Scotland's fees anomaly comes under challenge

Does charging English students tuition fees violate human rights law?

In just over a year's time, English students will be charged the highest public university fees in the world. Despite ministers promising that only an "exceptional" number of institutions would charge £9,000, 47 of England's 123 universities plan to levy the maximum fee for all courses.

By contrast, courtesy of Alex Salmond's SNP administration, Scottish students will continue to enjoy free higher education. But while the country's universities are legally obliged to also offer free entrance to EU students, a legal loophole means that they are able to charge students from England fees of £1,820 ( £2,895 for medicine) per year - a sum that will increase to £9,000 from 2012. In other words, under European law, it is permissible to discriminate within states but not between them.

Now, this anamoly is under challenge from human rights lawyers. Phil Shiner, of Public Interest Lawyers, argues that the system contravenes article 14 of the European Convention on Human Rights and could also be in breach of the Equality Act. He says that Scottish ministers have "misinterpreted the law" and that "the argument about domicile and nationality doesn't hold water".

It's no surprise that this issue has arisen now. When I interviewed Steve Smith, the recently-departed head of Universities UK, last month, he told me that the status quo was untenable.

"That announcement shocked me," he said. "They [the SNP] had made such principled statements in the past about how iniquitous fees were and then they announced that they were going to allow institutions to charge £9,000." He added: "I suspect the government will do something ... It does seem very odd to me that someone can come from France and get the same terms as someone in Scotland but if they come from England they pay £9,000. That seems to me an anomaly that can't stand in the long-run."

The Scottish fees policy is often wrongly perceived as anti-English (the Daily Mail refers to it as "the fees apartheid") but it's simply aimed at maximising revenue for universities. Students from Wales and Northern Ireland also pay fees and the SNP is attempting to ensure that EU students do likewise. The number of EU students at Scottish universities (widely viewed as "a cheap option") has doubled to 15,930 over the last decade, at an annual cost to the Scottish taxpayer of £75m.

For the left, Scotland should serve as a reminder that tuition fees are a political choice, not an economic necessity. The British government can afford to fund free higher education through general taxation, it merely chooses not to. In public expenditure terms, the UK currently spends 0.7 per cent of its GDP on higher education, a lower level than France (1.2 per cent), Germany (0.9 per cent), Canada (1.5 per cent), Poland (0.9 per cent) and Sweden (1.4 per cent). Even the United States, where students make a considerable private contribution, spends 1 per cent of its GDP on higher education - 0.3 per cent more than the UK does.

Nick Clegg was never more wrong than when he said the "state of the finances" meant the coalition had no choice but to increase fees. In reality, for the reminder of this parliament at least, the reforms will cost the government more, not less. The new fees won't come into effect until 2012, which means repayments won't begin until 2015 for a three-year course. In the intervening period, the government will be forced to pay out huge amounts in maintenance and tuition-fee loans.

If English students win free entry to Scottish universities, while their friends pay £9,000 per year, it will only increase the pressure for an end to fees across the UK.

George Eaton is political editor of the New Statesman.

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation