During the 21st century to date, undergraduate education in England has been shaped by a settlement between three parties: national government, students and universities. The government has provided income-contingent tuition fee and maintenance loans to students and teaching grants to universities. These loans and grants have enabled students to finance their tuition and living costs across the period of their studies and working lives, and universities to increase the supply and choice of places in response to increasing demand. Subject to meeting regulatory and funding conditions, universities have been free to determine who, how and what they teach, and how to deploy their income.
This settlement, which draws on economic ideas from post-war USA adapted for Australia from 1989 and England from 1998, has underpinned the expansion of England’s universities, whilst sustaining their international standing. Student numbers have increased from 1.98 to 2.43 million during the last two decades and university income from £14 to 37 billion, with the proportion from tuition fees increasing from 25% to 56%. This has not only improved access to higher education it has enabled investment in research. In the latest QS World University Rankings, 4 of the top 10 universities and 14 of the top 100 are in England, a position only exceeded by USA.
Despite this, all three parties to the settlement are unhappy with it. Ministers are encouraging school leavers to enter apprenticeships rather than degrees and restricting international student migration. Students are being crowded out of the most selective courses, which yield the highest graduate earnings, and struggling to manage the cost of living. Universities consider their financial model to be unsustainable and lack trust in their regulator due to government intervention.
Theories of higher education systems describe how universities become more permeable with wider society through the transition from elite to mass and near universal access, incorporating its complexities and losing their privileged status. This no doubt influences the current climate of discontent. Researchers on higher education are also, though, questioning the balance between loans and grants, and the framing of public and private interests, within the financing and governance of the English system.
The rise of private influence
Undergraduate tuition fees were initially introduced as a ‘top-up’ in England, providing a supplement to the teaching grant of up to £1,000 from 1998 then £3,000 from 2006. Following the 2008 banking crash it was expected that fees would increase up to £6,000 and replace one third of the teaching grant. From 2012, however, they increased to £9,000 and the teaching grant reduced by two thirds, with most of the residual sum providing supplements of £1,500 and £10,000 to cover the additional cost of science and medicine courses. This enabled the department responsible for higher education to deliver its share of the government’s deficit reduction plan, made possible by the cost of lending being deferred within the public accounts.
Within this system, there is substantial public spending on undergraduate education, but most of it is hidden. Public funding follows the choices of individuals and even the element of grant to universities is a supplement to this. The role of government shifts from strategy to facilitation: from investing to deliver public priorities to promoting and protecting the interests of student consumers.
This approach promises benefits to all three parties involved. The government minimises expenditure and can rely on individual choices to determine the pattern of courses and student participation. Students are empowered to secure what they want from universities through competition for their choices. Universities are freed from the constraints and uncertainties of government priorities and spending. It is, though, difficult to establish the conditions for this to succeed in practice. Once most people enter higher education at some point in their lives, the public interest in universities becomes too great for the government to rely on market forces.
The resilience of public interest
Tuition fees policy in England exemplifies this. Political imperatives have prevented successive governments from increasing the maximum undergraduate fee to a level that would enable differentiation and keep pace with inflation. Having increased only once, to £9,250 in 2017, the fee has lost one third of its value in real terms since 2012. The teaching grant for each student is no more than a supplement to the fee, so it has also reduced in real terms by one third in science and one tenth in medicine. This is limiting access for domestic students to the most selective and highest cost courses, particularly in relation to full-fee paying international students and an increasing young population seeking entry.
Alongside this, the government is identifying a series of public interest issues that require intervention. Some, such as free speech and conduct on campus, are rooted in universities, but concerns about graduate outcomes arise from the gap between the choices made by individuals and their prospects in the labour market. In a demand-led system, information is the only lever for aligning the interests of students, universities and employers, and there is no means to build absorptive capacity for graduate knowledge and skills across the country. This leads graduates to move for work or accept low wages, compounding spatial inequalities and increasing lending costs, which now figure immediately in the public accounts.
English higher education has proved to be more public than expected and this cannot successfully be addressed by regulation of universities alone. Universities will only expand access to the most selective and highest cost courses if they are assured of their overall income, which requires a coherent approach to fee levels, student finance, teaching grant and study visas. Measures to promote apprenticeships and lifelong learning require better work-based opportunities, not just controls on universities, and coherent pathways for progression.
How to break the deadlock
Some university leaders are calling for a funding review, but the last one has not yet been implemented. The Post-18 Review of Education and Funding, which reported in 2019, recommended re-balancing tuition fees and teaching grant to strengthen the influence of public priorities, and a more coherent strategy across all aspects of tertiary education. In real terms, tuition fees are now around the £7,500 level recommended by the review, but there has been no change to the level or purpose of the teaching grant.
This state of deadlock calls for a radically different approach, which will need three components. Firstly, the independent expertise necessary to understand and anticipate the demand and supply dynamic between students and universities, graduates and the labour market, and the ways in which they can be influenced. Secondly, a process of continual review to reflect changing conditions, rather than showpiece political events. Thirdly, a more granular approach to balancing tuition fees, student finance and teaching grant across different courses, enabling targeted incentives to address public priorities.
Standing review bodies of this kind already address issues such as public sector pay, priorities for migrant labour and the effectiveness and pricing of drugs in England. There are also precedents for using student finance to encourage entry to courses that are public priorities, such as healthcare and teaching. In the Australian higher education system, tuition fee and teaching grant levels are updated annually, with different amounts being set for groups of subjects based on cost, demand and public priorities.
Drawing on these models, a standing commission could rapidly be introduced following the 2024 general election. The government would continue to retain responsibility for decisions on overall spending and fee levels would be subject to parliament. But the balance between fees, teaching grant and student finance for different courses could be updated regularly. Crucially, this would be based on independent, expert and timely evidence and advice.
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.
Photo credit: Jordan Encarnacao, Unsplash