House of Commons - Education and Skills

Select Committee on Education and Skills Fifth Report

7. University funding and student support

142. The White Paper is very bullish about the advantages that its proposals for university funding will bring:

"The Government is making an unprecedented investment in the universities and will stand by them in future spending reviews. But to be really successful, universities must be free to take responsibility for their own strategic and financial future. Strong leadership and management, freed from excessive red tape, will help them not just to respond to change, but to drive it. And more financial freedom will allow them to fund their plans, and unleash their power to drive world-class research, innovative knowledge transfer, excellent teaching, high-quality, greater and more flexible provision, and fair access."[185]

143. The key points of the Government's proposals are:

" Because leadership and management are key to the challenges ahead, we will help to fund HEFCE's and Universities UK's proposal for a new Leadership Foundation to support the sector to improve leadership and management.
We will reduce bureaucracy and burdens on universities. A task force under David VandeLinde has been set up to report on further measures to reduce unnecessary red tape.
Increasing university endowments is the route to real funding freedom in the long term. We will support institutions to build endowments in a range of ways.
As we are asking new students to pay for the benefits they get from higher education, to build sustainable funding freedoms for the future, we believe that it is also right that those who have already benefited from higher education should be able to contribute.
We will set up a task force to promote corporate as well as individual giving; and we propose to create a matched fund for endowment.

From 2006:

We will give universities the freedom to set their own tuition fee, between £0 and £3,000. But no student or parent will have to pay any up-front fee. A new Graduate Contribution Scheme will allow them to pay their contribution back, through the tax system, once they are earning.
We will safeguard access by having a maximum level for the graduate's contribution; by requiring institutions to develop strict Access Agreements; and by continuing to pay the first £1,100 of any contribution for those from lower-income backgrounds.

From 2005:

We will raise the threshold at which loans start to be paid back from £10,000 to £15,000 a year, to make repayment less burdensome.

From 2004:

We will increase the help available for the students that need it most, by introducing a new national grant of up to £1,000 a year for those from lower-income families. This will be in addition to the full existing student loan entitlement. We have already doubled the amount of extra money for vulnerable students and will introduce a new grant for part-time students.
We are also simplifying and improving the administration of student support." [186]

University funding

144. The key issue in relation to university funding is clearly the proposal to allow universities to charge their students differential fees ranging from nothing to £3,000. The White Paper also promotes university endowment funds as a major source of funding in the future, but acknowledges that even the best endowed universities in the United Kingdom do not have anything like the resources of the leading universities in the United States:

"British universities have much smaller endowments than their global competitors. Harvard has about $18 billion, Yale $11 billion and Princeton $8 billion. In contrast, Oxford has about £2 billion."[187]

145. Professor Arthur Lucas of King's College London explained the position for his institution:

"At King's, our total endowment pool is about £83 million, of which just under £1 million is available for general purposes. That is not income, that is the actual amount. All the rest is highly tied in the way in which it was given and cannot be used for any other purpose…. People have mentioned endowments but it takes a long time to build up that sort of a pool and I welcome the recognition of endowment and support of endowment in the White Paper, but it is not going to be a simple, easy and fast solution."[188]

146. Goldsmiths College echoed that conclusion, saying that successful endowments would require a cultural shift in charitable giving and that "this is a very long-term aspiration, if indeed it is achievable at all".[189] The University of Birmingham was more enthusiastic, but also acknowledged that the building of endowment funds is a long term process.[190]

147. Sir Howard Newby put the scale of the task of increasing income from endowments into perspective:

"…our so-called…quality related research funding…is broadly equivalent to the endowment income, in proportional terms, of the major American research universities. That QR income is the functional equivalent in this country of the endowments that go into the major American research institutions. In proportional terms, it is almost exactly the same."[191]

Differential fees

148. The focus of this chapter then is on differential fees, and the points that we need to address are:

Is it right to charge students fees for their courses or should funding come from elsewhere?

If it is right (or if the Government is wedded to the policy), is the £3,000 limit set at the right level, and is the capping of that amount to the end of the next Parliament appropriate?

Will universities be differentiated by the fees they charge, or will most charge the maximum £3,000?

Will different courses at the same institutions be charged at different rates?

149. The White Paper sets out clearly the Government's argument in favour of a contribution from students (or, as now proposed, graduates) to the cost of their higher education:

"Graduates derive substantial benefits from having gained a degree, including wider career opportunities and the financial benefits that generally follow. On average those with a higher education qualification earn around 50% more than non-graduates….Given these benefits to an individual from the investment in a university education, the government has decided that it is fair to allow universities, if they so determine, to ask students to make an increased contribution…We believe that this will also have the benefit of enhancing the independence of universities by making them less reliant on government funding."[192]

150. A number of those we spoke to were very strongly opposed to students or graduates paying towards the cost of their higher education through fees. Mandy Telford, President of the NUS, told us "we do think that differential fees are wrong and they will create a two-tier, elitist higher education system".[193] Sally Hunt of the AUT said that, in a survey undertaken by the union, 88% of members had said that they would prefer higher education to be funded by general taxation:

"They do not believe that it is reasonable to have differential fees because they believe that that will impact on their ability to make the choices and help people on the basis of their academic ability rather than their ability to pay".[194]

If there has to be a contribution from those participating in higher education, the AUT told us that most of its members believe it should come through a graduate tax.[195] NATFHE said that its members had similar views, being "overwhelmingly opposed to the introduction of top-up fees….Top-up fees destroy funding equality and thus genuine equality of opportunity."[196]

151. The Government's proposals were supported by Professor Nicholas Barr of the London School of Economics. He told us:

"Higher education confers a benefit on society as a whole and to that extent has received—and should continue to receive—tax funding. Beyond that, however, tax funding is deeply regressive. If the money comes from general taxation, the taxes of the hospital porter pay for the degree of the old Etonian. If it is unfair for graduates to pay more of the cost, as the proponents of tax funding argue, it is even more unfair to ask non-graduate taxpayers to do so."[197]

152. The Secretary of State sought to put the amount to be charged into perspective:

"At the moment, of the approximate £7.5 billion that is provided to universities, £400 million is fee and the rest is State; it is a 1:14 ratio and I do not think that is particularly unreasonable. We will slightly change that ratio by the proposals we are talking about."[198]

Graduate tax

153. The Government does not say in the White Paper why it decided against introducing a form of graduate tax, but the Secretary of State did outline some of the reasons in an article in Tribune in January 2003. He noted the difficulties of setting the parameters: whether the tax would be paid back for life, or for a particular period, or until a particular sum had been paid off. He argued that the rate might have to be 3p in the pound for 25 years "to make the sums add up". He also said that research suggested that graduates disliked the idea, being content to pay off their own fees and maintenance, but not those of others.[199]

Deferred payment of fees

154. There was a broad welcome for the change from up-front payment of fees to payment after completion of a course. All of those who are in principle against the graduate contribution did agree that if there are to be fees, payment in arrears is much to be preferred. Sally Hunt told us that "[AUT members] do not believe that up-front fees would work. They welcome the change in that therefore."[200] NATFHE said "[We] opposed tuition fees as, despite means testing, they deter poorer students. Government now accepts their deterrent effect and the abolition of 'up-front' fee payment is welcome."[201] Lindsey Fidler of the NUS said that it approved of any payment being after completion of a course because "that does establish independence on the tuition fee element because it becomes a personal charge".[202]

The £3,000 cap

155. If there are to be differential fees, is £3,000 the right level? Will it create a differentiated market, and is the capping of the fee at that amount in real terms until the end of the next Parliament sensible? Professor Floud for UUK argued that it would not resolve the problems arising from the need for additional funding:

"..although an increase to £3,000 is a substantial increase on the current fee of £1,100, our calculations…suggest that even if all the universities charged the full £3,000, the increased income would be only £1.8 billion…it would not close the gap in the way we are talking about and of course we have no guarantee at the moment that all universities would be allowed to charge the full £3,000."[203]

156. Margaret Hodge said the Government's intention in introducing differential fees was to produce a regulated market:

"I think that the introduction of a regulated market in higher education will ensure that the supply of courses meets the demand of students, and I think that is really important. It will drive up the quality of what is on offer in our universities, and over time it will lead to an increase in standard and output from those who go to our universities. Also, as higher education becomes more globally competitive, it is important that within the nation state we maintain our competitive edge, and introduction of regulated market forces within United Kingdom higher education will support our global competitiveness."[204]

157. While with a £3,000 cap it will be a regulated market, witnesses suggested that differentiation between institutions would be slight. Dr Knight of UCE said he thought the £3,000 figure had been chosen deliberately so that fees would not be differentiated "because it is the maximum you can charge before differentiation comes in".[205] He added that

"I assume that every university will want to keep its options open and will plan on the basis that they are going to charge £3,000 because if we do not and if the grant is subsequently cut, as we expect it to be from 2006 onwards to take account of the increased fee, then you are in an absolutely no-win situation if you have not planned for the £3,000 fee".[206]

158. Others expressed similar views. Sir Richard Sykes said that he did not think that £3,000 was a sensible cap "because what it does is encourage everybody to charge £3,000":

"..I think if we had put the top level at £5,000 then…there are institutions who may have charged nothing, there are institutions that may have charged one, two or five, but I think, with three, it is so close to what we do today that most universities will just go to £3,000".[207]

Dr Brown agreed:

"I think that the level at which the thing has been set is less likely than a higher level of fee would have been to encourage price competition…I think there must at least be a risk that no institution for the generality of its provision would charge less than £3,000".[208]

Professor Trainor said that "it is an open question, given all the other variables concerned—…changes in public expenditure levels, and so on—whether that will be enough to make up the funding gap in the period from, say, 2006 to 2010".[209]

159. Sir Howard Newby concurred with these views:

"I think that…the higher the fee, the greater the variability between institutions. I think that if it had been £2,000 everyone would have charged it, and, if it had been £5,000, only a few institutions would have charged it, but I think that at £3,000 it is quite difficult to make a judgement but I would say that possibly between two-thirds and three-quarters of institutions will charge it".[210]

160. Professor Eileen Baker of Bishop Grosseteste College, Lincoln, indicated that there would be pressure to conform with other institutions:

"This college is not anxious to charge the full £3,000 fee, but if others do, we will (to avoid relegation to a 'cheap and cheerful' brigade) and expect to plough some of the new income into our bursary scheme designed to encourage those who would otherwise hesitate to take on the financial commitment of studentship".[211]

161. Of those we spoke to, only Dr Thrower of the Mixed Economy Group thought that his institution's fees would not rise to, or towards, the maximum:

"Looking at the type of students that we have, my own group felt that it was highly unlikely that they would be adding any fees; they would be keeping them where they are, simply to encourage the widening participation, because that is the key to what Mixed Economy Colleges are about".[212]

162. Professor Barr argued in his memorandum to the Committee that the cap of £3,000 "is probably right", but went on to say that

"..its duration—the life of the next Parliament—is too long. If the cap is too low for too long, a critical bulk of universities will charge the maximum, appropriating a system of flat fees. The result will be (a) to reintroduce closed-ended funding and (b) to restore central planning [of student numbers] by the back door."[213]

163. The Secretary of State said that

"we are making quite a major departure in allowing universities to vary fees at all…it is important to indicate that, though the change is being made, there are limitations…we had to decide, if we are making this major reform, whether we put some limits on it and what the nature of those limits should be and the view we came to was that £3,000 was an appropriate figure. Do I believe that all universities will simply whack up their fees to £3,000? Actually, I do not, and I have spoken to a large number of vice-chancellors about this and I know that there was a fair bit of what I would call sabre rattling in this area."[214]

On the question of the duration of the cap, he did indicate that it would be useful to have some flexibility, perhaps by having the figure set in secondary rather than primary legislation.[215]

Different fees for different courses

164. As well as differentiation of fees between universities, the White Paper raises the prospect of differentiation of fees within universities for different courses,[216] and Margaret Hodge was clear that the Government had no objection in principle to such variations:

"We have always thought that, if you are opening up the market a little bit through varying fees, there is bound to be a difference in the way the market responds over different subjects and different institutions…there are some institutions which may well, because they are particularly popular in some subjects and are particularly good at delivering some courses, choose to vary their fees in some subjects".[217]

165. The AUT was, if anything, more vehemently opposed to differentiated fees within universities than differential fees per se. Sally Hunt told us that her members were "absolutely horrified by the idea that an internal market may well develop in terms of some departments, some courses".[218] Professor Eastwood of UEA also expressed concerns about within institution variations:

"I think there are very real difficulties in differentiating the charge within institutions…I think there are real problems, for example, in charging more to read English than to read chemistry. You turn students into consumers who inhabit rooms adjacent to one another in the same institution and wonder why one is cross-subsidising the other."[219]

Student support

166. The Secretary of State made it clear in evidence that, so far as the Government is concerned, there is no prospect of a return to a system whereby all fees are paid for in full from public funds. If, therefore, students are to be charged more for their courses the support they are given to cope with the need to repay fees and maintenance loans becomes an even more critical issue than is the case now. Four decisions set out in the White Paper are particularly relevant: the abolition of up-front tuition fees; the raising of the threshold at which repayment of loans begins from £10,000 to £15,000; the re-introduction of maintenance grants; and the continuation of the policy that those with the lowest family incomes will receive assistance with payment of the first £1,100 of tuition fees.

167. We have already noted that the move to require payment of fees after completion of a course rather than during the course, making higher education free at the point of use, has been widely welcomed. This has the effect, however, of increasing the level of debt which has to be paid at the end of a course. It is for this reason that the Government will increase the threshold of repayment on student loans from £10,000 to £15,000, with effect from 2005, "To make payments less burdensome for every graduate".[220] The main comment that we have received on this point is that the level is still too low, and that the threshold should be set at the level which indicates that a graduate is benefiting from having participated in higher education. As Mandy Telford of the NUS said:

"[Graduates] do get a great advantage, but the only way you can clarify that advantage is by their financial earnings…At £25,000, we believe, you have clearly benefited from your education. So we would like to see student loans being repaid at £25,000 and we also believe that if you are lucky enough to go on and get a job where you earn a lot, and not everybody does…then you will be paying more through the tax system, and we believe that is the fairer way."[221]

NATFHE expressed similar views:

"Even if one accepts the argument that higher earnings justify some degree of 'repayment' then surely such repayment should be triggered at the point when the graduate achieves the higher earnings to which they would not have had access as a non-graduate. That would indicate a threshold of around £25,000."[222]

185 The Future of Higher Education, p 76. Back

186 ibid, pp 76-7. Back

187 ibid, para 7.16. Back

188 Qq 171, 174 Back

189 Ev 226 Back

190 Ev 246-7, paras 7.5 to 7.13. Back

191 Q 453 Back

192 The Future of Higher Education, paras 7.21-2. Back

193 Q 275 Back

194 Q 246 Back

195 Q 252 Back

196 Ev 43 Back