Government reform of Higher EducationWritten evidence submitted by Eddie Hodgson

I appreciate that the deadline for submissions on the inquiry into the Future of Higher Education has passed, but if possible, I would like to draw attention to evidence that has been published since the deadline date in the hope that it also can be considered by the inquiry.

The reason for this is that I believe that the evidence points to potentially significant losses to the taxpayer from the current plans to increase tuition fees to a maximum of £9,000. I will be as brief as possible.

The BIS published a report “The returns to Higher Education Qualifications” in June 2011. Significant points were that the estimated return (tax and other) to the Exchequer from each graduate after all costs of tuition and support had been recovered was on average £89,000. The saving to the government from raising tuition fees to £7,000 was just £485 per student per year.

Another report, published by HEFC in July 2011 predicts a fall in the number of university applicants of 1.9% in 2012 and a leading academic has predicted a fall of around 10% due to falling numbers of school leavers and due to the rise in tuition fees.

The implications of the above seem to me to be as set out below.

Number of undergraduate students in England, Wales and N Ireland is approximately 1.2 million (source Higher Education Statistics Agency website)

Expected decline in student numbers in 2012—about 1.9% on average (source HEFC publication July 2011 “Financial health of the higher education sector”)

Return to the exchequer from graduate on average £89,000 after all costs of HEFC funding and support (source Paragraph 6.1 BIS Research Paper no 45 June 2011 “The returns to higher education qualifications”)

Savings to Exchequer from increasing tuition fees to £7,500—£485 per student (source Figure 31 and Annex 5 BIS research paper no 45 as above)

Savings to the Exchequer—£1.7 billion(number of students times assumed duration of courses of three years times £485) (1.2 million x 3 x £485)

Students lost—22,8001.2 million x 1.9%

Exchequer incremental earnings lost—2 billion22,800 x £89,000Net cost to taxpayer - £0.3 billion

Extract from Guardian Website

“In an interview with the Sunday Times (31 July 2011), ‘Smith, who is vice-chancellor of Exeter University as well as being head of Universities UK, predicted that application numbers are likely to be down by at least 10% in 2012 because of student fears of debt and a fall in the number of school-leavers. This could put more pressure on universities to cut fees’”.

Effect of a 10% fall in students on Exchequer incremental earnings—£10.6 billion1.2 million x 10% =120,000 x £89,000Net cost to taxpayer—£8.9 billion

Caveats—the £485 saving is based on fees of £7,500 per year. The average is in fact likely to be £8,500 which may reduce the savings because of increased support requirements.

The £89,000 Exchequer return (and the associated incremental earnings of graduates (averaged at about £108,000)) are both highly suspect as they may include incremental earnings from other sources such as professional qualifications.

A similar point is made by the HEFI in a recent report regarding the government estimates of RAB in which they say:

“If the RAB costs are higher than estimated the consequence may not be felt for many years, but will have the effect of requiring future taxpayers to pay higher taxes to compensate for revenues that have been assumed but will not arise”.

It seems clear that the consequences of the policy to increase tuition fees on future revenues has not been properly thought through. To use an analogy it is as if Tesco were to increase the price of baked beans fivefold. Customers like students would go elsewhere—to the extent they were able to—for example some students will go abroad, or some customers will stop eating baked beans, or in the case of students they will simply give up the idea of university. It is surprising how many people still live by that old maxim—neither a borrower nor a lender be. Tesco’s response might be to try and keep its customers by offering 4 for one, much as the government is doing in trying to offer bursaries etc to keep numbers up. The sensible alternative is not to raise the prices in the first place if the effect of raising then is that you lose money—see above calculations.

My interest in this is that I believe higher education is a right and not a privilege. I promised to keep this short so I will just end by quoting from the UN’s International Covenant on Economic, Social and Cultural Rights. This was signed by a previous UK Government an states in Article 13 “(c) Higher education shall be made equally accessible to all, on the basis of capacity, by every appropriate means, and in particular by the progressive introduction of free education”. It is available on: http://www2.ohchr.org/english/bodies/cescr/index.htm

24 August 2011