Asking the right question

The foreword to the Augar report thanks the Prime Minister, Chancellor and others “for asking the right question” in setting out a remit that covers the whole of post-18 education. The report is thus the first since the 1963 Robbins report to look at further education and higher education together.

In this response we consider three questions: is the diagnosis right; is the prescription right; and what are the chances that the report’s recommendations will be implemented in a strategic way, rather than ignored or subject to cherry picking?

Diagnosis

The report identifies a series of strategic problems with current arrangements:

• The way student loans enter the public account created a loophole (Barr 2012, 2019) which the 2012 reforms exploited to destruction. The problem was discussed in a report by the House of Lords Economic Affairs Committee (2018) to which we both acted as specialist advisers, and by the Treasury Select Committee. The accounting problem was a major driver of many of the current problems.
• Non-granular delivery, notably the paucity of flexible part-time options.
• Non-granular funding, favouring full-time study: “the support system makes a full Level 6 the obvious choice for students. The contraction in higher technical education and the resultant skills gap are the consequences” (p. 37).
• A non-level playing field between different types of higher education and between universities and further education colleges, the former institutions being considerably more generously funded.
• Complexity of options outside the full-time honours degree.

Strategic recommendations

Augar is an impressive exercise in choosing what to do when asking the right question. But does it provide the right answers for reforming the complex organism that is tertiary education in England?

The report’s strategic recommendations follow directly from its diagnoses, and includes:

• Endorsing the solution to the accounting problem, that the projected non-repayment of student loans issued this year should count as public spending this year (Barr 2018, paras 29-33); Economic Affairs Committee 2018, ONS 2018).
• Making the case (pp. 38-44) for flexible learning at Level 4 and above. “Qualifications eligible for funding under this recommended change should all be credit-based” (p. 39).
• In parallel, arguing that “the government should introduce a single lifelong learning loan allowance for tuition loans at Levels 4, 5 and 6 … [set as] a financial amount equivalent to four years’ full time undergraduate degree funding’ (p. 40).”
• On levelling the playing field, states that “our core message is that the disparity between the 50 per cent of young people attending higher education and the other 50 per cent who do not has to be addressed’ (p. 9).
• Makes a start (pp. 45-47) on recommendations for simplifying choices both within and outside higher education

Selected specific recommendations

University finance: the report recommends lowering the fees cap to £7,500, reintroducing teaching grant (i.e. taxpayer support) for “high‑cost and strategically important subjects and to subjects that add social as well as economic value” (p. 96).

Student support: the report recommends two forms of taxpayer support for students from disadvantaged backgrounds: restoring maintenance grants, and paying a larger teaching grant, analogous to the pupil premium.

Loans: the report recommends reducing the repayment threshold from £25,000 to £23,000 per year, the latter figure being median non-graduate earnings, thus basing the threshold on a principle rather than political whim. It also recommends charging a zero real interest rate during study and forgiving outstanding loan balances after 40 (rather than 30) years.

To address the politically salient concern that low earners (e.g. teachers and nurses), repay more slowly and hence pay more interest than higher earners, the report introduces ‘a new protection for borrowers to cap lifetime repayments at 1.2 times the initial loan amount in real terms. This cap should be introduced for all current Plan 2 [i.e. post-2012] borrowers, as well for all future borrowers’ (p. 175).

Crucially, these arrangements apply to all higher education courses, from Level 4 upwards to Level 6 (degrees).

Assessment

Are the changes regressive?

It is correct as a statement of fact, that lowering the fees cap benefits those who would have repaid in full at the higher fees cap, i.e. higher-earning graduates. But it is mistaken to argue that that outcome is by definition bad. Like much of the thrust of the report, the outcome is a result of correcting past errors, both in the design of higher education finance and the way that the rest of the sector is underfunded. So progressivity is important but not the whole story.

The teaching grant improves efficiency in two ways: it recognises that tertiary education has social as well as private benefits, hence costs should be shared between the taxpayer and the individual; and it gives government a powerful lever to influence the system. The argument for the usefulness of competition in tertiary education is not for free markets but for regulated markets (Barr 2012, 2017). We therefore support the re-introduction of some teaching grant – the mistake is not that the change on its own is regressive but that the grant was abolished in the first place. The general point is that the report rows back from what it regards as excessive and badly-designed competition (grade inflation (p. 78), excessive use of unconditional offers (p. 79), “low value” degrees (pp. 98-102)), towards what it (and we) regard as a more effective balance between competition and regulation.

The proposals have important progressive elements. The grant is unambiguously progressive in terms of where the student starts (though we could discuss whether it is progressive in terms of where the student ends up). So is extending student support to all Level 4 and above qualifications. So is the proposal to pay a larger teaching grant for students from disadvantaged backgrounds. Note also the cap on total repayments of 1.2 times the original loan in real terms.

Third, and fundamentally, concerns about progressivity within higher education overlook the glaring regressivity that results from subsidising the 50 per cent who go to university more heavily than the (generally less well off) 50 per cent who do not. More generally, the argument that higher education should be “free”, i.e. with no tuition charges, ignores the fact that universities do not exist in a vacuum. Public spending faces pressure from population ageing (pensions, the NHS, social care). In addition, the evidence is now overwhelming that early-child development is central to life chances, reinforcing the importance of nursery education and programmes such as SureStart. To argue that higher education should go to the front of the queue is untenable. And to argue that we can have all of them is la-la land.

A scary sticker price which few people pay because of a leaky loan system is bad economics, bad politics and bad social policy. Better to have a lower sticker price and a less leaky loan system.

We therefore support the Augar direction of travel: smaller loans (because of (a) lower fees and (b) grants) – but with a larger fraction repaid, together with the progressive elements within higher education outlined above, the extension of student support to tertiary education more widely and, more generally, levelling the playing field between higher and further education – a long-standing sore in terms both of equity and national efficiency.

Strengthening technical education

As Augar notes, the current tertiary system – like the accounting system – has major weaknesses. And it is here where they choose to develop new policy proposals.

Strengthening technical education – England needs a stronger technical and vocational education system at sub-degree levels to meet the structural skills shortages that are in all probability contributing to the UK’s weak productivity performance (p. 9).

The report notes that “in many developed economies, increased participation in tertiary education has been associated with productivity growth over the past half century but in England – where attention has focused largely on degree-level study – the total number of people involved in post-18 education has in fact declined.” (p. 8).

“Generous and undirected funding has led to an over-supply of some courses at great cost to the taxpayer and a corresponding under- supply of graduates in strategically important sectors” (p. 10), with a ‘missing middle’ at Levels 4 and 5 (pp. 33-37).

This echoes – as much of Augar does – the House of Lords Report (2018) Treating Students Fairly.

Augar aims to diversify the tertiary system and acknowledges that current arrangements lead to an unhelpful bias towards a full-time honours degree, recommending measures to rebuild part-time and work-based higher education alongside boosting flexibility and credit-based routes through the system. In 2009/10, there were 594,550 full-time entrants to English universities and 385,965 part-time entrants. As Augar notes, by 2017/18, there were only 180,675 part-time entrants – a fall of 53 per cent. At the same time as the number of students taking full bachelor’s degrees (Level 6) rose dramatically, higher technical qualifications (Level 4 and 5) have become a much smaller part of England’s higher education landscape, equivalent to approximately 2 per cent of the undergraduate student body.

Reversing these falls and aiming to recreate a more diverse higher education system is to be welcomed. Though much of the reaction to Augar has described a shift of resources from higher education to further education, the reality is more nuanced. Like the House of Lords report, the main recommendations involve diversifying higher education with new incentives for the provision of part time, modular and new Level 4 and Level 5 provision – areas from which colleges and universities have moved away in recent years.

The focus of policymakers on higher technical education and training and on the specialist institutions that deliver them is far from new. England has seen a litany of false starts and abandoned initiatives, and implementation must be mindful of history (Westwood 2018).

So “reforming and refocusing FE” to create a network of national colleges to concentrate on this type of provision is a big leap from the current state and mission of further education colleges, and restoring the “missing middle” between further- and higher education will take time, sustained political commitment and significant investment.

Some dogs that did not bark (at least loudly)

The report does not recommend a minimum grade requirement as a condition for eligibility to student support but includes the option as a future possibility, perhaps as a potential lever for government – ideally the existence of such a lever might obviate the need to deploy it.

The report recommends a lifetime repayment cap of 1.2 times the original loan in real terms. An instrument with similar purpose but greater precision and more immediate effect would be to write off (say) 10 per cent of a person’s outstanding loan for each year in which he/she teaches in the state school system, or works a nurse or doctor in the NHS.

The initial student loans legislation had close analogies to the Consumer Credit Act.  It would be useful to inspect current legislation for any remaining restrictions, originally designed for a very different type of loan, that are unhelpful for income-contingent loans. The report makes a small move in that direction by suggesting rebranding student loans as the Student Contribution System. While we support the idea, a more telling name would be the Graduate Contribution System.

Policy is fine and dandy – but what about the politics?

The report shifts the balance in strategic ways:

• From loans partly towards grants:
• From greater to less emphasis on market forces;
• From full-time to modular delivery;
• From all Level 6 honours degrees to other higher education qualifications;
• From separate silos for higher- and further education to a more integrated system;
• From unequal to more equal funding across higher- and further education.

We support those directions of travel. Whether or not they will happen will depend on how the politics plays out. Some key points to look out for include:

Political will: this is a review commissioned by an outgoing Prime Minister. Its implementation will depend on a new team of ministers including in No 10 and perhaps also No 11 Downing Street, and potentially at the Departments of Education and Business. There is also considerable uncertainty over the status of this Government’s industrial strategy (Westwood, 2019) and Augar’s linking to it may come under question.

Political gridlock, notably the political black hole caused by Brexit, largely rules out much government action in other areas. Whoever becomes the next Prime Minister, the current arithmetic in the House of Commons makes ambitious reform difficult. It is far from clear that other political parties in England or the wider UK will offer support.

Cherry picking: with the honourable exception of the 2006 reforms, governments (plural) have tended to cherry pick – adopting recommendations with short-term political popularity while leaving out unpopular ones. Robbins, Dearing and Browne all experienced this to varying degrees and none was implemented in its entirety.

This problem applies across a wide range of policy areas (e.g. the slowness with which governments internationally have moved to the inescapable need to raise pension age as a response to the good news of rising life expectancy). Past examples from further and higher education in England include:

• Making loan repayment terms more generous, while ignoring the more progressive uses to which the resources could be put.
• Sharp changes in policy, often for fiscal reasons, the 2012 reforms being a particularly egregious example. Something to look for in future is the way the teaching grant is implemented, in particular the need to avoid sudden declines in the incomes of higher education institutions, while simultaneously phasing in additional resources for other parts of the sector at a speed that the sector can absorb – i.e. quickly, but not too quickly.
• Policy churn – continual redesigning of policy in what the Institute for Fiscal Studies aptly describes a “near-permanent state of revolution in the further education sector.”

The report hints at these types of problem when it talks about the need for a long-term view, which in turn requires cross-party political support but, however desirable this objective, we are not optimistic about its achievement in the near future.

Time will tell whether the report’s strategic recommendations are fully or partly implemented, and whether its specific mix of proposals – including a lifetime loan allowance, equal access to support across all types and modes of higher education, the “reform and refunding” of the further education sector – are put into practice, and whether institutions from higher or further education will fill the “missing middle” of Levels 4 and 5.

But in sum, we think the report sets out the right mix of ideas. We also believe that these changes would have been much harder to recommend and consider without the changes to the treatment of student loans in the public accounts, thus ending the “fiscal illusion” and the policy biases that have stemmed from it.