Take off the cap so students and market system can shape UK higher education, Browne recommends

These are among the conclusions of Lord Browne of Madingley’s review of university fees and funding, whose report published today says that higher education should be exposed to a competitive market with a funding system driven by student choice.

The proposals from the government-commissioned Securing a Sustainable Future for Higher Education include:

• Student fees to be funded upfront by the government up to £6,000 through a system of loans and graduate repayments

• Fees above £6,000 not formally capped but subject to a levy, with a proportion of the additional income creamed off by the government

• The government to be given scope to withdraw public funding from all but “priority” subjects, with teaching funding for the arts and humanities likely to be axed

• Public investment to be targeted at clinical medicine, nursing, science, technology and modern languages

• The formation of a new super-quango – the Higher Education Council – through the merger of the Higher Education Funding Council for England, the Quality Assurance Agency, the Office for Fair Access and the Office of the Independent Adjudicator

• All new academics with teaching duties to undertake a teacher-training qualification accredited by the Higher Education Academy

• “New providers” to be allowed to apply for public funding for priority courses and, potentially, allowed to take over “failing” institutions.

The seven-strong review panel, which included vice-chancellors and business leaders, say they took “a reduction in public investment in higher education as a binding constraint in producing a set of proposals that could reasonably be implemented in the near future”.

The announcement of the Comprehensive Spending Review on 20 October will reveal the scale of cuts to the sector’s public funding. Lord Browne’s review came under intense pressure from leading research universities to allow them to bridge the gap through tuition fees.

However, in a stark warning about the likely scale of the cuts, today’s report says that even doubling the current fee level to £6,000 a year may not allow universities to fully make up the deficit created by the reduction in teaching funding expected after the CSR.

If, as the review believes, a fee of about £7,000 is necessary to keep university funding on an even keel, that suggests that teaching funding is likely to be cut by as much as 70 per cent.

The review says reductions in public spending should be made by “removing the blanket subsidy that the public currently provides for all courses through the Hefce grant”.

This will “expose institutions to more competition as they will no longer get a large block grant year on year regardless of the quality of teaching; more of the investment in higher education will be directed by students”.

It adds that “in a more competitive environment”, some institutions with less success at attracting students “may be at risk of failing”.

The beneficiary must pay

The review marks another stage in the shift to a system where the balance of funding lies with individuals rather than with taxpayers, and today’s report repeatedly argues that higher education confers more benefits on individuals than on the public at large.

Under Lord Browne’s proposed system, above the “soft cap” of £6,000, levies would be imposed rather than formal limits. The review recommends, for example, that if a university charges a fee of £7,000, it should pay a 40 per cent levy on the additional £1,000 to cover the costs to the government from increased student loan defaults.

The highest fee noted in the review’s chart of levies is £12,000, at which point universities would be paying a 75 per cent levy on a portion of the income above £6,000 – and receiving 73 per cent of the total fee.

For students, cost-of-living loans should be simplified to create a flat-rate entitlement of £3,750 open to all with no means-test, the review says.

The maximum cost-of-living grant for students from low-income backgrounds would rise to £3,250, available in full to those from households with an income of up to £25,000 and available in part to an income limit of £60,000.

The current system in which all students are given subsidised rock-bottom interest rates on their loans – criticised by some as an unnecessary expense – would end.

Graduates would start repaying their loans once they earn more than £21,000 – up from the current threshold of £15,000 – at a rate of 9 per cent. At £6,000 fees, students could have to repay £30,000 in fees and living costs.

Students with “higher earnings after graduation” will pay a real rate of interest on the outstanding balance of their fees and cost-of-living loans.

This interest rate “will be equal to the government’s cost of borrowing (inflation plus 2.2 per cent)”, the review says.

Low-income graduates who fail to make it above the earnings threshold would not be charged interest, and their loan balance would rise in line with inflation, while those earning just above the threshold, whose repayments do not cover the interest costs, “will have the rest of the interest rebated to them by government”. The review notes: “Crucially, the lowest 20 per cent of earners on average will pay less than they do today.”

But students would have to meet a threshold on academic standards, based on Universities and Colleges Admissions Service points, to qualify for finance.

The review calls for “student charters” that give information about course quality and employment prospects, noting that incentives to improve choice and the student experience are currently “limited” by the cap on student numbers.

“Growth within successful institutions is stifled; less successful institutions are insulated from competition; and students do not have the opportunity to choose between institutions on the basis of choice and value for money,” the review says.

There should be a 10 per cent increase in overall student numbers over three years, it argues, but within that, individual institutions “will face no restrictions from the government on how many students they can admit”.

Thus, it argues, students’ choices “will shape the landscape of higher education”.

The report offers part-time students a boost. Upfront fees for part-time students should be abolished, the review says, with entitlement for fee loans starting at 33 per cent of full-time equivalent.

Postgraduates, however, are given short shrift in the review, which rejects calls for the extension of the undergraduate system of student support.

The review rejects a graduate tax as “unworkable”, saying such a system would require the government to plug an upfront funding gap in every year until 2041-42.

john.morgan@tsleducation.com