CBI – Keep higher education funding independent

The Education Committee has today (8 Dec) published the written evidence for its inquiry into value for money in higher education.

This is the written evidence from Confederation of British Industry (CBI) recommending to:

Keep higher education funding independent and sustainable through an income-contingent fee and loan system

UK universities are amongst the best in the world and higher education is one of our stronger export sectors. Research by Universities UK has demonstrated that, in 2014-15, our universities earned a total of £13.1 billion in export receipts. But the softer links with the UK that universities drive means that even greater long-term value is driven by the sector than this. To protect our global position and the positive impact universities have across the UK’s regions and nations, they need to be sustainably funded with a system that allows higher education to be accessible to students from all backgrounds, as well as being affordable to the taxpayer.

A fair and sustainable system for university funding must balance the costs between graduates – as the primary beneficiaries of a university course – and taxpayers, and enable universities to contribute to prosperity.

There are clear and well-evidenced benefits to graduates associated with receiving a university education. According to research by the former Department for Business, Innovation and Skills in October 2013, these include (but are not limited to) higher earnings of around £168,000 for men and £252,000 for women across a graduate’s working life, an increase in the likelihood of being employed by 3.3% points, better mental health and better life satisfaction. Alongside benefits to individuals, there are also substantial wider benefits to the UK as well.

As a provider of skills, generating and translating world-class research into new products and services, universities help to spread growth across the UK, with research by Universities UK (UUK) in October 2017 demonstrating that, between 2014-2015, the higher education sector increased the value of graduates’ human capital (i.e. the knowledge and skills they contribute to the labour market) by 28 per cent, undertook £7.9 billion worth of research and supported almost one million jobs in the UK.

The current income-contingent, time-limited loan system is broadly effective in delivering this outcome and should be preserved.

The system has facilitated a considerable expansion in university places with the Resolution Foundation highlighting that in 1996 (prior to the introduction of tuition fees) around 12 per cent of those aged between 16-64 had a degree equivalent qualification or higher, whereas today 30 per cent do. This has coincided with a marked increase in participation from those at the lower end of the income distribution as well with disadvantaged students now 73 per cent more likely to enter university than in 2006. There has also been an increase in the amount of resource available per student, with funding per student at the highest level for 30 years. There is little evidence to suggest the fee and loan system discourages social mobility.

The system effectively balances the cost between graduates and taxpayers.

Importantly, the expansion of higher education has been delivered in a way that is sustainable for taxpayers with the long-run taxpayer contribution for higher education reducing and thereby helping to facilitate greater investment in the wider education and skills system. As the CBI’s pre-Budget letter to the Chancellor stressed, additional resources are needed to protect per pupil funding for the remainder of this Parliament and to replenish schools’ capital budgets. Although hard to forecast precisely, the IFS has estimated that the long-run taxpayer contribution has been reduced by around £1.1 billion when compared to the pre-2011 system. As repayment rates become clearer, further adjustments to the system may be necessary to preserve a fiscal balance, but the basic outline of the system is the right one – and any further changes should seek to preserve the attraction of a university education for those from lower income backgrounds.

The focus of concern on access for lower income students should not be fees, but maintenance. The abolition of maintenance grants has meant that the poorest students now graduate with the most amount of debt.

Maintenance is a key concern for poorer students, as it is a cost they meet while studying – rather than once they are in employment. Since maintenance grants were converted into loans in 2015, the debt accumulated by the most disadvantaged students has increased substantially. Students from the poorest 40 per cent of families now graduate with debts (on average) of around £57,000 around £14,000 more than students from the richest 30 per cent of families. As the IFS has warned, the greater debt incurred by disadvantaged students may reduce participation from prospective students in the long-term, reversing some of the progress on participation outlined above.

The government should monitor university participation for the most disadvantaged and reintroduce means-tested maintenance grants if there be a reversal in current trends.

The focus of any reforms should be on student finance, not the funding system itself. Whilst there has not yet been a notable decline in participation rates caused by the abolition of maintenance grants, the government should monitor this situation carefully to ensure that the gap in participation rates between disadvantaged students and their more affluent peers continues to narrow.

As research by the Department for Education from August 2016 has demonstrated, the participation gap between those in receipt of Free School Meals (FSM) compared to those not in receipt of FSM has been steadily declining slowly in recent years, dropping from 19 percentage points in 2005/06 to 17 percentage points in 2013/14. Given their reintroduction would cost around £2 billion, and combined with the need for greater investment elsewhere, maintenance grants for higher education students should be considered in light of the wider education and skills system. Should participation amongst disadvantaged students start to decline, the CBI believes that reintroducing means-tested maintenance grants should be a priority, rather than changing the fee system.