Chapter 3: The Augar Review
37.In February 2018, Prime Minister Theresa May MP announced an independent panel, led by Dr Philip Augar, would review post-18 education and funding. The panel’s report (the “Augar Review”) was published on 30 May 2019.56
38.The report considered the whole post-18 education system and the panel made recommendations relating to further and higher education in England. It emphasised the importance of post-18 education options for the 50% of people who do not go to university and recommended an investment of at least £1 billion in further education over the next spending review period. The report also made recommendations about skills training, apprenticeships and funding for disadvantaged students.
39.On higher education, the panel’s recommendations included:
- Reducing the cap on the fee chargeable to home and EU undergraduate students from £9,250 to £7,500 per year from 2021/22 (recommendation 3.1)
- Replacing the lost fee income with an increased Government teaching grant to universities (recommendation 3.3)
- Adjusting the teaching grant attached to each subject to reflect more accurately the subject’s reasonable costs and social and economic value. (recommendation 3.5)
The panel made “no recommendations about research funding, which is outside the scope of this review, and is for government to consider separately.”57 We consider in paras 65–66 whether the panel should have considered research funding more carefully given its terms of reference.
Impact on university finances
40.Dr Tim Bradshaw told us that a tuition fee cut to £7,500 would equate to a total loss of £1.8 billion across the whole university sector, and £547 million from Russell Group universities.58 Professor Michael Arthur told us that for University College London the reduction in income would be £40 million a year, equating to 19% of teaching funding.59 Speaking as former Vice-Chancellor of the University of Cambridge, Professor Sir Leszek Borysiewicz told us that “every £1,000 fall per student is £10 million per annum extra which the university has to find.”60
41.The Augar Review’s recommendations are presented as a package. Dr Philip Augar told us that the review “stated quite firmly that the recommended fee cut to £7,500 must be accompanied by a full top-up in the average, sector-wide unit of resource.” However, numerous witnesses were concerned that the Treasury may choose to implement the fee cut without the compensatory increase in the teaching grant, particularly given the report’s request for additional funding for further education. Lord Willetts, former Minister of State for Universities and Science, thought additional funding for both further education and higher education from the Treasury would be a “very difficult ask”, because higher education was not “ever a high priority for public spending”.61 He expressed doubt that, even if additional teaching grant funding materialised, it could be relied on as a source of income in the long term.62 Lord Macpherson of Earl’s Court GCB, former Permanent Secretary to the Treasury, was worried “whether over time this would result in universities receiving less funding.”63 Following the publication of the Augar Review, Jo Johnson MP, former Minister of State for Universities, Science, Research and Innovation, said it was “highly unlikely” that the fee cut and enhanced top-up grant “would go in tandem” and that even if additional top-up funding was provided, there would be a “real risk that it ends up being a slush fund for the ministerial project du jour”.64
42.We heard that lowering the tuition fee cap without increasing the teaching grant to compensate could have severe financial consequences for universities. Professor Luke Georghiou explained that while institutions such as his were at the “financially secure end of the system”, some institutions could close due to this loss of income.65 This was in the context of increasing numbers of universities reporting financial deficits: data from the Higher Education Statics Authority (HESA) show that almost a quarter of higher education providers in England reported a deficit in 2017/18, compared to a tenth of providers in 2012/13.66
43.Our evidence suggested that most institutions would not face closure but would have to make significant cutbacks and reduce what they could deliver. Consequences could include bigger class sizes, higher student-staff ratios, reduced investment in and maintenance of infrastructure, a decline in outreach and widening-participation programmes, and cuts to the provision of high-cost, hands-on subjects such as engineering.67
44.Professor Julia Buckingham raised the added pressure of the growing population of 18 year olds: “Unless we have a cast-iron guarantee that that funding will be replaced and increased with inflation and that there will be funding for what will be a growing population of 18 year-olds from 2021, there will be a funding gap.”68
45.We asked witnesses how they might try to increase their income if the teaching grant is not made up in full. Given that international student fees currently produce a surplus (see paras 27–28), institutions may face increasing pressure to recruit more international students to help make up the gap in domestic student teaching income,69 The University of Cambridge said that it “may have no choice but to consider increasing its proportion of overseas undergraduate students relative to its home cohort to make up for the loss in funding”.70 Professor Julia Buckingham stated that in her understanding, “the OfS [Office for Students] data suggests that every university is planning to increase its international students”,71 but Professor Roger Kain, Vice-President for Research and Higher Education Policy at the British Academy, suggested these were “heroic assumptions” and it should not be assumed that the “amount of money that is moving out of fee income will be made up” by increasing the number of international students.72
46.The university representatives we spoke to were positive about the role of international students in their institutions’ communities, and the importance of remaining attractive destinations for them.73 However, witnesses generally agreed that having to increase the proportion of international students to fill a funding gap was not desirable. Professor Michael Arthur highlighted that University College London was a “British university” with a “responsibility to the country”.74 The University of Cambridge said that while “the quality of both home and overseas undergraduate applicants is extremely high across the University”, altering the balance between home and overseas students would “have an impact on opportunities for UK undergraduate students, in particular, to receive a world-class education and, bearing in mind limited capacity, would impact on social mobility.”75
47.We also heard concerns that even if the teaching grant was increased, as proposed by the review, the recommendation that the teaching grant be tied to the “value” of subjects could result in an overall reduction in the grant available to universities. Dr Tim Bradshaw explained how the system works at present, and how the Augar Review recommendations could exacerbate financial strains:
“at the moment, the Government top up teaching grants for some subjects: STEM subjects, medicine … and a few others. Across the middle group of band B subjects—most of science, technology and engineering we [Russell Group universities and peers] make a loss of about £1,400 per student … even with the current government top-up grant. If you cut the fee again, that puts an even bigger hole in the teaching of STEM subjects. The top-up grants that you would need from Augar are substantially more than just the gap from £9,250 down to £7,500. They would need to make up the additional deficit that we are already carrying on those subjects.”76
48.Reducing the tuition fee cap in England to £7,500 without compensating universities for this loss in full by increasing the teaching grant will result in significant financial consequences for universities. The immediate casualties of such a reduction in income will likely be widening-participation programmes, student experience, infrastructure maintenance and repair, and the hands-on elements of courses.
Impact on research
49.While the proposed cuts would ostensibly affect universities’ teaching budgets, witnesses told us that they would also be likely to have implications for research, due to the complex cross-subsidies within university finances, as outlined in Chapter 2. Professor Michael Arthur explained that “we tend to think of these budgets in silos—teaching funding, research funding and so on”, but that when it came to funding a school or faculty, they were in fact treated as a single budget. The budget was then spent “in order to create the greatest academic excellence in both teaching and research.” Disturbing any element of the budget would therefore affect the other parts.77
50.Many witnesses said that there would be a negative impact on research if the teaching grant was not made up in full to compensate tuition fee cuts. Professor Luke Georghiou told us the effects would be “absolute and dramatic for research, causing us to lose both quality and volume”.78 Professor Peter Bruce said it would be “pretty close to a disaster if the shortfall was not made up in another way,”79 particularly as it would exacerbate the pressures on QR funding for universities, as outlined in Chapter 2.
51.Although UKRI considered the amount of QR funding available to universities was sustainable at present,80 David Sweeney admitted there was a “significant risk” to universities’ sustainability if the tuition fee income loss was not made up, and that UKRI did not have the capacity to help make up funds to universities without further investment from the Government.81 Dr Alex Marsh echoed this and stated that if the recommendations were implemented in a way that did not protect universities’ sustainability, it would have a “damaging effect on universities’ ability to continue to perform the missions that are so central to the industrial strategy and to delivering the 2.4% target.”82 David Sweeney added that UKRI and Research England would consider different ways in which they could allocate their current resources, but all such scenarios would “severely undermine the Government’s commitment to 2.4% of R&D being invested in research and innovation.”83
52.We did not receive evidence indicating the Government’s position on the Augar Review and its implications for university finances. However, the minister said in a personal capacity that he would “warn against any reduction in fee level without a commensurate addition of funding.”84
Diversion of resources to teaching
53.Witnesses expressed concern that, under a reduced-income scenario, resources would be prioritised for teaching over research. University faculties and departments are staffed as “academic units”, and staff often contribute to both teaching and research.85 Professor Michael Arthur explained that, if universities’ overall income was cut, resources could be diverted to teaching, as “most academics will prioritise that above their research”.86 The University of Cambridge told us that “any further loss of funding to the University would require us to divert other income streams to support teaching, reducing the resource available to support the undertaking of research and the ongoing renewal of our research facilities.”87 The Campaign for Science and Engineering also expressed concern that QR funding could be re-directed to fill gaps in teaching funding, at the expense of research.88
54.Dr Tim Bradshaw highlighted that, while in many universities at present there was an effective cross-subsidy from international student fees to research, if there was a shortfall in the teaching budget, universities would “have to think very carefully about where that money is used” as the money could not be used twice.89 This would further reduce the ability of universities to make up the full economic cost of research. The University of Cambridge echoed this: “in the scenario of a funding cut, [the university] would need to switch a greater proportion of its own resources to subsidising education and student support,” which would be at the expense of “meeting the costs attached to research”.90
Impact on specific disciplines
55.Reducing universities’ income is likely to have a disproportionately high impact on the provision of particular disciplines, and by extension the research produced in those disciplines and the pipeline of talent from undergraduates to researchers. Such subjects include those which are expensive to run, and so which may not be able to cover costs on a reduced income, and those which may be cheaper to run but are considered ‘low-value’ and so may not receive adequate teaching grant top-up income.
56.The former category includes courses like engineering. Professor Dame Ann Dowling explained that “engineering courses cost between £12,000 and £15,000 a year” to run, so if the teaching grant was not increased by an adequate amount, universities may cut provision of these expensive courses.91 Imperial College London, which teaches primarily STEM subjects, told us that “the cost of delivering an Imperial [undergraduate] degree exceeds the tuition fee income in every case, with an average deficit of c. £2,650 per student”.92
57.These problems are exacerbated by the fact that in many cases universities already make a loss on high-cost subjects, despite targeted teaching grant money intended to make up the difference. At Imperial College London, all subjects except mathematics qualify for the high-cost or very-high-cost subject additional funding streams, but they still operate at a loss. They told us that if fees were cut to £7,500 and there was no additional teaching grant, the average loss would increase to £4,300 per student per year.93
58.Universities may have to cut the more expensive elements of courses to reduce overall costs. Dr Tim Bradshaw expressed concern that “attractive and interesting bits of fieldwork or lab study” that students often chose to do in the latter years of their degrees “could … end up being squeezed.”94 Professor Dame Anne Dowling explained that in engineering the most expensive element was the “hands-on practical experience, such as doing experiments and running projects” which were “essential to turn out the trained people that industry needs.”95 She also said that as hands-on teaching was more staff-intensive, if staff numbers were cut the practical elements of courses would suffer.96
59.The most serious outcome could be departments for some high-cost subjects being forced to close. Professor Mark Smith explained that when the unit of resource of government funding reduced in the early- to mid-1990s, research-intensive universities responded by closing chemistry departments to cut expenses.97
60.At the other end of the spectrum, there were concerns that the panel’s recommendation to “adjust the teaching grant attached to each subject to reflect more accurately the subject’s reasonable costs and its social and economic value to students and taxpayers”98 would adversely affect courses in the arts, humanities and social sciences, which are generally the lowest-cost courses.
61.Under the current system, teaching grant funding is primarily allocated to universities on the basis of their provision of high-cost subjects. Subjects in price groups C2 (including geography, mathematics and languages) and D (including humanities, business and social sciences) are not allocated teaching grant top-up funding.99 This is manageable for many universities charging £9,250 fees but could become unmanageable if fees are reduced to £7,500 and no top-up is received. Dr Tim Bradshaw explained:
“One of our challenges is the £7,500 figure that is in Augar’s report. You may have seen that, at the same time, the Government commissioned a piece of work from KPMG looking at an alternative view of how much it costs to teach various subjects. I think the lowest-cost band of subjects that it looked at was English, law and modern languages. The average fee that it came up with that would be needed in that area was £8,801. Even that is well above what Augar was suggesting.”100
Professor Michael Arthur told us he was “very worried about what happens to arts, humanities and social sciences funding” under the proposed system, and that any impact on those disciplines would be a “disaster for the country”, as we “need that research and teaching capability.”101
62.Overall, witnesses were cautious of the suggestion that income could be “precision-engineered” in such a way for any subject, given the complexities of university finances and the cross-subsidies within them.102 Lord Willetts told us that “Augar goes too far in thinking that you can attach precise purposes to specific bits of money rather than regarding university as an overall institution that has to be well run by its academic community and its vice-chancellor.”103
63.Witnesses also expressed concern about the recommendation that the Office for Students should determine the value of subjects and, as a result, the value of teaching grant top-ups. They told us this indicated increased involvement by the Government in matters which universities are better equipped to deal with; Dr Tim Bradshaw said that the Augar Review felt like “another chip away at [universities’] autonomy”.104 Professor Sir Leszek Borysiewicz said that “universities are far closer to the customer base” and can be “more responsive than any centrally created behemoth that will define the disciplines that will create the country in the future.”105 Lord Macpherson echoed this, saying that the “demand for greater central direction” was “implicit” in the Augar Review, but “generally, the gentleman in Whitehall does not know best.”106
64.The Augar Review recommends that the social and economic value of different subjects be determined by the Office for Students, taking account of the subject’s relative importance with respect to alignment with the Government’s Industrial Strategy and a range of other factors such as the financial viability of the university and its contribution to the local economy. This recommended process is far from straightforward and is certain to be controversial. We are concerned that it will be fraught with difficulties and that it will remove autonomy from universities.
Comprehensive review of university finances
65.The Augar Review panel focused on just one element of the university finance system in the review. The report states that commenting on research was “outside the scope of this review”;107 however, David Sweeney told us that “the terms of reference say explicitly that the recommendations should be guided by the need to support the role of universities and colleges in delivering the Government’s objectives for science, R&D and the industrial strategy,” and “it was not clear how much the review focused on the broader role of universities”.108 In fact, the terms of reference for the Augar Review included the following consideration: “How we can support a more dynamic market in provision, taking into account reforms already underway, whilst maintaining the financial sustainability of a world-class higher education and research sector.”109 We therefore consider that research should have been an integral part of the review.
66.The Augar Review acknowledged that “there will be concerns about the impact of the resource freeze on some institutions with pockets of research excellence” but the panel were “of the view that it is for government, business and other interested bodies to fund research adequately and directly”.110 The report stated further that “the sector could and should absorb a further squeeze on per student resources to help find investment in other parts of the post-18 education system”.111
67.Lord Willetts told the Committee that there was a “tension in public policy” over responsibility for universities. He explained:
“Responsibility for universities is divided between two different departments, one covering teaching and the other covering research. It is clear that the Augar agenda—who knows to what extent it is the DfE [Department for Education] agenda—is to reduce teaching funding and reduce the unit of resource going into universities. The BEIS [Department for Business, Energy and Industrial Strategy] agenda is to grow R&D spend. So you have one department with its foot on the brake and one department with its foot on the accelerator … it is a very peculiar way of going about things.”112
68.By concentrating on student education and making only a passing reference to research and development, the terms of reference of the Augar Review did not take a holistic approach to the funding of universities. The panel compounded this by making no attempt to assess the potential impact of its recommended reductions in student fees on the funding of research, declaring that it was outside the scope of the review. The result is a distorted assessment of the sector’s financial health as a whole.
69.In looking at university funding without considering research and cross-subsidies, the Augar Review has made recommendations which, if implemented, could prove harmful to the already challenging ecosystem of university funding.
70.If the Government is to follow any of the recommendations of the review relating to tuition fees, it must implement them as a full financial package, including increasing the teaching grant to cover the loss of tuition fees, to ensure that universities are no worse off than they are now. We are, however, concerned by the proposal that the Office for Students should determine the value of teaching grant awarded to individual institutions. This gives the Office for Students too much power to determine the fate of universities and erodes their autonomy. Whoever has the responsibility for determining the value of teaching grant awards must do so using clear metrics to assess the impact on the research base. Given the complex nature of the cross-subsidies universities employ in managing their finances, seemingly small disruptions to inputs could have significant unintended consequences for research.
56 Department for Education, Independent panel report to the Review of Post-18 Education and Funding, CP 117, May 2019: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/805127/Review_of_post_18_education_and_funding.pdf [accessed 1 July 2019]
57 Ibid., p 93
62 Ibid.
64 ‘Ex-ministers warn Treasury will not make up funding if fees cut’, Times Higher Education (June 2019): https://www.timeshighereducation.com/news/ex-ministers-warn-treasury-will-not-make-funding-if-fees-cut [accessed 1 July 2019]
66 HESA, ‘Higher Education Provider Data: Finance’: https://www.hesa.ac.uk/data-and-analysis/finances [accessed 1 July 2019]
67 Q 6 (Professor Luke Georghiou), Q 22 (Professor Michael Arthur), Q 32 (Professor Dame Ann Dowling), Q 29 (Professor Julia Buckingham), Q 40 (Dr Tim Bradshaw), written evidence from Imperial College London (SRF0004), written evidence from University of Cambridge (SRF0006)
93 Ibid.
98 Department for Education, Independent panel report to the Review of Post-18 Education and Funding, CP 117, May 2019, p 96: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/805127/Review_of_post_18_education_and_funding.pdf [accessed 1 July 2019]
99 Office for Students, Guide to funding 2018–19, OfS 2018.21 (May 2018): https://www.officeforstudents.org.uk/media/42d81daf-5c1d-49f6-961b-8b4ab1f27edc/ofs2018___21.pdf [accessed 1 July 2019]
100 Q 39 (Dr Tim Bradshaw). See also KPMG for the Department for Education, Understanding costs of undergraduate provision in Higher Education (May 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/804975/Understanding_costs_of_undergraduate_provision_in_higher_education.pdf [accessed 1 July 2019].
107 Department for Education, Independent panel report to the Review of Post-18 Education and Funding, CP 117, May 2019, p 93: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/805127/Review_of_post_18_education_and_funding.pdf [accessed 1 July 2019]
109 Department for Education, Review of Post-18 Education and Funding Terms of Reference, February 2018, p 2: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/682348/Post_18_review_-_ToR.pdf [accessed 11 July 2019]
110 Department for Education, Independent panel report to the Review of Post-18 Education and Funding, CP 117, May 2019, p 93: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/805127/Review_of_post_18_education_and_funding.pdf [accessed 1 July 2019]
111 Ibid., p 92