Help train if you gain

Employers should help fund the universities that educate their workforce, says Muriel Egerton.

The current student funding system derives from the replacement of the Robbins system of subsidised education for able poorer children by a Thatcherite drive to cut public spending and clip the wings of public-sector professionals. But it was Labour that breached the principle of free tuition, mainly as a stop-gap measure to solve the funding crisis caused by the university sector's doubling in size in about five years without any concomitant increase in public spending.

This expansion took place against a background of radical economic restructuring, and it is arguable that the university system was used to mop up problems of youth unemployment and adult re-training in a context where firms were unwilling or unable to make long-term commitments to either training or employment.

However, the rationale given for the transfer of costs from state to students - via the abolition of the maintenance grant and the imposition of a contribution to tuition fees - was based on a version of human capital theory, according to which it is unjust that students are subsidised by taxpayers, including low-earning people, given the high earnings of graduates. This policy, which has resulted in an average expected student debt of £12,000, has hit poor students hardest since middle-class parents continue to subsidise their children.

It also seems to have deterred mature study - one of the success stories of recent higher education policy. Mature students are drawn disproportionately from the working class and women, people previously disadvantaged in entry to higher education. On average, they have been as successful in the labour market as younger students. But a rate-of-return analysis that I carried out, using mature graduate earnings and costs before the introduction of loans, shows that even then mature graduates did not recoup the costs of study. Acquiring student debts pushes the return well below break-even point.

But rate-of-return analyses rarely take account of the diversity of graduate earnings. Mature graduates, in particular, are more likely to work in the public sector, a sector that is less discriminatory on grounds of age and class but one that pays much less than private-sector employers.

Although mature recruitment rose slightly in 2001, according to provisional figures from the Universities and Colleges Admissions Service, it is below what it was before the 1998 reforms. Given the quality of mature graduates and public-sector recruitment problems, this seems a policy own goal.

Labour has done some good by stealth, increasing science funding and student support, and initiating schemes that draw in employers, but the measures so far do not meet the needs of a modern, developmental state. Robbins used human-capital theory to argue for more state investment in education. At that time, a large proportion of graduates were employed by the state, running the education, health and administrative systems that underpin economic success. The labour market for graduates has now changed, and many more graduates enter the private sector.

It is time for a fundamental and principled rethink of the relationship between tertiary education, the economy and the state. Tony Blair's conference acknowledgement of the student funding problem is welcome, as is the announcement of a broad review. It is important to consider the benefits gained by employers and the shift of the costs and risks of training from employers to employees.

Universities cannot continue in their under-funded state. They make a huge and under-valued economic contribution, fostering the cultural industries and developing important new technologies. Compared with European or Pacific Rim rivals, UK employers are parsimonious in their contributions to education and training.

Surely it is one of the most important tasks of political leaders to generate the consensus and the mechanisms necessary for such a revitalisation. It may even be electorally popular as ever larger percentages of the electorate and their parents become involved with higher education.

Muriel Egerton is a researcher at the Institute for Social and Economic Research, University of Essex.