With the election campaign now in full swing, the government seems to have painted itself into a corner about funding for universities and fair support for students. The situation is dire and in need of urgent action. Freezing funding and cutting 13% of students by diverting them to wishful apprenticeships will not work. Labour as the main opposition is still reticent in declaring its aims. Yet there is a clear dividing line that must be addressed in the election. There is no shortage of advice and modelling to choose from. A fairer system of funding, whereby students, employers and the taxpayer share the costs would seem sensible. Doing this via a National Insurance Graduate Levy would be simplest and could emerge as the most progressive solution. It would index-link fees to inflation with payments also rising with wage inflation. The chaos and uncertainty currently prevailing would be eliminated fast.
The Labour position.
This is still lacking in detail and hopefully, it will be clarified in their manifesto. In the meantime, it’s worth recapping what has been promised to date. Earlier last month Labour released its ‘Full draft policy platform’ intended as a basis for a fuller manifesto. In addition to giving a “genuine choice of further and higher education” and encouraging wider access is a promise to,
“Reform broken tuition fees system for university funding, ensuring that people from every background and all parts of our country have the opportunity to study at Britain’s world-class universities”.
Clearly, we can expect a change and this builds upon the ‘Let’s get Britian’s Future Back’ document arising from the Labour conference last year and circulated to all candidates. This promises,
“Labour will reform this system to make it fairer and ensure we support the aspiration to go to university. Many proposals have been put forward for how the government could make the system fairer and more progressive, including modelling showing that the government could reduce the monthly repayments for every single new graduate without adding a penny to government borrowing or general taxation. Reworking the present system gives scope for a month-on-month tax cut for graduates, putting money back in people’s pockets when they most need it. For young graduates this is a fairer system, which will improve their security at the start of their working lives and as they bring up families.”
The question remains about how this will be achieved. Furthermore, the system is to be expanded with,
“We will build on the legacy of the last Labour government’s target for 50% of young people to go to university to reverse the trend of declining numbers of adults participating in education and training. We’ll press on and ensure that the ambition for any young person to pursue higher education, regardless of background or geography, is realised”.
These are bold ambitions planned within the context of existing financial limits and this is opposed diametrically to the Conservative aims.
Conservative ‘social engineering’.
This could not be more different and represents a major dividing line in the election. TEFS has covered this for some time (the latest was TEFS 31st May 2024 ‘More social engineering: conjuring up apprentices’). All the education policies of the government to date have indicated a ‘social engineering’ plan is emerging that sets out to divide young people into those with the means to enter university and the rest destined for technical jobs and/or military service. T-levels replacing BTECS, inadequate maintenance loans, and underfunded universities all generate this effect and might even lead to privatisation.
It’s a perfect storm with serious consequences that should be challenged at the election. This model of the ‘elite’ served by the ‘workers’ is like the opening scene from Fritz Lang’s epic film ‘Metropolis’ in 1927. The twin ideas of promoting ‘social mobility’ and ‘levelling up’ are at best a mirage and at worst a cruel confidence trick.
Looking down under.
Some observers have suggested that the release of the comprehensive ‘Australian Universities Accord’ (pdf) in February will form a backdrop to what might happen in the UK. Certainly, its 408 pages will have been looked at in detail by Labour policymakers. Amongst other recommendations, it is based on reforming an existing student loan system that is different to the UK’s. Unlike the UK, the aim is to expand the number of students and staff. But it is also assumed that students will need part-time jobs that will be overseen by the state.
Their ‘Higher Education Loan Program’ (HELP) has four different loan schemes that provide financial support to students. Repayments are income contingent but the threshold at which payments kick in is now far too low and in need of reform.
“The HELP system needs to be modernised to make it fairer and simpler”
and
“Australians should not be deterred from higher education because of the increased burden of student loans”.
There are some more radical ideas in the recommended loan restructuring that the UK might want to consider in principle. These are,
“Many students have extremely high student contributions resulting in large HELP loans that do not reflect their future earning potential”
“The higher the future earnings potential linked to their field of study, the greater the student contribution”.
“Reducing the financial burden of repayment on low-income earners and limiting disincentives to work additional hours by moving to a system of HELP repayment based on marginal rates.
Adding the idea that future mortgage lenders should ignore student debt in their deliberations and that the growth in HELP loans does not outpace growth in wages, sets a different tone. The idea that a greater contribution is linked to greater future earnings would be sensible in acknowledging that those who gain more pay more. But this might rattle cages in the UK.
A shared contribution National Insurance graduate levy is fairer.
The UK is in a strong position to improve the finances of both students and universities without necessarily increasing taxes overall. The problem is that the cost of university falls only on the shoulders of the students (and families if they can afford it). The repayment system since 2023 is not progressive or fair and places greater financial burden on those who can least afford it. Sharing the costs amongst those who benefit would be more equitable and stabilise a crumbling system.
Deploying National Insurance is not a new idea.
The idea of using National Insurance contributions to fund student fees has been around for a while and sits alongside the idea of a graduate tax. In their collection of articles in the book ‘Financing Higher Education: answers from the UK’ in 2005, leading economists Nicholas Barr and Iain Crawford made a compelling case for looking at National Insurance as a vehicle to repay loans. Going back to 1989 (taken from Nicholas Barr 1989 ‘Student loans: The next steps’, Aberdeen University Press) they explored in detail the various options under consideration. The keystone idea that the repayment of loans must be income contingent was not in doubt. They concluded that loans should be repaid via National Insurance because it was the easiest to administer and could be easily deployed. There is an assumption that this would be a contribution and grants would remain. Also, it would be unfair to ask graduates to pay more than the loan in time and there would be a repayment cap. They rightly observed that,
“The use of the National Insurance mechanism lends itself easily to an employer contribution.”
In making comparisons to contributions to the state pension, it saw this as a pension in reverse. The social contract, arising from the Welfare and Insurance Legislation between 1946 and 1948, has been embedded in our society for a long time. It is predicated upon payments by employees and employers now going into a fund that supports those who have already retired and those needing benefit support. As ‘insurance’ it does what it says on the tin. The promise is that future employers and workers will continue to pay into the fund, and so the cycle continues. However, a Graduate Levy would act like the state pension in reverse.
“The student needs access to his/her future earnings; private capital markets are not able for technical reasons to supply such loans; thus, an arrangement which uses the National Insurance mechanism is efficient. Student loans are just an upfront pension.”
With inflation creating havoc in our universities as the fee cap continues to be frozen, this mechanism would resolve the situation quickly. Fees could rise with inflation and be matched by the National Insurance Levy that tracks wage inflation.
Sharing costs and a National Insurance Graduate Levy.
The idea has never been discredited but was not implemented. Instead, loan repayments were repaid via the tax system and failed attempts were made to sell the ‘loan book’ to the private markets despite the obvious flaws. The student paid the full costs at the start but in time the fees were frozen as the cost for students became too much and repayments faltered. More importantly, this approach conveniently bypassed the notion that employers or the state could or should contribute.
TEFS has for some time pushed for a Graduate Levy on National Insurance; most recently in TEFS 10th May 2024 ‘Funding students and Universities: a graduate National Insurance Levy is gaining traction’. An important difference is that the TEFS approach does not envisage a cap on payments in time and those who gained the most continue to support students and universities for those coming after them, including their own children. This is buying fully into the spirit of a ‘social contract’.
Maintenance grants would return to ensure every student gets the same time to study regardless of circumstances. The levy would arise from a level of earnings matching graduate pay with a higher threshold than at present.
The most important feature would be that the costs are shared. Employers and wider society would bear the cost burden, and this would immediately cut the costs for individual students.
What is likely to happen?
The most logical answer to this is that a Labour Government must consider this approach. It would be more equitable and would cut the repayments for students within the tight fiscal framework as promised. There would be no tax increase as the levy would essentially redistribute the current loan repayments amongst the beneficiaries, the graduates, the employers and the state.
This would be a bold move alongside a promise for more university places and more skills training and apprenticeships. I suspect it will be pushed into the future with a comprehensive review like the ‘Australian Universities Accord’. But the caveat is that ‘cutting and pasting’ is not an option with two very different starting positions.
The old joke answer you might get when asking the way to someplace else, assuming you know where you want to go, may apply,
“If I were going there, I wouldn’t start from here”
A review would take considerable time, but should there be a large majority government it would be possible to move right away.
The author, Mike Larkin, retired from Queen’s University Belfast after 37 years teaching Microbiology, Biochemistry and Genetics.