also grew, from 15,000 to 22,000 in the case of Wales, and from just shy of 8,000 to just over 9,000 in the case of Northern Ireland.

The number of Scottish students at English universities did not grow. 4,840 Scottish students attended English universities in 2008-09; 4,255 attended in 2015-16.  And just to be clear, there isn’t a peculiar effect of declining number of eligible Scottish students: the number of Scottish students attending Scottish universities grew from about 84,000 to about 94,000 over the same period.

So it seems that tuition fees do not cause increased participation. The growth in English students can be explained by the availability of places: the cap on recruitment was removed in the couple of years following 2012, giving universities an incentive to recruit as many students as they wished. But if students could study in their home country for free, as in the case of Scotland, they were immune to the charms and marketing persuasions of English universities.

So when the debate plays out, be careful to spot when correlation (growth in student numbers in England) elides into claims of causation. The evidence is that tuition fees do not cause a growth in student numbers.

That 2.8% - an update

I blogged a couple of weeks ago on where the 2.,8% fee increase came from.

Eagle-eyed Sweeping Leaves reader Nick Catterall identifies a plausible source. Says Nick:

"I have been working away at our CMA related updates and as a result have spent quite some time going over the recent CMA findings report. One point within this talks of clearly showing what index the inflation rate is linked to when notifying students of our ability to vary fees in keeping with inflation, using RPI as the example. With the RPI index in mind, looking at the Statista website, it shows the Office of Budget Responsibility figures as 2.8% RPI forecast for the 2nd quarter of 2017. The published forecast is from November 2015..."

And indeed the OBR November 2015 forecast does show this.  Moreover, the RPIX (RPI excluding mortgage interest payments) forecast is 2.8% for the whole of 2017. You can see all of the supporting data in the 'economic and fiscal outlook supplementary economy tables' spreadsheet. The timing fits with the policy development framework, and in particular any behind-the-scenes lobbying in relation to fees.

So it looks like the mystery about the provenance of the 2.8% may be solved. Of course this doesn't address the larger questions - is this in line with the commitments made about no automatic increases at the time of the 2010 changes? (thanks to Aaron Porter for reminding me of this) and also how exactly Universities will follow CMA guidance and indicate the inflation rate to be applied?

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.

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.

Who pays?

The ifs published a briefing note on the impact of the changes to student finance announced in the budget. There was plenty of media coverage, but as always, there’s more in the report than has yet been covered.

Firstly, the background. In his budget the Chancellor announced two specific decision, and three proposals for consultation relating to higher education:

Decisions

• Increasing the maximum loan to £8,200
• Replacement of maintenance grants with loans 

For consultation:

• Freeze the £21,000 repayment threshold (ie let inflation reduce the real value)
• Allowing institutions with high teaching quality to increase the £9,000 fee in line with inflation
• Review the discount rate applied to student loans and other transactions to bring it into line with the government’s long-term cost of borrowing.

The coverage of the ifs report rightly – because they are the certainties – focuses on the two decisions. But the ifs report also analyses the effect of the three proposals for consultation, and its two things about these that I want to highlight.

Firstly, the effect on government borrowing. The RAB charge is the measure of how much student debt the government expects to have to write off. At the moment the RAB charge stands at 39.2% - the government expects almost £2 in every £5 it lends to students to be written off as un-repayable. If all five measures are introduced, the ifs expects the RAB charge to reduce to 21.9% - effectively halving the amount of debt write off. This is all to do with changing the discount rate. In the ifs’s own words:

The proposal to reduce the discount rate is essentially an accounting ‘trick’: it will not change the real resources going to students or universities; nor will it increase repayments from graduates. Instead, it means that future repayments will be valued more highly today. This has the effect of increasing the value (but not the cash amount) of repayments made in future, hence making it appear that the cost of the system (in net-present-value terms) is lower than it was before.

And secondly, a change in the balance of who pays for higher education. To quote from the budget document:

The government must therefore ask graduates to meet more of the cost of their degrees once they are earning.

Using the ifs data it is possible to work out the graduate’s share of the costs of their education, as in the following table.

So, at the moment the costs are shared roughly equally between the taxpayer and the graduate. If all of the budget reforms are implemented, the graduate share increases to 75% of the total cost. What looks like a technical accounting decision has real consequences for individuals.

Inseparable

Two weeks into the election campaign and it seems that despite university and student funding being a matter for the devolved administrations, it’s becoming an election issue where Westminster policies will drive devolved decisions.

The headline issue is Labour’s £6k tuition fee policy. I’ve blogged on this before, and noted that, in my view, this will need an Act of Parliament if there aren’t to be quite significant unintended consequences. Looking at the impact of this on other administrations makes me doubly sure.

Take, for instance. English and Welsh fees policy. They are the two most similar in the four UK nations; universities are allowed to charge up to £9k per year Home/EU undergraduate fee, subject to a test around fair access. The difference is that the Welsh Government pays some of the fees for Welsh domiciled students (that is, students who come from Wales, wherever in the UK they study).

Suppose there’s a Labour Government, and it caps English universities at £6k fees. This creates four different scenarios.

For an English university, there’s two policy worries. Firstly, will HEFCE actually make up the £3k difference? Maybe in the first year, for forms sake, but it would be a brave bet that said it would carry on as a ring-fenced spending item in perpetuity. And secondly, will they be allowed to charge £9k for a student from Wales?

For a Welsh university, slightly different worries: will the Welsh Government continue to fund undergraduate education for Welsh domiciled students at a rate about £9k, regardless of where the funds come from? That’s a question for the Diamond review, but a dramatic change in English arrangements would be bound to have an impact. And secondly, would they be allowed to charge English students £9k? And, perhaps more pertinently, if they did, would any come?

The market for higher education and UK politics intrude inexorably on the devolved administrations. There’ll be similar dilemmas for universities and governments in Scotland and Northern Ireland. Even when we’ve understood, as a political culture, how to do devolution, there’s still the unavoidable reality that England is by far the largest of the four home nations, in population and economic terms. That reality won’t be changing any time soon.

Most of the answers to the questions above require both political consensus and amendments to Acts of Parliament. If there’s a government with a small majority HE funding might become a touchstone issue. Again.

A capital week

I write at the end of a long week which saw me in each of the three capital cities on the UK mainland: Cardiff on Monday and Thursday; London on Tuesday and Friday; and Edinburgh on Wednesday. Plenty of opportunity for reflection.

Cardiff, London, Edinburgh: and some other places too

One strand of this reflection was about the changes which are occurring in the UK through devolution, and the unequal parts into which the UK is divided. Universities’ behaviour is being affected by this.

Firstly, with respect to students. Each of the nations has its own policy around student support and student tuition fees, but England, as the largest in volume and wealth, is clearly setting a tone. With each student paying £9k per year, funded through the SLC; and now without any cap on student numbers, English universities can seek to recruit (they might not succeed) as many as they like, from wherever they like.

In Wales, the government subsidises students’ fees, so that they pay only about £3,600 per year, wherever in the UK they study. Welsh universities have a financial cap on how many Welsh-domiciled students they can admit (although I understand that in practice this doesn’t constrain recruitment of Welsh students) and the net effect of this is that Welsh universities do best, financially, when they recruit plenty of students from England, creating a net inwards flow of state funding for universities.

In Scotland, universities cannot charge fees for home (or non-UK EU students), but can charge for students from England, Wales and Northern Ireland. They are grant funded in respect of the costs of educating Scottish students. This means that for Scottish universities, students from the rest of the UK are valuable, bringing fee income. But, universities are not funded at the same fee per student basis as in England and Wales, so competing with their counterparts elsewhere in the UK is tricky.

In research things are different (for now): the principal of dual support (through the block grant and, in competition, from Research Councils) is so far safe. This means that every university will get some funds for research, dependent upon their baseline quality assessed through REF. But how long will this last? As national governments (ie Scotland, Wales, NI) gain more power, will they wish to include their ‘share’ of research council funding in their allocations? Will experiments in devolution in England, like that in Manchester, lead to regional university funding?

It is an uncertain time, and each university is also having to plot its own sustainability, with uncertainties about future state/fee funding arrangements, the prospect of further cuts in the coming years, and no real confidence that post-election things will be any clearer.

There’s no moral to this reflection. But there is an obvious truth that the future for university funding and system behaviour won’t be stable for a while yet.

Here we go again ...

As expected, Labour have now announced their policy of reducing home/EU undergraduate tuition fees in England to £6k per year, from the current £9k. (The policy only affects England, as higher education is a devolved responsibility).

There’s already much argument about the merits of the plan. To summarise, in the Pro camp, you’ll find the observation that the system is broken and something needs to be done, or public debt will spiral out of control; that the perception of debt is a fear as much as the actual debt; and that an increase in the maintenance grant is a good thing. On the Anti side you’ll see the observation that this puts long term university funding at risk; that it benefits only better off graduates; and that there isn’t a long-term problem that needs fixing.

November 2010, 30 Millbank ...

Here’s my take on this.

Firstly, the system is broken. Although forecasts about the RAB charge and the amount of debt that will not be repaid are only forecasts, it is unarguable that the average level of tuition fee actually charged is substantially greater than the £7,500 on which the policy was based. £9,000 was meant to be charged only in exceptional circumstances; it has instead become the universal norm. In these circumstances, it’s hard to believe that there’s no effect on public finances. And as the coalition’s plans for reducing the public deficit have not borne fruit (despite what George Gideon Oliver Osborne says) this must be a problem for the future.

Secondly, it is correct that the money benefit will go to higher earning graduates. This is straightforward mathematics. What is also true is that the perception of debt will reduce, and that will, I think, remove some disincentive to potential students and their families. How much? We won’t ever know, so that’s a matter of faith.

Will it reduce university funding? It all depends on the nature of politics and public funding, and the effectiveness of future HE ministers versus chancellors. So that’ll likely be a ‘yes’, then, but at some unknown and unspecified date. A government response will be that it serves universities right for being greedy in fee setting in the first place, but as the whole £9k fees policy was a dog’s breakfast from the outset this is just name calling.

So let’s speculate that Labour get into government with a working majority. How would this be implemented?

The framework within which fees are charged is that laid out in the 2004 Higher Education Act – there’s a basic amount and a higher amount. The basic fee level was set – after the 2010 discussions – at £6,000 per year; the higher amount is £9,000 per year. These are in the precisely named Higher Education (Basic Amount) (England) Regulations 2010 and the Higher Education (Higher Amount) (England) Regulations 2010.

The way it works is that any approved provider can charge fees up to the basic amount (£6,000); to charge at the higher amount (£9,000) you need to have an access agreement approved by OFFA.

So far, so good. The rub is that the basic fee amount is what private providers (eg BPP University, University of Law etc) can charge; the higher amount applies to HEFCE funded universities. On the World at One this lunchtime Chuka Umunna – Labour’s BIS frontman – said that the intention was to continue to require universities to pay bursaries and support access, implying that the basic/higher levels, and the requirement to submit an Access Agreement to OFFA, will continue to apply.

This suggests that the Basic Amount will be reduced to £3k, and the Higher Amount to £6k. If this is the case, then private providers won’t, without further legislation or specific regulation, be able to charge the £6k they are at present.

If this was part of Labour’s plan I’d have expected it to be talked about: you can make good political capital about “clamping down on dodgy profiteering colleges”, even if this is probably unfair when applied to the larger and more reputable ones.

An unanticipated consequence, perhaps?

Wake up!

Higher Education is becoming more and more of an election issue, and universities don’t seem to be waking up to the seriousness of this.

I blogged last week on Labour’s supposed £6,000 fee plan, UUK’s response, and the numbers behind this. Martin McQuillian blogged persuasively on wonkhe arguing that UUK had scored an own goal. And now a private members’ bill in the House of Commons seems set to keep the issue live.

The Bill was introduced by Oliver Colvile – MP for Plymouth Sutton and Devonport – on 10 February, and seeks to require university Vice-Chancellors and governing bodies to write annually to students setting out in detail what their tuition fees are spent on. The text of the bill is not yet published, and in any case there’s no chance that it will become law before the election, so it’s the politics which are interesting here.

Let’s have a look at the introductory speech made by Oliver Colvile.

The aim is that letters should be sent by vice-chancellors and governors explaining in detail how they spend their students’ tuition fees. We have to remember that students are the universities’ clients and customers. They are paying a significant amount of money to receive a service. I firmly believe that students deserve accountability from their institutions.

This argument is a straightforward value-for-money argument. The key point: £9k per year seem like an awful lot of money to many people, and if a family has no prior experience of university it isn’t obvious what they get for the money. And, conversely, for universities any individual student’s £9k fee is a relative drop in the ocean. There’s a clear mismatch between the cost felt by the customer/client and the benefit felt by the provider.

In last year’s annual grant letter, my right hon. Friends the Secretary of State for Business, Innovation and Skills and my right hon. Friend the Member for Havant (Mr Willetts), who was then Minister for Universities and Science, expressed concern about the substantial upward drift of the salaries of some top managements at our universities. I believe that if universities were more accountable to their students, they would ensure that they could justify that expenditure.

Now we can see the politics. And it gets stronger:

According to Times Higher Education, the best-paid 10 vice-chancellors of English universities earned between £365,432 and £480,000 in 2012-13. … Members may wish to compare those academic fat cats’ salaries with the £142,500—including his parliamentary salary—that I understand the Prime Minister earns for running the whole country, rather than just one university.

Not comfortable reading for Vice-Chancellors. Although universities consider themselves to be autonomous and charitable organisations, the public funds spent on universities mean that this debate is fairly and squarely regarded as being about public spending. And Vice-Chancellors’ salaries make them amongst the highest paid public servants in the country.

There is a local dimension to this., The travails of Plymouth University, with suspensions, resignations and very expensive furniture, contribute towards this.  But the bigger picture betrays a different narrative to that pursued by universities, and the politics behind this – about shared pain, austerity and standing up for the rights of the individual – are a long way from serious discussion about the benefits and mechanisms to fund a world class university system. At election time universities must realise that the political arguments will always hold sway, and there’s a real danger that hard questions will be answered in glib ways, with damaging consequences.

Will the sector wake up to this in time?

A pre-emptive strike

University tuition fees on the BBC from 6am today – there must be an election coming!

The story, of course, is the letter to The Times from UUK’s Board members representing English universities, protesting pre-emptively about Labour’s rumoured plan to reduce the tuition fee cap in England to £6,000 per year. (It's behind a pay-wall so I, haven't linked to the letter, but Wonkhe below gives a link to the UUK press release.)

Wonkhe blogs knowledgeably about the politics behind this, and the key point seems to be that there isn’t really a Labour HE policy yet. So what we’re seeing is an attempt to shape policy, or at the very least make the £6k cap untenable politically. Let’s take a look at that.

Firstly, what is the universities’ case? Deeply flawed though the current English fees regime is, it is possible to say a couple of good things about it.

Firstly, it has increased the money available to universities – and better-funded universities ought to be able to deliver better teaching and research. Plus, and this is a biggie for universities, it is money which comes without many strings attached, thus increasing university autonomy.

Secondly, it hasn’t caused a reduction in participation in higher education. Much like the 2006 increase to £3k, an early dip has been compensated for and the upward march of participation continues.

But, as I said, it is also deeply flawed: it’s very expensive for the country. The repayment rate is capped at 9% above a £21k threshold, and repayments stop after twenty years. Thus there is almost bound to be a built-in default, and the state picks up the tab. It is, of course, a long-term issue (July 2035 will be the twentieth anniversary of the first graduates graduating with higher fee debt) and no-one knows exactly what the default rate will be, but the forecasts on which the policy were introduced look brave at the moment. And, critically, estimates on default rates have an impact on government budgets in the here and now: meaning that real money needs to be found as estimates of default rates go up.

The problem universities have is that reducing the fee cap sounds like a good idea. If students pay less – and £6,000 is definitely less than £9,000, no matter what you think of Ed Balls – then surely it must be better for them? And many people outside HE (and quite a few inside HE) think a £9,000 flat rate is simply too much.

Clement Attlee: £6k fees weren't his policy

It isn’t that simple, of course. Because repayments are capped, graduates on low-ish salaries might still find themselves paying for twenty years, and still owing at the end of it (to be picked up by the state); the ones who would benefit are graduates who go into more highly paying jobs, and so can pay the £6k off within the time limit. And as the graduate social mobility work led by Alan Milburn showed, access to high paying professional jobs is biased towards those from more advantaged backgrounds. So, with a £6k fees policy, the ones who benefit will be disproportionately from richer families. Reducing fees from £9k to £6k doesn’t seem very progressive to me.

But it sounds it. And here’s the problem universities face. The current regime is unsustainable for the state, but is actually pretty good for universities. Any move - eg to a graduate tax – makes things worse for universities, in the sense that they become beholden to the state for money. Remember that the whole fees thing happened because the state wouldn’t pay the cost of expanding higher education whilst maintaining levels of university funding. For universities, a graduate tax is a step backwards.

And as I blogged last week, young people in Labour MPs' constituencies are disproportionately more likely to go to less prestigious universities. And the lower down the league table you go, the more plausible the argument, that £9k is too much, can feel. This is about the heart not the head.

There’s a lot at stake here. If we’re headed for coalition, then the best outcome might be a cross-party consensus not to make HE policy a haggling point. That leads to policy making on the fly, and bad outcomes. So perhaps the real message from universities needs to be “We know the current arrangements can’t hold, but let’s this time think it thought properly”. Not much of a manifesto slogan, but better for policy, I suspect.

Carry on doctor!

Medicine – alongside other health professions - is one of the few subjects in UK higher education where workforce planning is a significant part of the equation. Medical Schools are capped on how many students - home and overseas - they can admit. This makes the opening of the UK’s first privately funded medical qualifying degree (since the 1940’s) – at the University of Buckingham – a significant occasion.

The Guardian reports that 500 people applied for its 67 places, and that 60% of its students in this first cohort come from the UK. Fees of £35,000 per year (which is within the range for overseas fees at other UK medical schools) did not deter. (The fee may seem eye-watering, but it doesn’t look to me like profiteering: it does cost a lot to train a doctor, and publicly funded medical education continues, for the time being, to attract a significant subsidy in addition to fee income.)

The critical component of a medical degree is clinical experience, and in this instance the University has agreed with the Milton Keynes NHS Trust that students can undertake clinical placements within the hospital. This benefits the hospital too – there’s prestige and money associated with it.

Finding these clinical placements will have been one of the limiting factors in developing the degree programme. Students spend time with qualified clinicians in every different medical specialty: observing procedures, learning from what they see and practising clinical skills. It’s this that ensures that graduate medics don’t only know about the human body, what ails it and how to cure it; they have some actual experience. But there are only so many clinicians to observe, and only so many patients, so the availability of ‘firms’ (the placement possibility for a group of students) is everything. The negotiations here will have been high stake for the University.

Once students graduate with their degree there’s still a while to go before they are fully licensed: two further years of Foundation Study take place, where they work in clinical settings under the continued supervision of senior doctors. (This is what used to be called the Pre-Registration years.) The University of Buckingham website has a telling phrase:

We expect that our graduates will be eligible to apply for UK Foundation Training posts. (My emphasis.)

Should students worry about being able to continue as doctors? I doubt it: it’s five years until it becomes a live issue, so discussions will still be taking place and contracts not yet signed. My guess is that the NHS Trust will be as keen to have foundation doctors as it was to have undergraduates.

So is this all a good thing? On the positive side, it does get the country more doctors, and that is a good thing. It also shows that alternative models for HE provision can work, and that is arguably a good thing. But in the absence of funding available to all, there’s no doubt that the opportunities available are available, like the Ritz, only for those who can afford it. The Charity Commissioners may be as interested in this degree as they are in the charitable status of public schools...

An Alternative point of view

The National Audit Office report on Financial support for students at alternative higher education providers has generated a lot of media coverage in the past couple of weeks – both from industry and social media. Here’s links to the Guardian’s coverage; the BBC and the Times Higher; and also a brief piece by Emily Lupton on Wonkhe. The coverage ranges from £5m mis-spending to a whopping £50m potential risk in your super soar-away Guardian. So what’s really going on?

First up, what are alternative providers? An alternative provider is any college which offers higher education, but is not part of the ‘normal’ state-funded, QAA-regulated, HESA-data-submitting established universities. So the term includes established and well-recognised institutions such as the University of Buckingham or BPP University (relatively new name but a long, long heritage) as well as lots of smaller colleges, some of which have sprung up in the last few years. (I should add for clarity that there are no adverse comments about either Buckingham or BPP in the NAO report.) I blogged a while ago about which institutions use UCAS, and a lot of the entrants and exits from that marketplace are alternative providers.

Alternative providers aren’t all for-profit – the term covers colleges run as charitable trusts too. Courses lead to awards made either through powers that they have gained themselves through the recent more open procedures run by BIS; made by national awarding bodies; or lead to awards validated by universities, or franchised from universities.

The story arises from the opening up of access to Student Loans Company (SLC) funding for students at alternative providers – up to £6k fees, and also for living costs. And this is what the NAO was investigating.

There were four main findings:

“EU students at some alternative providers have claimed or attempted to claim student support they were not entitled to” – this is the £5.4 million mis-spending reported by the media. And 83% of the wrongful claims came from student at just 16 alternative providers.

“Dropout rates at 9 alternative providers were higher than 20% in 2012/13” and “20% of Higher National students recruited by alternative providers and claiming student support may not have been registered with the qualification awarding body in 2012/13”. The NAO takes this as evidence that some students aren’t really motivated to learn – that is, they may be registering as students only to access loans.

“Between 2012 and 2014, BIS suspended payments to 7 providers and their students owing to concerns that providers had enrolled students onto unapproved courses” and “a lack of clarity has existed within BIS and its partner organisations about which courses were approved for student support.” This points to procedures designed (or at least operated) by BIS and the SLC which didn’t check eligibility before lending money.

“In 3 cases, BIS suspended payments to providers or their students where it had concerns that the providers had supplied incorrect information about student attendance.” The point being that it was the SLC making payments, but without the powers necessary to assure itself of the correctness of the payments.

Does this mean that alternative providers are a Bad Thing? That was certainly the unspoken view behind a lot of the Twittersphere commentary. I don’t think that it does.

It does mean that some of the providers audited almost certainly are doing bad things, and it almost certainly means that some of the people who signed up for courses at some alternative providers were doing it for the wrong reason. But a very few students also enrol at ‘normal’ providers for the wrong reason. And they’re often caught, like these ones, and dealt with. (A quick note about the 83% at 16 providers which the NAO cited: the alternative providers market is very skewed, with a few very large providers and many very small indeed. 83% of students at alternative providers, selected on any basis at all, are mathematically almost certain to come from a small number of providers. Just saying.)

But I do think that there is a problem here, and it’s the failure of regulation which this represents. There wasn’t until September 2014 a single comprehensive list of courses at alternative providers which were approved for access to SLC funds - this makes checking very difficult. There weren’t systems which shared information at the right time between bodies to make it possible to spot and stop problems. There wasn’t the right authority to oversee new providers in a timely fashion. These are all foreseeable problems, the sort of problems which universities have been dealing with for years and which sector groups – Universities UK, the Association of Heads of University Administration (AHUA), the Academic Registrars’ Council (ARC) – are well placed to advise upon.

The reasons for this?  Too little time spent on thinking things through; a government in a hurry; a coalition government, meaning that plans had to be compromised; and a civil service which was distracted by pressure to find savings. And underlying this the great truth that higher education is a long-term process, with outcomes only known sometime after the event. The same is true for higher education policy – act in haste, repent at leisure.

Master's in Finance

Nobody could have been surprised that the Chancellor announced loans for postgraduate students in today’s autumn statement. But the details that we know deserve a bit of consideration.

1.3% of the available postgraduate loan

First, the announcement – an income-contingent loan, at real but better than market rates, of up to £10k, available to people under 30 starting a taught postgraduate course from 2016. Subject to consultation and details. The modelling suggests an interest rate of RPI+3%, which isn’t a bad rate. Repayment would be thought the existing Student Loans Company mechanisms, with repayments starting at £21k salary, with 9% of salary above £21k taken as repayment.

This has been a long time coming – the NUS and universities have been campaigning for a while, and since the introduction of the higher fees in 2012 it was clear that there would be a pressure on Master’s degree enrolments when people were graduating with substantial SLC debt.

One interesting aspect is the age limit. Prior speculation had been that the loans would be available only for STEMM (science, technology, engineering, mathematics and medicine) subjects. That they will be available for all subjects is a victory for humanities and social science lobbying, but the age cap may have been a necessary corollary: the loans are intended to be self-financing.

Also of interest is the question of possible discrimination. If it turns out that the loans are not self-financing (and we know how robust RAB calculations are in relation to student loans) where is the justification for stretching the Equality Act protection of age?

PG loan stuff on p56, interestingly the assumption is that this will cause PGT numbers growth rates to drop. https://t.co/TGLfbJFoSN
— David Kernohan (@dkernohan) December 3, 2014

David Kernohan spotted in the Treasury’s underlying calculations that the loans are also predicated on a slowing of the rate of growth of PGT students – from 2% annually to 1%. My guess is that this is necessary to make them look self-financing over a sufficiently short timescale: if growth is larger, sooner, then the up-front cost will hurt Treasury. If there’s a cap on PGT numbers in four years’ time remember that you read it here first!

What will the repayments feel like? If we assume someone earning £24k per year, then with just an undergraduate degree and associated loans they’d be repaying £22.50 monthly on a gross monthly salary of £2000. And the same person with a Master’s degree would pay £45 monthly on the same gross salary – a marginal rate of 2.25%, and the size of a monthly contract for a flashy mobile phone. A first-degree holder earning £36k per year would pay £112.50 on a monthly gross salary of £3,000; the same person with a Master’s degree would pay £225 per month – a marginal rate of 7.5% and more like the monthly repayments on a car. So, progressive taxation, up to a point, and also noticeable by the individual.

It’s important though to bear in mind that current students are already paying: whether it’s borrowing from parents and family; saving for a couple of years; or working during study (or all of the above). It’s unquestionably a good thing that these loans will be available, but at £10k they won’t pay the full costs.  It’s an amelioration of financial problems, not a complete solution.

It’ll also be interesting to see whether this becomes an election issue: will the other parties promise to do this also, or does it become an uncertainty. My guess is that Nick Clegg will not want to talk about this: too many bad memories for him!

Do universities really not care about students?

The Daily Telegraph today carried an article by Graeme Paton, the gist of which is that top universities don’t care about students. Let’s look at the arguments cited:

• Tuition fee income is a minority of the income for top universities 
• Some researchers aren’t interested in teaching undergraduates
• League tables don’t recognise teaching quality as important (because it can’t be measured)

Tuition fee income

There are two problems with Graeme Paton’s argument. The first is that university income is currently in a moment of transition. The new tuition fee regime started in England and Wales in 2012-13, with a phase out of teaching grants to universities. Tuition fees in many cases do give universities more income, per student, than the grants they replace, but in 2012-13 only the first year of this new income is recorded. So, the numbers will not reflect the full extent of the contribution of tuition fee income to universities’ overall income. Once all years of the new policy are in place, income from education will represent a larger share of universities’ income, and, as it can fluctuate annually (unlike many programme research grants which can cover 3-5 years) universities are paying attention to students and teaching. It is simply not true to say that universities don’t regard teaching as important.

The second problem is the selection of data. I will now make an uncontroversial statement: Cambridge is atypical of the UK higher education sector. It’s atypical even of ‘top’ universities. The following graph – using HESA data for 2012-13 – shows the proportion of each Russell Group university’s income which depends upon teaching:

The red bar is Cambridge. It’s an outlier. Caused, in part, by the income from the university press and the exam boards. The mean for the Russell Group is 42% of income, a proportion which is likely to rise as the tuition fee regime comes fully into play. Universities don’t ignore 42% of their income.

Some researchers aren’t interested in teaching undergraduates

Graeme Paton was right that universities are complex places. They exist to propagate and generate knowledge, which gives two related but distinct missions: to teach and to research. Every university does both of these, to differing extents. And just as every large organisation employs specialist staff, so do universities: there are academic staff whose main focus is research; and those whose main focus is teaching. But the standards that they use when selecting staff are the same: the excellent teachers are expected to be every bit as good at teaching as the excellent researchers are expected to be good at research.

It follows from this that there will be staff who don’t really engage with teaching undergraduates and, as Graeme Paton’s article points out, some research staff only engage with students who are doing PhDs. But using a Nobel Prize winner as your example is slightly naughty: we’d probably all rather that Nobel Prize winners spent more time doing the thing that got them the Nobel Prize in the first place.

League tables and teaching 

It’s certainly true that the QS world rankings don’t weight teaching highly, and also true that there isn’t really a good comparative measure of the quality of teaching across nations. That’s more a criticism of leagues tables than it is of universities, and there’s plenty of criticisms of league tables to be made. But that doesn’t imply that universities don’t care about teaching. Many ‘top’ universities identify both an international league table target and a UK one – for example, Cardiff has a world ranking target and a UK target.

And universities do try to demonstrate that they are good at teaching. In the days of QAA subject review, league tables had a measure which was the average subject review score (out of 24) or the proportion which had achieved ‘excellence’ in teaching (22 or above out of 24.) This target made it into university strategies, and enormous effort was expended in demonstrating the quality of teaching.

There is definitely a need to find a good measure of teaching quality for league tables, but the absence of a measure of teaching quality doesn’t mean the absence of effort or of concern. Nowadays there are professors in ‘top’ universities who have got the title not for their research, but for their teaching. This is a change unthinkable twenty years ago. It really is time to stop trying to make a simple argument that teaching doesn’t matter as much to universities as research: remember, these are complex organisations. Just like the man from the Telegraph says.