Justine Greening looked to the skies and found a graduate tax

On Wednesday, Policy Exchange held an event on “Breaking the Impasse” on university funding.

Jim is an Associate Editor at Wonkhe

The think tank was keen to emphasise that the £9,250 home domiciled maximum fee in England is now worth only £6,600 a year in 2012-13 terms.

Sir Philip “him off of that review” Augar chaired the thing, which also featured Durham VC Karen O’Brien effectively repping the sector, former education secretary Justine Greening, former universities minister Jo Johnson, former Exeter VC (and international education champion) Steve Smith and Policy Exchange’s own (former Jo Johnson and Michelle Donelan SpAd) Iain Mansfield.

Augar kicked off proceedings by reminding us that he’d recommended a fee freeze for a while to achieve some efficiencies – although his panel absolutely didn’t envisage a massive inflation crisis popping up in the middle of his proposed chill. Nevertheless he was positive about the need to fund things properly:

Universities are our best hope of remaining at the cutting edge of the global economy. They invigorate our towns and cities. They transform a student’s life chances they are a massive national asset that must not be allowed to waste. That is the risk we run unless we can afford unless we can find a sustainable, affordable, fair funding model.

Durham’s Karen O’Brien appeared next to summarise the sector’s settled position on cross subsidies, the need to respond to growing demand and so on – and included a helpful refinement of the “international students aren’t pushing home students out” line by pointing out that they maybe, after all, were:

Thus far there has been little to suggest that [international recruitment] has been at the expense of opportunities for home students. But there is a very real risk this may change as demand continues to rise, and as universities with a de facto civic student number cap and accommodation shortages exchange home for international student places.

As is now traditional, Steve Smith was introduced as not able to comment on UK student financing and funding for wider questions of government policy given his current role, and so instead nudged and winked at what he was getting at via some international comparisons which included the land of “free” education, Germany, and its rather different participation rate:

In this example we have a system which is essentially free at the point of delivery for students funded through state grants… universities in some states may charge students a small fee for some administrative and facilities costs… according to the OECD, the percentage of adults in Germany with a bachelor’s or equivalent is their highest level of education completed is lower than in the US, Australia and the UK at 36 per cent.

Partly because neither O’Brien nor Smith had a set of concrete changes to advance, the cost of any changes didn’t come up – a theme which continued as former universities minister Jo Johnson took to the stage to exhume his solution from when he was around – allowing TEF Gold and Silver providers to raise their fees:

My view is that we should have stuck with that approach. Had we done so, we wouldn’t have all the problems that we have today. University funding would be on a much more sustainable footing than it actually is. If you run the maths, Gold and Silver rated providers would today be able to charge fees of £12,200 pounds – that would have meant, to take an example, the University of East Anglia (which we read in the papers is suffering from very substantial deficits) would have an extra £38m from undergraduate domestic tuition, more than enough to fill their financial black hole.”

But would fees really ever have been allowed to rise in the way Johnson suggests? The woman that was for some months his boss wasn’t so sure – Greening argued that in the aftermath of the Theresa May “snap” election in 2017 and Corbynmania, it was suddenly clear that the Tories had an “unworkable” student finance system:

…we were never going to be able to get a statutory instrument regulation through Parliament ever again. All of my concerns having come into the role about the fact that it was inherently fragile as a policy and was not a smart way to approach funding such a crucial sector or higher education turned out to be right. And we’ve never been able to move on since that moment.

There was then a more unsettling moment when Greening effectively claimed to have invented graduate tax, but run with the ball for a minute:

I thought, well, the best thing to do is blue sky thinking, talking to people like my local university, students there, and to think, there are these jigsaw pieces and the question is how they actually fit together in a way that aligns all the incentives rather than some. So that’s (a graduate tax where every graduate pays a % for x no of years) is what I came up with. I rang up my lovely private office and said, tell me why this is all rubbish. And I gave them till Christmas to break it. They couldn’t. And actually the Treasury liked it because it would bring in more money.

Greening never got to explain why the Treasury never took her up on her revenue-raising offer, but at least she at least in principle discussed the costs of her proposal, even if the rationale was probably a bit centrist and yoof for the likes of PX’s average audience:

My party, I’m sorry to say, has seemingly turned its face on students and the aspiration of students, this group in our society that actually put their hands in their own pockets, to be able to get their education to go to that next level. I think it’s time to make the system fairer, for those high aspiration young people in our society that want to get themselves to university. And I think it’s fair to recognise that they are willing to pay for that opportunity, but the way in which they do it should be much, much fairer.

It was left to Policy Exchange’s own Iain Mansfield to give the audience a lesson in higher education economics, reminding us that the Treasury has managed to control the cost unfettered expansion after all:

In higher education over the last few decades, and particularly over the last decade, since the removal of number controls, we’ve chosen almost exclusively to put additional funding into numbers growth at the active expense of the other two goods, funding per student and maintenance support for students. So what have we gained from this? Well, we have gained something in that we’ve seen a significant increase in the number of people going to university in the last decades – we’ve seen an almost 10 percentage point rise in the higher education initial participation rate… However, we do still have a third of graduates in non graduate jobs. We have a full graduate premium, and that 10 percentage point increase in higher education participation has not had an observable impact on UK productivity.”

Mansfield was also pretty much the only contributor who properly addressed maintenance in his robust defence of number controls:

We lost maintenance grants for the poor students, they become unaffordable due to the pressures of increasing numbers growth and the jam needing to be spread evermore thinly… we are now seeing particularly last year a very low uplift to maintenance loans. We’re seeing maintenance support falling increasingly behind the cost of living and that is threatening to endanger the fundamental principle that access should be based on ability to benefit not for the ability to pay. How much more must we sacrifice to the idol of uncontrolled numbers growth?”

In the Q&A, Augar the economist was keen to push Johnson on the subsidy in the system (via income contingent repayment and the write off) that has come into sharp focus now that the Treasury has to account for it upfront – which resulted in the former universities minister displaying some fascinating naivety:

…the balancing between the individual and the taxpayer we should work in terms of who pays the cost should represent the split between the benefits towards society and the benefits to the learner. And when studies have been done on this, they come up with a range of answers to that question, where we are at present is roughly what it was, a 50:50 split. I think it’s now the student paying a bit more than half of the cost of the system. And that seems to be reasonable.”

Those starting in 2023 will actually shoulder, on average, 81p of every pound loaned. And that underlines the point really.

Anyone trying to fix the system now has to spend quite a bit of money to get maintenance to a sensible place – and there are also demands to increase the unit of resource. But thanks to Michelle Donelan’s stealth changes to Ts and Cs – freezing the repayment threshold and extending the write off to 40 years – it’s now very hard to do either of the things that folk want without spending really substantial amounts of money, because there’s not really much subsidy left in the tank to cut by stealth.

In a fiscally tight environment, unless you’re much more radical (and that doesn’t feel like it’s on the cards for either main party’s manifesto) that probably leaves you with number controls via input attainment or subject outcomes, or a (messy, given the LLE, but not impossible) graduate tax.

The sector would indeed lose its hallowed hypothecation, but I know which one I’d choose.

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