The big Budget choices that the Chancellor faces

Image: Wonkhe

When you’re inside a government department during the run-up to a big fiscal event – a budget or spending review – being on the receiving end of Treasury communications can feel a bit like one scene in the film Goodfellas. It’s the moment when Ray Liotta’s voice-over explains what happens after you let the mafia take a stake in your business.

Whatever reason, evidence or excuse you offer there is only one response: “F*** you, give me the money”. With the national finances in a poor state, will this Budget be just such a time for higher education?

Pity the young

First, and obviously, the Budget is a political statement. That is always true. It is especially so now when the government has struggled to achieve any political momentum (no pun intended) since the election and when many in the Chancellor’s own party brief against him.

The politics suggest the Chancellor must do something aimed at the under-30s vote. But it’s not at all obvious that something should be about student finance. The Conservative Party conference announcements tried that, and so far the political benefits of a very expensive tax cut for a subset of voters, (largely) under the age of 24, have not been that evident.

On top of that, the Chancellor faces a Catch-22 when it comes to fixing what’s wrong with student finance. As Andrew McGettigan has explained, the student finance system in England looks the way it does because the “treatment of student loans in the national accounts is set up in such a way as to favour an undergraduate finance model that replaces grants with loans and then sells those loans on.” 

Politically, loans may have become the problem but when it comes to the UK’s’ bookkeeping they’re still part of the solution. That makes hard choices harder still.

The higher debts incurred by poorer students and the impact of student poverty mean there now seems to be universal consensus that government must reintroduce maintenance grants (even among those vice chancellors who were less fussed back in 2015 when they thought the alternative to abolishing grants would be cuts to university funding). But maintenance grants are the wrong sort of money from a Treasury perspective, as bringing them back would count against the government’s measure of the deficit.

So even if the Chancellor thinks he really, really needs to spend some deficit-increasing money, is it the best place? Maybe not. Maybe housing is instead. Just because lots of think tanks, committees, and lobby groups are saying something must be done about student finance doesn’t mean it will be, or if it is that it will be done now. If asked, the Chancellor can always point at that “major review” his boss promised. It’s one of the things major review announcements are for, indicating forthcoming action without, necessarily, timescales, costs or … action.

Settling the tab

Of course, that still leaves the burning question of how to pay for what’s already been announced. Will higher education providers be forced to pick up the bill for raising the student loan repayment threshold to £25,000? That was certainly the strong hint dropped by Jo Johnson in his interview at Wonkfest.

If the RAB charge – the proportion of unpaid loans the government has to cover – goes up, because of incorrect forecasts or changes to the student loans model, then the risk-sharing agreement between Treasury and DfE says that the extra cost is charged to the Department over a thirty-year period. But that’s not what happened. The RAB charge went up because of a Number 10-imposed policy that DfE ministers clearly wanted as much as they’d want a hole in the head. I imagine they have fiercely resisted the idea that injury should be added to insult by making them pay for that decision.

Going Dutch?

Secondly, the Budget is an opportunity to set out the government’s priorities on the big stuff – the things they say they’re in office for. And this Budget will be about the financial underpinnings of the industrial strategy, with the green paper due out just beforehand, so we can expect it to have something to say on research, innovation, and skills.

That doesn’t have to be new money. On skills, the apprenticeship levy will provide £3bn a year by 2020-21. On science and innovation, the Chancellor can take further bites from last year’s cherry of £2bn a year extra by 2020-21, by spelling out more detail about what will be spent where. This will tell us which voices have won the policy battles within government about the balance of that additional funding across basic science, applied research and knowledge exchange.

January’s industrial strategy green paper contrasted the UK’s balance of funding with those leading innovation countries that typically spent a larger proportion of total R&D investment on later stage, experimental development. It also asked how to replicate the success of the Golden Triangle – six research-intensive universities in Oxbridge and London – elsewhere in the UK, implying one answer would be to spend more of the extra cash through Innovate UK.

While these questions raise the possibility of radical answers, the lobby in favour of how we’ve always funded science is a powerful one, so I won’t be holding my breath.

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