Budget, Spending Review, leaks, and universities

The launch day of the delayed Comprehensive Spending Review (CSR) is upon us and we fear what is still to emerge on Wednesday.  There have been an unprecedented number of press releases and ‘leaks’ in advance of a budget vote in Parliament that seem designed to be ‘good news’ to soften the blow of announcing how it will all be paid for. There is a clear expectation that the cost of providing a university education for a wider social pool of students is spiralling and must be reined in. Limiting access to university, coupled with measures to dissuade and redirect students into skills training, are expected. There may also be cuts to university fees but with essential strategic support for some courses still provided. The result is a big question mark over maintaining the meagre advances in widening access to university over the last ten years. A wise move might be to do nothing at this stage and look again at the Augar recommendations of 2019 in the light of more evidence and the post-Brexit, post-pandemic economy. But the signs are not looking good and bring into question the motivation of a government and its so called ‘levelling up’ agenda. This may turn out to be ‘social engineering’ driving a wedge into social division that is the real aim.

The CSR will be accompanied by a budget and both will be a blueprint for the UK emerging from the chaos of BREXIT and the pandemic. It will be a pivotal day in our history when decisions made will set a pattern for years to come. Many will be doubting if a robust plan could possibly be formulated at this point when there is so much potential for inflation and volatility in the economic outlook.  The Office for Budget Responsibility (OBR) will produce another report this week with ‘October 2021 Economic and fiscal outlook’- Office for Budget Responsibility’ to update its ‘Economic and fiscal outlook’ from March 2021. The inflation figures are likely to be upgraded a lot and make for sombre reading.

Media speculation.

Many recent reports of changes to student loan conditions, limiting access through minimum grades, and cuts to university finances are conjecture. The government has been silent on the issues and fuelled speculation that this may be ’bad news’ hiding in the wings. With the cost of servicing loans to students, the burden of the any CSR decision is likely to fall heavily onto students and graduates. John Gill of Times Higher Education summed it up in a few prescient words that cut to the heart of the motivation behind the Johnson administration. 

“High office, it often appears, is filled with Oxbridge humanities graduates despairing that Oxbridge humanities graduates occupy so many positions of power. This tends to be coupled with a conviction both that what the world needs is work-ready skills (apparently absent from undergraduate education), and that the best place for their own children to go after leaving school is Oxbridge, where they will probably study humanities.” Schrödinger’s students | Times Higher Education 14th October 2021.

Ouch! Levelling up might simply mean pay for technicians serving the social elite and not social advancement, described as the ‘Economist’s Tale’ and not the ‘Sociologist’s Tale’ by TEFS in May 2018 with ‘Social Mobility: It’s the economy, stupid’.

What are the options for the government?

Underneath all the bluster about spending, levelling up and the ‘green economy’, lies a reality that will not go away. The Chancellor, Rishi Sunak, has made it clear that there must be no more borrowing. This is a decision that leaves a hole in the finances that can only be filled by more tax income.  Either by levying more tax through various means, by the economy growing to generate more income overall, or a happy medium of both. But inflation is set to rise and, just as the Callaghan and the Thatcher administrations in the late 1970s and early 1980s, he will end up pursuing a monetary deflationary policy.  Inflation will still continue to rise and interest rates will increase. The impact today could be as great as it was then if it is managed badly. Sunak’s choices will then be limited as he reins in borrowing and inflation.  Levelling up in terms of young people’s aspirations will be severely affected as the impact hits them more than expected.

No leaks on student finance, fees, and loans.

While the government has leaked in advance the ‘good news’ on spending, such as  the NHS, early education, skills training, minimum and living wage, and public sector pay (both will merely be catching up with inflation), there has been silence on Higher Education and the Augar recommendations. However, by consolidating the various media and think-tank scares it seems the worst-case scenario involves minimum grades, cutting fees, extending the student loan repayment period, and lowering the income threshold for graduates to start repayments. Restricting student numbers in university looks like it will become a longer-term strategy to be replaced by a ‘skills’ agenda.  This would come under the category of ‘bad news’ for many of our universities. The recommendations of the Augar Review  2019  are fuelling the speculation that could easily become reality. It might be wiser to do nothing at this stage and admit that Augar needs another look with evidence added.

Repayments impact on students: if it looks like a duck….

Increases in national insurance payments, and the possibility of removing some or all tax relief on pension contributions, are likely to hit many graduates at a time when they are under considerable pressure already. These are really ‘taxes’ by another name. Applying the ‘Duck test of logical inference’ “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck” we can infer that the repayment of student loans through HMRC is looking like a ‘graduate tax’ every month.   Much of university income is dependent upon the loans being issued to students.  But, with the Resource Accounting and Budgeting (RAB) charge currently at 53%, the government is expected to cover a £9.4 billion loss of the £17.6 loaned this year in England alone (‘Financial Year 2020-21 Student loan forecasts for England’).  It appears the loan system is heavily subsidised by the taxpayer and this could be addressed harshly.  The annual cost is set to rise with increasing student numbers so the government will be seeking ways to lower this cost. Maybe this was not the intention at the outset, but it is the outcome. 

Recently, Ben Waltmann and Jack Britton of the Institute for Fiscal (IFS) studies released a ‘New IFS student finance calculator’, based on inflation predictions from the Office for Budget Responsibility (OBR) made last March. The model can look at the effect of inflation up to 15% per year and we hope the heady heights of 25% reached back in 1975 will be avoided.  But there are no easy choices as the IFS concluded it will be “impossible for the Chancellor to save money without hitting graduates with average earnings more than those with the highest earnings”.

Another shock awaits.

For students and graduates there could be another major shock. They could end up paying for longer and from a lower pay threshold. Some say this could drop as low as £21,000 pa from the current £27,295 base. Even interest rates could be further hiked during a period of inflation. But the ‘sting in the tail’ is that any changes will be in retrospect. This will anger everyone on the receiving end and shatter any trust in the government beyond repair. There will be fierce resistance to this as Martin Lewis of ‘The Money Saving Expert’ called a ‘Hidden retrospective hike in student loans repayments a ‘disgrace’ in his failed legal action to get the courts to block a similar move in  2015.

TEFS view is that there will be a combination of these measures implemented eventually. But, for now, no action and a freeze of fees might be wiser. This will still have a dramatic effect on the incomes of graduates over time and the government may well be seeking to only fund university places for those likely to earn enough to pay it all back in the longer term. This may appear to be very simple minded to most observers, but it may well be as simple as this in the minds of the Johnson camp.

The effect on universities.

Lowering student numbers by any means will impact greatly on university solvency. Many universities are closer to this than they might care to admit (see TEFS 22nd May 2020 ‘How precarious are universities in the UK?’). The added costs of the pandemic will have already damaged the prospects of all but those with large endowments and reserves.

With ‘Privatisation storm looms for universities’ (26th September) TEFS reviewed the likely scenarios and the role that privatisation might play.

Cuts, and limiting student numbers to courses based upon ‘economic value’, will lead to course closures, redundancies, and some universities failing with no safety net apparent. The Higher Education Restructuring Regime (HERR) safety net will close at the end of December with no replacement in sight. It may become a ‘sink or swim’ outlook for many. Arts and Humanities courses across the sector are likely to take the biggest hit.  During all the angst, it is hoped that the goal of achieving equal access and fairness for the least advantaged students will not be lost. However, the underlying philosophy and motivation of the Johnson administration may be to reverse the small improvements made in recent years. The latest figures released earlier this month by the government’s Education Statistics Service ‘Academic Year 2019/20:Widening participation in higher education’ confirm the same pattern over the last ten years. Whilst there has been an increased in participation at university by the ‘least advantaged (determined as those from the POLAR 1 geographic quintile), the numbers of all others have also increased. Simply, the overall participation has increased but the wide gap between the most and least advantaged remains the same.

Capping student numbers, fairness, and equality.

Setting a cap on student numbers is not in itself inherently unfair or needs to be a driver for inequality. There is currently a cap on university student numbers in Scotland, where there are no fees for Scottish students, and Northern Ireland, where fees are lower.  The Northern Ireland model may become the default in England where the two universities must operate with reduced funding per student.  But the consequence will be a very harsh management and environment. In Northern Ireland the MaSN cap (that is part of a wider strategy) on student numbers means that higher grades are needed for entry to many courses.

The way student numbers are capped will become the main source of inequality and unfairness. Setting minimum exam grade results in advance will have an immediate controlling effect on the less advantaged students and eliminate any idea of contextual admissions being feasible.

T-Levels and dissuading students from university.

The introduction of T-levels, alongside setting minimum A-level grades for university, will certainly get the attention of aspiring students.  But this will also push students into irreversible life-changing career decisions at age sixteen. They will have to decide between the more academic route or a technical route that will exclude them from most universities. They are designed to divert students away from university and into employment at age eighteen or nineteen. The government has already announced as ‘good news’ a large increase in funding for T-levels and colleges. But this only addresses cuts in the last ten years. Also, the structure of the qualification itself will have the greatest impact on exclusion. With each single T-level designed to be equivalent to three A-levels, it seems benign on the surface. Its purpose is clearly stated as to “help students into skilled employment, higher study or apprenticeships”. These will replace the existing BTEC qualifications that are single subject courses that can be readily mixed with A-levels. Indeed, a large number of students enter universities with a mixture of BTECs and A-levels (see TEFS 5th April 2020 ‘To BTEC or not to BTEC, that is the question’).  This option will dissolve into thin air with T-levels taking over. It is hard to see how a T-level could lead to many existing university courses, particularly the higher tariff universities. The demands of many degree subjects mean that A-levels are essential (my experience is in science where A-level knowledge is assumed at the outset). To get to these universities, it will take key A-levels, something a T-level student will no longer have the time to do.

Inflation looms.

This is the real enemy that Sunak must tackle. He has little choice if he wants to avoid a post energy crisis last seen in the 1970s when inflation reached 25%. The impact on universities could bring some to their knees. Mark Corver of Data HE wrote a very informative analysis of the inflation outlook in July with ‘What if high inflation returned? and its potential impact on universities’. This will be looked at closely by all universities again as the inflation demon casts a long shadow.

The real motivation of the government.

On the surface, the main driver for university funding reform appears to be a need to claw back money from the expanding student loan system.  Indeed, the need to cut costs for the taxpayer will seem reasonable to most observers and there will be a sigh of resignation. However, closer observation reveals another hidden agenda.  The crude approach of simply diverting would-be university students into technical employment instead of university appears to be the way this will be achieved. The risky idea is to foster high skill and high wage employment to replenish the treasury coffers. On the university side, there will be a similar focus on degree courses that yield higher paid jobs. Such courses may see more funding or fewer cuts than those yielding lower paid graduates. Two casualties emerge. Many Arts and Humanities courses will flounder and only survive in the universities educating the better off ‘elite’ who rule. Students from disadvantaged backgrounds will find their path to this provision elsewhere restricted, or even blocked, as they feed the skills agenda to serve the ‘elite’ instead. The result will be widening of the existing advantage gap and entrenching social and economic segregation to an even greater depth. Could that be the real plan of the Johnson administration?

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