Black holes and revelations

It is perhaps fitting that it was the week of Dr Who’s 50th anniversary when a ‘black hole’ reportedly emerged in the BIS higher education budget. Over recruitment of HNDs and HNCs at private colleges has been reported by the Guardian as the cause of this financial problem.

Already there are reports of immediate pressures to BIS, SLC and HEFCE and possibly even to Research Council budgets as a result. According to the Guardian, BIS must find £900m of savings by 2015/16 – the first £600m of that in 2014-15, the final year of this Parliament and Spending Review period. There is predictable derision from several parts of the sector with many commentators already refining their particular versions of ‘I told you this would happen’.

Like most of these people I don’t really know how big the problem is or how significant the financial implications are likely to be. Neither do I know how they will calculate the immediate impact of making additional loans or the increased RAB charge if, as reported, a solution is to convert more grants into loans. Others can speculate but it will be better to wait until the precise figures and the nature of the overspending becomes clearer.

However I do know how it feels when governments discover black holes of this kind and the process that they have to go through to deal with them. Both moments are pretty unpleasant, but perhaps worst of all is the political fallout. It can be toxic for reputations within government and amongst the media, stakeholders and the voting public. Many will think you’ve messed up and few will be sympathetic. It is gut wrenching. And black holes, when they emerge, often end up being bigger than first thought.

It looks very similar to problems experienced with Individual Learning Accounts (ILAs) in the early days of New Labour. Read ‘the Great Training Robbery’ by Anthony King and Ivor Crewe in their excellent book The Blunders of our Governments for a detailed account. As King And Crewe argues, it’s often the failure to learn from mistakes that is the biggest problem in Government.

What of this time?

Black holes emerge all the time and for many different reasons. The collapse of MG Rover in 2004 and the then DTI’s rush to prop it up was the last time – to my knowledge – that the science ring-fence was breached. I was working at HMT at the time. The Treasury were scornful of the policy and the company – riven as they were by a neoliberal economic ideology of non intervention. At one point DTI had proposed the temporary halt to every item of their programme spending to finance a further Rover bailout. Treasury officials saw poor management as endemic in both Rover and the DTI and ultimately believed that both were stuck in the past and condemned to failure.

Black holes also emerged in HE budgets when I worked as a special adviser at DIUS. Overspending on a more generous student support package introduced by Gordon Brown in 2007 eventually resulted in cost pressures and ultimately the student number control system just over a year later.

The LSC capital scandal was even more high profile but was never an overspend as such – rather a promise to deliver several billions more than the agency actually had at the time. They had made the mistake of assuming that the Treasury was going to provide the same amount of funding in future CSRs. It didn’t.

So what actually happens in situations such as the one emerging this week? The Treasury’s role is obviously critical. And they are unlikely to be sympathetic – even less so today when ‘austerity’ spending is much more tightly controlled and three years into the Parliament feel increasingly unpopular with spending departments who have seen budgets reduced more quickly and for longer periods than ministers would like.

Even before the crash the Treasury’s approach was tough enough. They would do two things – firstly set departmental spending envelopes in 3-5 year Spending Reviews. These might get tinkered with during Budgets and Autumn statements but the long term amounts agreed in CSR negotiations were the big numbers that really mattered.

Secondly, Treasury always has its own list of favoured and less favoured policies within each department’s activities. Mini departmental teams in the Treasury are constantly monitoring spending and policy performance as well as continually ‘suggesting’ how to improve things. They are notoriously ruthless and dismissive of many policies that individual departments would see as priorities.

Overall, Treasury expectations are always that any pressures are managed within the department’s agreed spending levels whether in revenue, capital or annually managed expenditure. They will also have rules for how departmental budgets are chopped and changed especially if they are vired between different streams.

So in the case of this new black hole, the first expectation will be that BIS have to find the money. But the is doesn’t necessarily mean that it will be filled entirely from HE budgets. As in Wales and Scotland recently it has often been FE that has carried the can for a more expensive HE commitment or a policy gone wrong. This happened in 2008 in England and will be doubtlessly be considered again this time around. This is largely because there aren’t many budgets to look at in BIS and FE is a big one.

Disappointingly for many in the sector, it is also because FE is seen as an easier target with a lower public profile than either HE or science funding.

Other budgets in HE are rumoured to be in the frame – the NSP, grant/loan thresholds for poorer students as well as research spending. Any ideas will need to be formally agreed with the Treasury and here will be frantic meetings in BIS and HEFCE and in other agencies as well as between BIS ministers and their Treasury counterparts.

There may even be old scores from past negotiations to settle – BIS went to the wire in the 2015-16 SR negotiations and this time there may be a higher ‘price’ to pay. There will be ‘red lines’ for both Treasury and BIS – with measures relating to growth likely to be seen as the highest priorities. For now that will probably include apprenticeships although that is a programme where control and quality are just as problematic – with black holes every bit as likely.

But if cash has to be found in this settlement period i.e. before 2015 as well as afterwards in the next Parliament’s Spending Review period, then decisions will need to be made. Stopping some programmes early such as the NSP will save some money (the Guardian reports this, claiming it depends on getting Nick Clegg’s urgent approval – perhaps BIS hadn’t told him that they had already abolished it earlier this year?)

BIS and its stakeholders will all hope that Treasury see some of their growth spending as essential and that they allow them to switch money around or even find them some extra in departmental underspends or central reserves.

Headlines equating the cuts to numbers of PhDs or the closure of a particular scientific facility might well be a negotiating tactic, but they are unlikely to work. Treasury will expect BIS to manage and they will be offering up a list of policies that they will ‘allow’ BIS to cut or close.

Getting rid of the NSP early was an obvious target. HMT will also be fairly gung-ho about reducing thresholds for grants and loans – after all their view will be that poorer students all get the benefits of HE when they graduate. I suspect that most in Treasury – contrary to David Willetts’s recent ambition to grow the sector amidst the 50-year celebrations of Robbins – will see future student numbers as a target.

Vince Cable speaking at the Lib Dem party conference described what he saw as only marginal rather than average benefits to mass HE participation. Officials and ministers have long been keen to differentiate between returns at some institutions and courses compared to others.

Many people – certainly in the media – still think that too many people go to university or that too many do the wrong types of courses. In the same vein, many at the Treasury also think that our student support system is unnecessarily generous.

In other words we may end the Parliament in exactly the same way that we started it – with question marks over student numbers, student support and research funding. Just like Dr Who it feels as though we’re travelling back in time.