It matters who holds the purse strings: why abolishing fees could be harmful to the cause of equal opportunities

In an earlier piece, I looked at some ways both grammar schools and university fee abolition are similar: both play an outsized role in our education debates, and in both cases proponents are often indifferent at best to evidence about their effects. I’ve argued that’s because both function as political totems, symbolising certain values their supporters hold and want to epitomised in the education system.

There is, I think, another similarity between the two which provides an important argument against changing the university funding structure. Several acute observers have pointed out that there isn’t a massive difference in the net mix of those paying for and benefitting from university between the current fees system (which is really more of a progressive graduate tax, and one where most lower earners don’t end up repaying their liabilities in full) and a fee free system paid for by additional tax on the highest earners. The net effect is, probably, a redistribution from the very richest to the upper-middle end of the scale. Much ado about nothing, then?

I think not, as this focus on fiscal effects overlooks the central difference between a fees and loans system and a Treasury funded system: who holds the purse strings. One of the stronger arguments against grammars is that while the original system was supposed to provide equal resources to grammars and secondary moderns, in practice this never happened — in large part because of the inequality in status between grammars and secondary moderns. Grammars got the lion’s share of the resources, the best teachers would want to teach there, the best facilities would get built there and so on. The lower status secondary moderns, which started with a more challenging intake of students, also faced further disadvantages which reinforced that inequality. The more presitgous grammars could win the best staff, and the combined effect of prestige, smart well connected staff and smart, well connected parents gave them an advantage in every other competition for resources.

It is already the same in tertiary education. Universities get far more state support than FE colleges, who in turn get far more resources than the education options open to young people not going to university (for example, vocational training). The fact that the commentariat spend so much more time talking about university fees than any of the other post-18 options is another example — universities win the competition for political and media attention hands down.

In fact, the situation with universities is even worse as there is already a steep status hierarchy within the sector — with Oxbridge and the research intensive Russell Group at the top of the tree, and the teaching intensive former polytechnics at the bottom. Funding higher education directly from the Treasury would most likely result in a skew of resources to the top of the status hierarchy for the same reasons it did with grammars and that it does in other areas of public spending — central government money follows status, prestige and profile. The places where the brightest, most well connected people congregate tend to win any competition for central funds.

Of course, this happens already even with the fees structure. Oxbridge and the Russell Group can recruit more easily and could expand more easily, if they want to. High status universities have an easier time recruiting high quality, premium fee students from abroad. Yet a switch to central funding would most likely worsen the inequalities because it would change the incentive structure in ways that will likely restrict expansion and reinforce inequality.

The fees system is decentralised, at least in theory, if not fully in practice. Universities can (now) accept as many students as they want, and if they accept more students, they receive more income. If universities are centrally funded, there is likely to be a hard(er) limit on how much gets spent in each year. Whitehall and the Treasury do not like uncertainty about spending levels. If Whitehall sets a budget for undergraduate education, and universities operate to that budget, there are likely to be caps on places. This has two important consequences.

Firstly, once places are rationed in this way, the mechanism for rationing will almost certainly be grades. And rationing places by grades will favour the better off, who go (on average) to better performing schools and get better grades (again, on average). If the number of places available falls relative to a fees system, then the grade requirements will go up, and access from unrepresented groups will tend to go down. Regulators can, and already do, make moves to offset this tendncy, but it is an arms race. Better off parents and students will be the most responsive to changes in the demands of university entrance offices, blunting their effects. The best way to improve access to the university sector is to expand it overall. Central funding, and central caps, make expansion less likely.

The other problem is how central funding and capped places affect behaviour within the sector. Once there are harder caps, a huge lobbying game begins between universities to secure allocations of places and funding. And the higher status universities — Oxbridge and the Russell Group for example — have a massive advantage in any such elite political and bureaucratic lobbying game. They have the resources, they have the prestige, they have the social networks, they have the graduates in office. So any capped system is likely to favour them in allocations and funding. And these are the universities whose intakes are most heavily skewed towards better off families. So, once again, the choice of funding structure has consequences for equality of access.

Nor is that the end of it. Once you have central funding, you are subject to the fiscal and political incentives which affect central funding. Namely, a near-constant desire to control spending, which always falls most heavily on the sectors with the weakest lobbying power and where the political incentives are least urgent. Look at what happens to local government spending, or to mental health care (the poor relation in the NHS) or to social care. The Treasury always looks to restrict and control spending. Central government political incentives always favour spending on the most immediate, newsworthy causes. Both pressures will tend to hurt undergraduate funding.

When funds are tight, as they often area, centrally set undergraduate teaching budgets will be trimmed. There will be the dread bureaucratic calls to “find efficiencies”. Budgets will be salami sliced. Perhaps frozen in cash terms, so ministers can claim there is no cut, then let inflation do the work over time. Extra places will be offered but without proportionate extra money. And, given the structure of lobbying power, the effects of such steady erosion in support will likely fall more heavily on the lower status HE institutions which have the least access to other resources and funding sources- i.e. the very institutions which accept the most students from disadvantaged backgrounds.

In the 1990s the government expanded universities on the cheap — student numbers were increased but teaching grant was not. Grant per student fell by 25% from £17,700 in 1990–1 to £13,200 in 1997–8 just before the first fees were introduced. Anyone who thinks similar patterns of selective starvation can be avoided in a future Treasury and Whitehall operated central funding scheme has a very selective and optimistic understanding of recent political and fiscal history in England. Indeed, Labour’s own manifesto budgeting of fee abolition implies exactly this, as the costings imply no long run changes in student numbers. To make those sums add up, either expansion stops or funding per student falls.

A shift to central government funding is not neutral, even if the costs of the policy are the same and the beneficiaries are the same, because he who pays the piper calls the tune. Central funding is subject to central political incentives. And central political incentives, in Britain, usually run towards underinvestment in the less urgent needs of the public sector. If money for an immediate problem needs to be found, or the deficit comes in higher than expected, then the temptation is always to raid funds and shave grants. A little off here, a little off there. Nothing too drastic, just enough to get things on an even keel. Nothing which makes the news. Then the same again the next year, and the next. In the end, students end up a lot worse off. Fewer places, and less funds per place. And it is the poorest students, over-represented in lower status institutions, who are likely to lose out most.

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