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The official forecast of student numbers that is so often wrong, it’s nicknamed ‘the hedgehog’

  • 2 December 2019
  • By Nick Hillman

The august Office for Budget Responsibility is crucial to economic forecasting and limiting economic shocks by providing independent oversight of economic decisions. The importance of its role in policy in modern Britain is hard to exaggerate.

One of the inputs into its modelling on the economy is student numbers. The number of students matters because it affects how much the Government needs to spend on lending money to students and on how much it needs to borrow to cover these costs. Due to accounting changes, the element of student loans expected to be written off is now to appear in the current public spending figures too.

So no one should doubt the important of the OBR’s student number forecasts.

As a result of their significance, the OBR regularly updates its forecasts for future student numbers in an effort to ensure they are accurate. Indeed, the changes are so frequent that the OBR’s chart showing the different forecasts is nicknamed ‘the hedgehog’ because there are so many different lines fanning out of it. The version below is the most recent public version I can find but it dates from early 2018 so is far from comprehensive.

Note the size of the changes – over a short period, the OBR’s forecast for the number of new students in 2020 ranges from 350,000 to 400,000. That’s one hell of a range, especially as it only relates to one year’s worth of new students; the range for the whole student body is much bigger still, at well over 100,000.

In one respect, we might welcome the OBR’s willingness to change their numbers in the light of events. It shows a flexibility their political masters are sometimes accused of lacking. But, in fact, it’s a problem because it leaves a false impression. The regular changes to the numbers suggest the OBR’s modelling has a complexity and sensitivity that is just not present.

The OBR’s methodology is, rather, remarkably simple. Their calculation for home students is primarily based on three things:

  • the number of young people;
  • the rate at which young people have been applying to full-time higher education; and
  • the rate at which they are admitted.

The effect of the simplicity is not neutral; it makes the OBR permanent pessimists on UK higher education. Two years ago, in the first week of December 2017, we noted: ‘There seems to be a deeply-pessimistic gremlin somewhere inside their [the OBR’s] economic models for calculating future demand for high-level skills.’ Sadly, it seems the gremlin has still been hard at work since this warning.

Just over a year ago, in October 2018, the OBR’s prediction on English-domiciled entrants was for a modest 0.4 per cent decline in the 2019/20 academic year. As the new End of Cycle data dripping out of UCAS confirms beyond all doubt, even though this number was much lower than the OBR’s previous forecasts for 2019/20, it was still far too negative.

They have since had to admit there were:

  • ‘more entrants than expected in … 2017-18’;
  • ‘unexpectedly high acceptance rates … for 2018-19’; and
  • ‘more UCAS applicants by the January 2019 deadline … than would have been consistent with our October forecast.’

In other words, in all three areas, events had shown the OBR’s forecasting to be overly pessimistic – just as they had been warned it would. So, in March 2019, the OBR changed their forecast to a 1.4 per cent increase.

Yet their overall outlook continues to be pessimistic. The new modelling, they said, ‘generates a modest rise in England domiciled student entrants in 2019-20, after which trends in the number of 18-year olds in the population cause entrants to decline again in 2020-21′.

Financial advisers are obliged to warn investors that the past may be no guide to the future, but the OBR focuses seemingly exclusively on historic data when making their guesses about the future.

This means they ignore other potentially useful indicators of future behaviour, such as high aspiration levels among school pupils, universities’ own carefully-crafted student number forecasts, the Office for Students’ access plans and experience in other countries.

We have been making the same points about the problems with the OBR’s forecasting on future student numbers for five years now.

  • In July 2015, we warned: ‘the OBR have been over-sensitive to short-term fluctuations in demand in its long-range forecasts while being over-resistant to other more robust evidence’.
  • In August 2015, I wrote: ‘While no forecast can be forever and no one has perfect foresight, I personally think there are good grounds for believing that the OBR’s forecasts will turn out to be overly precise and overly pessimistic. That matters because it affects the modelling on the costs of higher education in the future.’
  • In October 2015, we said: ‘The OBR is ignoring historical trends. Student numbers have risen since the second world war. Yet many groups are still under-represented on campus. So there is room for growth. The OBR is also ignoring experience abroad. For the government and universities to plan ahead with confidence, the OBR must revisit its predictions or provide an explanation for its pessimism.’
  • In November 2016, I asked: ‘is there anyone in the higher education sector, I wonder, who thinks it is likely that the growth in full-time undergraduate numbers will be as low as the OBR says?’ We’ve even met their staff face to face to discuss the issue, but all to no avail.
  • In December 2017, we said: ‘The OBR’s forecasts for students have bounced around like a yo-yo for years. Their numbers manage the rare feat of being both deeply unsophisticated and incredibly sensitive at the same time. No one should plan for the future on the basis of the OBR’s projections.’
  • In January 2018, we pointed out: ‘if the OBR’s work on student numbers is at all indicative of its other work, we should worry about all its figures, and the entire basis on which the UK plans its economic future.’

The regularity with which the OBR have had to change their student number forecasts should have lead them to question if they need to adopt more sophisticated modelling techniques. But, even though we are at risk of sounding like a broken record on the issue, there are as yet no signs of change.

I am not saying their current projections are bound to be wrong. If you play ‘pin the tail on the donkey’ often enough, you will eventually get close to the ass’s behind. But over time the OBR’s targets will be more robust and more accurate if they take a wider range of factors and more evidence into account.

Yes, some of these new sources of information may be too optimistic – even the Office for Students’s thinks some universities’ own future projections are too ambitious – but they could usefully balance out errors in the other direction to enable a smaller margin of error on an important number.

Given the frenzied times in which we live, it is ever more untenable to refuse to alter overly-simplistic modelling that has proven to be wrong time and time again. It means policymakers don’t have the information they need, it reduces trust in official data and it harms future economic planning.

Finally, the OBR’s current models could prove to be even more wrong than in the past, if for example post-election changes affect student demand. But the OBR can’t be blamed for that: they model current policy, not a range of potential future policies under different alternative governments.

The downtime offered by the pre-election period, during which OBR staff are restricted in what they can do, provides the perfect opportunity to devise a more sensible methodology for plotting future student numbers. After all, a more sensible approach would not just affect the higher education sector; it would also make national forecasts for the whole economy more accurate.

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