Sunday, 1 March 2015

Unanswered questions about Labour's university fee reform


So Labour have finally grasped the nettle. They've done what they always said they would, and always hinted that they wanted to - said that they'll reduce English university fees to £6,000 if they win the next election.

Now that's qualified good news for the nation's finances. It reduces the risk that the university system will bankrupt the entire country if allowed to go on building up a ballooning debt that the taxpayer shells out for, but only ever sees half of the money back. We've addressed that danger here again and again, and it needs so reiteration.

So two cheers for at least some sense on the public finances. But of course the system still remains largely in place, and although this will probably reduce the debt by a third and more (because higher interest rates will be levied on those loans that are paid out), the Exchequer is still going to be left with an enormous bill twenty or thirty years into the future.

And, rather more worryingly, key elements of the Labour plan look a little bit sketchy from this vantage point. The first principle of most public life is: there's no such thing as a free lunch. And in this case, we can rephrase: he who pays the piper calls the tune. So we can expect more state control. Who thinks that the Government is going to give out about £3bn of taxpayers' money every year without wanting something in return? You can see that in Scotland, where many universities are desperate to say that they want some form of graduate contribution to relieve the pressure on their budgets, but are afraid of speaking out and offending their own government in Edinburgh.

But anyway. Four main questions arise about what that will be, and what this reform means in practice as well as principle. Here they are, in no particular order:

1. Will the student numbers cap come on again, and if so, how will it work? The main reason why student numbers have continued to go up in recent years is that the Government has successively loosened the cap on both numbers in the system in total, and the cap 'in detail. What that's meant is that the more prestigious parts of the sector have often poured in more undergraduates (with the paradoxical effect that the 'research-intensives' now spend all their time teaching), an effect that's cascaded down the system, freeing up space (and often leaving places empty) throughout English Higher Education. Now, if some semblance of control over this up-front extra money (all of which will go out and never come back) is going to be kept, maybe the cap will come back on. That's what Labour's been saying in private. The upshot might be that those Vice-Chancellors who've gone all out for expansion (naming no names) are going to face imploding balance sheets and a serious financial crisis. Some universities have been behaving anti-socially, elbowing everyone else out of the way for the last few years: they'll now get a very, very nasty punishment for their numbers game.

2. Do Labour still imagine that they'll go over to a Graduate Tax in the Parliament after next? If so, how will that be managed, when there'll be eight to ten cohorts of students who'll be left in a system that will slowly run down? And how will they raise an income from European Union students, and non-EU students, who won't be inside the tax and National Insurance system once they've finished their studies and left the UK? It's no wonder that Gordon Brown as Chancellor abandoned his initial preference for a graduate tax, before jettisoning the idea as impracticable: is Labour now admitting the same, despite their spokesmen's avowed intention (repeated on television today) to revisit the idea once they're in power?

3. Will universities actually see the extra money that they need to plug the gap? Now, Vince Cable's not exactly sitting on a mountain of credit for his unsustainable and ultra-expensive 'reform' of English HE, but he's right when he says that all of our experience tells us that the Treasury will not just hand over all this money without a fight. If there's another economic crisis, and the deficit gets even worse than we think it will between 2015 and 2020, they'll try to claw some of it into deficit reduction - which is looking hard enough already. Then universities will be left jumping up and down with frustration, as the money they were 'promised', and was once ring-fenced as fees, disappears over the horizon. Might that be the moment that some consider going private, as a few have been doing behind the scenes for years? It still seems unlikely: but with no buoyancy in the system at all, it might become possible.

4. Has anyone actually modelled the budgetary effect of the pension changes that we're relying on to fund this change? Now, reducing the level of tax-free pension contributions you can make (which have always advantaged the more well-off in society) may well be a good thing in itself. Investing the cash in education, rather than in richer people's pension pots, might also be a good idea from a national cost-benefit point of view. But there's also a cost. Some pensioners, not so far up the income scale as you might imagine, may now be forced to rely on more state help in their old age. That will include academics. Higher-paid academics might defer retirement, in order to fill pension pots that have had their yearly contribution cap lowered (and thus take longer to build up): whether this happens, and the extent to which it does, will rely on the exact balances changed by the altered relationship between the new yearly caps on tax-free pension savings and the overall lifetime limit. Anyone have an idea what this might cost Her Majesty's Government overall, and universities themselves? Some of this will have to netted off the cash raised through these reforms, that's for sure.

So - four questions. And that's without asking why we're going to use £3bn a year to pay for graduates to have a lower quasi-tax under the existing system, or why we're not using this money on the apprenticeship and Further Education sector that really, really desperately needs the money - and has been the crucial hole in the English training effort for many decades.

They are just that - questions. They need an answer. Labour's system will likely be a bit more sustainable than that brought in by the coalition, and it will probably work - in a Heath Robinson kind of way. It's probably better than the alternative, or spraying risk and cash everywhere by letting the HE market rip - and universities to raise their own loans.

But there's a dangerous sense gaining ground that some of the implications in detail have been missed. We shall see if the whole thing stands up to scrutiny.

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