Weekend Reading: Increasing tuition fees linked to an institution’s TEF award

• HEPI recently published a collection of essays on the issue of funding undergraduate degrees, curated by HEPI Director of Policy and Advocacy Rose Stephenson. Over the next few weekends, we will be running select chapters from that collection as Weekend Reading.
• We previously published a chapter by David Willetts, Minister for Universities and Science from 2010 to 2014, and another by Chloe Field, Vice President for Higher Education at the National Union of Students.
• This chapter was written by Jo Johnson, former Minister of State for Universities and Science (2015), then Minister of State for Universities, Research and Innovation, 2016 to 2018.

A good university funding system for England should have three primary goals:

1. provide sufficient financial resources to sustain a world-class higher education sector;
2. share the costs fairly between the general taxpayer and the individual student; and
3. remove the barriers that keep out the disadvantaged.

Measured against these objectives, the system Tony Blair introduced 25 years ago – a time-limited and income-contingent graduate contribution towards the repayment of heavily-subsidised loans – is the least bad option.

There is nothing wrong with the present funding model, except for two easily fixable flaws:

• first, the fact that the value of the fees is being eroded by inflation – the £9,250 fee is worth only £6,000 in 2012/13 prices
• secondly, there is currently no link between fees and the quality of the education on offer in a demand-led system that funds volume rather than outcomes.

The Cameron-majority Government, in which I was Universities and Science Minister, addressed these two flaws: institutions offering high-quality teaching and generating good student outcomes as assessed by the Teaching Excellence Framework would automatically be allowed to raise fees in line with inflation.

Institutions that came in the top two categories – Gold and Silver – were allowed the full inflationary uplift, as were those in the Bronze category, at least for the first iteration of the TEF, with the idea that in time they might be allowed only 50 per cent of it.

In July 2016, a month after Cameron had resigned following the Brexit referendum, I announced that fees for the 2017/18 academic year would rise by 2.8 per cent to £9,250.

This mechanism, sadly, was operational for one year only, as the new Prime Minister, Theresa May, called a snap election that shattered the Conservative majority upon which the policy depended. As the ensuing Confidence and Supply Agreement with the Democratic Unionist Party excluded student finance, so vanished chances of support for further inflationary uplifts.

At the time, its demise was unlamented.

First, no one much liked the accountability of the TEF and the sector, demonstrating its ability to miss the wood for the trees, had produced all manner of reasons to object to the methodology behind it.

And secondly, in a low inflation environment, an extra £250 did not really move the needle much financially either. Vice-chancellors could take it or leave it.

In hindsight, it is clear what a costly development this was. Inflationary uplifts through the TEF, had they continued these past six years, would have maintained university funding on a much more sustainable footing.

Gold and Silver-rated providers would today be able to charge fees of around £12,200.

It would have meant a financial incentive of c.£43 million a year for a midsized university like York with around 15,000 first-degree students. Quite enough to make most vice-chancellors sit up and listen.

The University of East Anglia would have an extra £38 million a year coming in through domestic fees, enough to wipe out their forecast budget deficit.

Such a system, by linking funding to outcomes, aligns the interests of students, taxpayers and providers. It is clearly preferable to the three main alternatives:

1. Corbynist free tuition, which means 100 per cent taxpayer funding of university fees, and the inevitable return of student number controls to avoid unsustainable pressure on the public finances.
2. The de-funding of higher education, which is the result of the current somewhat Corbyn-lite Conservative policy of semi-permanently freezing fees at £9,250 and forcing the sector either to endure the relentless real terms erosion of the unit of resource or to accept student number controls as the price of maintaining the quality of teaching.
3. A graduate tax, with all the complexities it generates in avoidance, overpayment and the flight of talented students fearful of a lifelong levy to universities overseas.

The strongest argument against the first two systems – Corbynism and the current Corbyn-lite Conservative policy – is that both create immense pressure for the introduction of student number controls, a move that would throw the engine of widening participation into reverse gear.

One of the great advantages of our student finance system is that sharing the cost of higher education between the student and the Exchequer has enabled the Treasury to lift student number controls and allowed the widening of participation to drive both social mobility and productivity growth in the UK economy.

Reintroducing number controls is a policy that the UK might conceivably look at in 10 to 15 years’ time, when more progress has been made in terms of narrowing the participation gap and when we have better evidence of other drivers of productivity growth than rising levels of educational attainment.

The participation gap is closing slowly, but in 2023 more than twice as many pupils in the most advantaged quintile progressed to higher education than those from the most disadvantaged quintile.

To slam on student number controls today would not just be a serious moral failure but also a huge brake on our productive capabilities as a country and the very antithesis of levelling up.

Meanwhile, the arguments against a graduate tax remain as strong as they were back in the 1990s when Tony Blair pushed back hard against them and in 2009 when the Browne review sensibly dismissed the idea. The current system in England of income-contingent loan repayments is similar to a graduate tax, but one which is capped at a fixed price (you do not repay more than you have borrowed in real terms) and time-limited (outstanding loans are written off by the Exchequer after 40 years).

It therefore has all the key benefits of a graduate tax – that students are not required to pay anything upfront and their contribution is linked to their earnings as graduates without the significant disadvantages that encourage students to engage in counterproductive avoidance behaviour.

Advocates of a graduate tax need to acknowledge that there are very few examples of the UK government ring-fencing future tax revenues for a specific purpose. Higher education institutions would be taking a very risky bet that future political leaders would remain committed to higher education and would hypothecate funds raised by the graduate tax to it.

It will never happen. Even if the funds raised from a graduate tax were somehow maintained within the Department for Education, Ministers would face the usual pressure to sort out problems of greater political salience in the mandatory part of the education system and allocate any available spare cash to early years, primary and secondary phases.

Finding a higher education funding system that protects both the student and taxpayer interest is not complicated.

We do not need a big review.

The mechanism to link funding to quality exists already in law in the Higher Education and Research Act 2017 (HERA).

One of its most important provisions allows fee caps to be set at differing levels based on a provider’s TEF award, subject to overall limits prescribed by regulations scrutinised by Parliament.

We should make use of it.

Institutions that deliver great teaching and student outcomes, as assessed by the fourth iteration of the Teaching Excellence Framework, results of which have recently published, should be allowed to raise fees, prospectively, in line with annual inflation, starting ideally with effect from the academic year 2024/25: job done.

That would secure the three goals of a student finance system:

1. The unit of resource is protected without student number controls that constrain student choice and limit aspiration;
2. The financial burden is shared between the student and the taxpayer; and
3. Barriers to access for disadvantaged students are removed.

Where the current model has clearly not worked to date is in promoting lifelong learning, which is in crisis.

The big policy question is how we today adapt this student finance model so it promotes lifelong learning not just first-time study by 18-year olds.

The planned creation of a Lifelong Learning Entitlement (LLE) represents a healthy shift of emphasis away from the dominance of the first-time learner in how we think of university funding.

The LLE is a huge opportunity to move to a more flexible funding system that funds credits rather than years of study – sadly, I fear it is one that we may be about to squander.

Ministers must grip this policy urgently if it is to be ready for delivery in the academic year 2025/26 and if it is to achieve the skills revolution they want.

There are four big problems with it at the moment:

The Government has signally failed to push universities towards accepting credits from each other, with the result that the vision of stacking learning into qualifications is as far away from becoming a reality as it ever has been.

The autonomy of higher education institutions is an important and, rightly, a protected feature of our system but, in this respect, it needs to work in the student interest rather than just to protect revenues of institutions that fear losing learners.

The LLE needs to fund courses all the way from Level 3 to Level 7 rather than focusing on a limited set of qualifications at Levels 4 and 5. Totally excluding Level 7 courses, which are critically important for the upskilling of graduates already in the workplace, is absurd. Of course, loans for Master’s courses programmes are already available through the Student Loans Company but these lack the flexibility needed for modular funding, micro-credentials and learning over time.

The insistence on funding study that bears a minimum of 30 to 40 stackable credits – at a cost to the learner of £2,310 to £3,080 – will be a barrier to the reskilling and upskilling the policy is intended to promote. The Government need to allow learners to study for shorter courses, worth 10 to 15 credits, with smaller loans and a less onerous time commitment, if learners wish.

Most fundamentally of all, learners desiring specific skills do not necessarily want courses just derived from existing university qualifications. As Andreas Schleicher from the OECD put it in his excellent HEPI Lecture, individuals already in the workplace will want to pick from a wide range of microcredentials, modules and short courses to shape a programme tailored to their specific needs, possibly spanning several disciplines and types of provider – this is surely what is needed, not more of the same university
qualifications but in smaller pieces. Higher education institutions have no monopoly on work-relevant educational material. It is a mistake for the LLE to entrench them as gatekeepers to lifelong learning.

Provided these three changes can be made to the design of the LLE, and provided we re-establish the link between funding and quality of provision, our system of income-contingent loans, which has now been around for a quarter of a century, will remain the least bad of all available funding systems.