Skip to content

Some further consideration of Labour’s tuition fee announcement

Campaign for the Public University has provided five reasons to give two cheers to Labour’s tuition fee pledge.

I am not a cheery soul but I’ll offer three further plus points for fee reductions.They involve taking a wider view of Higher Education policy than the commentators who are narrowly thinking about eighteen year-olds commencing three years of full-time study and their likely repayments. I would add that in itself HE policy cannot address the inequalities in income distribution that animate mainstream media kibitzers, who would normally complain about the 61% marginal take from graduate salaries over £41 865 (40% income tax, 12% NI, 9% student loan repayment).

I’ll also add a pet gripe – Labour’s statements have tended to use nominal figures. When you are talking about stocks and flows three decades from now, it helps if the numbers are presented in today’s terms rather than those of e.g. 2045. Though I guess the higher figures are thought to help the case against £9000 fees. When you do the rebasing on, say nominal write-offs, you’ll see that the departmental accruals accounting already has suitable amounts factored in for losses. It should also be pointed out that what is written off in nominal terms from loan accounts is not the same as the ‘write-off subsidy’ which scores in the national accounting at that point.


1 Reducing graduating debt is good for all students.

Student loan agreements contain the following clause:

 “You must agree to repay your loan in line with the regulations that apply at the time the repayments are due and as they are amended. The regulations may be replaced by later regulations.”

That is, terms and conditions on loan repayment are not fixed when loans are taken out. The government has administrative power to alter the repayment threshold, the repayment rate, interest rates and the point at which outstanding balances are written off.

Ministers previously waved away this ‘form of words’ as something inherited from Labour. But former BIS civil servant, Matthew Hilton, expresses a refrain now frequently heard: you can change the terms of repayment for existing borrowers to manage the sustainability of loans using statutory instruments (ie almost no parliamentary oversight).

‘For example, as a matter of fact, the government could reduce the RAB charge to whatever it wanted at a stroke, and within the existing overall policy framework, just by adopting a different approach to the financial management of the student loan book. If interest rates, repayment levels etc. were able to flex in line with the macro-economic context, the RAB issue would go away.’

This is sometimes also referred to as ‘tweaking’ the loan scheme. The most likely candidate for change is the repayment threshold. It is supposed to go up in line with earnings from 2017 onwards, but the relevant regulations have not yet been made. That indexing was a last minute concession to Lib Dem MPs to get them to vote with the government in favour of £9000 tuition fees back in 2010.

The less debt you start with, the less exposed you are to future governments worsening your repayment conditions.

It’s not just that the Conservatives have refused to rule out fees, they have refused to rule out freezing the repayment threshold. Actually, you might want to press Labour on that too!


2 A reduction in fees may make part-time study and retraining more feasible for many.

Numbers of part-time students and mature students have drop precipitously over the last few years. A reduction in fees to £6000 for full-time students may make part-time fees more reasonable. Not everyone considering HE has access to loans – for example, those who already hold a first degree or have spent time studying with the benefit of loans and grants.

Labour have promised further announcements on ‘earn while you learn’ degrees and accelerated programmes.


3 Restoring direct funding to HEI’s impedes privatisation

The Conservative party had a clear agenda before the 2010 election: to create as far as possible a level playing field for private HE provision by removing direct grants to universities and making HEI’s overwhelmingly reliant on fees for undergraduate provision. Overnight in 2012 tuition fees at private providers became competitive with those at HEIs and private students were also given access to loans up to £6000 per year for tuition fees.

This policy has led to the rapid expansion of places at private providers. The quality of that expansion is mixed to say the least.

Restoring some block grants for all subjects at established HEI’s undoes the key measure underpinning a troubled policy.

Labour announces its tuition fee policy

Labour’s long-awaited policy on tuition fees arrived today as part of its ‘zero-based’ spending review.

The opposition party has now committed to reducing the maximum tuition fee at English universities to £6000 per year (down from £9000pa). It would cover all undergraduates in 2016/17 not just new starters.

Speculation and criticism in advance of the announcement focused on how Labour would maintain current funding levels for universities and other higher education institutions if fees were to be lowered.

Ed Miliband pitched the sums at the level of national accounts. By restricting tax relief on pensions, Labour will fund an increase in direct grants to institutions. These two moves will more or less offset each other – as tax receipts and spending – so that the current balance is unaffected. (Current balance would be a Labour government’s ‘deficit’ target after the election.)

Loans are excluded from current balance and other income and expenditure measures. But because loan outlay is lowered each year, there will be an additional impact on the ‘public sector net cash requirement’, where loan outlay scores and which drives the change in public debt.

Labour estimate that PSNCR will be lower by £2.7bn annually as a result of the three changes. This will slow the growth in public sector net debt and lower it as a percentage of GDP on current projections.

By the end of the next parliament, in 2020, Labour expects public debt to be lower by £10bn as a result. It has even gone so far as to provide a projection through to 2030, when it believes debt will be £40bn lower if the policy is continued.

That seems painless. So what might we be missing? In effect, Labour is foregoing the projected future repayments associated with fees above £6k. These are due to arrive a long way in the future, mostly after 2035 (graduates in 2019 will be liable for loan repayments until 2050). Labour is in effect lowering the cash that goes out the door today at the expense of repayments estimated to arrive two decades and more away.

Analysts like London Economics will be in a better position than me to assess the long run economic costs of that trade-off and who benefits from these changes (it looks as if higher earners will be levied higher rates of interest). Some will have opinions about whether that money from tax relief restrictions would be better spent elsewhere (with only £400 added to the maximum maintenance grant). Universities will still harbour concerns that  the extra tax income is not formally hypothecated to undergraduate tuition.

Others will be disappointed that the notorious ‘RAB charge’ failed to make an appearance. The RAB charge is a convention that pertains to departmental, not national, accounts. What this does do is underscore a point I have made repeatedly on this blog and elsewhere – mostly recently in the London Review of Books - that it is the national accounting level and its cashflows that is most important for understanding student loan policy at present.

There is still too little detail on Labour’s HE policy. But an article just published at Times Higher Education by Liam Byrne promises more to come:

Over the weeks to come we’ll have more to say about reform and our ambition to build a British “dual track” system, creating for the first time a big, wide vocational, professional and technical path to degree level skills for students who want to earn while they learn, as the Institute for Public Policy Research’s Commission on the Future of Higher Education recommended in 2013. We’ll have more to say about how we help part-time students. More to say about supporting the teaching of high-cost courses. And more to say about repairing the damage to Britain’s global reputation for training international students.

I will add more today as more details emerge.

Radio 4’s Face the Facts looks at St Patrick’s

Radio 4’s investigative programme ‘Face the Facts’ has just broadcast a 40min episode on the expansion of alternative HE provision in England. It contains accounts from former students and staff at St Patrick’s International College.

It provides more detail about quality of provision and recruitment methods, but is consistent with investigations conducted with the Guardian last year into its sister organisation, London School of Business and Finance.

‘Cash Today’ – attempts to sell student loans

London Review of Books has kindly published my account of government attempts to sell student loans. It is available to read here.

Although Vince Cable ruled out a sale this parliament, the sale remains Treasury policy and estimated proceeds are still included in the forecasts for 2015-2020.

‘What awaits English HE after the election?’ – talk on Tuesday 24 February

Originally posted on Critical Education:

I will be speaking at Big Ideas on Tuesday 24 February.  All welcome.

Venue: Upstairs at The Wheatsheaf, Rathbone Place, central London.

Time: 8pm


Headline coverage concerns Labour’s deliberations around lowering the maximum full-time undergraduate tuition fee from £9000 to £6000 per year.  However, after May the next government will be confronted with a set of more difficult problems: a collapse in part-time undergraduate numbers along with concerns about research assessment and the quality of funded teaching provision. At the same time, current loan repayment and employment data points to serious concerns about the graduate labour market.

What might this all mean for the regulatory and funding framework of the last two decades? Is it time for a different approach to higher education?

View original

‘Inside St Patrick’s’ – Radio 4 on Thursday

Radio 4’s Face the Facts is running an episode on Thursday on St Patrick’s International College.

A policy of broadening access to further education for a wider range of students has turned into a “free-for-all” with some colleges gaming the system to attract public funding.

It will air at 12.15pm.

Details here.

Sharing risk on loans

A belated realisation on my part…

the changes to accounting and budgeting for student loans were introduced retrospectively. BIS’s budgets and accounts for 2013/14 utilised them even though they were only published in the 2014/15 guidance.

From p.89 of BIS’s financial statement for 2013/14:

There were increased AME costs this year arising from increased student loan outlays and impairments as the higher value post-2012 reform loans are incurred (£9,047 million compared with £7,133 million in the previous year), and the introduction of a new HE budget risk-sharing arrangement with HM Treasury that spreads additional costs over 30 years for BIS.

‘Risk-sharing’ refers to a measure to manage the volatility of estimates of graduate loan repayments. The Treasury has set a ‘target impairment’ for loans of 36% and any excess ‘RAB charge’ over that relating to variations in forecasts is covered by a new provision. Official RAB is currently 45%. With roughly £9bn of loans issued last year, a variance of 9 percentage points would equate to about £0.81bn.

Last year (2013/14), £0.8billion was placed into the relevant ‘resource AME’ account – this will be charged back to BIS over the next thirty years and will come out of normal departmental expenditure allocations. That is, BIS has to find savings of roughly £26-27m each year for the next 30 years to ‘clear’ that resource AME allocation.

For 2014/15, BIS has permission to add up to a further £1.98bn to that same allocation as a ‘management charge’. It if were fully used, and this may not happen, then a further £66m would need to found from elsewhere annually. (For comparison, in 2013/14 BIS could have utilised up to £1.2bn, but only £0.8bn was needed.)



Get every new post delivered to your Inbox.

Join 241 other followers