Thatcher’s children seek ‘independence’ for universities

After the last two years, it is something of a relief to read a policy report which does not offer some new twist on the English student loan scheme. In that and other regards, there is a retro feel to the Conservative party’s Free Enterprise Group recent report, Completing the Reform, Freeing the Universities written by John Glen, MP for Salisbury. Not least because in advocating financial independence and stability for universities by building up endowment funds, it echoes Labour’s 2003 HE white paper; The Future of Higher Education. Margaret Thatcher’s flame burns bright amongst members of the Free Enterprise Group, largely comprised of new intake Conservative MPs that includes current ministers, and others tipped for future party leadership. For that reason, it is important we scrutinise their policies and ideas.

Although there is no formal recognition of the paper’s 2003 predecessor, the language is in parts identical and Glen’s research, too, seems drawn from a decade ago. Although aware of the match-funding scheme on donations to universities, which ran between 2008 and 2011 inclusive, Glen does not cite the recent Review of Philanthropy in UK Higher Education commissioned by Hefce, nor recent trends in income from endowments and investments.

Glen sees the move to financial independence as the proper culmination of the project to liberalise the higher education sector. He estimates that with an additional £12billion of endowment funds, sufficient annual income would be generated to replace the remaining teaching grant and thereby to ‘restore’ institutional autonomy threatened by student numbers controls, fee caps and the bugbear of private schools – the Office for Fair Access.

Without a discussion of the loans financed by public borrowing that will largely back uncapped caps and students, it is hard to give a serious assessment of Glen’s vision since most financial pressure is coming from that direction in the next decade or so. Those advocating ‘independence’ still wish to have access to this scheme, not least because the trouble of collecting repayments is performed on behalf of institutions by HMRC and the Student Loan Company.

That said, it is possible to interrogate Glen’s calculations regarding the roughly £550m of teaching grants which will remain in 2015 (see Figure 12 in Hefce’s March report on the impact of the new funding regime). Based on an estimated 4 per cent return per annum on invested funds, this gives us the £12bn figure cited already.

Given that total endowments across the sector stand at roughly £10.3bn, and that Oxbridge holds £8.3bn of that, we can begin to see the flaws in Glen’s suggestion. Though he insists that such funds are not an elite preserve, he cites a 2003 Sutton Trust report: the gap has widened in the last ten years. And, in truth, although giving to HEI’s has increased from £513m to £693m since 2006-07, this relates mainly to donations which are spent, rather than sums accumulated in funds.

It is hard to see how that £12bn can be put together within a reasonable timeframe given those figures. Further, in 2011/12, the financial year for which we have the most recent data, endowment and investment income amounted to £285m across the sector (2010/11: £240m), roughly 1 per cent of total annual revenues. This represents a fall from the years before the financial crisis (£400m in 2006/07; £521m in 2007/08) illustrating one of the problems in relying on this source of income – the varying performance of financial assets. The latest Hefce report on English university finances projects another fall of 5.5 per cent in 2012/13 from £236m to £223m.

The Review of Philanthropy stressed, “Endowment fundraising – never easy at the best of times – will be more challenging with long-term interest rates at historically low levels.” (§176) Further, it emphasized that donors give to fund special projects and research, new specialist facilities and to protect historic buildings but are reluctant to part with money cover the core costs of HE. ‘As the Thomas Report insisted, voluntary giving “is not a substitute for other sources of higher education funding, particularly public funding.”’ (§103) Glen therefore seems to be advocating a position at odds with the most informed survey of this matter; a position which involves a lot of fundraising to replace what little remains of science, technology and engineering funding.

The persistent myth seen on both sides of the Atlantic is that public money can be replaced with private money (whether through fees, funds raised on capital markets, or donations) without any detriment to the overall system. What merit there is in Glen’s report is to underline just how much endowment money is needed even to cover £500m. Should he turn his attentions to undergraduate loans and the public subsidy underpinning them – now estimated and accounted for at 34 per cent of the value of loans issued (or somewhere between £3-4billion per year from 2014/15) – the true, eye-watering cost of the financial independence he seeks would become apparent.

2 thoughts on “Thatcher’s children seek ‘independence’ for universities”

  1. Tom B says:

    Good article. Glen’s piece is just another contribution churned out by an MP who clearly thinks he can come into any given policy area and solve everything with minimal research and reflection.

    There’s another irritating angle about the report too. For a supposed Free Market Tory, Glen entirely ignores immigration policy and its effect on HE in the UK. OFFA is lambasted for costing 700k a year. The costs of lost overseas students, discouraged by the tightening of VISA policy, put off after withdrawal of London MET’s license etc etc, must dwarf such a figure.

    Glen cannot credibly argue that “less government intervention would give universities the freedom to compete” whilst remaining silent on the Coalition’s immigration policy. And yet… he does! Most ironically, in a Telegraph article to accompany his Free Enterprise paper (again ignoring immigration policy), Glen finished it arguing that “we must move away from government intervention, and give universities the freedom and independence to compete on the world stage.” The mind boggles.

  2. Cyprian Latewood says:

    “Instead, universities should be encouraged to build up endowments to generate investment income. This will lead to more secure funding, gradually reducing the need for government grants.”

    Endowments and investment income currently provide universities with 1% of their total income. To suggest that this could be built up to anywhere near a sufficient level within even a relatively long time frame beggars belief.

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