Student numbers cap is lifted, but questions for government linger
Let's be in no doubt. The announcement in George Osborne's autumn statement of the removal of the cap on undergraduate student numbers is unequivocally good news. It is good news for those additional students who will now have the opportunity to experience the transformative effect of higher education.
It is good news for the economy, as higher numbers of graduates in the workforce will increase productivity. And it is good news for universities, who will no longer be constrained by distorting policies which seek simultaneously to promote competition while restricting demand. The boldness of the vision and aspiration should be applauded.
This is a game-changing announcement. But there are risks ahead. The government also announced that it would pay for the expansion by selling off part of the student loan book. Along with deregulation of student numbers, this has long been an aim of Treasury, but up to now market conditions have never been right to ensure value for money. The Treasury now believes it can get close enough to this position to warrant a sell-off.
There are strong arguments in favour of the government using its balance sheet in this way to invest in a critical element of the nation's competitive advantage. Such expansion would have been inconceivable under the old system of student finance, in which all the costs associated with growth would have been scored against the national deficit. Now only a portion is accounted for in this way, but it's here where the catch lies – and the risk.
Expanding student numbers requires financial support from the government in three ways: first, the long-term subsidy on student loans, which is scored as an impairment on the Department for Business, Innovation & Skills (BIS) budget; secondly, the cash needed each year to pay for maintenance grants and what remains of the teaching grant; thirdly, the cash needed to pay out the upfront loans for students, so that higher education rightly remains free at the point of consumption for everyone who qualifies for it.
Selling the student loan book year by year will pay for the third of these items, but it is not clear how the needs of the first two will be met over the long-term. Universities are becoming concerned by this lack of detail. These are genuinely unanswered questions.
The worry is that this long-term commitment will be unaffordable, and will crowd out other important funding priorities for higher education which can only be met from the cash allocation to BIS every year. This budget is coming under increasing pressure, as the government continues to prioritise deficit reduction above all other policies, as inflation eats into cash settlements, and as demand for higher education continues to grow.
Universities' concern is genuine and the government needs to address it. Funding for science and research in particular needs to be increased above inflation, and there should be a similarly bold aspiration in this area as there has been in relation to student numbers. Intellectual capital is every bit as important to the UK economy and society as human capital, and the UK university research base plays an unusually significant role in generating this by international standards. The cash ring-fence is being eroded by inflation, and there are threats ahead to the strength and diversity of the research base if this position is not reversed in future.
Work which addresses how to bring down the long-term costs of the student funding system, without damaging provision, must now be accelerated. This will be needed to address the student loan subsidy, and cash for maintenance and teaching grants. The principles that should guide this work are maintaining the overall quality and reputation of provision, and ensuring equality of opportunity.
The government has effectively backed its own policy, betting that expansion of the higher education system will lead to future economic growth. Past evidence supports this position. Looking into 2014 and beyond, the government would increase the likelihood of success if it decided to increase investment in science and research, grant funding, and infrastructure, as well as giving assurance that the proceeds of the sale of the student loan book would continue to be invested in universities.
Only a virtuous cycle of investment and growth will allow the UK to take its deserved place at the forefront of global economies.
Paul Clark is director of policy at Universities UK – follow it on Twitter @UniversitiesUK
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