Three clouds on the horizon?

You could be forgiven for thinking that all is well – we’ve gone through the pain of reform and everything is now in place for the long term – the system, give or take a few thousand students (on a like for like comparison with 2011 this looks like we are over 50,000 down but after factoring in deferrals this might be more like 30,000), is in place, the sky hasn’t fallen in, resources maintained for universities and so on. At a fringe event at the Liberal Democrat Conference last week Nicola Dandridge made a very fair point – that to some extent this has been evolution not revolution.

But while there is some confidence that the new funding system might bed down over time there are looming questions over whether it will. There are three storm clouds on the horizon that together may question the sustainability of the new settlement.

The first is the deteriorating economic situation – Nick Pearce and the IPPR  have pointed out that the public finances in the next Spending Review (in 2015 or 2016) are under increasing pressure. If we thought the last one was bad – this one looks a whole lot worse as public borrowing increases and the economy flatlines. According to the Treasury’s own forecasts, this may mean a minimum of  3.8% cuts in departmental budgets in each of the first two years of the next Parliament – perhaps even more if the welfare, schools and international development budgets remain protected.

There are simply no guarantees that HE funding or the system we are currently introducing will survive intact  – the pressures on the science budget, on student numbers and on student support – as well as other areas of BIS expenditure such as FE and skills – are very real indeed.

Secondly, there is a concern that a step back from mass higher education may ultimately leave us with a less qualified workforce and negative longer-term consequences for the economy. David Willetts wants more and not less people to go to university but it is hard to see how the new settlement will achieve that. Arguably there is little room for further growth in the current model and looking at the 2012 figures, we may have to adjust to being towards the bottom of OECD countries when looking at the amount we spend and the amount we produce.

Some say there is an oversupply of graduates but it simply isn’t true. Employment rates for those with degrees holds at nearly 90% in UK and across OECD countries (unemployment rate is around 6%) and the employment rate for those with degrees has risen between 2008-10 whilst dropping  by at least 3% for people with low or no qualifications.

The third cloud is both complex and significant and it relates to the perceived ‘fairness’ of the reforms. In simple terms, ministers are broadly right – of course it’s fairer and more progressive for the least well-off graduates to pay the least or nothing at all and the IFS and others have supported that view.

Routing the subsidy or state contribution (via uncollected loans) to the poorest graduates makes rational economic sense but isn’t easily understood or accepted by the public.

Any state subsidy is inevitably subjected to public opinion about the deserving and the undeserving poor. In today’s political language it is more likely to be described as being the difference between those who work hard and play by the rules and those that don’t work hard and play the system. In some ways it is a familiar welfare state or social contract debate – should subsidies be earned in some way and does redistribution to the least well off require some degree of universalism to legitimise it?

Into this debate comes the recent hardening of attitudes to benefits recipients as reported in the British Social Attitudes Survey – as a society we are less forgiving of those on benefits than we used to be – less tolerant of those that receive social transfers and especially if at the expense of hard working families that play by the rules.

Now returning to the new tuition fee settlement, those graduates who don’t end up paying back the costs of the tuition may be the most deserving of subsidy but the public may not agree. Worse they may see this as taking support away from those who work hard and end up in good but not spectacularly well paying graduate jobs such as teaching or nursing. Will they tolerate those who aren’t working hard or long enough and not paying their loans back? They and their families may ask why they are paying and others aren’t?

The West Wing has a famous episode from the Presidential re- election trail when Bartlett’s aides meet a hard working middle earner who just wants the best for his kids and to help put them through college. It’s hard and he just wants it to be a little bit easier – wanting a little bit of recognition and support from the state for doing the right thing.

This all leads to longer term questions about the sustainability of the new funding system. By now we’ve all heard about affordability and the risks posed by the forthcoming spending review. We have heard much less about the risks to longer term stocks of human capital in the UK workforce. But perhaps most significant with regard to the future of the new regime, is the fairness test. Applying it could take us in a number of very different directions.

This entry is based on Andy Westwood’s comments at a fringe meeting at the Liberal Democrat Conference 2012 on the future of higher education held jointly with IPPR, University Alliance and the NUS on Tuesday 25th September.