Why are Vice Chancellors so worried about the imminent announcement of Labour’s new fees policy?
It’s because both leading contenders – dropping the cap on fees to £6,000 per year, or a graduate tax – will mean universities have reduced income for teaching, unless Labour promises to increase the amount of direct public funding.
The size of the gap is subject to some debate. The best figures we have on the cost of teaching come from the Higher Education Funding Council for England. They calculate the average cost of teaching the cheapest subjects – those that don’t require for example high cost laboratory equipment – such as Business and Management Studies as £6,719 per year (in 2013-14 prices) or Humanities and Languages as £6,404 per year. These courses currently receive no direct public funding. If the fees cap dropped to £6,000, then universities would either have to reduce the cost of teaching, make a loss on each student or receive the balance in costs above £6,000 in new funding from the government.
The sums involved may seem small on first glance – £700 per year for each Business and Management Studies course – but consider that these figures are in 2013-14 prices whereas Labour wouldn’t be able to bring a new funding regime until 2016-17 at the earliest (more on the dates in a minute). Three years of inflation would drive up that £700 gap, though by how much is a matter of debate in what is for the moment a low inflation and low wage growth economy. What would certainly drive up the cost of Labour’s policy change is if it goes all the way to a graduate tax. Then the entire upfront cost of teaching will have to be met by direct public funding.
We should also remember that these figures I’ve quoted are based on average costs. Many of the Vice Chancellors writing to The Times will say that they run courses that are higher quality than the average and so their costs are higher too. Taking away the flexibility they have won to raise more income through fees up to £9,000 per year will mean that they either reduce the quality of what they offer, or reduce how much of it they offer. By contrast universities at the ‘cheaper’ end of the spectrum may continue to provide the same quantity – or more, in order to fill the gap in supply. It shouldn’t be so surprising that a reduction in the funding available for teaching will likely mean a reduction in quality as well.
There is one other big risk to university funding. If elected in May, it will be too late for Labour to introduce a new fees regime for the 2015/16 academic year. The earliest they could implement changes will be for the following year. But as soon as students know that the fees are dropping, or perhaps vanishing entirely to be replaced by a graduate tax, then some of those due to enter in 2015/16 may decide to defer. Universities may be facing much lower income than they have planned for as soon as this Autumn at the same time as they are negotiating with Labour’s new Treasury Ministers about the years to follow. There may be ways to deal with this. A new Labour Government could say that students entering in 2015/16 will have their student loan balances adjusted in the future when a new policy has been adopted so that they don’t miss out on the benefits of any changes. Nevertheless that will add cost to Labour’s plans and another set of knots in an already complex student loans system.
Finally let’s remember that these changes are being considered in a context where university applications for full time undergraduate study are rising; and the gap in the participation rate between young people from the most disadvantaged areas and others is declining. Why change policy at all, especially when it comes with either a large bill attached or damaging consequences for quality in higher education, is the bigger question for Labour to answer.