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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Why the Liberal Democrats by-election surge is not all it seems

The Lib Dems chalked up impressive results in Stoke and Copeland. But just how much of a fight back is it?

By the now conventional post-Brexit logic, Stoke and Copeland ought to have been uniquely inhospitable for the Lib Dems. 

The party lost its deposit in both seats in 2015, and has no representation on either council. So too were the referendum odds stacked against it: in Stoke, the so-called Brexit capital of Britain, 70 per cent of voters backed Leave last June, as did 62 per cent in Copeland. And, as Stephen has written before, the Lib Dems’ mini-revival has so far been most pronounced in affluent, Conservative-leaning areas which swung for remain. 

So what explains the modest – but impressive – surges in their vote share in yesterday’s contests? In Stoke, where they finished fifth in 2015, the party won 9.8 per cent of the vote, up 5.7 percentage points. They also more than doubled their vote share in Copeland, where they beat Ukip for third with 7.3 per cent share of the vote.

The Brexit explanation is a tempting and not entirely invalid one. Each seat’s not insignificant pro-EU minority was more or less ignored by most of the national media, for whom the existence of remainers in what we’re now obliged to call “left-behind Britain” is often a nuance too far. With the Prime Minister Theresa May pushing for a hard Brexit and Labour leader Jeremy Corbyn waving it through, Lib Dem leader Tim Farron has made the pro-EU narrative his own. As was the case for Charles Kennedy in the Iraq War years, this confers upon the Lib Dems a status and platform they were denied as the junior partners in coalition. 

While their stance on Europe is slowly but surely helping the Lib Dems rebuild their pre-2015 demographic core - students, graduates and middle-class professionals employed in the public sector – last night’s results, particularly in Stoke, also give them reason for mild disappointment. 

In Stoke, campaign staffers privately predicted they might manage to beat Ukip for second or third place. The party ran a full campaign for the first time in several years, and canvassing returns suggested significant numbers of Labour voters, mainly public sector workers disenchanted with Corbyn’s stance on Europe, were set to vote Lib Dem. Nor were they intimidated by the Brexit factor: recent council by-elections in Sunderland and Rotheram, which both voted decisively to leave, saw the Lib Dems win seats for the first time on massive swings. 

So it could well be argued that their candidate, local cardiologist Zulfiqar Ali, ought to have done better. Staffordshire University’s campus, which Tim Farron visited as part of a voter registration drive, falls within the seat’s boundaries. Ali, unlike his Labour competitor Gareth Snell and Ukip leader Paul Nuttall, didn’t have his campaign derailed or disrupted by negative media attention. Unlike the Tory candidate Jack Brereton, he had the benefit of being older than 25. And, like 15 per cent of the electorate, he is of Kashmiri origin.  

In public and in private, Lib Dems say the fact that Stoke was a two-horse race between Labour and Ukip ultimately worked to their disadvantage. The prospect of Nuttall as their MP may well have been enough to convince a good number of the Labour waverers mentioned earlier to back Snell. 

With his party hovering at around 10 per cent in national polls, last night’s results give Farron cause for optimism – especially after their near-wipeout in 2015. But it’s easy to forget the bigger picture in all of this. The party have chalked up a string of impressive parliamentary by-election results – second in Witney, a spectacular win in Richmond Park, third in Sleaford and Copeland, and a strong fourth in Stoke. 

However, most of these results represent a reversion to, or indeed an underperformance compared to, the party’s pre-2015 norm. With the notable exception of Richmond’s Sarah Olney, who only joined the Lib Dems after the last general election, these candidates haven’t - or the Lib Dem vote - come from nowhere. Zulfiqar Ali previously sat on the council in Stoke and had fought the seat before, and Witney’s Liz Leffman and Sleaford’s Ross Pepper are both popular local councillors. And for all the excited commentary about Richmond, it was, of course, held by the Lib Dems for 13 years before Zac Goldsmith won it for the Tories in 2010. 

The EU referendum may have given the Lib Dems a new lease of life, but, as their #LibDemFightback trope suggests, they’re best understood as a revanchist, and not insurgent, force. Much has been said about Brexit realigning our politics, but, for now at least, the party’s new normal is looking quite a lot like the old one.