By Bahram Bekhradnia - originally published in the Independent.

Last week the Conservatives published their proposals for funding HE.  These represent a welcome advance on their previous policy.  In particular, they have accepted the principle that there needs to be a better balance between what is provided by the taxpayer and by the beneficiaries of HE; and they have also committed to keep grants for poor students.  Their further proposal to transfer to universities the student loan book represents an innovative way of guaranteeing a stream of funding for capital and for increasing university endowments.

But they have maintained their rejection of fees, and by imposing commercial interest rates on maintenance loans as the only means of securing a greater contribution by students, their new policy will give rise to some serious anomalies:

• The rich will be subsidized by the poor.  The richer the student the smaller the loans they need, and the less they will therefore pay. 
• EU students, who are not eligible for maintenance loans, will pay nothing and will be subsidised by English students and taxpayers – beyond the subsidy they currently receive - at a further cost of about £150 million per year.
• Those who take the longest to repay (women taking career breaks and those in poorly paid professions) will contribute most to the cost of HE.  Under the Government’s policies it is these groups who will receive the largest subsidies.

The removal of the interest rate subsidy could be positive.  It would be far better to remove a subsidy that benefits rich and poor alike and use the money to target support at those who need it most.  But this is not what the Conservatives are proposing.  The money will instead be used to provide for general HE funding for all.

Whether universities will receive as much under the Conservative proposals as under the Government’s is obscured rather than illuminated in the Conservative document.  They claim that both students and taxpayers will pay less, but also that universities will receive the same amount.  This cannot be right:  there are only two sources for the money that universities need -  students themselves and the taxpayer.  So if students are paying less then the taxpayer must be paying more; or if the taxpayer pays less then students must one way or another be paying more.  Unless – and this is a very real fear – universities will actually receive less.
One way of going some way towards squaring the circle would be to reduce the number of students that need to be provided for.  The statement that the plans do not require a reduction in the current participation rate suggests that they preclude its expansion. At a time when the proportion of young people staying on in school and taking A levels is increasing, this implies abandonment of the Robbins principle that all those with the qualifications and the wish to do so should be able to enter HE.  The consequence will be that a large number of aspiring and qualified entrants to HE will be denied places.

A final concern about the policy is that, despite what is claimed, it is in many respects a centralizing one.  On the one hand the effective abolition of HEFCE, and funding universities entirely through a student-based capitation fee, could reduce the level of interference and top-slicing.  And the transfer of the loan book will provide a source of income for capital that is guaranteed and independent of the Government.  On the other hand, more functions would be taken into central government (deciding funding rates for different subjects for example, and the identification of priority subjects).  And there is a clear and explicit statement that the Government will set the amount of funding that universities will receive through the national scholarships:  there will be no discretion available to universities, as there will under variable fees.

Despite the undoubted progress in Conservative thinking, therefore, and some quite innovatory aspects of their proposals, in this crucial respect this looks like a short term solution to a long term issue.  If in the future a Government were to decide it cannot afford to fund universities properly from taxation it could not keep putting up interest rates.  Although politically difficult, it would be able to allow universities to put up fees.