A blog by Warwick Mansell has alerted me to a speech given by Nick Timothy before the referendum, when he was head of the New Schools Network.
The relevance for HE lies in the manner in which he outlines his view of competition in education, particularly the idea that free schools should be opened in areas served by poor schools, rather than in areas suffering from a lack of places.
The following paragraph is critical for shedding further light on the topics of the two posts published on here this week about changes to HE policy after Theresa May’s elevation to prime minister.
The government is trying to create a market in the education system. This … is the right track for reform, but at the moment there’s a risk that we’re building in the potential for market failures too. A functioning market needs enough genuinely new entrants to challenge existing providers, enough capacity for competition to be meaningful, enough information for providers and users alike, ways of breaking up failing or monopolistic providers, and exit points for providers that aren’t doing a good enough job. The direction of travel is the right one, but there’s a lot that still needs to be done.
Picking over the bones of those sentences, I would focus on the emphatic use of ‘enough’ (remember proposed free schools go through an application process that has to evidence demand and need) and the more activist line on ‘breaking up’ failing or monopolistic providers. That is, market exit isn’t just about having plans in place if providers decide to shut down their education provision; there’s a role for the interventionist state in precipitating market exit if provision is deemed to be poor.
I’m afraid I’ve had to postpone this talk owing to ill health. (12 October)
The New Higher Education Settlement: Does it Add Up?
This summer’s White Paper for Higher Education, Success as a Knowledge Economy represents a new settlement for English universities and colleges. The White Paper heralds an intervention in settled notions of institutional autonomy and academic freedom as powers will be extended to establish a market for quality. The three-pronged justification for this reorientation is degree inflation, student dissatisfaction, and employer complaints about graduate abilities. Lurking in the background a further dimension has become clearer – the government as investor has not seen the expected return: an increase in graduate salaries. At the same time, the expansion of undergraduate places over the last two decades has not been accompanied by the predicted increase in British productivity, despite successive governments’ faith in the generic value of a degree…
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To follow the last post, I thought it might be worth making a few points based on Theresa May’s second speech to the Conservative Party conference.
May set out a vision of a meritocracy, a country ‘that works for everyone’, where if you ‘put in the hours and effort you will be rewarded’.
The emphasis was on fairness – a word repeated 15 times in the speech – and establishing a single, clear set of rules so that people could know how to get on in life.
May recognised – in a way that Osborne and Cameron had failed to do – that Britain is plagued by a sense that the ‘world works well for a privileged few’ but that the majority have seen their opportunities and standards of living decline in the last decade.
In this way, May tapped into common complaints about the apparent decline in social mobility. A crisis in the rules of the game of wealth accumulation (housing and pensions, primarily) that has underpinned the post-war social settlement.
This is sometimes described as a problem of intergenerational equity but I think it’s more accurate to see it as breakdown affecting the formation and reproduction of the middle classes. (I see this point as complementing Chris Dillow’s discussion of ‘May’s Challenge to Marxism’ – it is in the interests of capital to also seek ‘the defence and stability of the social order’).
More speculatively, what might May’s change of tack mean for higher education given the supposed centrality of higher education in improving life chances?
If May is consistent then I would expect to see a shift away from the idea that competition (with easier market exit and entry) will drive up quality and a move to shore up (or impose) standards so that ‘university means university’.
It’s not enough for there to be a single set of rules governing social mobility, those rules must be clear. That imperative runs counter to the consumer faced with an overwhelming choice of courses and institutions.
May announced a more interventionist policy with a bigger role for the state here, citing utility markets as a contender for reform.
That’s why where markets are dysfunctional, we should be prepared to intervene.
Where companies are exploiting the failures of the market in which they operate, where consumer choice is inhibited by deliberately complex pricing structures, we must set the market right.
Is there a more complex pricing structure than the HE fee-loan regime? What you borrow is not what you repay.
Moreover, from a certain perspective (that of the lender), the HE market looks dysfunctional with a large amount of misinvestment or even over-investment if you buy the analysis of groups like the Chartered Institute of Personnel and Development.
So I would now expect a more interventionist approach through the TEF and less inclination to let the market determine high quality courses.
If, as Amber Rudd announced, international students are going to be given clear signals about poor and high quality courses through the visa system, then I would expect something similar for Home students – probably through access to student loans.
Going back to Milton Friedman, the idea of a loan-funded system of higher education was always about the access to the professions (vouchers are appropriate to fund general boosts to citizenship and leadership).
The formation of human capital was meant to trump natural ability. I expect to see more questions and concerns about whether HE courses are imparting the skills and knowledge that warrants government loan support.
Following the Conservative party conference last week, the sector is reeling. It’s become clear that the government does not view higher education as an export success that should be supported in unqualified manner.
Amber Rudd, Home Secretary, announced a review of ‘the hundreds [sic] of different universities providing thousands of different courses across the country’ and whether the ‘generous offer’ of allowing universities to sponsor visas for international students ‘is really adding value to our economy’. This echoes comments I reposted on here last month – comments made in 2012 by Theresa May when she held Rudd’s post.
Rudd seems to see universities as good for attracting the ‘best talent’ to the UK, but is much less keen to see international fee-paying students as valued customers who can take their fees elsewhere. The final word of the next pair of sentences struck me:
I’m passionately committed to making sure our world-leading institutions can attract the brightest and the best. But a student immigration system that treats every student and university as equal only punishes those we should want to help.
It’s a strange choice of word, assuming somehow that non-UK students should be seen as opportunities for potential philanthropy (‘the deserving student’). She goes on:
So our consultation will ask what more can we do to support our best universities – and those that stick to the rules – to attract the best talent … while looking at tougher rules for students on lower quality courses.
Is the point here to flag up to international students that they would be better off avoiding ‘low quality’ courses. Is identifying courses as such to be part of the second phase of the Teaching Excellence Framework?
At the same time, the government also reiterated its wish to bring net migration down to below 100.000 per annum and that student numbers would be included in that target.
Many commentators have noted that Nick Timothy, May’s advisor, wrote last year about targeting university students to hit that migration measure. In an article for the Telegraph, Timothy appeared to identify 100 000 students at colleges and ‘non-Russell Group universities’ who would lose out under the ‘student visa cap’ he proposed. (That would leave 70 000 at Russell Group universities).
The Home Office estimates that the number of foreign students at Oxford and Cambridge is a little more than 4,000, while there are about 66,000 at the remaining Russell Group universities. That leaves more than 95,000 foreign students at non-Russell Group universities and more than 18,000 attending colleges.
That’s a startling proposal with the potential to damage finances. University of the Arts London for example gets one third of its annual income from non-EU fees.
This looks like unthinking vandalism but there is more to Timothy’s analysis. His Telegraph article cites two practices employed by universities that he thinks bend the rules.
Some have formed partnerships with colleges to allow foreign students to work as they study, circumventing the tough rules designed to stop economic migrants masquerading as college students. Other universities – which are often based hundreds of miles away from the capital – have set up London campuses to attract foreign “students”, many of whom simply want to work in the UK.
London campuses were one of the very few HE policy issues mentioned in the 2015 Conservative part manifesto. They were opposed to them – though we’ve yet to see any concrete policy measure brought to bear. (And will any spotlight be turned on Warwick’s Business School in the Shard or Liverpool’s London site?)
The first point, though, is the one that may offer most insight to what’s going on. Students at ‘Hefce designated’ universities (what we would have called ‘publicly funded’ a year or so back) have the right to work while studying, those at private colleges do not. Students at different institutions also face different post-study visa conditions on the right to stay and find or maintain employment.
What Timothy has to mind is a form of partnership agreement whereby a ‘Hefce designated’ institution sponsors the students at another college (perhaps as part of a franchising or validation arrangement) so that the students come in to the country as students of the established partner for the purposes of the visa, but are taught at the private partner.
It is a deal of this kind that was bound up in the travails at London Metropolitan four years ago. Theresa May intervened as Home Secretary after learning of LMU’s deal to sponsor 5000 London School of Business & Finance students each year. LMU had its licence to bring in international students suspended and the deal with LSBF was cancelled shortly after.
Do Timothy and May think such practices are widespread? I’m not sure. But it is clear that partnership arrangements of all kinds are much less common amongst the Russell Group than other universities.
And it’s clear that Theresa May’s focus on rules and fairness in her second conference speech may start to cast some shade on higher education institutions that are seen to be gaming the system or not up to scratch.
(The nominal minister for HE, Jo Johnson, seemed to be caught unawares by Rudd’s speech. Before June, it was necessary to watch the Treasury to understand HE policy, now it’s the Prime Minister’s Office setting the agenda).
I’m afraid I’ve had to postpone this talk owing to ill health. (12 October)
The New Higher Education Settlement: Does it Add Up?
This summer’s White Paper for Higher Education, Success as a Knowledge Economy represents a new settlement for English universities and colleges. The White Paper heralds an intervention in settled notions of institutional autonomy and academic freedom as powers will be extended to establish a market for quality. The three-pronged justification for this reorientation is degree inflation, student dissatisfaction, and employer complaints about graduate abilities. Lurking in the background a further dimension has become clearer – the government as investor has not seen the expected return: an increase in graduate salaries. At the same time, the expansion of undergraduate places over the last two decades has not been accompanied by the predicted increase in British productivity, despite successive governments’ faith in the generic value of a degree in human capital terms.
In this context, the government has commissioned research into the ‘value add’ of particular degrees and institutions which will dovetail with the development of new metrics and measures for the later phases of the teaching excellence framework, including tests for generic learning gain.
This talk will outline these developments and the contours of the next decade of HE policy as it is motivated by the government’s economic and financial considerations and what the resulting new ‘financialised’ framework will mean for the sector
Date: Thursday 20 October
Venue: Keele Hall – The Salvin Room Keele University
The talk is free and open to all.
The 2015/16 BIS accounts state that a first sale of ‘pre-2012’ income contingent student loans is planned for 2016/17.
For the first time, the BIS accounts breakdown the loan book into ‘pre-2012’ and ‘post-2012’ loans, providing separate fair and face values for each category.
Click on image to enlarge
The fair value of loans earmarked for potential sale is therefore £34bn and BIS was aiming to raise around £12bn from a five-year sale programme.
It is important to note that the fair value – what the government thinks the loans are worth – is not what will be used in a value for money test. This is because the government uses a much higher discount rate to assess VfM: a sale could represent a substantial loss to government but still go ahead, since a higher discount rate means a lower valuation for future money.
Page 75 of the 2015/16 accounts:
Under accounting policies the amortised cost discount rate (currently 0.7 per cent) applies whereas the Department has agreed with HM Treasury that any decision to retain or sell an asset on the balance sheet the applicable discount rate is the social time discount rate (currently 3.5 per cent). The Department will also explore options to sell Green Investment Bank and the Government’s 33 per cent shareholding in Urenco.
The decision to change the reporting discount rate for student loans has sidestepped the dominant political debates about the sustainability of student finance with a classic accounting move, but this means that a central pillar of HE policy – selling the loans to clear the balance sheet and lower national debt – becomes less ‘presentable’.
Remember that the government only raised £3.3bn from the sale of Royal Mail shares and was thought to have missed out on millions. The government is entertaining an annual process that would generate more losses each year – but it’s hoping no one will pay too much attention.
For illustrative purposes here is a simple cash stream (£10 per year for 10 years) discounted at the two different rates (using RPI of 2.8%). You can see that an asset worth £83 would pass a VFM sale test if someone offered £72.
Click on image to enlarge
(ps this was updated as my original spreadsheet used the old plus 2.2 discount rate rather than the plus 3.5 VfM discount rate)
The 2015/16 annual accounts for now-defunct BIS were published back in July. They covered the financial year to 31 March 2016 (which can cause some confusion when comparing with other figures, such as SLC, that operate on the academic year).
Figures inside represent the first official updates to student loan estimates, valuations and projections since the Autumn, when the government confirmed it would freeze the loan repayment threshold for five years and lower the official financial reporting discount rate for loans to RPI plus 0.7% from ‘plus 2.2%’.
These measures were designed to secure the ‘sustainability’ of the student loan scheme and when combined they boosted the fair or carrying value of the student loan book by over £8bn.
At the end of March 2015, existing student loans had a face value of £64bn (what was nominally owed to government) and were expected to generate repayments equivalent to £42bn (‘fair’ or ‘carrying’ value) in net present value terms.
By the end of March 2016, the face value of the book had increased to £76bn with a fair value of £57bn, an increase for the latter of £15bn on the back of only £12bn issued in new loans. (FE Advanced Learner Loans account for £160m of the year’s new issuance).
The accounts report that the official RAB estimate for new loans issued is 23% (down from over 40%) and that the Treasury has set a target RAB of 28% (down from 35% to reflect the rebasing that the discount rate change has produced.
In a separate email, the BIS press office confirmed to me that the RAB allocations given to BIS in the 2015 Autumn Statement have been replaced by the following, which will pass over to DfE.
2016-17 2017-18 2018-19 2019-20
3.4 3.8 4.2 4.5