Why higher tuition fees have left a £1bn-a-year black hole

Nick Clegg said the deficit meant fees had to rise. But the new system will cost the government more.

In defending the coalition's decision to triple tuition fees from £3,000 to £9,000, Nick Clegg has frequently pointed to the size of the deficit. For instance, he commented in 2010:

At the time I really thought we could do it [not increase tuition fees]. I just didn't know, of course, before we came into government, quite what the state of the finances were [sic].

In reality, for the reminder of this parliament at least, the reforms will cost the government more, not less. The new fees only came into effect this year, which means repayments won't kick in until 2015 for a three-year course. In the intervening period, the government will be forced to pay out huge amounts in maintenance loans and tuition-fee loans, not least because three-quarters of universities are planning to charge £9,000 for some courses next year, with a third charging the maximum fee for all (minister previously insisted they would only do so in "exceptional circumstances").

As a result, according to a new report by the Higher Education Policy Institute (HEPI), the coalition faces a £1bn-a-year black hole in university funding. Having "seriously understated" the cost of its reforms, the report warns that the government will either have to dramatically reduce student numbers, ask graduates to make higher repayments, or pass the bill on to future taxpayers.

It cites three reasons why the new system will cost the government more than previously thought. First, while ministers predicted an average fee of £7,500, the actual figure is £8,234, forcing students to take out higher tuition fee loans. Second, while the Treasury expects a 32 per cent shortfall in loans repayment, the Institute for Fiscal Studies believes the figure will be closer to 37 per cent. The government currently assumes that the average male graduate will be earning £75,000 a year in 30 years time (a reduction from an earlier estimate of £100,000) , a figure that looks excessively optimistic. Finally, the new fees system adds 0.2 percentage points to CPI inflation, triggering rises in benefits and pensions of between £420m and £1.14bn a year (unless, of course, the government, as has been widely speculated, freezes benefits).

The report concludes:

A slightly higher [repayments] cost or a slightly greater inflationary effect than the most optimistic that we have considered here would mean that the present policy is actually more expensive than the one it has replaced.

With the government likely to simply pass the cost on to the taxpayer (as would happen in a purely state-funded system), Clegg's party is entitled to ask, what was all the pain for?

Student demonstrators march against higher tuition fees in London in 2010. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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