Student Loans Contents

4University finances

The impact of the 2012 reforms

A windfall for universities?

90.One of the principles underpinning the Browne Review was that “more investment should be made available for higher education”. The report states:

The current system puts a limit on the level of investment for higher education. As a consequence we are at risk of falling behind rival countries. Our proposals introduce more investment for higher education. Higher Education Institutions must persuade students that they should ‘pay more’ in order to ‘get more’. The money will follow the student.95

This aligns with evidence provided to the Committee by Lord Willetts, who said of the Browne Review:

The view was, “We have had the financial crash. We have fiscal pressures. There is going to be pressure for saving public spending. It is going to be very hard to exempt higher education from those pressures […] We need to find a way of going a step further beyond the £3,000 to ease the pressures that higher education is going to be under. We need a review that makes this possible”.96

91.The Committee sought to understand the impact of the 2012 reforms on university finances. Dr Helen Carasso told the Committee:

The other thing here is the unit of resource that is available to teach each student place. Was there enough resource in the system in 2011–12? Many universities would say no, there was not, and that there is now a level of resource closer to what is needed.97

In a similar vein, Dr Andrew McGettigan said “the English university sector has more income since 2012” and that “the sector was spared austerity, but there have been market effects, so not every university has the same income that it would have had.”98 These views are echoed by the IFS, which said the following in a 2017 Briefing Note:

The 2012 reform increased the total level of resources universities receive per student per degree by around 25 per cent from £22,500 to £28,000 in 2017 prices. This was a result of the increase in tuition fee income exceeding the loss in teaching grant income. The falling real value of the fee cap since 2012 has reduced funding per student at some universities, but the average figure has been offset by increasingly more universities charging the maximum possible fees and by reductions in fee waivers and bursaries.99

Professor John Denham told the Committee “there is no doubt that [the 2012 reforms were] originally a windfall”.100

92.Lord Willetts told the Committee that the 2012 reforms brought about an increase in university funding which was needed:

The trajectory of resource per student had been [in] decline through the 1980s and 1990s. The decline had been arrested by the £3,000 fees, and it was then about flat, but it was flat at a historically low level. My view was that we could only seriously enter the debate about the quality of teaching in higher education if universities did not have the compelling alibi, “If you keep on reducing unit of resource, what do you expect?” I personally thought that the unit of resource per student did need to go up.101

93.When asked by the Committee whether he thought that the 2012 reforms represented a windfall for universities, former Universities Minister Jo Johnson concurred with Lord Willetts, saying the changes were needed to address a historic funding shortfall.102

94.The Committee also took evidence from two current university Vice Chancellors: Professor Janet Beer, Vice Chancellor of the University of Liverpool and President of Universities UK, and Professor Mark E Smith, Vice Chancellor of Lancaster University and Chair of the Financial Sustainability Strategy Group at the Higher Education Funding Council for England. When asked whether universities have experienced a significant increase in per-student funding since the 2012 reforms, Professor Mark E Smith said:

There has been an increase but [funding per student of] £9,000 or even £9,250 is not historically high. If you look back at 1989–90 and project it forward to 2012, the value we got per student then was £9,600. What then happened […] was that there was a longterm decline to a minimum of £6,400, which the £3,000 fee and then the £9,000 fee addressed.

[…] Although there has been an uplift, it has been to replace all the things like the loss in the capital grant […] If you are asking, “Is £9,000 overinflated?” the numbers do not say that.103

Cross-subsidy between courses

95.The Committee’s inquiry explored whether the 2012 reforms have created an incentive for universities to offer courses that are cheaper to run, in the knowledge that they are likely to receive maximum fee income regardless of the cost of putting on a course. Dr Andrew McGettigan told the Committee:

There is an incentive in the system. The classroom subjects, for example social sciences, arts, humanities, law, business […] previously would have attracted a unit of resource of about £6,000. They used to get a lower level of unit of resource through the combination of institutional grant and fee. They are now able to charge £9,000 for those courses. […] For the classroom subjects, there is an incentive to recruit more of those students.104

96.On the subject of whether there is any evidence to suggest that universities have increased their provision of cheaper courses relative to those that are more expensive, Professor Mark E Smith told the Committee:

The answer is no. If you look at the number of people going into high-cost subjects compared with low-cost subjects, there has been an increase overall, because obviously the registrations have gone up. Those classified as low-cost have gone up by four per cent over the last two or three years, whereas the high-cost subjects have gone up by nine per cent, particularly around biological sciences and biomedical-related courses. They have been very popular.

97.However, in its 2017 report on the higher education market, the NAO expressed a different view, saying:

Providers reported that teaching grants for high-cost courses do not cover additional costs, creating incentives to prioritise lower-cost subjects. We found examples of providers opening or expanding cheaper classroom-based courses to strengthen their overall financial position. […] Pressure to prioritise lower-cost courses is often balanced by other incentives, for example to maintain a provider’s reputation or graduate outcomes. As such, most providers we spoke to sought to maintain expensive but important subjects, and covered additional costs with cross-subsidies from other areas including fees from international students, commercial income or, in some cases, lower-cost subjects.105

98.Against a backdrop of sustained reductions in public spending, the 2012 reforms saw university funding increase significantly. The sector was spared austerity. The provision of extra resource to universities sought to bring funding up to an appropriate, sustainable level that could ensure the delivery of high quality teaching outcomes. The country’s universities are an asset, and are rightly admired internationally; a point that is often forgotten in public discourse.

99.The Committee heard that universities are not awash with cash, rather, they are now being funded sustainably, with teaching now typically breaking even. This position must be maintained to ensure that we defend the UK’s world-class higher education system.

96 Q110

97 Q4

98 Q32, Q34

100 Q104

101 Q101, Q102

102 Q227

103 Q146

104 Q41

105 National Audit Office, The higher education market, 8 December 2017

15 February 2018