TEF and tuition fees – myths and reality

Tuition fees are the percussion section of the higher education policy orchestra. They’re not always the most important section, and certainly not the most harmonic, but they’re always the one most likely to make a big noise. With an air of inevitability, it appears that the major political argument over the White Paper’s proposals will be over the inflationary fee increases.

As Stephen Bush of the New Statesman has suggested, this might be a direct result of the Prime Minister’s desperation to avoid any relatively tricky political conflicts whilst he navigates the EU referendum.

Of all the measures announced in the Queen’s Speech, tuition fees is one of the few with which Jeremy Corbyn can whip up some serious opposition fervour. Corbyn has been a lifelong opponent of fees, and his political base is teeming with students and recent graduates incensed at their indebtedness. Fees – and the political style that comes in opposing them – is the sort of political ground upon which Corbyn is completely comfortable. We’ve already seen a petition; expect shouting down megaphones at demonstrations and campus occupations soon.

Sadly, this doesn’t mean that the coming debate is going to be particularly substantive. Labour’s line is already based around the ‘Tory price-tag’ and ‘tax on education’. The latter line may prove difficult for any future leader wishing to campaign for a graduate tax. Indeed, that is still Labour’s official policy. Expect the debate to resemble this excerpt during the Prime Minister’s speech to the Commons last Wednesday:

Geraint Davies (Swansea West) (Lab/Co-op)
How is equal opportunity consistent with allowing the best universities to raise their fees so that instead of the brightest getting access to those universities, the richest do?

The Prime Minister
I am coming on to precisely that point. What we have seen since the introduction of fees is not only record numbers going to our universities, but record numbers from poorer backgrounds going to our universities.

In order to be successful, Labour will have to make the issue of fees about more than social mobility or affordability, as implied in Emran Mian’s piece on Wonkhe last week. It is too easy for the Conservatives to trump the ‘record numbers from poorer backgrounds going to our universities’ line when faced with this kind of opposition. More worryingly for advocates of good policy-making everywhere, if this level of debate sucks up airtime very little else in the Bill will get much scrutiny.

The further difficulty is whether the fee rise can be labelled a fee rise at all. Opponents of government austerity have tended to label cash-freezes in spending as ‘cuts’ in all-but-name (for example to 16-19 education budgets). By that marker, fees have been ‘falling’ for the half-decade since the £9k cap was introduced.

The power of inflation to eat away at spending power is very apparent when you take a look at the real-terms figures based on RPI-X forecasts. The below tables show the real and then cash value of the six different caps that will be in place in the new system.

Real value of fees projections 2016-2021, in 2016 £s

Cash value of fees projections 2016-2021

APA = Access and Progression Agreement

What is striking is how these numbers show that universities will have to sprint just in order to stand-still. Any institution that doesn’t reach the ‘Excellent’ or ‘Outstanding’ ratings will only receive half of the allowed inflationary uplift, and thus see their incomes fall drastically. To students and opponents of fees, the half-inflation increase is a fee hike all-the-same. But to institutions, it is a half-inflationary loss. Those that reach the two top levels of the TEF will be rewarded by keeping the real value of their £6,000 or £9,000 fee cap.

The debate is further muddled by the nature of income-contingent loans: the real cost is to graduates rather than students, and inflationary increases in fees reflect changes to purchasing power today, whilst repayment ability will be primarily affected by purchasing power in the future (confused yet?). Relatively small fee increases of this sort will only really affect the best paid graduates who are already able to pay-off their loans before the 30 year write-off deadline. Lower-earning graduates, whilst nominally in a greater amount of debt, may not pay much more, except for the larger value of interest charged on their overall loan account. Then there are the many caveats of terms and conditions of the loan-book. It is impossible to anticipate whether and how future governments will tweak the variables affecting student loan repayment, including the earnings repayment threshold, interest rates, and write-off date.

Don’t expect the upcoming coverage and debate to dig into this in any great depth. The headline story will be the cash rise in fees at the highest level and the government’s achievement at finally creating a differentiated fees system. By the time of the 2020 general election, the highest fees might have broken the £10,000 mark. By 2025, they will be £11,700. And by 2030, the magical power of compound inflation could have brought the cash level of fees to £13,650. But remember, this is still effectively £9,000 of purchasing-power in today’s money, and thus the same ‘cost’ in value to students.

Much more will be written about this, so to finish, there are two ironies to reflect upon. Firstly, UUK’s campaigning for the inflationary uplift originated in 2013 after several years of relatively high inflation. RPI-X in 2010 and 2011 was three-times the level it is now. The lack of an uplift really mattered in those years, but inflation is likely to quite a bit lower in the short-term. The forecasts expect it to go back up again in the medium-term, but the forecasters have consistently overestimated inflation in the past.

For the same reason, the above figures should be read with a healthy scepticism; economists are notoriously bad at accurate future gazing. If inflation is lower than predicted for the next half-decade, the coming political battle might feel like much ado about nothing.

And that brings us to the second irony, which is that in order to achieve a truly differentiated fee structure, a Conservative government will be hoping for moderate-to-strong inflation in the coming years. Given that keeping a lid on inflation is effectively the raison d’etre of the Conservative Party, this bizarre outcome encapsulates the strange times we live in.

Find an updated version of the above article: TEF and tuition fees continue their complex dance.