From education to employment

Feast and Famine: Re-balancing funding in HE and FE

Jefferson Frank, founding head of the economics department at Royal Holloway

Policy-makers like to refer to ‘unintended consequences’ once the faults in their policies become apparent to all.

The job of an economist (if not that of a politician) is to consider all the possible consequences in advance and work to design mechanisms that avoid the most inefficient outcomes.

Too often recently, less thoughtful economists and their audience in the political sphere have conducted economics by slogan rather than analysis.

The ‘market’ becomes the arbiter of everything, even when there is clear evidence of market failure and – as in education – clear theoretical analysis as to why markets will be inefficient.

Introducing a market in education


The public goods aspect of education, the externalities where good students attract good students, the information issues of ascertaining what is a well-organised programme and whether it is a good match for my interests, and the fact that the return to a good education is often only measured decades later – these all marshal against introducing a market in education.

If, for ideological rather than economic or educational reasons, a market is nonetheless introduced, it must be very carefully designed or the market inefficiencies will be amplified.

To be fair, the Browne Review (2010) was internally consistent and the markets he set up – while not ideal to a traditional university educator – would not have been disastrous.

Unfortunately, the Coalition Government changed Browne in two fundamental ways:

  1. They set fees at £9000, well above the level Browne proposed to cover costs, and
  2. They uncapped student numbers.

Both were done to allow universities to expand (to an arbitrary 50% of the population) with the notion that this would lead to widening participation.

In the relevant sense of inclusiveness, the experiment has failed. Students from less advantaged backgrounds are concentrated in the less prestigious institutions.

Meanwhile, universities have suffered:

  • Severe grade inflation
  • Unbalanced student numbers across subjects
  • Lowered returns to the student’s investment
  • Perceived poor value for money
  • Rampant managerialism
  • Growth in administrative staffing and salaries, and
  • Increased casualisation of the academic workforce.  

Funding floods and droughts

The high fees and uncapped numbers led to a flood of funds into universities, one of the few areas of the public sector to escape austerity (except in academic salaries, which faced the public sector pay cap).

In contrast, there has been extreme austerity in the further education sector. Both floods and droughts are extremely bad, and both the HE and FE sectors have suffered.

Augar is right that the emphasis must be on FE going forward, but realistically this means that funding needs to be transferred (along with students) from HE to FE, since the taxpayer and the student cannot realistically be asked for more.

Closing the funding loophole

The high profit margin on university students, particularly in lower cost degree subjects, has led to excess admissions of students without the appropriate qualifications.

Universities have encroached on the territory of FE Colleges.

The most egregious example is the offering of Foundation Years directed at home students who have not succeeded in achieving suitable A-level grades.

Remarkably, universities can charge full fees for these of which – under projections of the losses in the contingent-repayment loan scheme – the taxpayer will end up paying half. Because of this subsidy and the never-never aspect of long-term finance, students are attracted by the implicit promise of a degree place.

But, by any measure, the taxpayer and the student would be better off if the student went to an FE College and re-took their A-levels. This is recognised by Augar, which proposes the ending of this loophole.

Student choice and the incentive to mislead

But a more important distortion arises in what a student chooses to do.

I was recently in Nashville for a conference, and went to a restaurant because it was essentially stuck in a 1945-time warp, and I wanted to enjoy the authentic retro feel over my lunch.

The restaurant was known for its cheeseburgers. Since I am a pescatarian, that was not a positive factor in my choice, but I looked online and they had seafood on the menu.

I asked the waiting staff ‘should I get the fish or the prawns’ and, without hesitation, they whispered to me ‘the fish’. I took their advice and it was excellent.

In economics, we use the term ‘incentive-compatible with truth-telling’. If the restaurant had a surplus of prawns, and they were going off, the waiting staff might have had an incentive to steer me towards the aging prawns.

It has always been the case that the student has to choose between doing a maths degree at a more prestigious university over the creative writing degree at a university in less demand, simply because it is easier to obtain a place.

But under the old system, with a limited number of places, and no large profit margin per student, a university did not have a great incentive to mislead.

But at £9250 per student, well above estimated average costs that are now about £7500 (and were about £6000 when the £9000 fee was introduced) universities have had a great incentive to deviate from the student’s best interest.

Rigorous standards should be more of a focus than student satisfaction

The Government, in its attempts to micro-manage does not help. I looked on Tripadvisor for assistance on my fish or prawn choice, but only one reviewer had had each dish, and neither gave much description of whether or not it was good.

There was simply not sufficient pertinent detail. Tripadvisor only told me that, if I wanted a cheeseburger, the restaurant was a great place to go.

Yet the Government’s approach to the market inefficiencies is to set up Tripadvisor type ratings through the National Student Survey and the TEF.

What I want the Government to do at the restaurant is to ensure hygiene standards and that the food is safe to eat. Similarly, the Government should be ensuring rigorous standards on degree offerings, not focussing on student satisfaction.

It is only through traditional methods of open day visits, meeting students and staff and gaining advice from teachers, that I can narrow down my post-18 education choices.

Vocational courses are simply not what a university does best

A second major way in which universities have inefficiently encroached on the job of FE Colleges is in vocational offerings. The harsh truth is that there are ‘mickey mouse’ courses in universities, but they are not necessarily the ones that the public thinks.

If you look at Harvard College, you will find degree concentrations in ‘African and African American Studies’, ‘Theater, Dance and Media’ and ‘Studies of Women, Gender, and Sexuality’. These are in fact rigorous programmes taught at a high standard.

As a Visiting Professor at Harvard, I regularly attended the seminars offered by the African American Studies programme – they were the most rigorous interdisciplinary, policy-focussed seminars I found at the University.

You will look in vain at Harvard for undergraduate concentrations in ‘Business Studies’, ‘Law’ or ‘Management’. Vocational courses such as business or law are simply not what a university does best.

My partner has recently opened up a bakery, and – through my involvement with that – I feel I can finally say useful things to students about real world business and economics. But that expertise and experience is already there in FE Colleges.

Where is the efficiency gain in universities trying to take over vocational education?

Comparative advantage

Economics has the concept of ‘comparative advantage’. I spend the bulk of my time on research and on policy studies. Universities such as mine traditionally believe in ‘research-led teaching’, that my engaging in research benefits students.

It is possible that my research would enhance my teaching if I were assigned to a Foundation Year course or a vocational course in business, although I doubt it.

Even then, however, comparative advantage comes into play – I should teach in those courses and programmes where my research is of particular benefit to the students.

Returning to business studies, for example, students are better taught by someone who has actual experience in setting up and running a business than an academic who has conducted abstract research in business.

Research-led teaching is a very different exercise from a vocational approach

This can be a fine line. Finance theory and empirics comes to the clear result that the vast bulk of work done in the City of London is a complete waste of time from the perspective of economic efficiency.

This is an example of how research-led teaching is a very different exercise from a vocational approach, and why finance but not business might be a sensible subject for a university degree.

When I was Head of Department, a tutoring agency rang me up and asked me to tutor an economics student at another university. I explained that this was completely uneconomic and that the fee I would have to charge would be absurd.

The agent said that money was no object, but I told him no, admittedly because I assumed that the client would blanch at paying a significant multiple of the going rate.

It does not make economic sense for me to teach on the Foundation Year, and it does not make sense for me to tutor a student who isn’t working sufficiently hard on their degree.

Redistribution of funding

The Augar Report is to be welcomed in many ways. It recognises that the FE sector has been disadvantaged and there needs to be more balance.

It accepts the severe distortions that have weakened the university sector, despite the huge flow of funds. But everything in it is too small relative to the existing distortions.

Further, it is based upon the belief that there will be significant new taxpayer funding for post-18 education. Even if Brexit does not adversely impact public finances, there remain other calls upon the public purse.

Quite simply, there needs to be a redistribution of funding from the HE to the FE sector.

Some of this should go along with a change in student numbers. As I have discussed above, widening participation is a red herring.

With no increase in student numbers or additional funding, Oxford can easily fill 20% or 50% or any fraction of its places with students from less well-privileged backgrounds.

Bizarrely, the system set up for universities involved regular plans approved by the Office for Fair Access, with no sanctions for failing to meet the targets in the university’s own plans.

There needs to be a clear reward or sanction in order to achieve true widening participation. Just increasing funding and uncapping student numbers, with no direct connection to widening participation, will at best have a ‘trickle-down’ effect.

Again, Augar has a further step in the right direction, with means-tested support. But this needs to be much bigger.

A student from a severely financially disadvantaged background should, in my view, receive at least a 50% reduction in fees and a 50% maintenance grant, to give a ballpark figure.

Managerialism in education

The system should be designed so that every institution – either a university or an FE college – is achieving excellence at what it does.

This means that each institution must have funding that allows it to fulfil its duties. In part, some of the coalface funding – highly-motivated and skilled teachers – can be found by cutting the managerialism in both universities and colleges, and the needless government micromanagement reflected at the university level in the National Student Survey and the TEF.

Further, the public sector in the UK has traditionally relied upon the idea that well-educated professionals work for less than their potential return in the private sector.

The current vogue for managerialism in education fails to realise that, if you want to treat teachers in a performance-managed way, you will have to pay the market rate.

The US community college model

In some ways, a better model than Australia (preferred by Augar) for FE is the US community college model. Fees are kept very low, so all ages can attend. This is surely a better approach than the ‘lifelong learning loans’ proposed by Augar.

Traditional academic subjects such as economics are taught (I took my first economics course in one), along with apprenticeships and vocational courses from bricklaying to business.

Augar has identified a gap in levels 4 and 5, and proposes some of this be filled by universities awarding some form of degree for partial completion. This seems to make little sense.

FE Colleges have traditionally performed an excellent role in all of these areas. They should be allowed to do so, with proper funding, and without universities engaging in teaching where FE Colleges may have both an absolute and comparative advantage.

Jefferson Frank, founding head of the economics department at Royal Holloway, University of London

About Jefferson Frank: Trained as a macroeconomist, Jeff has also extensively investigated the gender pay gap, BME and LGBTQ discrimination, inequality in the university sector, and the current funding and fees crisis. He is the author of The Responsible Economy (Routledge, 2014) and a Fellow of the Academy of Social Sciences.

A more comprehensive analysis of the current situation facing English Universities appears in his recent book with two colleagues (Norman Gowar and Michael Naef), English Universities in Crisis, Bristol University Press, 2019.

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