Higher education can’t ignore its ‘value for money’ problem

The UK’s current funding system for higher education has created a value for money problem.

While business and management studies are estimated to cost on average less than £7,000 to provide, annual tuition fees are generally £9,250. It means that graduates, and eventually taxpayers too, are now paying more than £2,000 over the odds for this degree, with no evidence of a corresponding increase in the quality of education.

Almost two-thirds of subjects are also estimated to cost below £9,250 on average. While it is possible that this extra funding is being invested in the interest of students, the problem is that we don’t really know where it is going.

The crucial question is, therefore, whether it could be spent more effectively, whether on subsiding poorer students or on funding research without a murky cross-subsidisation that lacks transparency.

This also creates an environment in which cash-strapped universities could be encouraged to increase the provision of high-margin courses that give them bigger margins – a move that certainly would not always be in the interest of students.

Moving to variable tuition fees could begin to address this value-for-money issue, but clearly there is a risk that poorer students will be put off expensive subjects that might benefit them in the long run. Skills shortages could also be exacerbated in subjects that are expensive to run but offer poor returns.

The current system also does not create the sustainability for universities and taxpayers that it was designed to.

It is true that the current system of student loans largely moves higher education funding out of direct competition with other areas of public spending, such as health.

However, it does not remove political pressures altogether. As stated, it’s been the voice of students and their advocates that has led to the current review.

But even before this, the government had reacted to these pressures. At last year’s Conservative Party conference, the government announced that the threshold at which graduates start to make repayments on their loans would increase from £21,000 to £25,000. While this move will clearly benefit graduates, it comes at a cost of £2.3 billion a year for taxpayers in the long run.

However, because of the way loans are included in government accounts, this change was made with little political and fiscal cost for the current government. The real impact will come when the loans are written off, in 30 years’ time.

The problem here is not necessarily that the balance of contributions tipped back towards taxpayers. It’s that £2.3 billion can seemingly be plucked out of the air with little political accountability, with the cost and necessary compromises passed on to future governments.

This review must take the opportunity to ensure that the provision of higher level technical education system is fully integrated into any newly proposed system, as set out in our report on Remaking Tertiary Education, authored by Baroness Wolf of Dulwich, who is one of the review’s panel members.

The government has already rightly identified that increasing the provision of high-quality technical pathways may be part of the solution to our sluggish productivity, as evidenced through the Post 16 Skills Plan and the review of level 4 and level 5 technical qualifications.

To really make a difference, the post-18 funding review should ensure that institutional funding favours neither academic nor technical routes. But perhaps even more importantly, the review must ensure that young people themselves aren’t unduly encouraged towards university; the incentives need to be keenly balanced.

So the review faces some tricky trade-offs balancing the needs of students, graduates, universities and taxpayers, and delivering proposals that are both politically expedient and fiscally sustainable.

The Education Policy Institute will be returning to these issues at our forthcoming conference, Higher Education: A Sustainable Future?, where we’ll be joined by colleagues from the Institute for Fiscal Studies (IFS) and the Organisation for Economic Cooperation and Development to consider how the current system is delivering, and assess how alternative funding proposals compare.

We hope that by shining a light on the options, we will ensure that the outcome of this review really will have a sustainable future.

David Robinson is director of post-16 and skills at the Education Policy Institute.