Cultures of Capitalism IV: The future of education
An event organised by the Institute for Modern & Contemporary Culture
With guest speakers including Mark Fisher, author of Capitalist Realism, Andrew McGettigan, author of the arts and humanities blog Critical Education and Andrea Phillips, Reader in Fine Art Practice and Director of Research Studies, Goldsmiths. Chaired by Marquard Smith and David Cunningham.
Venue: Whitechapel Gallery Time: 7pm
Education Investor reports on the latest developments in the ongoing “sale” of College of Law. The result of the auction seems to leave Pearson plc looking like the winner by virtue of making the largest sealed bid.
All is not quite as straightforward as it might seem though for College of Law is both a charity and in receipt of a Royal Charter. Both present impediments to any outright purchase.
With regard to the first, charitable status, a charity’s assets must be used solely for its charitable objectives and purposes; in this case the advancement of higher education for the public benefit. Any sale of assets, which must be at market value and take account of more nebulous intangibles such as goodwill, would generate proceeds which should go into trust and continue to be used towards the original charitable aims. That said, the majority of such money could be used to fund research or bursaries at what becomes of College of Law or the parent organisation thus returning some of the sale price back to the purchaser in the form of fees.
Other options include keeping College of Law as a subsidiary but taking the physical assets (such as real estate) into Pearson plc and either selling those or leasing them back to the charitable subsidiary, thus stripping some profit from the enterprise.
The exact solution reached will require the approval of the trustees who are supposed to guarantee that the purchase is in the interests of the charity. In certain cases the final proposition may require approval by the Charity Commission.
There has been very little comment on the second impediment. The College of Law is in receipt of a Royal Charter and therefore has the legal form of a chartered corporation. In this important respect, the College of Law (although a private, independent higher education institution and not a university) shares its corporate form with many pre-92 “public universities”. Therefore the legal procedure to “buy” the College of Law may look identical to that needed to purchase a pre-92 university.
It would appear that College of Law would first have to apply through a private Act of Parliament to have its charter revoked, ie primary legislation. In the private 2004 University of Manchester Act, both Victoria University of Manchester and the University of Manchester Institute of Science and Technology (UMIST) sought the revocation of their respective charters prior to their merger(when a new charter was issued).
According to Dennis Farrington, co-author of The Law of Higher Education, there is no modern precedent for the “acquisition” of a chartered body as described in the reports about potential Pearson’s purchase. We have only previously seen a chartered corporation merged with another chartered corporation or revocation leading to dissolution. Regarding College of Law, Farrington told me:
I imagine either the charter would be revoked and College of Law would take on some other form before sale, or the acquiring body would itself either already have a charter or apply for one (as in the University of Ulster merger) and then take over College of Law under its own Charter powers.
Pearson plc will not be applying for this status so College of Law would have to seek the revocation of its charter for purpose of being bought by a profit-making enterprise.
For this latter reason, the sale of College of Law would appear precedent-setting: it lays down the procedure which would similarly apply to a whole class of public universities should they seek private takeover.
That is, although College of Law is private and independent, the general issues are those affecting many public universities. It is therefore worth turning any private Act of Parliament into a public issue.
I have uploaded my slides from today’s presentation to the National Campaign against Fees & Cuts.
The theme is privatisation in higher education along with a consideration of what the postponement of the planned higher education bill means.
At the event I also recommended the JNCHES document on interpreting university financial statements.
Updated 29 June 2012: Link to JNCHES fixed.
The Telegraph is reporting that the government may have decided not to proceed with a higher education bill in 2012.
I’ll post more later but for what this probably means given news since the turn of the year see this earlier post.
Update:
Andrew Fisher raises an important issue about the place of Hefce and the need for some primary legislation to resolve its status before 2014/15 when the grant “runs out” for some institutions. That either suggests that an HE Bill could appear in 2013 or bits of needed legislation such as this could be bundled up with other parliamentary business. Given that many across the sector have been calling for a pause, perhaps the former option is most likely.
The BBC is reporting that the Intellectual Property Office has objected to the original proposal by New College for the Humanities to register its name as a trademark. Though no official grounds have been given, the suggestion is that the successful registration by New College, Oxford before Christmas (over 600 years after its founding) may have something to do with it.
A bigger issue for NCH is that it does not appear on the UK Border Agency’s list of trusted sponsors and is therefore currently unable to bring overseas students to the UK.
The NCH website reads:
“We are currently able to accept EU and EEA or Swiss nationals only at the moment. While we welcome international students, it is not yet clear whether NCH will be able to sponsor students who require visas for entry in 2012. We expect to have further information by early 2012.”
Without a track-record of teaching, NCH is unlikely to gain this status. Since non-EU students were the obvious market for its overpriced offering, this has to mean trouble for whatever business plan it had. He may have to follow Boris Johnson’s suggestion of playing upon the class prejudices of Oxbridge rejects.
To become viable, NCH will need some high-profile support but the government is keeping its distance. In a recent interview, Willetts commented: “if it’s going to cost as much as the fees they’re advertising, and be outside our loans scheme, then it looks as if it’s something that isn’t going to be available to the vast majority of people.”
Last week, Grayling is reported to have denied that NCH was ‘for-profit’. It may not be making any profits soon or returns to its investors, but it is a company limited by share with all that signifies.
Update 17 February 2012
Here’s a link to an interview with the BBC where Grayling states, “… technically, NCH is a not-for-profit organisation so that’s a misunderstanding …”. This simply isn’t true. NCH may not be making any profits any time soon, but it is a private company limited by shares and hence ‘for-profit’. Here are the Companies House details.
I am somewhat confused by the Skandia report First Steps to Wealth, in particular by its modelling of the student loan scheme and the estimated write-offs it produces.
First off, the report does not clearly explain how two forms of inflation (as RPI and wage inflation) are incorporated as assumptions in the model. In the main table (p. 21), it looks as if they have been assumed to match each other and so cancel out. This makes the calculations somewhat simplified and nowhere near the sophistication of the models the government is using.
But above all, the report makes a fundamental mistake about the meaning of the final write-offs. These are an accounting convention to manage the graduate repayments: those final figures do not represent money that the government will have to find in future. That issue is determined not by the individual ‘debt’ that determines continuing repayments but the total repayment income as compared to the original borrowing required to set up the loans and the ongoing costs.
So if we examine the table on page 21, then what matters is the amount repaid compared to the amount borrowed not the nominal write-off.
So with an average career salary of £35 812 and a starting debt of £38 850, Skandia estimated that £48,195 will be repaid. What matters is how those last two figures stack up, given that this is a return over 30 years. It comes to interest at under 1% which is below the rate of interest on the government’s own borrowing (c. 2%) so the government would be losing money on this account. But remember, the government is allowing for a 32% loss on the scheme in present value terms. And is creating a provision for that in the accounts. It becomes a problem if the losses are significantly bigger than the provision.
So when Skandia estimate an annual total write-off of 8.7 billion by mulitiplying the number of students by the low-end of its write-off estimates, it has not produced an estimate of liability. In essence, a more complicated calculation is required to estimate what mess future taxpayers may have to inherit.
In a blog post dealing with the Skandia report, Patrick McGhee, vice-chancellor of University of East London writes:
That there would be a shortfall has never been doubted. Even when the fees legislation was being passed in November 2010, it was accepted by the coalition that only a third of graduates would pay all of their loan back with a further third paying nothing at all. But the size of the shortfall has never been estimated to be this high. To put this in some perspective £9bn is more than the total amount currently being spent on incapacity benefit, five times the Criminal Legal Aid budget and four times the amount set aside for all academies in England in 2011-12 . It should be reiterated that the shortfall is recurrent. Overall the lifetime of the 2015-20 parliament this approaches £50bn.
This is the kind of misunderstanding generated by the Skandia report. In brief, the key measure in assessing the loan scheme is total repayments against total outlay plus cost of government borrowing. On the government’s own estimates, released by BIS over the summer, the annual repayments do not begin to exceed the annual outlay and borrowing costs before 2040. It’s that which indicates the problems in the scheme: individual write-offs are paper exercises in comparison and do not give a true measure of any future liabilities.
After reviewing the legal situation, the government has decided that the VAT exemption for universities on shared services can be implemented with immediate effect.
Earlier, George Osborne had announced it as a measure to be included in the 2012 Finance Bill.
This is further evidence of a piecemeal approach to higher education change but the speed of implementation is likely designed to ‘do right by’ Malcolm Gillies at London Met and allow him to rush through cost-cutting measures prior to 2012/13 entry. It makes his low fee, no frill strategy more viable and threatens more jobs there.
Simultaneously, Nesta (National Endowment for Science, Technology and the Arts) has now been privatised . No longer a quango it will be an independent charity.
Although writing the book is curtailing activity on this blog and in the real world, I will be making an appearance at the University of Chichester on Thursday 2nd February.
Time: 5-7pm
Venue: Cloisters.
George Osborne’s November commitment to exempt universities from VAT on shared services should appear in 2012 financial services legislation.
Though lacking the headline value of fees etc – this may be the most significant change amongst all of the government’s reforms. Especially in terms of jobs.
I, along with people like Andrew Fisher, have been stressing this for a while. Here is a report from the Times Higher Education regarding a recent announcement from Malcolm Gillies, who as well as being vice-chancellor at London Metropolitan seems to be chair of a grouping of London Higher Education Institutions.
VAT on these services – such as payroll, ITC provision – has been an impediment to universities getting together to pool ‘backroom’ operations. Gillies: “If every university tendered together for insurance, payroll or careers, you can see that would drive lower unit costs.”
This is likely to stimulate a new round of outsourcing in general, but more significantly, for federal universities like the University of Arts London much of its raison d’être would disappear. (The less said about its centralised research, the better).
Today, 4 January, was the deadline for expressions of interest relating to a tender pushed out by the Department of Business, Innovation & Skills over the festive break.
They are seeking a partner to produce a survey of the private providers offering higher education in the UK. Given the white paper’s commitment to creating a level playing field for the private sector, you might think that such research ought to have been done beforehand. But, no, the tender document admits,“there is only a limited amount of robust information which describes the current scale, organization or potential of private or alternative providers in the UK.”
An earlier report by the influential think tank Hepi, again referenced in the tender, found that private providers had a ‘disproportionate number of students from low income backgrounds; higher default rates; and [a] relatively narrow range of subjects’. The issue of subprime degrees haunts the government and this rush job is evidence of pressure bearing on their plans to open up the sector to private providers.
The resulting survey is likely to be instrumental and skewed to meet the arguments being offered against this aspect of privatisation by UCU and other cogent critics of the government’s plans.
In related news, David Willetts today announced his strategy ‘hi-tech future’ at an event put on by Policy Exchange.
The latter think tank has been a chief advocate of increasing private involvement in education. Willetts did not disappoint announcing plans for a new kind of privately funded ‘university’ concentrating on science and postgraduate research.
“Globalisation is still at its early stages when it comes to Higher Education. The next round of new institutions may well link existing British universities with international partners. The surge in international investment in science and technology would make this a key part of the mission of a new foundation. It might be that today’s institutions propose a new campus or a new international partnership. Or it might be new providers wanting to enter with different models. Today I can announce therefore that the Coalition is inviting proposals for a new type of university with a focus on science and technology and on postgraduates. Local economic partnerships, universities, businesses and international partners can come together to put forward proposals for new institutions.”
While the broader policy and private finance preferences contained within the speech, by happy coincidence, already has an excellent rebuttal in a new article by Chris Newfield, who is based at the University of California and well-placed to grant a different perspective on Willetts’s lessons from the USA.
As he notes: “Education is a massive bulwark against market failure in the sense that it makes invention and advancement possible everywhere in society. But the kind of broad social development that education supports is exactly what within tech-based finance capitalism is threatening to the business model.”
Critical Education 