LSE £8,500 fee buys breathing space for Willetts

If the LSE asks for £8,500, how can lesser universities justify charging the full £9,000?

The decision by the London School of Economics to charge less than £9,000 for normal undergraduate tuition fees will give a boost to the coalition's beleaguered higher education policy. Although the LSE will still charge £8,500, it ruptures the notion that top universities can only offer a quality education for £9,000. It also creates vital breathing space for the universities minister, David Willetts.

Whenever Willetts is rightly criticised for his failure to foresee that every half-decent university would rush to charge the maximum amount, Willetts can now point to a top-class university and say: "They can do it for less than £9,000, so why can't other elite universities?" He can also legitimately ask: "If the LSE is charging £8,500, why is somewhere like Bradford* charging £9,000?"

The LSE has the highest average starting salary for graduates and a reputation for being one of the best universities on the planet. Bradford, for all its merits, has neither – yet each of its students is forking out £500 more a year for his or her degrees.

It is true that the LSE has been able to charge less for two exceptional reasons. First, it does not produce expensive scientific research, concentrating instead on relatively cheap areas of study such as the humanities. Second, the university generates much of its income from overseas students, whom it charges eye-wateringly high fees.

A full-time Master's degree from the university will set you back close to £20,000 a year if you are an overseas student. At the same time, however, cuts to the university teaching budget have hit the LSE particularly hard. Reductions to the teaching grant for the humanities and the arts have left the LSE with practically no direct government funding.

Five hundred pounds a year is a very small saving. It reduces the cost of tuition fees for a three-year undergraduate from £27,000, to £25,500 – both very large figures. But while £500 is insignificant in financial terms, politically it is priceless for the coalition.

It may not be much, but it's all there is for the government to cling to as it tries to swim through the choppy waters of British university funding.

*NB: I don't mean to pick on Bradford alone. It is in a similar position to dozens of other universities in the UK which are planning to charge £9,000 a year, despite having less-than-stellar reputations.

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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR