Universities

Lord Johnson of Marylebone Excerpts

Thursday 14th November 2024 Lords Chamber

[Lord Johnson of Marylebone (Con)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Warwick of Undercliffe. I am delighted that she has secured this timely debate on the future of our higher education system. It is timely because the financial condition of the sector is worsening very rapidly. She mentioned in her excellent remarks that 40% of universities are likely be in deficit next year and that a further, or perhaps the same, 40% have low liquidity of less than 40 days’ cash. Updated analysis suggests that as much as three-quarters of the sector will be in deficit next year, suggesting that conditions are deteriorating extremely rapidly. Like the noble Baroness, I welcome the Government’s move to increase fees with inflation for the next financial year. It is an important step. It is a shame that it has taken this long, and it is a shame that, as she said, the sector has had almost a decade of real-terms erosion of undergraduate tuition fee income. I am glad that this decision has at last been taken. It was a real abdication of responsibility on the part of more recent Governments to have let this issue drift in the way that it has. It is no way to provide certainty for institutions vital to our success as a knowledge economy and, as she remarked, has led to needless job cuts, programme closures and increased dependence on the volatile income from overseas students, welcome though they are.

Above all, the freeze in fees has been detrimental to students themselves, who have, in many cases, seen their institutions lack the resources they need to provide them with the high-quality teaching and wraparound support they want during their studies. That is why I echo the noble Baroness’s pleas for the Government to ensure that the uplift in tuition fees is undertaken on an ongoing basis throughout this Parliament. People can disagree on whether it was an easy decision for the Government to take. Personally, I think that an automatic uplift of tuition fees with inflation should not be a big drama in our system. It is a real cost that institutions experience. The Government need to recognise that and accept their responsibilities towards institutions that are critical to our performance as a highly innovative economy.

The OBR forecasts inflation of 2.6% next year and a further 2.9% in 2028-29. This is an ongoing issue and the Government cannot simply leave the uplift as a one-off. If it is treated as such, it will deliver about £1.5 billion of additional income to the sector over the course of this Parliament to 2029-30. However, that does not in itself address the issue of real-terms erosion of institutions’ income. They will continue to see a real-terms erosion of income per student of 11.4% over the course of this Parliament if the Government do not continue to uplift fees with inflation in the later years of this Parliament.

The real-terms hit will be all the greater for the probably quite considerable number of institutions that find themselves unable to pass on this increase in tuition fees this coming financial year because they are too late to update the contractual position to students to whom they have offered places already. I would be grateful for the Minister’s thoughts on this and whether she has made any assessment of how many universities will actually be in a position, at this relatively late stage, to uprate their fees for this coming financial year.

It is clear to me that, as the noble Baroness said, many institutions will not just be barely standing still following this one-off uplift; many will be going backwards. The net position, as a result of the other recent policy changes, including the increase in employer national insurance contributions, suggests that the sector overall will be down rather than up. I have seen analysis that suggests that the sector will bear almost £400 million in increased costs from national insurance contributions, compared with increased income for English providers of only £300 million, so it is clearly not assisting the Government overall at this stage, even though, as I said, I welcome the move to increase the fees. Perhaps the Minister might indicate how much of the fee increase, if any, will be left for universities following the rise in NICs.

The last few weeks have not been a bonanza for the sector by any means. That said, it needs to accept accountability for the additional public money being invested in it. The write-offs associated with the increased fees could amount to about £450 million over the course of this Parliament, and it is important that the Government continue to ensure that there is robust quality assurance and assessment of where institutions are delivering value for money and high-quality teaching in their performance. I am glad to see that the TEF, as well as B3 metrics, will continue to play an important part in that respect.

Higher Education Funding

Lord Johnson of Marylebone Excerpts

Thursday 12th September 2024 Lords Chamber

[Lord Johnson of Marylebone (Con)]

My Lords, I congratulate the noble Lord, Lord Krebs, on securing this important debate. As ever, I find myself in very strong agreement with my noble friend Lord Willetts, who I note incidentally may not be the only candidate in this House for the role of Chancellor of the University of Oxford but is the only one who, day in, day out, demonstrates his commitment to the future of the sector and would be absolutely splendid in that role, were he to be successful in that campaign.

I turn to the issue at hand. I want to say right at the outset that I truly welcome the change in tone from the new Government towards the university sector. It is a wonderful breath of fresh air not to have the negativity and university-bashing that has characterised too many of the airwaves from the previous Government.

In particular, I warmly welcome all the positive messages that the new Government have been sending out about international students, who make such a huge contribution to the success of our higher education system, society and broader economy. That said, I of course agree with others, including the noble Lord, Lord Krebs, who have pointed out that we should avoid an excessive dependency on the fee income from international students. We need to put in place a funding system that is sustainable and does not leave us exposed as a country to volatility and factors well beyond the control of the sector itself.

However, I do not think we need a long, two-year review to come to a conclusion as to what a sustainable system is. My view remains very much that the current model, as Winston Churchill might have put it, is the worst imaginable—except for all the others. There is essentially nothing wrong with it. It does the job you need a funding system to do in three key respects: it maintains the unit of resource, potentially, for what we need to have a world-class HE system; it is fair to the taxpayer; and it removes barriers to access because, as my noble friend Lord Willetts said, fees are not paid upfront by the student but underwritten by the Government in the form of a loan. There is nothing structurally wrong with the model we have, except for two flaws, which are fixable: first, it is not inflation-proof and, secondly, there is no link to quality. We fund volumes—bums on seats—rather than outcomes; clearly, that is unacceptable.

The Cameron Government tried to address those two flaws and, in 2017-18, we allowed a system whereby fees were indexed with inflation, but only for institutions that were able to demonstrate high-quality outcomes as assessed by the teaching excellence framework. I strongly think that we should return to that model. Had we continued with that system over the past six years, many of the institutions that are now forced to make these rationalisations would not be doing so. A mid-sized institution such as Teesside would have £30 million a year of additional tuition fee income, had we continued to upgrade tuition fees in line with inflation over recent years. Such a system is, frankly, the only game in town and everybody needs to get real and recognise that, given the current fiscal environment.

There is not a chance in hell that we are going to return to a system of funding tuition fees through the teaching grant. There is a political window now, early on in the Parliament, for the new Government to put in place a progressive ratchet of fee uplifts with inflation over the next few years, and I urge them to do so.