The decision to remove controls on the number of students that a university is able to recruit is often painted as a victory over the Treasury.
The argument goes something like this – as Nick Hillman sets out today on HEPI. Because the department which manages our money is powerful and short-termist, it will always be tempted to choke or even cut the number of subsidised university places to keep control over the finances – and when it does, it will fail to keep up with demand from a growing population as a result.
I have some sympathy with that position. The ability for autonomous universities to expand to meet the ambitions of a growing population seems to me to be a good thing, and there are obvious social and economic arguments for more higher education and a better-educated society.
But a decade after those caps came off in England, it strikes me that we need to understand why it was therefore possible to score the original victory and have those caps come off, and how they have managed to stay off as times have become tighter.
I believe that the answer to this is the central paradox of why some of us at Wonkhe have disagreed with Nick’s framing of the issue, which often seems like a binary choice between controls or no controls and all such measures as good vs. bad, and why there remains some disagreement, although I was pleased that his article today does open to the door to a more nuanced conversation.
Incidentally, Nick is right to point out in said article that we are two very different sorts of organisations, but that aside, I too believe that the sector is stronger and better informed with both HEPI and Wonkhe providing platforms for a multitude of voices, to have civilised debates about serious policy issues. And this is why I am keen for such arguments to be taken on their own merits rather than dismissed as simply representing one side of a political debate that I don’t believe exists in such a clear or ideological way inside the sector itself. Or in other words, why I don’t think the argument about student number controls in 2022 is a left vs right issue.
I think it goes beyond that and speaks to what sort of higher education sector we would like to see in the future and how policy should be shaped over the next few years, which is why it is serious terrain for serious debate and why it is likely to (and should) spark significant discussion and disagreement amongst reasonable and informed people.
Caps off to George
In 2014 when George Osborne removed the cap on university places, the country’s finances were indeed in better shape than today, and we had a Chancellor who understood and believed in universities. But he also had a way of financing the expansion – the so-called “fiscal illusion”.
A lot has been written about how student loans were accounted for over the last decade, although it is not widely understood by the public. When loans were introduced, almost all of them were fully designed to be paid back. The repayment threshold merely determined when a graduate would start paying back. As such, there was little need to worry about the cost of issuing a loan – the state was going to get most of it back.
But the post-2012 system changed things. The repayment threshold, interest rate and maximum term were combined with a much higher “principal” to both shift the contribution balance from taxpayer to graduate and make it more progressive in the process. The upshot was a “hidden” and much higher per pound subsidy – the amount of the “loan” written off.
There has been much argument about whether the subsidy (the “Resource Accounting and Budgeting (RAB) charge”) should be higher or lower – but the problem post-2012 is that the government was accounting for student loans in the national accounts as it had always done. So even though it was known that there would be a substantial portion of each “loan” written off, by not accounting for it, problems were being stored up for the future. The moment that the cost would have hit the accounts is when the full value of the loan on the balance sheet couldn’t be realised at write-off – a potentially huge fiscal time bomb.
So at the time, the Treasury was happy to allow more places, and a couple of years later, was also happy to increase the value of maintenance loans to put more pounds in the pocket in the process of scrapping maintenance loans too. But then times changed.
Breaking the magician’s code
In 2017/18, the Office for National Statistics (ONS), under pressure from European regulators, had to change the way loans were being treated in the books, largely because student loans quack like a loan but also have unusual and hybrid terms that make them quack like a tax too.
That has since meant that every time a loan has been issued to a student, the predicted cost is booked to the accounts now, and the prediction changes every year.
It means that the freedom to print student loans that the Treasury felt able to exercise in 2012 has since been taken away, and so it has since been keen to reassert control. That gave it choices.
As we’ve covered before on the site, there are multiple levers available to a government keen to control the cost of higher education. One of them is to restrict the number of places, a lever that continues to be strongly resisted. But if doing so looks politically difficult or is sufficiently opposed, it’s not as if the Treasury backs off and finds savings elsewhere instead. It can also:
- Reduce the loan outlay – absolutely or in real terms – threatening the quality of what can be delivered in the process. It has been doing that by freezing in real terms.
- Ask students and parents to pay more upfront or during – squeezing or killing off any argument about “free at the point of use” and harming the “full time immersion” of many who do get in based on financial circumstances. It’s been doing that too.
- Ask graduates to contribute more in their 20s and 50s, framing that as “fair” because “it was a loan” when it was intended in part as a tax. The process of doing so is fully underway.
The point is not that the battle with the Treasury was won in 2012. It’s that the Treasury never loses – and has continued to exert control over student loans in ways other than “places”.
And a decade on, that raises problems for the wider system, as well as for students and graduates, and therefore the debates we have today.
“Accept number controls if you want higher fees”
I think it is legitimate to ask how expensive for graduates, how low the unit of resource should get, and how poor the maintenance package should be before what were previously clear benefits of unrestricted recruitment become significant downsides. It’s not clear that we have reached that tipping point, though, from a future historical lens, it may be that we already have, or we might one day in the future, or indeed never. Of such questions are civilised debates in higher education policy circles made of, and I hope will continue to be.
I also think it is important not to drive policy in the rearview mirror. Nick’s experience inside government and the battles he had with the Treasury over such issues is a crucial insight, and he is in a strong position to provide advice to the sector based on this experience. But looking at our current economic context and today’s Whitehall battles, and a bit further ahead, I think the operating context for this debate has changed, which should be recognised.
Take Iain Mansfield, former DfE SpAd and now Head of Education at Policy Exchange and his comments today:
“The biggest challenge is the fact you’ve got this declining unit of resource and there’s no obvious mechanism for how that gets reversed, under a Conservative or a Labour government… Declining funding will really threaten the quality of our university sector…as long as you have uncontrolled [student] numbers, then you will see a declining unit of resource.”
Iain is expressing what it is like to interact with the Treasury now, rather than in 2012, and I think, given his wider right-wing perspective of the world and having just come out of government after a significant and influential spell inside the Whitehall machine, shows that this issue is not one viewed as left and right in government.
The problem with a “keep the lever on places off” but “keep the lever on for every other aspect of the system” plan is that eventually, it would lead to a unit of resource so low that students would get an impossibly thin experience, and staff wouldn’t be able to cope. International students would end up topping up budgets in an unsustainable way, and students themselves would put more in to stay afloat, but could still end up with a worse experience as a result.
This is why I do not believe that the original removal of student number controls is the last word on this question, and why I am not convinced that their continued absence is an ongoing victory over No.11. To be clear, I am not calling for a straightforward return of student number controls today or tomorrow, but I am arguing that it is a legitimate debate to be having, given the choices and risks presented by keeping one part of the system the same while the rest of it changes.
Ultimately, it’s not that number controls give the Treasury control of your bank account. It’s that they already have it. We have to accept this first in order to imagine a better system that can both continue to keep pace with student demand and maintain the quality that it’s known for.