Fees: a split waiting to happen

The coalition partners were a long way apart on higher education and still have important differences to resolve

By John O'Leary

Nuclear power, voting reform, capital gains – one by one, the areas of tension within the coalition have come to the surface. But no one mentions higher education.

Universities may not be the top priority for the Tories, but ‘free’ higher education is a totemic policy for the Liberal Democrats. It was the last sticking point when the Lib Dems went into coalition with Labour in Scotland, and Nick Clegg was swiftly overruled when he tried to abandon the party’s commitment to abolish tuition fees last year.

There were such differences between the Conservative and Liberal Dem manifestos that higher education was one of the areas in which both the coalition agreement and the Programme for Government allowed for abstentions by Lib Dem MPs. 

Practically every Lib Dem MP, including Business Secretary Vince Cable, signed the National Union of Students’ pledge not to raise fees during the lifetime of this Parliament. Presumably Dr Cable will not feel bound by this but, like many Labour MPs in the 2005 debates on the introduction of top-up fees, other Lib Dems will. Many will see mere abstention as tacit acceptance of large, or even unlimited increases.

Dr Cable, who devised the Lib Dem policy of phasing fees out over six years, will now (in all probability) be the one to steer through the increases that are likely to flow from Lord Browne’s review of higher education funding. And the same Dr Cable who said before the election that there were too many undergraduates is now finding the money for another 10,000 places – albeit still 10,000 fewer than Labour was promising.

Nor has the transition to government been plain sailing for David Willetts, who will lead on higher education and science. Deprived of his expected membership of the Cabinet, although entitled to attend meetings, Mr Willetts has already seen his plans for financing extra university places at least postponed. There was no mention of his scheme for recycling the savings from early repayment of student loans in the announcement of this autumn’s places, suggesting Labour was right that the election pledge would breach Treasury rules.

What, then, will emerge from the confusion? Much will depend, of course, on Lord Browne’s review, although the Government is not obliged to accept his recommendations. The leaks thus far have suggested the gradual removal of the £3,290 cap on undergraduate fees in England. While a free-for-all seems unlikely to be proposed, let alone accepted, it is almost certain that substantial (phased) increases will be recommended to replace state support destined to diminish in future rounds of cuts and to encourage variation between institutions and subjects.

Any such increases will have to be accompanied by higher interest rates on student loans and possibly more use of private finance to back student support. The Russell Group’s latest submission to Lord Browne includes tentative plans for bonds and annuities to enable individual universities to provide their own loans. While these may prove too expensive to be practical for universities, the Government may still want to find other backers of its own.

In the short term, however, universities will have to find genuine savings. Although the review is expected to report this summer and fee increases could be rushed through Parliament, changes to the interest rate on student loans would require primary legislation. One increase could not go through without the other because of the cost of student loans, so universities will probably have to wait until 2013 for more funding from fees.

By then, they will be reeling from successive cuts – some announced by Labour, another £80 million in efficiency savings added last week, and more to come in the emergency Budget and/or a subsequent spending review. At least the first instalment, in the coalition’s £60 billion savings for 2010-11, was not as damaging as it appeared in the initial announcement of £200 million of additional cuts.  

More than half of the savings will come from abandoning the Modernisation Fund created in Labour’s last Budget, when an extra 20,000 places were promised out of the blue. The scheme would have funded only the first year’s teaching costs and is said to have attracted bids for only 1,000 of the 5,000 places earmarked for foundation degrees, not all of them acceptable to the Higher Education Funding Council for England (Hefce). Little wonder that there was no mention of foundation degrees in the latest announcement and only muted reaction from universities to the withdrawal of the places.

All but 2,000 of the full-time degree places promised by Labour will still be available. These make up the headline figures reported by newspapers in what promises to be a summer of hard-luck stories in the biggest squeeze on university places on record.  

The 2 per cent cut in teaching budgets will concern universities more, but will be manageable for most. However, with redundancy programmes under way even at some of the best-funded universities and campus closures beginning at institutions already in financial difficulty, subsequent rounds of cuts will be different story.

At the same time, the coalition partners have to settle their differences over the future of Hefce, which the Lib Dems wanted to merge with the new funding agency for further education. And they have to agree on a new method of assessing and funding university research, having taken against the proposed Research Excellence Framework.

It will not be an easy time for the Department of Business Innovation and Skills, which might have lost its responsibility for universities and colleges to Michael Gove’s Education Department if David Cameron had not been persuaded that another change to the machinery of government would be both expensive and distracting.

28 May 2010

John O'Leary. Editor, Policy Review Magazine