Labour’s much anticipated but yet-to-be confirmed policy to reduce the cap on university tuition fees from £9,000 to £6,000 a year will be highly expensive, could leave universities £10 billion out of pocket – and would only help richer graduates. That, at least, has been the tone of a growing chorus of alarm sounding ahead of what might be one of Ed Miliband’s key pre-election pledges.
Universities are right to be concerned – they may well lose money out of this policy. It also appears a somewhat opportunistic move by Labour to please a proportion of the electorate. But despite this, there are reasons why the policy should not be totally condemned.
First, how expensive a £6,000 fee cap would be depends on how Labour choose to compensate universities for the loss of funding they would experience should the policy go ahead. Put simply, universities would lose around £3,000 per student per year – the difference between the current fee of around £9,000 and the proposed fee of £6,000 (the actual average fee for 2015 is £8,735 per year).
If Labour chooses to make up this funding shortfall by compensating universities for the full loss, this could cost the exchequer as much as £10 billion over the course of the parliament, according to Universities UK. Even with full compensation (which is by no means guaranteed), the country’s vice chancellors are not likely to be happy about this part of their funding being dependent on the government.
But of course, the current funding method is already dependent on the government, which – by freezing the fee cap at £9,000 since 2012 – has already been cutting university budgets in real terms because of inflation.
Universities UK has led calls for fees to rise in line with inflation, arguing that a £9,000 was “not sustainable”, while Oxford University has calculated the real cost of undergraduate degrees to be £16,000 per year.
A look at the numbers
But Oxford’s concerns are unlikely to reflect the majority of the sector. The fiscal position of universities may not be quite so troubling, depending on the reference point you take. Back in 2010, the Institute of Fiscal Studies calculated the maximum tuition fee that would be needed to compensate universities for the loss of income arising from the 2012 fee reforms. This figure was around £7,000 per year.
As we know, the government decided to allow universities to charge £9,000 – the majority did, and the upshot was that universities came out £5,370 per graduate – or roughly £1,800 per year – better off, according to the IFS calculations, once fee waivers and bursaries were taken into account.
A formidable coup, especially at a time when many in the public sector were facing a 20% cut in funding. So, given these figures, it is not clear why the Labour party would feel they have to compensate universities all the way up to £9,000.
Would the well-paid benefit most?
Second, whether you consider the policy of reducing the fee cap to be regressive also depends on your reference point. It’s true that for those who actually go to university, cutting tuition fees would be regressive. Many low-earning graduates don’t pay back their loans in full because of the repayment terms put in place in 2012 – which mean that when graduates start earning above £21,000, they begin to pay their loan back at a rate of 9% on any earnings over that threshold. The government has actually attracted widespread criticism, including from MPs – precisely because of the cost of non-repayment to the taxpayer.
A cut from £9,000 to £6,000 would only benefit those graduates who earn enough to repay their loans in full, or who manage to pay back annual fee debts somewhere between £9-£6,000. London Economics recently calculated this as the top 70% of male earners. The remainder – low earning graduates, many of them female – will never earn enough to feel the benefit of a reduction in fees to £6,000. Labour’s policy will do nothing for them.
But this calculation changes if you start from the pre-2012 position – when fees were £3,000 per year (or even before that, when they were free). From this vantage point, moving to £6,000 per year – assuming we stick to a similar repayment system to the one we have now – would be progressive, impacting high-earning graduates much more than low earners.
Impact on participation rates
As many point out, participation among poor students has grown at a faster rate than richer students since 2012. This is somewhat reassuring that higher fees don’t harm university access. But that is starting from a pretty small base – 13% of disadvantaged pupils who were eligible for free school meals applied to university in 2011, compared to nearly 30% of those who were not eligible, according to UCAS. In 2014 the figures had moved to 15.3% and 30.3% respectively.
What we can’t know is what would have happened to participation growth in the absence of £9,000 fees. Cutting fees back to £6,000 may result in even faster growth in participation among poorer students. So, Labour’s policy could still help the poor who currently don’t attend university because of fears about the cost. And these students would still be receiving maintenance grants and loans, which Labour has – presumably– no plans to cut.
Still, it is easy to see why vice chancellors are concerned. Universities face the threat of having their increase in funding taken off them only a few years after they have gained it, or at the very least they face huge uncertainty about future funding. And it is a concern for all of us that after 20 years of change in higher education funding policy, the focal point of the current debate on higher education still concerns the level of tuition fees. However you look at it, higher education finance remains a tough nut to crack.