Post-18 Education and Funding Review

Lord Patel Excerpts

Tuesday 2nd July 2019 Lords Chamber

[Lord Patel (CB)]

My Lords, let me say at the outset that I support much of what has been said already about further education colleges: they need significantly more support. I do so because many of my remarks are addressed at the university sector, particularly our research-intensive universities, and the effect that might possibly be had by the reduction of fees. The Science and Technology Committee, which I chair, is currently taking evidence on research funding of universities. The comments I will make arose during an evidence session in that context.

The Independent Panel Report to the Review of Post-18 Education and Funding in England has recommended reducing tuition fees. It is interesting that we call them “tuition fees”, which suggests the money is used for nothing but tuition. That, of course, is not the case, as those who run universities know well. Maybe, as the noble Lord, Lord Willetts, has suggested, we should call them “university fees”. The panel recommended reducing fees to £7,500 per year, with a broad recommendation for the Government to make up this money through direct teaching grants. However, there is no obligation for the Government to adopt all its recommendations. I hope that they will take that recommendation on board, but there is also no indication as to how these teaching grants will be distributed. I asked the noble Viscount the Minister a question the other day as to who would decide how this grant is distributed. There has been some suggestion in the evidence that we heard that there might be some kind of mechanism on a quality basis, which might be variable in the distribution of this grant.

As Professor Julia Buckingham, president-elect of Universities UK, said to the House of Lords Select Committee, it is vital that the Government ensure that any lost fee income is made up through grants, with a long-term Treasury commitment to fund universities at a sustainable level. Given the current political uncertainty, it is unclear how the next Prime Minister will view the report and whether the recommendations will be cherry picked. Any future Prime Minister and Government must commit to funding universities sustainably. Analysis by Universities UK finds that a reduction to £7,500 tuition fees would result in a £1.6 billion funding gap, which would need to be filled through direct grants. If this funding was not replaced, for many institutions this would reduce research income by between 10% and 60%, particularly for the research-intensive universities. For some it would result in the loss of their entire research budget.

The most up-to-date TRAC data published in May 2019 found that there is a £3.7 billion deficit for research in England and Northern Ireland, with recovery of full economic cost for research standing at 69%, because universities do not get full recovery of cost for certain grants as is the case for charities. This is subsidised substantially by non-publicly funded teaching, at 139.3% of full economic cost, and by other income-generating activities such as commercial activities, investments, donations and endowments, with publicly funded teaching broadly breaking even at 98.3% of full economic cost. So research universities do not use tuition fees as they are called, or student fees, for subsidising research; they have to find that money from other sources.

Given the sensitive balance of cross-subsidisation within higher education institutions between domestic teaching, non-domestic teaching and research, it is vital that the post-18 review does not lead to a cut in university funding, with any potential reduction in student fees being replaced through direct grants. Not only is this important to maintaining the quality of the UK’s world-class university sector and supporting work to widen participation for disadvantaged students, but failing to do so may lead to significant funding being diverted within institutions away from research activities. I do not say, as has been suggested, that universities would have to cut their outreach programmes for disadvantaged pupils. I do not think that we should harm universities that have saved money. For example, a fall in funding for domestic teaching might lead to additional international student income and income from other activities being used to plug the hole, and therefore being diverted away from supporting research activities. Anything that damages the reputation of the UK’s higher education sector would also pose a threat to international student recruitment, such as reports of institutional difficulties or even threats of closure, thereby compounding the task for UK Research and Innovation.

Universities use their reserves to fund construction and maintenance of buildings and the purchasing of new equipment. If these resources are increasingly stretched as a result of a cut to funding, universities will be less able to invest in the infrastructure that enables them to gain a competitive edge. For instance, these days to recruit a high-calibre senior academic to start a new research channel costs between £2 million and £3 million to universities. “Non-essential” but highly valuable functions of universities that do not draw in funding are the most likely to be cut. These include smaller research projects, such as those with a local or community focus, and work with smaller industry partners for whom high amounts of matched funding are not possible.

Finally, although the Department for Education may want a reduction in the resources going into universities, at the same time BEIS wants to increase R&D from 2.4% to 3% of GDP, which would require 120,000 to 260,000 more graduates. They need not all be graduates, and the higher education colleges will have a significant role to play, but people will need to be taught STEM subjects to carry out the research and innovation—so a reduction in fees for the universities does have other implications. My plea to the Minister is that, in implementing the Augar review, the Government fund the universities as it recommended, so that they can continue as world-class research establishments.