A £7,500 fee cap? How a headline changed everything

It’s becoming increasingly clear that £9,250 is going to be the highest that fees will ever get as a vote in parliament last week shows there’s no majority to raise the cap further to the expected £9,500, and now The Sunday Times report that the Treasury is considering forcing fees down to £7,500 next year. The paper, which splashed the news on its front page yesterday, has sent hares running in policy circles: it was widely assumed that the November budget would tackle HE finance in some way, but the proposal being floated is far more dramatic than expected, and would have wide consequences for every university and the system as a whole.

The £7,500 question

Details of the policy are sketchy, and we hear from numerous sources that the details may be garbled – but we can surmise from the story that the following proposals are being seriously looked at with a view to announcing in November’s Budget:

• £7,500 will be the new top level for student fees across the board – this could come in as early as next year.
• For STEM and other high-cost subjects, the government would provide a top-up payment to institutions of up to £1,500 – in the same way that fees for clinical and pre-clinical courses are already topped up by HEFCE.
• For some courses – specifically where there is not a link to a salary premium on graduation – the maximum permitted fee loan may be lower than £7,500. These decisions would draw on (we assume) Graduate Outcomes and LEO data, and it is fair to assume that government skills priorities may also play a role here.
• Some changes may be made to repayment including interest rates and the earnings threshold.

Why?

Philip Hammond is keen to do something around student finance. He’s reacting to the ‘national conversation’ about fees over summer, the misguided idea that the “Corbyn surge” amongst young people was down to the Labour student fee policy, and the dawning realisation that parliament is not behind the current model. The Chancellor needs a decisive move that can heal the running backbench sore and bring the young flocking to the blue side.

Parallel high-profile issues around high pay in institutions have contributed to the perception that universities have done particularly well during a period of austerity. Despite vice chancellor pay remaining a drop in the ocean when compared to sector finance overall, it is clear that few will march in favour of higher pay for VCs; and if the link can be made in the public imagination that a fee cut will serve merely to lower £400,000+ packages to a more Prime Ministerial level, then this works as a populist move.

Last week’s Opposition Day vote painfully demonstrated that there’s no parliamentary majority to support raising fees and that the current arrangements are not universally popular in government. An announcement of a further rise was expected this autumn – this now seems very unlikely – and rises in subsequent years would need a vote in both houses to pass. The government simply don’t need the parliamentary aggravation, and especially not for an unpopular policy.

The way that universities have conducted themselves during this period of pressure has also played a part. Playing up to the ivory tower stereotype, institutions have been arguably out of touch with the public mood since the Brexit vote – the uncertain and unconvincing way they have defended high pay did nothing to mollify this impression. Universities are not currently popular, and it’s becoming clear that this will have direct and painful consequences.

Those who hoped for Prime Minister Miliband back in 2015 may chuckle ruefully at this point – after all it’s another key Ed policy reused by Theresa May. But the £6k policy was far from successful; it was roundly criticised by specialist and mainstream commentators – who can simply reuse the same arguments (regressive, bad for HE, ill-considered populism) this time round, albeit in a very different political context.

Finally, this new proposed policy, far from saving money for the government, might actually add to the deficit. Borrowing linked to an income stream (fee repayments) doesn’t count for the purposes of deficit calculation – borrowing to cover payments made directly to universities for STEM or other subjects very much does.

What next?

The speedy way in which this change is expected to be delivered – a year or less, according to the Sunday Times – has huge implications for short and long-term financial planning that has been predicated on fees of £9,250 and above, which would cause issues for everything from planned campus improvements, to staff recruitment through to bond repayment schedules. And – lest we forget – institutions have always been encouraged to run a surplus as a part of HEFCE’s regular financial health checks. To castigate them for following good governance practice seems harsh.

This would be a substantial real terms cut in university funding which will seriously affect many institutions, particularly those which are in poor financial condition. There are implications for all subjects of study – institutions routinely cross-subsidise between subjects, and there are no overall fee rises for STEM to counter the loss of this ability if non-STEM fees are lowered.

A drop in fees is – as has been pointed out many times by Jo Johnson, the IFS and others – is a regressive change. Only the very richest graduates would benefit, by ending their repayments early. The evidence for fee debt putting off students from disadvantaged backgrounds is inconclusive, but variable loan availability would have the effect of pushing applicants without private resource into a smaller range of subjects – with everything from philosophy to performance art the preserve of the upper-middle classes.

And spare a thought for sector regulation – these changes undermine the basis of the Higher Education and Research Act, now less a generational settlement than a high-water mark. Everything from the role of the OfS (now a funding council again?) to sector entry (how many private institutions would be interested in the new system?) to TEF (how will a variable fee cap based on award level work?) are once again up for grabs. Jo Johnson himself, who has been manfully defending the HERA settlement all summer, now looks either to have u-turned or been undermined.

But a note of caution in all this. A very senior sector source told us last night that “The Sunday Times has a track record of sensationalist headlines with inaccurate accompanying details.” But the figure admitted that the proposals, if accurate, would be highly problematic for universities, saying “There are more effective, cheaper and more popular ways to improve the system for students. Any formal Treasury proposals are likely to be a more coherent package than this”. There are two months until Budget day, expect the sector’s lobbying apparatus to crank up substantially in that period.