With the budget almost upon us this week, we might be forgiven for thinking most of it has already been revealed in the media. They have been peeping under the bonnet of the government’s economy plans and concluding too much from what little has been revealed or what can be deduced. However, it seems there will be little or nothing about university and student funding. The hope is there will not be a bigger than expected cynical horror show before Halloween.
The media speculation in the lead-up to the budget this week has been incessant. It is derived from a toxic mixture of government hints and leaks in thinly veiled briefings boiled up in a vat of speculation. It is surely wrong to pre-empt what may be revealed later. Concerns about extra taxation on assets for the wealthy dominate the minds of those affected, with some threatening to leave the UK. This may turn out to be unfounded hyperbole and excessive scaremongering. But the damage may be done. On the matter of education, it is clear that early-years education is a priority with the government building on that over time. Universities and post-18 education therefore fall much lower in the order of priority, and they will have to adapt fast or fail.
National Insurance and ‘does not rule out’ conclusions.
Closer to home for many people are the expectations about National Insurance rising for employer contributions. This would affect many small businesses and indirectly affect pay packets and jobs. This conclusion arises from the media adopting a ‘ruled out’ tactic. The BBC led early on with, ‘PM does not rule out NI rise for employers’. The Guardian then comes up with, ‘Reeves hints at rise in employer national insurance, as critics claim it breaches manifesto’.
University funding and a cynic’s view.
Hiding in the maelstrom of hints and speculation, the Times noted, ‘University tuition fees to rise with inflation’. It seems they think the government is aiming to increase fees to at least £10,500 over five years. To offset inevitable student complaints, it the government
“will also restore maintenance grants for poorest students”.
None of this has been confirmed and we wait to see if this is real or fantasy.
One thing for sure is that most universities are now running deficits and are dangerously low on funds. The result is cutbacks in courses and staff that eat into the morale and fabric of their operations. But something must give soon. A cynic might conclude that the government is very aware of this. Instead of stepping in, they aim to let the stresses play out in university-led ‘restructuring’. Indeed, this is happening and will continue apace. Only after a further period of angst will the government produce a new funding model. The question is ‘when’ and not ‘if’.
A Graduate National Insurance Levy.
TEFS has been pushing for considerable time for a shared cost approach, whereby those who benefit the most share the cost of universities. More recently last month with ‘Boiling the frog: or how to save our universities and share costs’ and in considerable detail in May with, ‘Funding students and Universities: a graduate National Insurance Levy is gaining traction’
Such an approach is fairer, based on the premise that those who benefit, graduates, their employers and wider society, share the costs. The simplest way to achieve this is to add a graduate levy to National Insurance for graduates and their employers. The fund would be ringfenced for universities, be progressive and track wage inflation to protect against inflation over time. It’s an old idea going back to the last Labour government. Unfortunately, it fell alongside the idea of a graduate tax.
What is fair?
National Insurance is not a tax, but a fund whereby spending is strictly ringfenced (see Footnote below). It is currently funding pensions, welfare and some of the NHS. The plan to increase contributions from all employers would simply be to contribute to this spending. However, if some of the spending was to be ringfenced for universities, then only employers hiring graduates should be affected by contributions.
Recent research, ‘Assessing the costs of removing undergraduate tuition fees across the UK’, for the University and College Union (UCU) by London Economics concluded that,
“A levy of around 1% on employer National Insurance contributions for graduates could support the scrapping of tuition fees at no cost to the Exchequer”.
However, this unfairly transfers all the costs from students to their employers and does nothing to alleviate university funding shortages. Yet the government may take the union’s position.
A better approach would be to freeze student fees and loans for now and levy employers of graduates to make up the shortfall. This could be done quickly, and the levy could be applied only to salaries in the graduate pay range. Based on the most recent graduate salary data, TEFS has indicated this would be currently around £35,000 per year.
However, this should only be the first step. In time, a levy on graduate pay would also be applied as the current student loan repayments are transferred to a National Insurance Levy. This is a far more complex operation and would take time to achieve.
The conclusion is that an overall uplift in National Insurance for all employers would have a considerable knock-on effect on pay, especially lower-paid employees. It also opens up a reasonable challenge to the manifesto tax promises. However, a levy on graduate employers to help with undergraduate education, something they benefit from too, would be easier to swallow and not impact lower-paid workers in time. Fairness dictates that the current system of graduates paying all must stop and fees must not increase. Conversely, we must not expect employers to bear all of the costs. A shared cost solution is the only fair one.
Footnote.
What is National Insurance?
National insurance has been around in the UK since 1911. However, its present form has been in place since 1948 as part of the welfare state social contract. Introduced by a Liberal government in 1911, the National Insurance Act 1911 was expanded through sweeping reforms by a Labour administration in the Welfare and Insurance Legislation between 1946 and 1948.
There are various classes of NI with the main sources being employees and employer contributions. Self-employed and voluntary contributions also feature.
It is the second largest tax in the UK and most is paid directly into a ‘National Insurance Fund’. It lies at the core of the welfare system.
This largely covers ongoing state pensions and welfare benefits. However, it is not strictly ringfenced. Before it is paid into the fund, it is top-sliced to help pay for the NHS. This is not made clear on the government website. The Office for Budget Responsibility (OBR) in a recent report even goes as far as stating,
“A small amount is notionally directed to the NHS, although this only makes up a small proportion of NHS funding”.
This is somewhat misleading. It is not a small amount at all. Delving into the latest Great Britain National Insurance Fund Account for 2022-23 reveals the following,
“The NHS allocation is paid over by HMRC to the NHS before any contributions are paid into the NIF and so the figures shown are net of this NHS allocation. The NHS allocation was £41.8 billion in 2022 to 2023 (£29.1 billion in 2021 to 2022) and forms part of the total NHS funding”.
Generally, around 20% is taken for the NHS at the outset. It is this mechanism that should be used to top slice the graduate levy to fund students and universities.
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.