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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Winning Scottish independence will be even harder than before - but it may be the only choice

Independence campaigners will have to find answers on borders, currency and more. 

The Brexit mutiny has taken not just the UK economy and its relationship with Europe into uncharted waters. it has also imperilled the union between Scotland and England. From Sir John Major to the First Minister, both Unionists and Nationalists had warned of it. The outcome, though, has made this certain. The Leave vote in England and Wales contrasted with an overwhelming Remain vote north of the border.

That every region in Scotland voted to stay In was quite remarkable. Historically, fishing and industrial communities have blamed the European Union for their woes. That antagonism was probably reflected in lower turnout - an abstention rather than a rejection. 

The talk now is of a second referendum on independence. This is understandable given the current mood. Opinion polls in the Sunday Times and Sunday Post showed a Yes vote now at 52 per cent and 59 per cent respectively. Moreover, anecdotal evidence suggests even arch No vote campaigners, from JK Rowling to the Daily Record, are considering the option.

The First Minister was therefore correct to say that a second referendum is now “back on the table”. Her core supporters expects no less. However, as with the economy and Europe, the constitutional relationship between Scotland and England is now in uncharted seas. Potential support for independence may be higher, but the challenges are arguably bigger than before. The difficulties are practical, political and geographic.

Of course the Little Englanders likely to take the helm may choose a velvet divorce. However, given their desire for the return of the Glories of Britannia that’s improbable. They’re as likely to wish to see Caledonia depart, as cede Gibraltar to Spain, even though that territory voted even more overwhelmingly In.

Ticking the legal boxes

Practically, there’s the obstacle of obtaining a legal and binding referendum. The past vote was based on the Edinburgh Agreement and legislation in Westminster and Holyrood. The First Minister has indicated the democratic arguments of the rights of the Scots. However, that’s unlikely to hold much sway. A right-wing centralist Spanish government has been willing to face down demands for autonomy in Catalonia. Would the newly-emboldened Great Britain be any different?

There are no doubt ways in which democratic public support can be sought. The Scottish Government may win backing in Holyrood from the Greens. However, consent for such action would need to be obtained from the Presiding Officer and the Lord Advocate, both of whom have a key role in legislation. These office holders have changed since the first referendum, where they were both more sympathetic and the legal basis clearer. 

Getting the EU on side

The political hurdles are, also, greater this time than before. Previously the arguments were over how and when Scotland could join the EU, although all accepted ultimately she could remain or become a member. This time the demand is that Scotland should remain and the rest of the UK can depart. But will that be possible? The political earthquake that erupted south of the Border has set tectonic plates shifting, not just in the British isles but across the European continent. The fear that a Brexit would empower dark forces in the EU may come to pass. Will the EU that the UK is about to leave be there for an independent Scotland to join? We cannot know, whatever European Commission President Jean-Claude Juncker may be saying at the moment. The First Minister is right to start engaging with Europe directly. But events such as elections in France and the Netherlands are outwith her control. 

Moreover, currency was the Achilles heel in the last referendum, and hasn’t yet been addressed. George Osborne was adamant in his rejection of a currency union. The options this time round, whether a separate Scottish currency or joining the euro, have yet to be properly explored. A worsened financial situation in the 27 remaining EU members hampers the latter and the former remains politically problematic. 

The problem of borders

Geography is also an obstacle  that will be even harder to address now than before. Scotland can change its constitution, but it cannot alter its location on a shared island. In 2014, the independence argument was simply about changing the political union. Other unions, whether monarchy or social, would remain untouched. The island would remain seamless, without border posts. An independent Scotland, whether in or out of the EU, would almost certainly have to face these issues. That is a significant change from before, and the effect on public opinion unknown.

The risk that's worth it

Ultimately, the bar for a Yes vote may be higher, but the Scots may still be prepared to jump it. As with Ireland in 1920, facing any risk may be better than remaining in the British realm. Boris Johnson as Prime Minister would certainly encourage that. 

David Cameron's lack of sensitivity after the independence referendum fuelled the Scottish National Party surge. But perhaps this time, the new Government will be magnanimous towards Scotland and move to federalism. The Nordic Union offers an example to be explored. Left-wing commentators have called for a progressive alliance to remove the Tories and offer a multi-option referendum on Scotland’s constitution. But that is dependent on SNP and Labour being prepared to work together, and win the debate in England and Wales.

So, Indy Ref The Sequel is on the table. It won’t be the same as the first, and it will be more challenging. But, if there is no plausible alternative, Scots may consider it the only option.

Kenny MacAskill served as a Scottish National MSP between 2007 and 2016, and as Cabinet Secretary for Justice between 2007 and 2014.