Making the cut

At the start of the week that we expect the HEFCE grant letter, Alistair Jarvis looks at the scale of the hole in BIS' budget and assesses the options that the Government now faces as it decides where to cut and how far to go - decisions that could have drastic long-term consequences.

In December a confidential memo leaked to the media revealed that the Department for Business, Innovation and Skills (BIS) was in discussions with the Treasury about large scale cuts to its budget. According to the memo, a large proportion of the savings being demanded were because of a need to ‘balance our budgets’ due to an overspend. There have since been indications that this overspend was partly the result of a significant and costly underestimation of the growth in private (including for-profit) higher education places.

Though the higher education sector is yet to receive confirmation, there are indications that these huge cuts could soon be a reality. We will find out the extent of the cuts (for 14/15) when BIS sends the annual grant letter to HEFCE, originally expected in early January, but still delayed. What is clear is that there is a significant hole in the BIS budget.

Some in Government are arguing that universities should face further funding cuts to fill this hole and that they can manage these cuts without significant damage. Some forget that the higher education sector in England delivered £1.38 billion in efficiency savings against a target of £1.23 billion between 2005 and 2011 and have made significant further efficiencies since. To suggest that universities can manage significant further public funding cuts without significant damage is to fundamentally underestimate the likely impact of the cuts now under discussion.

This is new territory. Further significant funding cuts will damage universities’ ability to deliver high quality teaching, to widen access through outreach activities and to conduct research. Significant cuts at short notice will inevitably put jobs at risk. A large proportion of universities’ budgets are spent on the staff that deliver research, teaching and related support services. Universities work on a long-term basis and cannot turn teaching or research on and off without causing damage. They have long term commitments to students, research projects and programmes of outreach activities. These core activities play a central role in the positive development of individuals, social mobility and economic growth.

There are those who would portray this debate as a direct trade-off between supporting disadvantaged students and supporting research, but that position is false. The reality is more complex. Our economy and society need both – more skilled graduates from a wider range of backgrounds, and research to drive forward the discoveries, inventions and innovations which feed growth, support competitiveness and improve our society. If the government is serious about both social mobility and economic growth then the UK should not have to make this choice. There are alternative options that the Government could consider.

The simplest option would be for the Treasury to find additional funds from its reserves to plug the BIS budget hole. This could be justified by Government as a sensible measure to support the department that has responsibility for economic growth and support universities as an important driver of the UK’s economic recovery and social mobility.

Changing the balance between maintenance grants and loans would also lessen the need for other cuts. This would mean that some students currently eligible for maintenance grants would instead be offered maintenance loans. Despite some claims to the contrary, there is little evidence to suggest that moving from maintenance grants to maintenance loans would negatively impact on numbers going to university. This would generate significant savings without damaging teaching, outreach or research.

Modelling by the IFS shows that reducing the threshold of eligibility for maintenance grants from £42,620 to £35,000 would generate savings of at least £138M by 2017/18. Adjusting the parameters further may yield even greater savings. This is unlikely to have a negative impact on participation, particularly if it is offset by increasing income-contingent maintenance loans and improving information, advice, and guidance for students. Shifting the balance between maintenance grants and loans is an option that Government could consider further.

There is no credible evidence that changes to the student support system in recent years have negatively affected demand for higher education.  The entry rate for English students in 2013/14 was at a record high of 30.3%, and that for students from disadvantaged groups also at a record level of 16.9% (up from 9.8% in 2004).

There may be political challenges in shifting the balance between grants and loans but if you weigh this option against cuts to Student Opportunity Allocation the impact of the later on access is far more serious.

The Government must be smart about how they address the current hole in the BIS budget. They need to find an option way that avoids doing lasting damage to the economy, weakening research and making university less accessible to disadvantaged students. This means exploring the full range of options.

One response to “Making the cut

  1. Thanks for the post, Alastair.

    Trying to look at it from a BIS point of view, it is clear that the policy of opening up SLC funding to students at private providers has been more ‘successful’ than was expected. And looking at the figures in THE this week the growth in SLC take up at private providers is large.

    This ought to lead to price competition amongst HEIs of whatever sector, and an equilibrium of supply and demand will (in due course) assert itself. But of course it isn’t a perfect market – you have information gaps amongst purchasers, and a ‘product’ which is not well understood by purchasers (are you buying the experience of university or the long-term benefits, economic and otherwise, or a higher education.

    A sensible policy, even starting from the point of view that the marketisation of HE is a good thing, would surely build in safeguards on a reasonable timescale – which must be years if not decades – to mitigate the risk that purchaser decisions turn out not, in the long term, to be what they thought they were buying, and that we as a country have lost institutions which with hindsight we would rather have kept.

    I wonder whether a problem with the argument in the blog post is that it starts from the underlying proposition that private sector growth in SLC take up is a worse thing than any consequent problems for public universities. And that argument will be difficult to make within government.

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