Incentives lock out HE innovation

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The UK now has one of the highest proportions of graduates in the labour market in the OECD, yet UK productivity is particularly poor; productivity would be 5% higher if the mismatch were reduced to the level of our best competitors. Nearly half of those graduating in the past five years don’t work in graduate occupations (and the same is true for around 40% of older graduates). The growth in graduate numbers has largely been absorbed in occupations that do not require a degree or the learning associated with it.

On average graduates get paid more, but the benefits are not equally shared. One-third of the most recent graduates earn less than £20k and four-fifths earn less than £30k. Only 17% of graduates will earn sufficient to pay off their debts in full, despite having paid 9% of their income above the threshold for thirty years.

Funding but no levers

Every year the university system creates nearly £8bn of debt that the taxpayer will have to write off. At the same time, the government has largely given up the ability to use that money to shape the higher education system (by funding particular types of courses, encouraging part-time degrees, getting more employers to offer ‘learn while you earn’). It is hard to think of another area of public policy where government has chosen to commit so much money while leaving itself with so little influence over the value for money achieved.

The truth is that successive student funding models have encouraged universities to offer a pattern of higher education that can be poor value for public money, serves the national interest badly, and too often is detrimental to individual students and graduates. It’s not that individual institutions are doing a bad job; just that, taken together, the system doesn’t work as it should.

What would a more effective system look like?

A more effective higher education system would see a better match between graduates and the labour market, a wider range of more cost-effective modes of study, enhanced participation by older students from disadvantaged backgrounds, increased opportunities for part-time and employer-supported study, more effective control and use of public money, and a clearer relationship between the cost to individuals of higher education and the likelihood of their ambitions being realised.

The market that has been created in higher education has taken us in the opposite direction. We have the lowest average age of graduation of any OECD country. HE has become ever more associated with three year degrees, often studied away from home, immediately or shortly after leaving school. The focus on full-time residential education has been at the expense of part-time and employer-supported degrees and other higher level qualifications. The fall in part-time degrees, often taken by mature students, means that social mobility has stalled despite continued progress amongst younger people.

Universities respond to the incentives they are given. And it has consistently been easier and more lucrative to create courses for 18-year-old school leavers than offer part-time degrees or work effectively with employers. This was true when I was Secretary of State, but it became much worse with the higher fees, loan write-offs and the completely unplanned expansion of student places. Yes, students should be able to make well-informed choices, but there is absolutely no reason to believe that the aggregate decision of 17 year olds can ever be a sufficiently informed market to shape the HE system that the nation and students need.

New incentives needed

To create a more diverse HE system it will be necessary to create financial incentives for part-time study, employer-supported degrees and shorter courses – even if expanded provision in these areas takes preference over more school leaver students. Just changing the way students are funded will not necessarily change the current pattern of higher education. Capping fees, or abolishing them altogether, will still reward institutions for the recruitment of younger students if this remains more financially attractive than the alternatives. The creation of a new undergraduate degree may well remain more lucrative and much simpler than introducing a new degree apprenticeship.

The government wants to see more two-year degrees, something I’ve been calling for since I was a minister. But I wonder if we will get much take up without ring-fenced financial support for these courses. That’s the way to ensure that more universities would see the institutional advantage in trying to gain as much of the new market as possible.

2 thoughts on “Incentives lock out HE innovation”

  1. andypenaluna says:

    Please don’t overlook the huge mismatch between the way teaching is ‘delivered’ as opposed to teaching learners to learn for themselves through good guidance and hands on practice. In a few corners if you look close enough, you will spot the enterprise and entrepreneurship educators beavering away at this, but with few promotion prospects and often in uncertain funding environments, they have to be entrepreneurial themselves… but they really do care about the learning and how it can help their students to get ahead beyond graduation.

    Next month sees the launch of QAA’s updated Enterprise and Entrepreneurship Guidance for EntEd. After 5 years of experience with the 2012 version this community has so much more to offer. Lets dig under the surface of this more and get the bigger picture right.

  2. Brian says:

    The government may want to see more 2-year degrees; where’s the evidence students do? Those few institutions which offer them routinely have to resort to clearing to fill them, which is hardly indicative of massive untapped demand.

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