EXCELLENCE, EQUITY AND ACCESS

SQUARING THE CIRCLE of HIGHER EDUCATION FUNDING

Peter Bradley MP
Alan Whitehead MP

25 November 2003

Summary

The central premise of the Government’s Future of Higher Education White Paper is that variable tuition fees will create a regulated market from which students and universities alike can benefit. They are expected to fund academic quality in the elite institutions and a quantity of places in the rest.

But even if such an outcome were desirable, it is highly questionable that it could be achieved through different universities charging different fees for different courses. It is difficult to see how any university will be able to afford not to charge maximum fees across the board (much less reduce them from the current £1,150) when the consequence of doing so would be a critical loss of income at a time when substantial new investment is needed.

It is unlikely, therefore, that variable fees will be widely applied if at all. However, variable income will accentuate the privilege of some and the disadvantage of other universities simply because institutions with fewer students from low income backgrounds will be able to keep a higher proportion of fees than those obliged to pay bursaries to large working class intakes.

As a consequence, though the Government’s proposals to defer fee repayments will almost certainly remove some obstacles to higher education in the way of school-leavers from low income backgrounds, they will place them instead in the path of graduates accessing the jobs market from low-income universities.

It does not have to be that way. Some relatively modest, cost-free adjustments to the Government’s proposals could have a radically progressive affect on their outcomes in encouraging and supporting students from low income groups, addressing funding problems in all rather than some universities and in lifting standards and prestige throughout higher education rather than simply at elite institutions.

We propose that the Government

· switch from differential to a standard fee of £2,500 for all universities
· convert support for low income students from bursaries to maintenance grants of up to £5,000 pa
· introduce an ‘equalisation’ mechanism through which to redistribute excess fee income from relatively cash-rich universities with lower levels of low income students to those with higher levels and therefore higher maintenance grant costs.

These changes will not eliminate the qualitative differences between our universities. But they will over time help to close rather than widen the gap between them and in consequence the career prospects of their graduates.

This paper seeks to develop this analysis and these proposals in greater detail.

1. The Principle of Repayment

The Government deserves credit for addressing the funding crisis in higher education and all the more for seeking to do so without compromising its commitment to expanding access.

The problem is that the means set out in the Future of Higher Education White Paper will not achieve their well-intentioned ends because they will not distribute the new investment they raise equitably among the universities and their students. The elite institutions may well prosper but most will not and some will struggle to survive.

It is not increasing tuition fees which is the problem but the introduction of variable fees on market assumptions.

The White Paper (in Chapter 7) makes a strong case that students should pay an element of their tuition costs and for that payment to increase. We believe that the Government is right to expect graduates to contribute towards the cost of their university education.

If we care about higher education and if we want more (up to 50% of 18-30 year-olds by 2010) to benefit from it, we will have to pay for it.

The last Government didn’t. Funding per student fell by 36% between 1989 and 1997; teaching salaries have depreciated by 40% so that we are failing to compete with our overseas rivals; there is a capital investment backlog of over £5 billion.

Under Labour, HE spending has increased by a little under 16%. But student numbers have risen too and, despite its upward trend, unit funding is still below 1997 levels.

The choice is straightforward. If we are to begin to bridge a deficit of some £8-10 billion, we must either increase funding or cut student numbers.

Abolishing all tuition fees, as the Conservatives propose, may look attractive at first glance but without additional public funding to replace them, the Higher Education Policy Institute estimates that it will deny university places to some 464,000 potential entrants by 2010.

As the Institute of Fiscal Studies has recognised, “the Tory plans…will result in a net redistribution of resources from poorer to richer households”. Higher education would become once again the preserve of a privileged few, paid for by the general taxpayer.

Once parents recognise that their children are to be relieved of the prospect of student debt only because they are also being denied access to university itself, such proposals may lose their appeal.

The same parents may also take a different view of the blanket opposition to both student fees and a cap on student numbers, supported by the Liberal Democrats, when they realise that as taxpayers they will have to find, according to HEPI, their share of an additional £2.6 billion in public expenditure.

So who should pay for higher education?

The taxpayer already funds about 75% of the cost of an undergraduate’s education and rightly so. Universities are public institutions; they civilise and enrich our national life; they contribute hugely to our economy; we all benefit by them.

But, as the Government argues, some benefit significantly more than others and it is not unreasonable to ask those who gain most to make a larger contribution.

Graduates can expect to earn on average 50% (and for over half 75%) more than non-graduates over the course of their working lives. The differential is immediate. According to the Labour Force Survey (September-August 2002), graduates between the ages of 21 and 25 can command an average starting salary of £18,600 compared to £14,800 for non-graduates in the same age group and the gap widens as their careers progress.

If, as the evidence suggests, graduates are half as likely to experience unemployment and can expect to earn some £400,000 more than non-graduates, an initial investment of £10,000 or even £20,000 on easy repayment terms is by no means punitive.

So, particularly if it is to help fund opportunities for those who have previously been denied university entrance, the case for graduate contributions to the cost of their own education is a strong and progressive one.


2. The Myth of Debt Aversity

Nevertheless, it is widely claimed that ‘debt aversity’ will discourage prospective entrants to university.

It is certainly the case that, even with the removal of up-front fees, some school leavers are and will remain reluctant to take up the places for which they are academically qualified because they simply cannot afford the cost of student living, particularly if their parents are unable to support them.

For them a university career, when set against the short-term attraction of the wages they can immediately command in the local jobs market, will inevitably lose much of its appeal.

If members of this significant group are to be able to access university on equal terms with other more advantaged entrants, they need not just income-contingent fee repayments, but also up-front maintenance support, an issue to which we return.

But for other groups, the concept of student debt may not be the serious disincentive to university entrance which many claim.

It is arguable as to whether the repayment system envisaged by the Government can properly be described as the servicing of a debt. In any event, debt in one form or another is now for most people an acceptable and in some cases even a welcome fact of life.

Indeed in 2002, according to the National Statistician, the average unsecured debt among British adults stood at £5,330, a third of the average income of £15,310, and the evidence suggests that young people from lower income backgrounds – precisely the group which the Government hopes to recruit to university – are less resistant to debt than other sectors of society.

The Bank of England calculated that in the five years up to 2000, mortgage holders in lower income households actually increased their debt as a proportion of income more than any other group, while unsecured debt rose most in households in which the head was aged under 25.

The Institute for Fiscal Studies found in 2002 little difference in the proportion of those with degrees who had debt (58%) and those with none (60%). But it also concluded that “debt tends to increase with education level” not least because “people in this group (under 35s with degrees) expect large increases in income as they progress through their working lives and have been prepared to borrow against this future income”.

So the evidence suggests that far from being averse, most people have a propensity for debt and that graduates have a greater propensity than others precisely because they anticipate that their qualifications will attract higher earnings.

Moreover, debt among students is not a recent phenomenon. It was a feature of student life long before the Conservative Government phased out benefit entitlement and began the replacement of maintenance grants by student loans in 1990/1.

But it certainly has grown over the last decade. The Barclays Student Survey predicts that over 90% of students living away from home may be in debt and that the average has risen from £1,095 in 1992 to £6,228 in 2002, with a sharp 37% increase between 2000 and 2001 as a consequence of the final abolition of grants in the 1999 academic year. Barclays also estimates that the average deficit on graduation will have grown from £2,212 in 1994 to around £10,000 in 2002.

Whether or not they experience it, students themselves seem less universally troubled by the notion of debt than is sometimes suggested. According to the MORI 2003 Student Living Report, 38% agreed and 39% disagreed that the accumulation of debt at university is a serious concern.

There is important evidence that students from lower income backgrounds tend to be more concerned about debt than others and that over half of non-entrants cite debt as a disincentive to university application. Nevertheless, DfEE research in 2002 concluded that “the majority of potential and current students identify being poor as being part and parcel of student life” and were not deterred by the prospect.

It is also significant that student drop-out rates in the UK in 2000, were at 17%, according to the OECD, the fourth lowest behind Japan (at 6%) and appreciably lower than in Germany (30%), the US (34%) and France (41%).

There is evidence too that students do not regard debt as a simple liability. MORI found that 87% of students thought that the money they were spending on their university education was a good investment and 90% were optimistic about their futures. It also found that only 28% of drop-outs cited financial difficulties as a reason for abandoning their studies compared to the 38% dissatisfied with their course.

The most persuasive evidence that deferred fees should not deter applications to university entrance is to be found in recent access trends. Participation in higher education among 21 year-olds has steadily increased from around 6% in the early 1970s to 12% in 1979/80 to 33% in 1998/9 to 36% in 2001/2, a rise of some 61,000 since Labour came to power.

So the evidence suggests that the Government is right to claim that the charging of tuition fees is fair to taxpayer and student alike.

3. Variable Fees and the Problem of Variable Opportunities

The White Paper is clear that

“the social class gap in entry to higher education remains unacceptably wide. While many more people from all backgrounds benefit from higher education, the proportion coming from lower income families has not substantially increased. It means a waste of potential for individuals and for the country as a whole”.

The White Paper and the policies which flow from it will be judged on the extent to which they close that gap. But while extending opportunity is important, providing equality of opportunity is important too. Variable fees may help to deliver the first objective but they will subvert the second.

The middle classes currently make up some 75% of the student population. 81% of middle class school-leavers enter university compared to only 15% from lower income backgrounds.

But that latter group is concentrated in certain universities and those institutions and their graduates are the least likely to benefit and the most likely to suffer further disadvantage from variable fees.

Tellingly, while the HE institutions with the highest entry rate of working class students are all new and relatively low status universities, (Wolverhampton, Bolton Institute, East London, Edge Hill College and Greenwich), those with the lowest working class intakes are all established and prestigious, (Cambridge, Oxford, Bristol, Nottingham and Durham).

While 86% of students in all universities in 2000/1 attended state schools, the figure for Oxford and Cambridge was 53% apiece and, even worse, only 9% of Cambridge students and 10% at Oxford were of working class origin.

Though the worst, Oxbridge are not the only offenders. The Sutton Trust in its 2000 analysis of university entrants concluded that “the chance of getting into a top 13 university is approximately 25 times greater if you come from an independent school than from a lower social class or live in a poor area”.

Perhaps it would not really matter which university which students attended if on graduation their career prospects were related solely to their academic achievement or fitness for work.

But they are not. Research carried out in 2002 by the Council for Industry and Higher Education found that Oxbridge graduates achieve an almost 8% earnings premium over graduates from other ‘old’ universities, while graduates from the ‘new’ universities earn almost 4% less than those from the ‘old’ institutions.

The White Paper might be expected to propose positive measures to reduce such discrimination. But Education Ministers are explicit in their intention to perpetuate the differential between the reputation and quality of universities and, in consequence, the prospects of their graduates.

In consequence, while doing much to relieve the burden of disadvantage on higher education entrants from lower income backgrounds, the Government risks transferring it to graduates from low status universities.

As Higher Education Minister Alan Johnson put it in a briefing paper for Labour MPs, “the course you take and the university you attend can have a big impact on what you earn over your working life as a graduate – it is only reasonable for fees to reflect some of this difference”.

He goes on to state that “this policy is about promoting excellence and providing universities with the resources they need to expand and improve their facilities. It is not about creating a two tier system.”

But at least a two-tier system already exists. For the reasons set out below, variable fees will increase the number of tiers and widen the distance between them. They are wrong in principle. But they are also wrong in practice.

They will lead to more rather than less elitism and they will introduce a multi-tiered system of entrance which will guide prospective students, especially those from poorer backgrounds, towards those universities and courses with lower or no fees.

What the Government is proposing is, in effect, that a minority of students will be allowed to secure, through deferred payment of higher fees access to degrees at a limited number of prestigious universities which will confer greater earning capacity on them when they graduate. But the majority of students will have to settle, as the price for university access, for low-cost/low-premium degrees at unfashionable institutions.

Tuition fees will certainly fund an expansion in university places. But variable fees can only widen the differentiation between those universities which can benefit from them and those which cannot.


4. The Unintended Perversity of Variable Fees

The White Paper does little to counter this analysis nor, for that matter, to set out a justification for variable fees.

If there is a rationale it appears to be that elite universities will be able to use them as a method of securing income outside the rules of distribution based on capitation by creating a market in which some universities charge high fees and attract students able to repay them while others use low or no fees as their unique selling point.

For the Government, grappling with the real problems of funding research and the perceived endowment gap in leading UK universities compared with their US counterparts, this represents an attractive way out of at least part of the problem without having to recast the funding formula on a wider basis.

A real market in fees would certainly achieve the goal of concentrating funding by charging for prestige. But it could also have a range of perverse consequences for the HE sector as a whole.

It is, for example, debatable that students at elite universities are better taught than elsewhere. Indeed, the prestige of those universities is more often based on their research programmes than their undergraduate teaching.


Although there are often differences in the cost of teaching undergraduates between elite universities and others (in terms, for example, of numbers of students per tutorial or seminar), higher costs in high status universities are partially mitigated by the much higher likelihood that students will be taught by junior lecturers or post-graduate students who are substituting for those who have ‘bought out’ their teaching in order to pursue research contracts.

In practice, a student paying a ‘real market’ tuition fee at a prestigious university would be funding not undergraduate teaching but post-graduate research.

Having been persuaded by the Government to pay higher tuition fees on the basis that graduates should contribute to the cost of their own education, they may well have case against paying for someone else’s research.

5. The Problem of the HE Market

In any event, the Government’s current proposals will not establish a real, free market because universities can only work within a narrow range up to a cap of £3,000.

The band will actually be narrower still since it is unlikely that any university will be prepared or able to give up existing fee income of £1,150 and thereby jeopardise their viability. Far from welcoming the opportunity to compete on the basis of low or no fees, the University of Wolverhampton, for example, estimates that it would cost £14.3 million to abolish fees, the equivalent of 480 jobs.

The real range is therefore closer to £2000, and even less when the cost of providing bursaries is taken into account. This represents an inadequate spectrum in which to develop any real market, since, as the example of Wolverhampton suggests, the costs of competing for outweigh the benefits of capturing market-share.

The likely result, therefore, is that there will be few if any universities which will not charge the maximum fee of £3,000. The prestigious universities will almost certainly levy the full fee and have no trouble in attracting students ambitious for a sought-after degree and its earnings premium. The lower status institutions will follow suit because they will not be able to afford to forego fee income nor will they wish to signpost low cost/low quality courses, a sure way of entering a downward spiral in which both students and income are lost.

Besides, ironically, if the Government is successful in persuading school leavers and their parents that income-contingent fee repayments hold no fears, why would they be attracted by cut-price universities which are likely to lead them into careers with lower earning potential than other institutions?

6. The Problem of the Regulated Market

The policy problem for the Government is that while sustaining all the difficulty and pain of establishing a theoretical market in higher education, it would not actually advance the ability of elite institutions to differentiate themselves from other universities, even if that were a desirable outcome.

The only solution would be to re-run the whole differential fees exercise again perhaps two or three years after 2006 when it had become apparent that a market had not been established. At this point, however, a number of students would be in the system, paying more than at present but less than a real market system might allow for.

But the severe practical limitations of introducing a regulated market is even further exacerbated by the proposals to introduce bursaries for poorer students.

These are clearly intended to mitigate the inequities of variable fees and are predicated on the introduction of the Access Regulator whose job it will be to ensure that universities will widen access not least by providing bursaries from their own income to those who qualify for them.

Alan Johnson does not anticipate that institutions with high intakes of students from low income backgrounds will be disadvantaged by the new regime.

In a reply to a Parliamentary Question he has stated unequivocally that

“no university will be advantaged or disadvantaged in terms of additional fee income by the makeup of their intake. It will be for universities to assess the advantages and disadvantages of charging fees and what level of fee they should charge”.

But as the Vice-Chancellor of the University of Huddersfield John Tarrant has put it,

“funding needs are common to all universities not simply to those who are in a position to admit relatively well-off students who can afford to pay the higher differential fees”.

He rightly fears that those poorer universities which feel that they have no option but to impose fees will find that, under the Government’s current proposals, they are obliged to pay out in bursaries what they receive in income.


Professor Tarrant is very clear that

“if bursaries for students are left entirely as a matter for individual universities then the need for bursaries would swallow up all (if not more than) any additional money we might raise from charging the better-off students differentially high fees. The result would be that institutions like Huddersfield would have fewer resources available for the teaching and learning of students, the majority of whom come from relatively poor backgrounds”.

At best, those universities with high concentrations of students from lower income backgrounds will be no better off, while for the Oxfords and Cambridges, Bristols, Nottinghams and Durhams, even allowing for the intervention of the Access Regulator, income will easily outstrip the cost of bursaries and they will put still further distance between themselves and the Wolverhamptons, Boltons, East Londons, Edgehills and Greenwiches.

Students may arguably enter higher education on an equal basis but they will graduate with distinct and ever widening disparities in their career prospects.

It is difficult to see how the Regulator can do anything other than authenticate this process. He or she will have no role to play in universities like Wolverhampton with 75% of its students already from low income backgrounds. While the Regulator’s pressure may ensure that the Russell Group universities do broaden their student base, the minimum required intake, at say 20% or 25%, will fall far short of that already achieved by the poorer universities.

Nor does the Government intend to give the Regulator powers to determine fee levels. As Alan Johnson has made clear to the universities, “many of you may choose to charge the highest fee and so long as an access arrangement is in place, I will be perfectly content. The decision will be yours alone”.

So, in short, the Government’s plans to allow universities to charge variable fees will not only fail to establish a market, regulated or otherwise, but Ministers already concede that they cannot be guaranteed to introduce variation between fees.

But they will lead to yet more sharply variable income and, in consequence, variable quality among universities and variable prospects among their graduates. The rich institutions will get richer, the poor poorer and the weakest could go to the wall.

A further problem arises from the contribution which the two-year Foundation Degrees are intended to make to the Government’s expansion targets.

These primarily vocational courses, which can be undertaken on a part-time basis and through the workplace, are precisely the sort of study which might attract those who otherwise would not consider a university career.

The institutions which are already establishing them are, unsurprisingly, at the less well-funded, vocational end of the university spectrum and, in a true market, they would not be able to charge fees for such courses.

But if the activity of the Access Regulator serves to increase competition from the elite institutions for the better qualified working class students who have traditionally attended the poorer universities, the latter will be compelled to develop a niche market in Foundation Degrees, irrespective of whether it is capable of delivering new fee income.

Such a market may provide opportunities for the previously excluded to participate cheaply in higher education and it will contribute significantly towards overall access targets. But it will in the process widen rather than narrow the access gap in higher education as a whole.

7. Excellence for All – An Alternative Strategy

From Variable to Fixed Fees
We accept that increased tuition fees are the fairest means of generating the significant new investment our universities urgently need.

But, as we have argued, variable fees will widen rather than close the gap between the elite universities and the rest and exacerbate inequalities in career opportunities among their graduates.

The principles which have guided our approach to an alternative funding strategy for higher education are that they should

· benefit the whole HE sector rather than an elite few institutions
· address actual rather than perceived barriers to university access among those from lower income backgrounds
· place no greater burden on the public purse than the Government’s own proposals.

Given that, in our view, tuition fees are justified but variable fees will create more problems than they solve, we propose that

· variable fees be replaced by a flat-rate tuition fee of £2,500.

From Bursaries to Maintenance Grants
It is difficult to follow the logic of the Government’s proposal first to convert up-front tuition fees to back-loaded repayments and then to remit them for those from low income backgrounds.

It would be perverse if graduates in similar jobs and on similar incomes were required to make variable repayments for the same course because they went to different universities.

Moreover, if it is right that graduates rather than students should pay tuition fees and if their repayments are related to employment income, why is it either necessary or desirable – or for that matter cost efficient – to offer bursaries to applicants from low income backgrounds?

Because the abolition of up-front fees removes the hurdle for low income students, their parents’ income becomes irrelevant. So the only real affect of the retention of fee subsidies is to take money out of the HE system which could be far more usefully spent, not least on providing better targeted student support.

If university access is to be opened up for low income students, help with living costs will be essential. So in order to remove the real hardship and unfairness experienced by low income students, the Governmnt should restore a realistic, targeted maintenance allowance and it will be able to do so by converting bursaries to grants.

We propose that

· there is no logic or utility in waiving tuition fees through the proposed bursary system and that resources would be better allocated to maintenance grants.

From 2004, disadvantaged 16-18 year-olds will receive £1,500 per annum in educational maintenance award to encourage them to stay on at school or in further education. However, the Government’s current proposal for up front grants of £1,000 pa for disadvantaged students entering higher education would actually represent a reduction of £500.

We propose that, for those 33% of students entering higher education who would previously have been eligible to receive an Education Maintenance Award (EMA)

· a Higher Education Maintenance Award (HEMA) of £2,000 a year be made available

The Government proposes that, after 2006, it will allocate whatever variable fees are charged to each university up front and will then collect the fee from students over a period of time. However, it also proposes that universities should then, from this income, allocate bursaries to some already admitted students to assist with the widening of access.

We propose that the allocation of the HEMA should be made to the student by the Government rather than the institution. The HEMA will therefore be deducted from the global income obtained from fees before distribution to universities.

For the poorest students, difficulties in meeting student living costs represent a real barrier to HE access.

We propose, therefore, on the same principle,

· for the poorest 20%, an additional maintenance award of £2,000 for students outside London and £3,000 for students in London. Both this award and the HEMA should be provided from funds withheld from fees before distribution to universities.

The combination of these two awards will make up to £5,000 a year available to the poorest students, effectively lowering the disproportionately high barriers they face to the manageable levels experienced by those from more affluent groups.

Poorer students would still be able to take out student loans if they choose, but, with or without them, they would be far better equipped to negotiate the costs of student life than previously and would no longer face a higher schedule of loan repayments than those who can depend on parental support.

Moreover, the portability of their fees and maintenance awards will considerably boost their market value to a wider range of universities than might currently consider their applications.

These measures combined would clarify the relationship between fees and maintenance which has been blurred by Government suggestions that, by a combination of £1,000 grants and the waiving of fees (which will in any event be backloaded from 2006) students will somehow have over £2,000 of assistance available to them. They won’t. Only by providing what is, in effect, ‘cash in hand’ to pay for maintenance will poorer students really be in a position to apply to universities across the higher education sector.

The effect of our proposals would be as follows:

· the worst-off 20%, primarily those who otherwise would not go to university, would qualify for a non-repayable maintenance grant of £4,000 per year (£5,000 in London) alongside an income contingent tuition fee repayment of £2,500 per annum. On the basis that their grant would be enough to maintain them without taking out a loan, they would graduate with a maximum debt of £7,500 for a three year course

· the next 13% less well off students would receive the HEMA but not the additional maintenance award. This would mean that they might take out a loan of £2,000 a year for maintenance. They would therefore leave university with a maximum debt of £13,500 for a three year course

· the remaining 67% would receive no support, and would leave university with a maximum debt of £19,500 after three years.

Centralising Fee Income

Broadly the same students who would currently qualify for bursaries would benefit from the new Higher Education Maintenance Award and the same universities which would be disadvantaged by variable fees would have to foot the cost.

So further adjustments are needed and logic as well as principle dictates that fee levels should be equalised and fee income should be treated, like uniform business rates, as a resource not just for the most privileged universities, but for the whole of the higher education sector.

The Regulator, according to the current job specification, neither penalises universities with low or modest lower income intakes nor rewards those with high proportions of poorer students so long as they meet a minimum requirement.

We propose

· an equalisation system which redistributes part of the excess of fee income over grant disbursement in the wealthier universities to compensate the poorer for the deficit of grant over fees.

This centralised mechanism would be both equitable and efficient in supporting both the increase in student numbers and the raising of standards across the HE sector.

It would also save considerable administration costs in individual universities while protecting them from the serious consequences of bad debt.


A Buy-Out Fund

Ministers argue that it is right that graduates should contribute towards the cost of their undergraduate education. But that principle cannot reasonably be stretched to cover the contribution many are making to post-graduate research.

As an additional measure to clarify the relationship between teaching and fees, a ‘buy-out’ fund could be established which would underwrite centrally the cost of ‘buying-out’ teaching , which currently accrues as a cost to the university in replacing teaching staff or has to be found through a deduction from a research contract once awarded.

We propose that

· the Government establish a ‘buy-out’ fund to support teaching lost as a result of research contracts.

8. The Financial Effects

The financial consequences of the expansion of higher education to encompass 50% of the 18-30 population have been analysed by the Higher Education Policy Institute. HEPI suggests that, in addition to the 860,000 students currently in higher education, another 250,000 will take up places by 2010. This expansion will produce an additional cost for Government regardless of the exact system of additional university funding.

Some approximate financial modelling based on these calculations can, however, be undertaken and the outcome by 2010 of the Government’s amended White Paper proposals and our alternative prospectus can be compared.


Table One - Comparison of Proposals

On a like for like basis, and taking HEPI’s projections of full time students up to 2010, the funding available for HEIs from the two proposals would be as follows1:

Government proposals:
Total amount of fees raised from one year of students in 2010 if all
universities charge maximum permitted £3300 million available

Minus assumption that 33% HEIs will not charge2. £2178 million available

Minus cost of bursaries to HEIs following access regulator
intervention (assume £0.5 billion) £1678 million available

Minus affect of continuing to fund present fee waivers up
front when backloaded fees are introduced (assume 33% of
2010 cohort have their £1125 of backloaded fees waived)3 £1270 million available


Our proposals
Total amount of fees charged from one year of students at £2500 £2750 million available

Minus HEMAs for 33% of students @ £2000 per annum £2024 million available

Minus bursaries for 20% of students @ £2000 per annum
(£3000 London) £1518 million available.

[Option: creation of £100 million ‘buy-out’ fund £1418 million available.]

Caveats

1. It can be suggested that our alternative proposals fail to take into account the RAB (Resource Accounting and Budgeting) affect they incur. However, it appears that overall, both proposals incur similar RAB costs and the difference has therefore been discounted. It has to be noted, however, that the backloading of all fees may incur a small additional RAB cost.

2. If, as we suggest in our paper, all universities charge £3000, the Government’s figure of funds available will be inflated by about a £1.1billion. But this is not the assumption presently made and to compare like for like it is legitimate to assume that a non-variable fee by definition would be 100% charged and therefore collectable, whereas a variable fee would not be. A further feasible variation is that 33% of universities would collect only the present fee. This would add some £380 million to the funds available to universities on the Government proposals.

3. There is clearly some doubt as to how to treat the Government's undertaking to
continue to fund the upfront fee element for those presently not paying it when it is
backloaded in 2006. At present universities receive the full product of the fee and the
Government funds the difference. After 2006, we assume the same will apply. The
Government will be required to fund (i.e. not recover) 33% of £1,125 x 1,100,000
students, roughly speaking.

In our proposals this amount is not waived, and therefore represents a recoverable amount. Whether that counts as additional funding which the Government needs to find or less money available for universities seems to come to the same thing, and we have treated it as a deduction from funds available for the purpose of like for like comparison.

The question of whether the Government can actually collect the money once it is all backloaded is not a question of funds available to HEIs in principle, and in any event applies equally to the Government’s and to our scheme, with one difference - that the amount outstanding to collect will be greater in our proposals. Degradation of the value of the funds outstanding and therefore the extent to which an element of the value needs to be written off will be greater under our proposals and could therefore add to the ultimate cost to Government over and above what is assumed on the existing proposals.


9. Conclusion

We believe that our proposals will deliver the Government’s objectives of widening access to and improving standards in our universities but will do so equitably across the higher education sector and to the benefit of all rather a privileged minority of students.

Moreover, our alternative strategy can be funded within the Government’s projections for its own proposals.

However, we believe that variable fees will not only prove to be inequitable but also expensive. Under our proposals, universities collectively would receive at least the same and possibly significantly more than they would under the Government’s regime of variable fees, bursaries and Access Regulator.

On the grounds of efficiency as well as equity, we believe that our proposals are not only practical but also desirable.

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