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UK universities need a new funding settlement

The higher education sector should receive more from employers alongside reformed student fees

The government needs to be clear on what it hopes to achieve with further changes to students' finances © Alamy

The writer is co-author of ‘The University Challenge’ with Ed Byrne and a former secretary of state for education

In 2006 I had lunch with Boris Johnson for the first and only time. As higher education spokesman for the opposition, he was looking for tips in shifting Conservative party policy away from outright opposition to university tuition fees. In that same helpful spirit, I now offer some suggestions to the prime minister for urgent reform of the post-school funding system — which, as he knows, is working badly. The subject is moving rapidly up the political agenda.

Since I established the current structure of university funding in 2004, as education secretary in a Labour government, there has been just one substantial reorganisation. The 2012 reforms under the Conservative-Liberal Democrat coalition, raising the fee cap from £3,000 to £9,000, fatally undermined its sustainability.

Theresa May believed Labour’s pledge to scrap student fees was a significant reason for her poor performance in the 2017 election: a few months later she commissioned the Augar review. Last May, its recommendations were published, including reducing the fee cap to £7,500. But the political toxicity of the issue meant the latest manifestos ducked it. Labour kept its vacuous abolition pledge. The Conservatives said they would “look at the interest rates on loan repayments with a view to reducing the burden of debt on students”.

This long period of policy immobility is now coming to an end. Controversial reforms are best dealt with early in the parliament. The new universities minister has signalled a “crackdown on low quality courses” and Downing Street’s favourite think-tank has already highlighted the public trust challenges facing higher education.

But the system of student finance is so complex that any reform needs absolute clarity of purpose. Our original rationale was to raise money for universities so that resources could be targeted at schools. The 2012 context was austerity, so coalition ministers shifted university costs from the state to individuals. This government needs to be clear on what it hopes to achieve with further changes.

Ministers need to appreciate that the UK’s strong universities — more so than governments, corporations or NGOs — are best placed to offer ways to address the complex challenges of a fast changing world including pandemics, terrorism, climate change, 5G and the trade disruptions caused by Brexit.

World-class research institutions analyse the problems, identify long and short-term solutions, and, by educating about half of all young people, help society handle rapid change.

Moreover, there is good evidence from the US that universities in the UK are well placed to help regenerate those localities that have been the biggest losers from globalisation. The Tory manifesto promised to “work with local universities to do more for the education, health and prosperity of their area” — rightly linking successful institutions and the welfare of communities rather than pledging, as some would like, to reverse university expansion.

A new, sustainable funding structure must encourage more universities to pursue these missions, and better. Government can take straightforward steps to achieve that, some of which were recommended by the Augar review.

The loan system should be extended to a wider range of courses as in countries like Australia, New Zealand and Singapore, including technical education and vocational courses other than law, medicine and the other work-related degrees taught at university. The real interest rate for student loans should be set at zero and the loan repayment income threshold substantially reduced. Maintenance loans should fully cover real living costs. Maintenance grants for students from poorer backgrounds should be reintroduced.

Early loan repayment should be incentivised and students could be treated as financially independent from the age of 18. Research and teaching budgets should be separated to increase transparency — tuition fee income currently subsidises research.

The biggest change is to recognise that employers, who benefit directly from a highly educated workforce, should contribute to the higher education costs of the graduates they employ — governments already contribute because society benefits and individual students contribute because they benefit personally. This third contribution would strengthen collaboration between employers and universities.

The principle of employer contributions already exists, for example through the apprenticeship levy, support for work-based degree courses and some bursaries. But the existing arrangements are incoherent, insubstantial and often ineffective. Ministers could decide to set employers’ national insurance contributions at a higher rate for university graduates and direct the revenue to universities.

It is time for universities to contribute their full potential, and for the government to make the changes necessary to make it happen.

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