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28 March 2011

The £1bn black hole in the coalition’s tuition fees plan

Why the government will have to make even larger cuts to higher education.

By George Eaton

Perhaps the biggest myth spread by Nick Clegg is that the size of the deficit meant the coalition had no choice but to triple tuition fees. For the record, he said:

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].

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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 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.

It’s for this reason that ministers are so troubled by the number of universities planning to charge the maximum £9,000 a year. Higher fees mean higher loans. Of the 16 universities we’ve heard from, 13 intend to charge full whack, including Oxford, Cambridge, Imperial, University College London, Warwick, Durham, Exter, Essex, Aston, Birmingham and Lancaster. A new survey of 40 institutions by the Times (£) suggests that the average fee will be around £8,700 a year, significantly more than the £7,500 budgeted for by the coalition.

As a result, the government’s reforms face a £1bn black hole. New figures from the House of Commons Library show that if the average fee is £8,600, the state will have to spend £960m more over the next four years. That could mean even bigger cuts to the teaching budget (currently facing an 80 per cent cut) and/or fewer university places.

At least 38,000 places could have to be axed to bring the costs back in line with Treasury forecasts. As I’ve reported before, the coalition’s white paper on higher education has been delayed while ministers thrash out a solution.

There’s a high chance that the funding gap will be even larger than I’ve suggested. The Treasury is already resigned to losing £1bn of the £3bn it pays out in student loans due to graduates moving abroad or earning wages under the new repayment threshold of £21,000 a year. But should graduate earnings increase by 3.75 per cent a year instead of 4.47 per cent, the government’s assumed savings will be wiped out completely. The Breakneck Coalition has been taught another lesson in the perils of hasty reform.