The parties can't ignore the looming student finance crisis

With further cuts to higher education and 40 per cent of student loans unlikely to be repaid, the parties need to agree on a sustainable funding system.

George Osborne announced this morning that seven government departments have already agreed to further spending cuts in 2015-16. The business department was not among these ‘early settlers’, although most in the higher education sector expect major cuts to be coming their way.

In the last Spending Review, universities were spared significant reductions because their burden of deficit reduction was met by much higher tuition fees for future graduates. Having taken this controversial decision, the government has relatively little room for further large cuts in higher education spending, without potentially damaging a sector that is critical to our future prosperity.

Against this background, IPPR’s Commission on the Future of Higher Education (which reports on 10 June) will recommend a number of short term measures to help universities get through the next Spending Review while ensuring that they remain well placed to support Britain’s economic and social renewal as we enter the 2020s.

The government should start by protecting the cash ring-fence around the science and research budget, which implies real term reductions, but on a manageable scale. It should also protect funding for widening participation, which goes to universities to recruit and support students from disadvantaged backgrounds. To find the resources for these measures, the government should hold steady the proportion of 18-21 year olds going to university on full cost courses, releasing between £1.5bn and £3bn over the next seven years because of a natural decline in the numbers of 18-year-olds in the population.

Universities should also take some of the cost cutting strain by freezing the ‘teaching grant’ in cash terms, alongside a freeze in the maximum tuition fee at £9,000, until at least 2017-18. Conversely, to enable institutions to raise more fee income, international students should be removed from the government’s net migration target.

In order to continue to expand higher education opportunities during this period of fiscal restraint, the Commission will argue that the government should create a new £5,000 ‘fee-only degree’ for students who live at home and/or work part-time. Students would not be eligible for maintenance grants or loans but would pay a lower tuition fee. This would allow an expansion of student places because of the very low up front cost.

The package of savings identified by the Commission could help the sector get through the Spending Review but there is still a long-term funding challenge facing universities. The government underestimated the amount of money that will repaid in loans by future graduates. It first predicted that 30 per cent of the total loans advanced would not be repaid but our Commission estimates the figure is more likely to be 40 per cent, eventually producing a black hole that could be as big as £1bn.

This means that all parties will need to propose ways of reforming the student funding system in their manifestos that will be sustainable in the long-term. The IPPR Commission has modeled a number of options for reform. One option is to try to recoup more money through the existing system, such as by increasing the rate of interest paid by the highest earning graduates. Another option proposed by the Labour Party and others is bringing the fee cap down to £6,000. This cuts long term costs but produces a short term funding gap (we estimate £1.67 bn) which Labour has pledged to fill in part from an increase in corporation tax.

Another widely canvassed option is to introduce a graduate tax. A tax of 2p in the pound paid by graduates through the tax system once they have left university is economically feasible but it bumps straight up against government accounting rules (set by the ONS and not by politicians). These currently score all fee loans as cash transactions that are ‘off balance sheet’ in the public accounts. When the loan becomes a tax, the fee outlay has to appear ‘on balance sheet’ as government spending. This means that, unless accounting rules could be changed (which most experts agree is unlikely), introducing a graduate tax would technically add around £7bn to the deficit.

Politicians might have thought that student funding had been put to bed as a difficult issue in the run-up to the next general election. They need to think again. With the likelihood of another hung parliament the parties will need to agree on a sustainable long term funding system for our universities.

Rick Muir is Associate Director for Public Service Reform at IPPR. The final report of IPPR’s Commission on the Future of Higher Education will be published on Monday 10 June.

Demonstrators chant slogans during a student rally against rises in tuition fees. Photograph: Getty Images.

Rick Muir is director of the Police Foundation

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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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