The impending financial crisis affecting universities across the UK is not so much a ‘train crash’ but a slowly descending hot air balloon with no place to land. They will have to ‘rationalise’ their operations. But increasing the burden on students through fees is not an option. A new funding structure is needed, and costs should be shared across those who benefit; students, employers and wider society. The most efficient way to achieve this would be through a Graduate National Insurance Levy and direct grants to protect strategic subjects and student maintenance. This is an old idea in need of a revamp and Universities Minister, Jacqui Smith will be aware of it from her earlier years in government.
In the lead-up to the Labour Party conference in Liverpool, universities are left trying to convince the government of their worth to the economy and society. An undignified position, yet sadly needed. There are a few that may fail, but many others are already resorting to cutting back and restructuring. This is the new reality. The result is a call from universities for increased fees.
Shifting sands.
The initial position of the new government was to accept that it would get worse and some universities would sink. The suspicion was they would blame the previous government for any disasters before riding to the rescue with a radical plan. Back in July Universities minister Jacqui Smith declared on Sky News that closures were possible and their fate was,
“In the hands of universities to take the action necessary in order to be as efficient as possible”.
By August in a Channel 4 interview when asked if she would let a university ‘go bust’ the reply was
“Yes. If it were necessary. Yes, that would have to be the situation. But I don’t want that to be necessary. I want us to find a way for there to be financial stability for universities, and most importantly, for the students that they are serving into the future. And that is what we are working on”.
However, after a conference meeting with Universities UK earlier this month the tone had changed as the panic was ramped up several notches. There is a plan emerging slowly that will take time.
“And we’re determined in government that the higher education funding system should deliver for our economy, for universities and for students, and we are carefully considering all options to deliver a more robust higher education sector”
To date, the Education and Universities ministers have been working with information from the OfS Review of university finances 2024 that was cautiously optimistic and noted that,
“They are taking difficult, but necessary, decisions about the shape and size of their institution. They are working with others on mergers or centralised services”.
However, delving into the report reveals an alarming decline in the unit of resource and a realisation that means,
“Some of these strategies could have a negative impact on the quality of students’ education and their wider experience”.
This has to be a whopping understatement. The offering to students has declined over many years as the income faltered. One obvious outcome is,
“Significant rationalisation of courses that are not financially sustainable, which reduces the breadth and depth of academic provision available to students”.
The review failed to notice that expensive STEM courses are cross-subsidised by income from other degrees. Cutting humanities degrees would have a perverse effect on STEM while cutting STEM degrees would have a significant economic impact. There are no alternatives.
Worse still, the impact on the costs of student support and widening participation barely surfaces with a cop-out and only a limp expectation that,
“It is important that providers continue to meet their regulatory obligations, including those relating to quality, consumer protection and access and participation”.
Reactions in panic.
Universities UK have been fast to react to the ‘laissez faire’ approach from the government to date. Back in late July, they launched a major review of universities with a ‘Universities UK’s new blueprint for universities’. To be launched in the autumn, this is intended to fill the void in understanding the situation in England only and will include chapters on ‘Creating opportunities for learners in England and social mobility’ and ‘Implications for the future shape of the higher education sector in England – funding and business models.
In the meantime, with the Labour Conference impending there has been a flurry of press activity (see BBC, The Guardian and Research Professional News) with a clear message about increasing fees to £12,500 pa, injecting more government money and bringing back maintenance grants. Some have even suggested that they would cut the number of foreign students if they can increase fees. But that would be a very sordid deal that would undermine confidence in UK universities.
Without specifying what might be the answer, the Universities UK president told the BBC that,
“What we’re looking for from the new government [at Westminster] is the opportunity for a reset, and the opportunity to look right across the funding arrangements for fees and with students”
What are the options?
The previous government painted itself into a corner on university funding (see TEFS 5th June 2024) and the new government seems to be waiting for the paint to dry before making a move. But all of this is happening on a descending balloon of spiralling debt with an increasing number of universities operating at a deficit. It is certainly not sustainable and will require radical action. There’s hope this will emerge in the budget on 30th October, but we are not holding our breath.
Increasing fees and loan repayments is not an option.
One option that should be ruled out at the start is increasing ‘fees’ for individual students who pay back more in loans over even longer periods. It’s already a step too far. It is, however, not a fee paid upfront. Instead, it is a loan paid back through the tax system in a non-progressive manner. Converting this regime to a progressive graduate tax would be a better option. However, why stop there?
TEFS has suggested in the past that there should be a graduate levy added to National Insurance supplemented by direct grants to protect strategic subjects and offer better student maintenance
(See more recently TEFS 10th May 2024 ‘Funding students and Universities: a graduate National Insurance Levy is gaining traction’ for a detailed proposal)
This means that those who benefit would pay a contribution; students, their employers and wider society.
An old idea in new clothes.
This is not a new idea, yet, oddly, the various ideas proposed recently have not strayed into this territory.
The idea of using National Insurance contributions to fund student fees has been around for a while and sat alongside the idea of a graduate tax. These proposals were well-known by the Blair government.
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, they 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.
There is a solution and it could be applied quickly with student loans transferred to a new system that is progressive and inflation-proofed. Maybe that is the plan all along.
The author, Mike Larkin, retired from Queen’s University Belfast after 37 years teaching Microbiology, Biochemistry and Genetics. He remains optimistic and loves mixed metaphors.