University Finance Sorted

WEDNESDAY, OCTOBER 13, 2010

University Finance Sorted

Time to break out the port?

As long-time readers may recall, Tyler was never Mr Cam's biggest fan*. But this government is showing a degree of can-do radicalism that is starting to make even Mrs T's initial steps look timid (let alone the spineless foot-dragging of vacuous fantasy reformer Bliar).

In five whirlwind months they've gripped the fiscal crisis, pushed through their promised free schools reform, launched an untrailed but fundamental market-orientated restructuring of the NHS, faced down the Luddites in the police force, announced a revolution in welfare, and signed death warrants on hundreds of useless and unaccountable quangos. There's more, but space is limited.

Yesterday they announced the much needed reform of university finance.Lord Browne's excellent report cuts straight through the BS. His recommendations manage to combine proper funding for the unis, with affordability, with competitive pressure, with... well, to coin a phrase... fairness for all (especially taxpayers). So hurrah.

We've blogged the shambolic state of higher education many times (see all previous blogs gathered here). In summary:

• Taxpayers now spend £12bn pa on higher education, up around 50% in real terms since 1997; the students themselves spend a whole lot more.
• There are 2.3m students, or 4% of the entire population (including 27,000 doing the Major's favourite, the degree in media studies).
• The 50% participation target is "aspirational" - ie entirely arbitrary (admitted to the PAC by the Chief Executive of the Higher Education Funding Council for England - see this blog).
• The average HE participation rate across the OECD is 35%: ours is already 40% and heading for 50%
• Courses have been dumbed down and grading standards slashed - the proportion gaining first class degrees has nearly doubled under Labour ( see this blog)
• Thousands of graduates now do non-graduate jobs, and that number is growing rapidly- their M Mouse degrees have simply not equipped them to do anything else (according to HESA, 75% - yes, 75% - of 2002-3 graduates were still in non-traditional graduate jobs four years after graduation; what's more, 26% weren't in full-time jobs of any kind; and see this blog)
• The average financial return to a degree is plummeting - according to PWC, the gross return to an Arts degree is now only about £30 grand, and that takes no account of the costs of study and the earnings foregone - net net an average Arts degree almost certainly reduces lifetime wealth.

Now, it's on that last point - the financial return to a degree - that Labour misled us most egregiously. Back in 2008 we attended a meeting of the Public Accounts Committee (under its previous esteemed chairman), where Bliar's claim that a degree was worth an average £400 grand was brutally exposed for the fabrication it was. And the Browne Report gives us some chapter and verse on just how the number was cooked up (see Report footnote 11).

Apparently the £400 grand referred not to the value of a degree per se, but to the value of a degree plus all other education beyond the average, which would certainly include A Levels. That is a gross deception, especially when you remember that all reputable research in this area has always and correctly calculated the value of a degree as being the difference between what you earn with A Levels alone and what you earn with a degree (and Tyler does actually know about this, having researched the area for the old Department of Education back in the 70s).

Browne wisely takes his estimate of a degree's value not from HMG or the unis but from the OECD. And they reckon that the lifetime value to a male graduate in the UK is currently running at just over $200,000, or about £120 grand (note that the OECD's calcs are published in purchasing power parity dolllars). Here's Browne's summary chart (click on image to enlarge):

So there is a financial return overall, which is not to be sniffed at (although note that the return for female grads is estimated by the OECD to be 25% lower).

However, there are some very important points to note here:

1. These estimates are based on the lifetime earnings of previousgraduates, the ones who got their degrees long before the explosion in graduate numbers and M Mouse degrees. The returns looking forward are almost certainly going to be lower.
2. Brown quotes only the returns to the grads themselves. As taxpayers, what we need to know about are the returns to us. What do we get out of the muti-billion subsidy we currently provide?

And even though the report doesn't spell it out, that second point lies at the heart of the Browne reforms. In future, our unis will be funded much more by the fees they can earn from their students, and those fees will be financednot by taxpayers but by the students themseleves, via higher student loans. Which is exactly as it should be.

Because not only are the students the principal beneficiaries of their degrees, but by forcing students to think seriously about the value of a degree, we will force the suppliers to deliver that value far more effectively than any number of quango funding councils (in case you don't know, this is called the market).

Poor students being put off?

Well, at the margin you might worry about that. But as Browne was pointing out all yesterday, a university education will still be free at the point of use. And there will be no credit check on first time students applying for a loan. What's more, graduates who earn less than £21 grand pa (indexed against average earnings), will not have to pay anything.

Education is about more than cold hard cash?

Well, yes, it is. And Tyler is a big fan of the so-called "non-pecuniary benefits".

But by the time we get to degree level (ie assuming we've already taught everyone the 3Rs and a bit of shared science and culture), most of those wider benefits again accrue to the individual.

So we think the Browne reforms are spot on. Congratulations to him and his team.

And to St Vince for having the balls to accept reality.

PS Yes, yes, hypocrisy. Tyler got not one, but two free degrees, from not one but two top Russell unis. How can he now kick the ladder away? Well, (a) a much smaller percentage of pupils went to unis in those days so the taxpayer bill was much less, (b) Tyler has since paid sick-making amounts of tax that would probably have funded several entire lifetimes at uni, (c) Tyler does make voluntary contributions to both his two unis. Apart from that, you do have a point. In truth, the taxpayer should never have funded uni education, other than through loan provision.

*Footnote While Tyler was never Mr Cam's greatest fan, Mrs T (T as in Tyler, that is) always was. She backed him from the very first time she heard him speak back in 2005. And she now greets each new brilliant radical announcement with a triumphant "that's my boy". Very irritating.