When the levy breaks

This guest blog has been kindly written for HEPI by Charlie Ball, Head of Higher Education Intelligence at Prospects.

There can be few remaining individuals with an interest in student funding and who have studied the current system and its early consequences who would claim it is the best and most effective available regime

Jonny Rich’s new proposal, ‘Fairer funding: the case for a graduate levy’, published by HEPI recently is a characteristically interesting and radical reimagining of the funding landscape, focused around an employer levy. As Rich points out, the cardinal sin of the current system is that it tells the student customer what it thinks they should want and is not led by what they actually want or need.

The offer for students from disadvantaged backgrounds, in particular, is painted as distinctly unenticing.

Rich envisages an equitable solution; make the market do the work and get recruiters to pay a levy for graduates they employ. This has a number of excellent side effects.

• Employers, presumably, will recruit graduates only if they really need them, thus dealing with graduate underemployment.
• Higher Education institutions will be set targets by various demographic factors and if they didn’t meet them, they in turn would contribute to an access fund.
• And student lending would be switched to institutional lending and then phased out over time.

I am no specialist in university finances and don’t propose to dwell on that. But there seems to me some labour market consequences of switching the whip hand on funding from student to employer, who would expect to have a significant say in how higher education is run and operated. Three crucial points ought to be made at the outset.

1. The first is that the majority of graduates work for large organisations. So this plan comes with a need for a robust mechanism to allow SMEs to have their say, or their voice will be drowned out by large employers. Without that, getting SMEs to buy in – an already-tricky task since the levy may have to be very sensitively designed in order for it not to be a disproportionate administrative and financial burden to small businesses – will be even more difficult.
2. The second is that much the largest individual employer of graduates in the UK is the NHS. Any levy of this kind will actually shift a significant minority of the entire funding of the higher education sector onto the National Health Service. Rich asserts that the current system does not give value to taxpayers, and there is considerable merit in that viewpoint. However, I am not sure that this alternative would be seen by taxpayers as better value if they feel that the NHS is in effect funding higher education. Indeed higher education itself is the 4^th largest employer of new graduates and so the sector would not only be funding itself but would presumably warrant a significant say in the debate to boot. Public service employment is very important to the graduate labour market. One of the crucial weaknesses of the current system is that while purporting not to, it actually shifts a considerable funding burden to the taxpayer (that of written-off loans) without them realising. Rich’s scheme replaces that with a system that shifts a considerable funding burden to the taxpayer (that of public sector recruitment) without them realising. It is not easy to see how this is an improvement.

3. The third is that it makes it much harder for graduates who struggle in the employment market and need to temporarily enter employment with recruiters who do not typically recruit graduates. They will be reluctant to pay a levy. It is highly likely that a consequence of the imposition of a levy would be a significant increase in graduate unemployment.

Rich then looks at labour market issues and shows, in his view, that his scheme will help to address them.

To a labour market specialist, his section on “skills shortages” is perhaps the most interesting part of the proposal. Rich states that “employers continue to complain that graduates are not job-ready”. It would be truer to say that ‘employers continue to complain that all applicants are not job ready’.

At the same time, employers continue to note that graduates are far better prepared for the jobs market than anyone else they encounter.

This leads into the whole section on “skills shortages”, which, as with many discussions on the topic, conflates two separate issues, occupational shortages, linked to supply/demand mismatches; and genuine skills shortages, where the people who do apply don’t have important components of the job. They arguably need different, linked policy solutions. The first is tougher to resolve as it needs better demand data, which we currently do not have and will need significant work to acquire.  The second requires better work on a shared language of skills and what a ‘skill’ is (compared to, say a personal attribute) and how we impart those skills and work on training. Without these initiatives, a levy would likely make only a small dent in occupational shortages.

I also think Rich needs to make a more explicit link between the levy and really good information, advice and guidance (IAG) and what concerns me here is that the IAG dimension appears to be just assumed without a mechanism by which this levy then translates into prospective students getting better information. Despite TEF and the metrics agenda highlighting employability data at institutions, this has not always translated into better resourced information, advice and guidance provision and we make a mistake if we assume that changing funding will automatically improve information, advice and guidance or address occupational or skills shortages.

But ultimately all of this this begs the underlying question on supply and demand that is constantly ducked; if Government or employers or the public think we’re training too many graduates in some disciplines and not enough in others, what real policy levers do we have or want to create to change that?

Pretty much the last thing the Government wants (or has the capacity to do) is a centrally planned higher education quota system where we dictate how many people should get degrees in each subject each year. Nor are employers going to be remotely interested in doing that either.

Meanwhile, the newest release of IFS data demonstrates yet again that you can tell arts graduates that they won’t earn much until you’re blue in the face. They know that already, it’s not why they want to study the arts. So those levers are not that effective either. You can also point to endless STEM initiatives that have had little impact on STEM student numbers. With that in mind, the justification for the levy in labour market terms gets a lot weaker. It will be no substitute for a real, relentless, evidenced focus on good training.

There’s a lot to like about the proposal. The social mobility angle shines with a demand for fairness and access. The paper fizzes with Rich’s characteristic energy and imagination. But ultimately, if we don’t fix training, the levy’s gonna break.