Can a “geography-blind” market in English higher education deliver “levelling up”?

  • Living standards and Levelling up

Chris Millward, Professor of Practice in Education Policy, University of Birmingham. 

In this piece, Chris Millward explores the role of higher education in Levelling Up, particularly in light of policy relating to market mechanisms, finance, and funding in the sector.

The government’s Levelling Up strategy is intended to be a defining statement of its mission, demonstrating how it will reduce geographical inequalities, particularly between the greater south- east of England and other parts of the country.  There is, of course, a political imperative for this, positioning the Conservatives to hold and build on seats across the north and midlands it recently gained from Labour, and to show how a more unified and prosperous nation can be crafted from the decision to leave the European Union.

Notwithstanding these instrumental goals, the White Paper is distinctively cerebral, with social science underpinning its diagnosis, as below:

‘Geographic differences arise from market forces, which cause people, business and money to gravitate to where returns are perceived to be highest.  As market mechanisms drive agglomeration, it could be argued that they should generate an economically-efficient outcome, if not necessarily an equal or socially-just one. From an allocative efficiency perspective, there is an argument that public policy should operate in a way that is “geography-neutral” or even “geography-blind”.  The counter-argument is that market forces, left to their own devices, can generate market failures that are both economically and socially costly. These costs are well-illustrated by the UK’s historic experience.’ (p96)

Social science also underpins the conceptual framing of the strategy and commitments, particularly the case for market intervention to build mutually reinforcing capitals in different parts of the country, and it will no doubt be central to the assessment regime through which the White Paper suggests different parts of government will be held to account.  This will be crucial because the strategy relies at this point on aligning the existing spending of government departments towards the delivery of levelling up commitments, rather than substantial new investment.

Universities are highlighted within the White Paper for enhancing the cultural vitality of the places in which they are located and they will be central to the plans for re-balancing the nation’s research and innovation capability, but the “geography-blind” reliance on market mechanisms for their education activity appears likely to limit their contribution to levelling up.  Universities generate far more income from education than research, and it is this aspect of their work that is growing, as demonstrated below.

Figure 1 – Income of English HE Providers

Source: Higher Education Statistics Agency, November 2021

Universities are one of the nation’s most successful exports and international student recruitment is a significant contributor to the growth in education income shown here, but so is government spending on domestic students.  This is mostly through tuition fee and maintenance loans due to the decision to switch £3 billion of teaching grant into loans from 2012-13, with student choice and, since 2018, regulated competition determining how it is distributed.  As demand for higher education has increased, so has the cost to government, and this has been compounded by the decision by the Office for National Statistics to change the way the loan ‘write-off’ or RAB charge is reported within the public accounts, as demonstrated below.

Figure 2 – Forecast government spending on English higher education

Source: House of Commons Library, November 2021

These figures will change if the proposals to change re-payment terms within the government response to the independent review of post-18 education are implemented, but the core characteristics of the system will not.  This is important not just because the public investment in the education mission of universities is a large volume of public spending.  The character of higher education expansion during the last two decades has itself influenced the inequalities and political imperatives that led to the White Paper and will, in turn, be central to their resolution.

Labour, Conservative-Liberal Democrat coalition and Conservative governments have justified increasing tuition fees with the argument that it is a fair and efficient way to pay for increasing higher education participation, which is crucial to enabling equal opportunities and to generating the knowledge and skills needed for local and national prosperity.

Mass higher education systems tend, though, towards social stratification and this has been compounded in England by the reliance on student choice and competition to shape provision across the sector.  Inequalities in the school system, covered by others on the ACSS levelling up hub, have flowed through to university admissions and the labour market, diminishing the opportunities in communities with low levels of higher education participation.

Despite a 10% increase in higher education entrants between 2009-10 and 2019-20, the proportion of students from neighbourhoods in the bottom two participation quintiles increased from 26% to only 28%.  In the most selective universities, which lead disproportionately to the highest paid and most highly skilled jobs, there was a 21% increase in entrants across the decade, but the proportion from these neighbourhoods increased from 16% to only 18%.  This pattern has continued during the coronavirus pandemic as more students have entered higher education, but the majority of them have come from places with already high levels of participation.

The opportunities to mitigate these effects later in life and whilst in work have diminished during the last decade.  There was a 62% reduction in part-time students over the age of 21 entering higher education in 2019-20 compared with 2009-10, much of this relating to part-time studies below the level of a full degree, which reduced by 80%.  This is due to the system incentives for universities, students and employers, which extend from high levels of demand from young students to the alignment of full-time education with overseas recruitment and campus services, and the removal of public funding from lower intensity studies short of a full qualification.

The neighbourhoods across England with the lowest levels of higher education participation are nearly all in parts of cities and post-industrial towns across the north and midlands, and coastal towns, which are of course the priorities for levelling up.  These places lose out not only from their lower levels of access to the knowledge and skills developed through and opportunities arising from higher education, but also because graduates tend not to move there to work.  Most of the differences in wages across the country have been attributed to differences in knowledge and skills, and these differences are driven not just by educational attainment, but also where highly skilled jobs are located.  Measures to address this need, therefore, to engage not just with the supply of education, but also demand from employers.

The White Paper acknowledges this imperative by establishing a Unit for Future Skills, which will produce evidence on the demand for and supply of skills in local areas, future needs and the pathways between training and good jobs.  It also provides examples of how universities are working with further education colleges and employers to address local skills priorities, including through Institutes of Technology, which will be awarded Royal Charters.  55 areas across the country will be identified for targeted educational investment, support and action, building on the Opportunity Areas programme.

These are important initiatives, but they are dwarfed by the income flowing to and provision shaped by tuition fees and student choice.  The budget for the 21 Institutes of Technology is £290m and the 12 Opportunity Areas received £72m.  In 2020-21, the annual grant element of higher education funding, which enables the government to invest in public priorities, was only 8% of the outlay on tuition fee and maintenance loans.

The mechanism proposed in the Levelling Up White Paper for aligning this investment with the needs of local areas is to facilitate the entry of new higher education providers and raise quality thresholds. These are the “geography blind” market mechanisms the White Paper itself suggests lead to economic inefficiency and social injustice.  Across the Severn estuary, Wales will soon establish a tertiary funding and regulatory system, which is intended to provide a better balance between public and private interests, enabling strategies for investing in skills and knowledge to be joined up with those for research and innovation.

This would be difficult to replicate in England due to the size of the further and higher education sectors and the scale of research.  If, though, the levelling up strategy is to benefit from the educational capability of England’s universities, we will need much clearer place-based incentives through the duties and functions of the regulator, and the balance between private and public incentives.  Otherwise, we will see a continuation of the patterns described in the White Paper, which the strategy is intended to address.

Photo Credit: Susan Q Yin on Unsplash

About the author

Chris Millward is Professor of Practice in Education Policy at the University of Birmingham.  He was England’s Director for Fair Access and Participation from 2018-2021 and Director of Policy at the Higher Education Funding Council from 2014-2017.

Chris is a founding member of a new Universities and Regions Forum led by the University of Birmingham, which will draw on social science research and policy shaping expertise at City-REDI, WMREDI and their partners.