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Student fees and numbers that don’t add up

A month ago, the Higher Education Policy Institute produced a report trashing the quality of reasoning in the Browne Review. It was barely noticed. Last week HEPI produced a detailed critique of the government’s post-Browne plans. In the wake of the violence on the student demonstration, it was front-page news.

There are two allegations in the report that strike at the core of the government’s plans. One is the news, presumably based on soundings with vice-chancellors, that most universities intend to charge the maximum £9,000 for courses. The other is the discovery that the financial modelling relied on by Browne and the government is over-optimistic about how much of their loans graduates will pay back.

These both have big financial implications that, if true, will make the government’s plans much less attractive.

Every pound lent to students is a pound added to the government’s debt. The official view of this debt varies according to the context. If it is a question of the national debt that the Coalition has pledged to halve, then this debt does not count because it is a liability of the students, not the state. If it is a question of student debt, then this debt does not count because it is a liability to pay tax, not a debt.

The only people who will not be confused by these rhetorical convolutions will be the people in the Treasury’s Debt Management Office who are financing the new loans. The DMO will have no trouble counting the bits of paper it issues to pension funds saying how many billions it owes them.

Because it actually is DMO debt, the Treasury will need to keep a tight rein on how much is lent. Browne argued the money should be rationed by limiting loans to students scoring well enough in their A-levels. That was widely criticised and, as yet, we have no guidance from the Treasury on how much money it is prepared to provide for loans in future years, or how it intends to ration.

This is one of the biggest gaps in the plans set out by David Willetts. But, if HEPI is right, then the minister for universities and science now has a whole new problem to worry about. For if most fees rocket to £9,000 a year, then that is substantially more per student on average than universities are currently receiving in teaching grants from the Higher Education Funding Council for England (after allowing for some continuing subsidies for more expensive subjects). In this situation, there is only one way for the Treasury to keep control of its DMO debt—cut the number of students.

For fees of £9,000, HEPI puts the average increase in spending per student at £2,600. To balance the books, the Treasury would have to cut the number of students by about a third.

Now there are some who think that too many people are going to university and that many should go into vocational training instead. From their speeches extolling the virtues of vocational training and the case for putting it on an equal footing with intellectual training, one might conclude that Vince Cable and Willetts are among them. But that won’t stop a storm of new protest if this now becomes part of the plan.

The only way out is to control the fees universities can charge as well as controlling which students are allowed loans. Leave aside the point that this ain’t no free market. The pressing need is to find mechanisms by which to exercise this control.

HEPI then points out two unwarranted assumptions made by the government in its financial modelling that lead to overestimates of the proportion of loans that will be repaid. The model assumes equal numbers of men and women, whereas there are in fact more women going to university (who earn less in subsequent decades). And the model manages to assume an average male final salary at the end of the 30-year repayment period of a truly astounding £99,500 in 2016 prices.

Once it has adjusted the model with more realistic assumptions, HEPI’s conclusion is that the scheme will cost the government about as much as the current regime does. That is, the net losses from unrepaid loans will be as high as current spending on student support.

But there is another possible conclusion—that in due course the scheme will be declared ‘unsustainable’ and tweaked to increase again the amount of money paid by students. In that case, all promises about affordability and progressiveness are off.

Ministers are aiming for a simple vote on raising the fees cap to £9,000 before Christmas. By then, Cable and Willetts need to have explained how they are going to make all these very big numbers add up.

Or rather, in normal times they would need to. But the furious pace of radical reform across Whitehall is far from normal. David Cameron has told civil servants to expect a “revolution”. And in a speech last week, Cable described his own replacing of the Regional Development Agencies with Local Enterprise Partnerships as “Maoist and chaotic”.

If the Coalition is the new Party, then maybe we should stop expecting thought-through policies where difficult questions have answers and numbers add up. Maybe Special Advisers are the new Commissars. Maybe we must simply bow our heads until the Coalition’s Cultural Revolution has blown over. Certainly, for officials wary of being accused of making ‘political’ objections by a new government, the pressure to do so may be overwhelming.