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Cost of higher education reforms ‘could be six times greater than savings’

BIS acknowledges ‘variation’ in estimates for borrowing

The long-term costs of the new fees and funding system for higher education in England could be more than six times greater than the short-term savings made by the Treasury, according to a report published by the universities group Million+.

In a report published on 18 February the think tank calculates that, over a 30 year period, lower-than-predicted higher education participation rates are likely to cost the Treasury around £6.27 billion from lower tax receipts and lower earnings.

A spokeswoman for the Department for Business, Innovation and Skills said in an email to Research Fortnight that the report provides “a useful contribution to a debate where there is much variation in estimates of the cost of borrowing”. She added: “Some are higher and some are lower than the government’s estimates.”

In the short term, however, the Treasury will contribute £1.17bn less to the funding of the 2012-13 student cohort than it did in 2010-11.

For 2012-13, the report says there will be 30,000 fewer UK-domiciled undergraduate students entering English universities compared with 2010-11.

The Treasury is predicted to contribute £5.78bn towards the 2012-13 cohort, a saving of £1.17bn compared with the 2010-11 cohort. Million+ says that this is primarily due to the shift away from Higher Education Funding Council for England teaching grants and towards increased tuition fees.

However, its report calculates that, if a 30,000 reduction in student numbers is correct, this will result in higher long-term costs. These costs include £3bn in reduced expected earnings and smaller tax receipts.

Overall, the report estimates that the 2012-13 student cohort will contribute 24.5 per cent of the costs of their higher education, compared with 5.6 per cent for the 2010-11 cohort.

The universities are expected together to receive around £298 million more in funding for the 2012-13 cohort, but significant variation is predicted across the sector, and the figure is dependent on student numbers.

The report predicts that for the 2012-13 cohort, universities will receive 4 per cent of their teaching income direct from the Treasury via the Department for Business, Innovation and Skills, compared to 57 per cent in 2010-11.

Combining all forms of support, subsidies and eventual loan write-offs with the up-front costs of higher tuition fees, the 2012-13 cohort is calculated as contributing £1.46bn more than the undergraduates who entered higher education in 2010-11.

Pam Tatlow, chief executive of Million+ said, “The shift from the direct funding of universities to indirect funding via student loans has protected student numbers and on paper, helps the government reduce the structural deficit.”

She said the real question is how to maintain a thriving higher education system, which is good for students, universities, and the taxpayer.

Tatlow added, “Once the total economic costs are taken into account, the jury has to be out as to whether the government’s reforms are the most cost-effective way of funding higher education.”

According to BIS’s spokeswoman: “It is right that this report has acknowledged that our reforms have laid the foundations for a better funded and more responsive higher education sector. We estimate that the resources for teaching will rise from some £8 billion in 2012/13 to £9.1 billion in 2014/15, allowing for a better student experience.”

She added: “Our reforms have made the university system fairer and more progressive and putting students at the heart of the system means that more will have the opportunity to study at their preferred


The report, ‘Are the Changes to Higher Education Funding in England Cost Effective’, was produced for Million+ by the consultancy firm London Economics