Good start, wrong road

More money for higher education is welcome but the cash crisis continues, argues Nicholas Barr

David Blunkett writes (THES letters, July 24) that public spending on higher education will go up by Pounds 280 million, comprising Pounds 105 million from students' fees, topped up by an additional Pounds 175 million in direct public funding to produce a total of Pounds 280 million. That spending will rise is indisputable and welcome. What needs to be made clear is (a) that the extra funding is not much, and (b) that no sensible funding outcome will ever be possible under current arrangements.

On the first point, the government admits that next year's efficiency gain (aka real funding cut) will be 1 per cent. That is optimistic. It assumes an underlying rate of inflation of 2.5 per cent, whereas the headline rate (which includes mortgage interest and hence is the rate relevant to most universities) will almost certainly be higher. The figure for fee income (i) implicitly assumes that all students (or their parents) pay up, (ii) ignores the cost to universities of fee payments staggered over the year, and (iii) makes minimal allowance for the administrative costs to universities. This leaves aside the assumptions underlying the cost of 35,000 extra students.

What is clear, however, is that, though the extra money will slow down the rate of deterioration, the funding crisis continues.

A continuing decline in real public funding per student is inevitable and hence should not come as a surprise to anyone. Nor, given the existing funding regime, is it an outcome over which the secretary of state has much choice. He promises more ("This is just the start"), but it will not be enough, because it cannot be enough. The reason is simple. It was possible to rely on public funding to pay most of the costs of high-quality higher education when we had an elite system, with 5 per cent of young people going to university. That is not possible for a mass system, with a 30 per cent participation rate.

Thus one coherent way to fund higher education - mainly tax funding - is out. The other coherent approach is to let universities earn a living, ie to charge fees, fully backed up by the new income-contingent loan scheme. The present system, in contrast, is incoherent: it underfunds universities from public sources while not allowing them the freedom to earn a living from home/EU students.

Allowing universities to earn a living is the only viable solution. It is also the best solution. A move towards market-determined fees (ie fees set by universities within a regulatory framework) supported by income-contingent loans makes it possible to take some of the hundreds of millions of pounds spent on general subsidies and use them for targeted subsidies aimed at groups for whom access is most fragile. Such a move is progressive - it benefits tomorrow's less well off (who do not fully repay their income-contingent loans) at the expense of today's middle class (who lose some of their tuition subsidies) - and, precisely for that reason, evokes hostility from current beneficiaries.

While recognising the political difficulties the government faces it is vital to be very clear about two things. First, there will be no solution within the present, incoherent funding regime. Second, a move towards fees supported by income-contingent loans, available across further and higher education on an equal basis to part-time and full-time students, would be immensely progressive. The government's aim is to improve access. That is totally right. But the method will not achieve it.

Nicholas Barr is a senior lecturer in economics, and research associate, centre for educational research, London School of Economics.