Beyond the broken funding system

It seems no week goes by without a report in to the sustainability of the Government’s HE funding system. Earlier this week, the BIS Select Committee published a critical report, which has started the cycle of coverage again. The Committee’s report echoes the PAC report from earlier this year, as well as many other pieces of commentary and analysis.

Over the weekend Vince Cable attempted to woo his party with the suggestion that he would block the sale of the student loans book, which potentially opens up yet another black hole in government spending assumptions.

So surely the question that we should be asking is: how do we get from the emerging consensus that things aren’t working, to a place where we are able to grow the system and build a graduate rich economy – in line with other developed countries around the world – and not end up with an even bigger black hole on the books?

University Alliance believes that a smarter loan design would enable two things: universal access to life-time loans (sorting out the post-graduate funding vacuum and the major decline in part-time study) and a more sustainable loan system that will see more loans repaid, thereby reducing the levels of non-repayment (which the Government estimates will increase to more than £330 billion by 2044).

Universities UK have a panel of experts looking at different funding models and there are various other actors working on the issue both in public and private.

But whilst policymakers are looking at HE funding, there is no sign of a review coming from within Whitehall.

There is a strong case for public investment in higher education – the tremendous return on investment it generates, the vital role in developing and growing global talent – which is the key to the future success of the UK – to name just two.

The UK invests 1.1% of GDP in the higher education sector and Universities. Higher education contributes 2.8% of UK GDP and generates £73 billion in output. Recent research by the National Institute of Economic and Social Research also found that higher education contributes to long run productivity and growth in the UK.

Between 1982 and 2005 NIESR estimates that 20% of UK economic growth came from increased graduate skills.

This case is widely recognised and the Coalition renewed its commitment to that line of thinking with the promise to remove the student numbers cap in 2015-16, in the 2013 Autumn Statement. David Willetts, the former Universities & Science Minister referred to the move in a recent speech at Bournemouth University:

I am sometimes asked how we can afford such a move […] The short term answer is that BIS budgets have been increased during this spending review period to take account of the extra students we expect universities to recruit […] The long term answer is that we are investing in graduates who will deliver a substantive return to our economy and the Exchequer […] This is why in our new finance system we have a public contribution as well as a private one.

But such rhetoric can ultimately not withstand the clear policy case that the system is unsustainable. It is a case being made in many quarters too – the BIS Select Committee report will not be the last before the election.

The Higher Education Commission is currently running an inquiry chaired by Lord Norton of Louth and Dr Ruth Thompson, former Director General, Higher Education at the Department for Business, Innovation & Skills, to investigate the financial sustainability of higher education in England.

The Independent Commission on Fees, chaired by Will Hutton and supported by the Sutton Trust, has more reports due out, and both will no doubt send more warning signs.

With the case for reform growing (and putting funding aside there is still the massive issue of regulation that the Coalition has completely failed to address by abandoning the HE Bill) can the consensus opinion continue to be ignored?

Sustainability of the HE funding system is never going to be a doorstep issue in the election so we are unlikely to see political parties throwing solutions into the mix between now and May 2015.

Although Labour looks likely to move the debate somewhat by tinkering with the front-end of the system in the form of lower full-time undergraduate fees – the bigger task of fixing the system for the long-term is likely to be a job for government, not a political party in opposition trying to win a close election.

Whichever party – or combination of parties – forms a government in May next year, they will have to deal with HE and the BIS budget more broadly in the context of the first spending review of the next Parliament.

Labour has clearly signaled that if it were to win, it would not be bringing with it the open chequebook we became used to pre-2010 – indeed it has promised to operate within Coalition spending plans for the first year and start a ‘zero-based’ spending review in 2016. Lining this up with a lower fee offer and the longer-term desire to make the system more sustainable will be critical, as well as fascinating to watch.

Number 10 (and the Conservatives) have said there hasn’t been a policy change to the selling off of the loan book to pay for the expansion of HE and the party is unlikely to deviate from it’s position of £9,000 before an election. The Lib Dems in the form of Vince Cable are now apparently opposed to the sale. However their wider HE policy ran aground some time ago, so the consequences of this have yet to be seen.

We need to see some bold new thinking coming from policymakers. Obviously this will be tricky in the lead-up to the election when soon Whitehall will go into purdah (read: hibernation while the politicos take charge).

Can the issue of sustainability really pass by without BIS or HMT making a serious attempt to deal with it? I don’t think it can, which is why I think we need a Browne Review Mark II, although possibly under new leadership and certainly with a refreshed mandate.

Announcing such a review would make it difficult for any party to attempt to deal with the issues unilaterally in the run up to an election. But only by fully exploring at a cross-party level how a more sustainable and accessible student loan system can be created, will our political leaders and the Whitehall machine be able to secure the future of higher education, and fully recognise the role that graduates and universities play in driving the UK economy forward.