Source: James Fryer

The case against using general taxation as the principal means of funding higher education has been largely absent or has been built on flimsy arguments

David Willetts did much while he was minister for universities and science, but one thing he did not manage was to create a sustainable basis for funding higher education.

The present system is now generally agreed to be unsustainable given that, on the latest estimates, 45 per cent of the public money lent to students will never be repaid. This point was made most recently by the Commons Business, Innovation and Skills committee last week.

But commentators are typically unclear about what they mean by ¡°system¡± and ¡°sustainable¡±. Is it that a system of tuition fees supported by income-contingent loans cannot be sustained? Is it the present level of the fee and accompanying loan? Is it the huge size of that loan subsidy that, for political reasons, appears to be needed to support fees at this level? Or is it the removal of direct government funding for education?

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What is disappointing about the discussion hitherto is that it has largely been confined to tweaking the present arrangements (?9,000 tuition fee, highly subsidised loans and no direct teaching grant to universities) to make them less expensive to the government by making students pay more. That is a pretty limited view of ¡°sustainability¡±.

The University Alliance¡¯s recent funding proposals, for example, focus on substantially reducing, or removing, any public subsidy by making graduates repay a proportion of their total income, not merely that above the ?21,000 threshold, as at present (although one option the mission group¡¯s report discusses would involve some of the money saved being used to lower fees and increase grants to institutions).

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The Institute for Fiscal Studies suggested in April that the repayment threshold could be lowered to ?18,000, which would shrink the loan write-off rate to 37 per cent but, of course, would greatly increase the burden on graduates. The Russell Group¡¯s response to the BIS committee¡¯s report was that all was basically well with the present arrangements, notwithstanding the substantial evidence to the contrary. And the only vice-chancellors to have spoken up on the issue have peddled apocalyptic warnings of the collapse of the university system unless fees are raised, with no consideration of what this would imply for students and graduates.

What has largely been absent from the debate is the case for the substantial funding of higher education from general taxation. To be fair, the Labour Party appears to be ever so hesitantly moving towards a policy of lower fees ¨C probably of ?6,000 ¨C and, presumably, higher direct government grants to universities. But it has not yet had the courage to announce this as official policy should the party win next year¡¯s general election.

On the other hand, the case against using general taxation as the principal means of funding higher education has been largely absent as well ¨C or, where it has been articulated, the arguments are generally pretty flimsy, revolving around assertions that universities should not be at the mercy of the state and that they need multiple sources of funding. This may be true, but it does not itself amount to a case against partial and substantial taxpayer funding.

What is needed is a return to first principles. There are few who now argue against some contribution by the direct beneficiaries, the students themselves. The important question is the proportion of the cost of higher education that they should bear. On this, we could do worse than take as the starting point the 1997 Dearing Committee¡¯s recommendation of students making a contribution of 25 per cent of average tuition costs. And if there are to be fees, then fees supported by income-contingent loans would be a highly progressive approach, which should be preserved.

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As for the government, it already makes a substantial contribution under the present arrangements ¨C and very much more than it originally planned. But this contribution is largely hidden in those enormous loan subsidies. This is inefficient and dysfunctional, and it is only ideology that has led us to such an absurdity. It would be far better to revert to a lower fee with a smaller loan subsidy, accompanied by substantial direct funding of universities.

David Willetts himself rightly described student loan repayments as a kind of ¡°tax¡±. But they are a tax on future generations. Indeed, the present arrangements are designed to pile the cost of higher education on future generations in order to reduce tax on the present one ¨C another example of the baby boomers screwing their children and grandchildren and arranging things to benefit themselves.

Only if we abandon ideology and revert to good sense and a more balanced approach will we achieve sustainability of funding for universities.