Higher Education: Funding

Lord Browne of Madingley Excerpts

Wednesday 27th October 2010 Lords Chamber

[Lord Browne of Madingley]

The provision of education has long been the mark of an advanced and civilised society. It provides skills useful to individuals in fashioning a career or a vocation, inculcates a sense of shared heritage and broadens the minds of those who take part. It provides people not just with knowledge today but with the prospect of acquiring knowledge tomorrow by creating a lifelong habit for learning. At root, education is a path to enlightenment, social mobility and ultimately self-fulfilment. The goal of any nation must be to continue to improve and extend those benefits to every corner of society irrespective of birth or financial means. That is the context of this debate today. I am very grateful to the Minister for bringing this important subject to the House.

Over the past 11 months, I have chaired an independent panel tasked with reviewing the state of higher education in England. I should like to talk through the thinking behind our conclusions. Our report noted a number of positives. The UK has a world-renowned higher education sector, with three universities in the global top 10 and 15 in the top 100. The sector educates more than 2 million students every year across a diverse range of institutions, including universities, colleges and specialist institutions, and generates around £60 billion of output for the economy.

Besides those public benefits, higher education also delivers substantial private benefits to those taking part. Over the course of their working life, the average graduate earns around £100,000 more than if they had not gone to university after A-levels. That graduate premium is substantially higher than the OECD average. In considering the case for reform, better reflecting the balance between public and private benefit was a crucial first step. However, before designing a new system, we first had to understand where the current system was falling short of expectations. For us, that revolved around three principles.

First, there was quality. Institutions are now better funded than they were a decade ago, but they have limited means of accessing additional investment and income. That is because there is a cap on what they can charge and a cap on how many students they can admit. Students themselves have also failed to report a big improvement in their experience of higher education. There was a strong feeling that the extra student investment was buying little in return.

The second principle was participation. While more students than ever are attending and entering higher education, there remain insufficient places for everyone—perhaps as many as 30,000 qualified students were unable to gain a place at university this summer. We also found that, while access was improving, the social composition of those attending the most selective universities has barely changed since the mid-1990s. Compounding this problem was the inequity of government support being provided to full-time students and not to part-time students, many of whom may have missed out on what may be called the traditional university experience at 18.

The third principle was sustainability. Early on in our review, it became very clear that our higher education institutions lacked resilience to public spending cuts; most of their income still came in the form of block teaching grant provided by government. Although it was not our job to determine the level of spending cuts, we had to ensure that our system allowed institutions to replace public funding with alternative sources of income. We also had to ensure that whatever level of spending was decided on by government, it was affordable for taxpayers over the long term. It does not serve the public interest to keep tinkering with higher education funding.

Let me set out our recommendations to address the shortcomings that I have identified. I begin with quality. A good way to improve quality in any organisation is to make funding dependent on it. For this reason we have proposed a radical overhaul of the way institutions are funded. Instead of receiving most of their money through a block grant for teaching, we proposed that funding must instead, as the Minister said, follow the student through government loans. We put student choice at the heart of our system. So as to ensure that choices are as informed as possible, we have recommended that better information, advice and guidance be made available to every school pupil. School pupils today make choices but they do not make them on good information, advice and guidance.

To improve the student experience, we have proposed that there should be a new single regulator in higher education with powers to enforce and uphold new student charters—a document which for the first time will outline what each university will offer students in return for their investment. Although we have slightly tightened regulation in terms of quality and access, we have significantly loosened it in terms of student numbers and tuition charges. Institutions will face no restrictions on what they can charge for tuition, although in practice they will have to think very hard about whether they offer good value for money.

We have made further recommendations to ensure that higher charges do not impact on participation. For a start, we have recommended that money be made available to finance a 10 per cent increase in student numbers over the next three years. We should end the annual disappointment for tens of thousands of qualified students who may miss out on places each summer. To ensure that no one is prevented from entering higher education, we have maintained the principle that no student be asked to pay tuition costs up front. For the first time, we have also extended that principle to the 40 per cent of students studying part-time. To cover living costs, we have also maintained government loans for all students, with more generous non-repayable grants offered to those from households earning less than £60,000 a year. All that means that no student will pay for higher education; only graduates will pay, and only then according to the level of their success. We have recommended increases in the threshold at which graduates start to repay their loans from £15,000 to £21,000—importantly, indexed with wages. The Institute for Fiscal Studies has estimated that under that system the bottom 30 per cent of graduates will pay less than they do today. Only the top 30 per cent of the graduate output will pay back the full amount.

As the Secretary of State said on the day our report was launched, that is fair and progressive. Crucially, it is also sustainable. After reforming the system of funding twice in the past decade, we believe that the higher graduate contribution outlined in our report reflects a more sustainable balance between public and private funding. Institutions will no longer be paid just for being there. Public money will instead be used more efficiently to invest in priority courses and courses that might be at risk, and to support those on low incomes.

For Government, bigger loans will remain affordable through the addition of a low rate of interest and a levy on institutions charging more than £6,000 for tuition. The reason for the levy is that it is designed to avoid the perverse outcome that institutions charging the most would receive the biggest government subsidy. But most importantly of all, our recommendations ensure sustainability by creating a system that can respond dynamically to what students want.

Ours is a system that loosens controls on institutions and forces them to think more clearly about their mission and how they can best serve their students. It creates a pathway to a larger, better funded and more dynamic university sector that can retain its deserved reputation as one of the world’s best. Crucially, it is a fairer and more progressive system—a system in which people study according to their ability to learn, not their ability to pay.