Higher education funding: pulling the rabbit out of the hat

by Stephen Tall on January 17, 2005

Higher education funding will be a major campaigning issue for the Liberal Democrats at the coming general election. Charles Kennedy emphasised the party’s position in Issue 3 of the Liberal Future newsletter: “We want to scrap tuition fees in the whole of the UK… And we remain fundamentally opposed to top-up fees.”

This view chimes with members and activists, attracts widespread public support, and has been desperately copied by the Tories, who are fearful of losing middle-class support in key battleground constituencies. Yet it is a policy that is seriously flawed, and risks condemning British universities and students to an increasingly mediocre future.

My guess is some readers will have choked in horror at that last sentence, so let us try and establish some common ground.

I want a British higher education system ranking among the best in the world, and open to all students of merit, regardless of their finances or background. That is how all of us who are liberals believe we can help “create a fair, free and open society”, and how we seek to ensure “no-one shall be enslaved by poverty, ignorance or conformity”. Improved educational opportunities are a liberal touchstone. Agreed nem con, I’m sure.

Let us examine the current situation in higher education: is the UK a world leader?

A recent European Commission study, which ranked the world’s best universities, showed 35 of the top 50 to be American. Only Oxford and Cambridge from the UK made it into the top 10. More promisingly, though, the Times Higher Education Supplement’s annual table showed the UK with 30 universities in the top 200. Although fewer than half the US’s 62, this figure still compares well with Germany’s 17 and Australia’s 14, this country’s nearest rivals.

So all is well, then?

No: higher education in this country is being starved of the cash it needs to enable it to compete in the global market for academic and student talent. It is not hard to see why. The Government will allow universities to charge up to £3,000 a year in tuition fees from 2006. However, the actual cost of educating an undergraduate at Oxford is £18,600, excluding any board and lodging charges.

The consequences of this stark disparity are starting to become apparent. Cambridge is closing its architecture department – the first time in its 800-year history it has closed a department – even though it is highly regarded and can boast 11 applicants for each place.

This announcement came hot on the heels of Exeter University’s decision to axe chemistry. Again, the problem was not lack of student interest – it has five applicants for every place, with numbers increasing by 20% last year – but the £3 million annual cost of keeping the department running.

British universities have only three options available to meet the costs of teaching subjects which cannot pay their own way.

First, they can subsidise teaching by using research funding – at Cambridge it was a cut in the architecture department’s research budget which triggered the decision to pull the plug.

Secondly, they can sell their courses to overseas students outside the UK and EU, to whom the universities can legally charge market fees, a policy pursued by the London School of Economics to great effect. There are now 165,000 overseas students in Britain, bringing in about £1 billion in fee income.

Or, thirdly, they can use the income generated from their endowments to subsidise loss-making academic disciplines.

In universities, as in all walks of life, money talks. There is a clear and direct link between the size of universities’ endowments, and the quality of education they are able to offer. Here are some statistics to give you pause for thought:

* Oxford and Cambridge, regarded in the UK as bastions of educational wealth and privilege, would come 15th in a list of the best endowed US universities. No other UK university would reach the top 150.
* Over 200 US universities can boast endowments worth at least £100m, compared with five British universities.
* Harvard’s £10.7bn endowment is double that of all the UK’s universities’ endowments combined.
* Yale’s £6.6bn endowment generates £330m annual revenue, the equivalent of £30,000 per student. Imperial College London’s annual endowment income is just £2.4m, or £240 per student.

This widening gulf between the UK and US is a comparatively recent phenomenon. In 1983, Harvard was the only US university with an endowment greater than $1bn: today 39 US universities can stake that claim. You do not need to be a Nobel laureate to figure the profound implications this growing wealth disparity will wreak on our universities’ ability to compete on the world stage.

Recruiting and retaining the best minds is key to any university’s global ambitions. Salaries for lecturers at Oxford and Cambridge start at £14,139. I just performed a quick Internet search, and found a job opportunity as a picker and packer at a logistics company’s warehouse in Redditch which would pocket me £15,000.

Average academic pay in the UK is below £25,000: an academic in the US would expect to earn at least twice as much, while Canadian academics take home an average of almost £75,000 a year.

It is not simply the ‘brain drain’ of the elite which should concern us. To meet Labour’s artificial target that half of under-30s should experience higher education by 2010, some 17,000 new lecturers will be needed if the current student to teacher ratio is to be maintained. Already universities are finding it increasingly difficult to recruit qualified teachers: the number struggling regularly to recruit trebled to nearly 60% between 1998 and 2001.

And it isn’t only about salaries. British academics may be paid less, but their teaching loads are far greater. Tutors at Oxford and Cambridge are expected to teach twice as many undergraduates as their Harvard or Princeton counterparts. Harvard employs five academic support staff (librarians, research technicians, and so on) for each academic, compared to Oxford’s two. There are half as many teaching assistants as academics at Harvard; Oxford employs almost no teaching assistants.

American universities’ capacity to invest in their talent base is explained by looking at spending patterns. The US spends 2.3% of its GDP, much of it private money, on higher education, compared with the UK’s 1.1%. In 1979, just 12.4% of British school-leavers progressed to university; today the figure is 45%. But successive Labour and Tory governments have failed to increase state funding proportionately.

As a result, unit funding per student over the last 20 years has halved from £10,000 per student to £5,000, in real terms. In the US over the same period, unit funding per student at the top private universities has more than trebled, from £6,000 to £16,000 per annum.

All of which means that British universities will face far greater competition for their teaching talent in the coming years, especially from US and Canadian universities equipped with vast financial war-chests. Our universities will require similarly huge sums if they are to retain and improve their world class standing.

Liberal Democrats should accept, as a sine qua non, that public funding raised through taxation cannot alone achieve this. This is not to argue, however, that increased taxation to spend on higher education becomes irrelevant. Indeed, I believe more public funding is essential; the real question is, ‘How is it best spent?’

Tuition fees charged at market value are the only way in which British universities will be able to raise sufficient revenue to compete on a level playing field with their North American competitors.

There is an obvious problem with this, one which forms the core of Liberal Democrat opposition to tuition fees: that the prospect of debt will deter potential students, particularly from poorer backgrounds, from applying to university. This is backed up by research from The Sutton Trust showing that concern about debt, as well as the desire to earn money, are the most important factors influencing able students to leave full-time education at 16 and 18.

The study recognises, though, that there are non-financial deterrents also: in particular, negative feelings about school and education, a lack of confidence among some able students from disadvantaged backgrounds, and unsupportive parents and families.

Yet the US experience suggests market tuition fees need not be an insurmountable barrier to poorer students. The average tuition fee in an American university is around $4,500, $1,300 less than that currently proposed in the UK. At Harvard, where annual fees (including room and board) are $35,000, some 70% of students qualify for financial aid.

More than 60% of American high school graduates experience some form of higher education, with numbers continuing to rise despite increasing fees. How does this happen? It is because the Americans place proper emphasis on the importance of an education to the individual and society – it is seen, rightly, as an investment in the future by students, by their families, and by government.

Cultural attitudes to higher education in the UK need to change, and the government and individuals both have their parts to play. Universities should be allowed to charge market fees for their courses. To offset the possible negative consequences, the government should increase the level of GDP spending on higher education, raising higher-rate taxation to pay for this if necessary.

This additional money could be used, for instance, to:
* invest in bursary schemes focusing on areas with low university participation rates;
* target subsidies, in partnership with industry, for high-fee-low-demand scientific courses;
* equip schools, colleges and universities to raise students’ aspirations, and ensure they are aware of the financial advantages of having a degree;
* match private donations to universities to assist the building up of endowment funds to rival those of US universities;
* pay mortgage tax relief to graduates with debts working in the public sector.

The Liberal Democrats can, and (I am sure) will, continue to campaign to scrap tuition and ‘top-up’ fees; and will gain popular support for doing so. But it is a policy which fails to address how British universities can remain world class institutions. Market tuition fees are the only way to generate enough cash to ensure the retention of this country’s teaching talent, and the continuation of popular but uneconomic subjects.

The longer we pretend the government alone can pull the rabbit out of the hat, the more likely it is we will one day find the lady has been sawn in half while we were looking the other way.