Budget? Won't budge us

November 29, 1996

The Government will collect Pounds 16.5 billion more in taxes from people and businesses in the United Kingdom in the coming financial year than in this one. It is putting just Pounds 100 million of this new money into English higher education. Add in Pounds 40 million for further education and the total is still under 1 per cent of the free new cash the Chancellor had at his disposal for Tuesday's budget: not a lot, and well behind further and higher education's share of public spending.

So effective campaigning can bring in new cash - but it is still hard to like this budget except by comparison with its predecessors.

Like everything else in higher education, the budget settlement is being played by the Government as a temporary fix to await the outcome of Sir Ron Dearing's higher education inquiry. But in the meantime it contains important decisions and statements of intent which will continue to reshape the sector.

There are some winners from this budget, especially the medical academics who are to have their parity with National Health Service colleagues restored. But this welcome change of mind coincides with increased micro-management of a sector in which the Government seems to want to call the tune without paying the piper.

The secretary of state's budget letter to the English funding council calls for courses not to get longer, the funding split between teaching and research to be rethought, selectivity to be enhanced in the funding of teaching and research, more performance indicators to be applied and (superfluously) no excessive pay rises to be awarded.

This level of control over universities and higher education colleges would be easier to accept in an era of expansionary funding. But as things are the Government still expects them to do more with less. For 1997/98 there is an "underlying efficiency gain" of 0.5 per cent, on top of much more severe "gains" in recent years. For the following two financial years, the squeeze tightens to 2.5 and 4.5 per cent, although more money may still emerge for those years. And there is a small tightening of student numbers, instead of the renewed expansion that many in the sector would like.

So while this is not the most vicious budget in higher education history, it will certainly strengthen the argument of those in more prosperous universities, including Alan Ryan (page 12), who call for institutions to cut loose from the state funding regime and privatise themselves altogether.

Certainly any institution which wants to respond to student demand, rather than live with the Government's rulings on maximum student numbers, would be tempted by this option. And they would be able to set fees in line with demand, not accept the frozen fees on offer from the Government. New institutions are already springing up to pursue this option, such as those validated by the Open University (pages 6 & 7).

To anyone who has been following the privatisations of post-1979 Britain, it is tempting to view increased selectivity in research and teaching funding, especially the former, as part of the process of fattening up already affluent universities to tempt them into going private.

This applies especially to the Pounds 20 million that will be put into new equipment in 1997/98. This money is only available for projects which can bring in matching funds from industry and elsewhere. As a result, new universities with a narrow existing research base - let alone the higher education colleges - will see little of the cash.

In this environment, the Government appears to think that private funds - both from general borrowing and via the Private Finance Initiative - are likely to emerge as a genuine new source of money for higher education. The Pounds 2 million that has been found to offset VAT on PFI management costs for each of further and higher education will remove one of the barriers to the spread of the scheme.

But PFI schemes in higher education will only add up to some Pounds 15 million in the coming year, in a sector with about Pounds 200 million of capital spending. So there is little chance that salvation lies here. Instead, capital spending, no longer a separate budget item for further or higher education, will continue to be a problem, with hundreds of millions of pounds needed for essential maintenance work alone.

At the same time, another piece of fiscal engineering - profit related pay - is being quietly killed off between now and the end of the century, just at the point where a number of universities were adopting it despite severe reservations on the part of staff. PRP has been a victim of its own success. The sheer cost of the tax break involved was starting to hurt the Treasury badly.

However, this budget is a troublesome one for vice chancellors who have havered over the correct response to last week's industrial action in the sector. If no new PRP schemes are to be launched, they will have to find a pay rise out of real money instead if they are to increase the 1.5 per cent pay offer now on the table. Some are in a position to do so, and have a 3 per cent rise built into their budgets.

Others - a growing number - would find that even 1.5 per cent can only be afforded if there are fewer staff to pay, a compromise the unions are already finding uncomfortable. And both sides know that despite a trickle of settlements already being made at rates exceeding the offer on the table nationally, the principle of national bargaining is one that has advantages for both sides and ought not to be abandoned without thought.

Another key financial area in which the Government is constraining the outcome of the Dearing inquiry is student finance. The announcement that the debt of the Student Loans Company is to be sold is on the face of it innocuous. Debts, like mortgages or credit card "receivables", are money-market commodities which change hands routinely.

However, the private-sector owners of the debt will need to set up systems for repayment and will want to use them with new as well as existing customers. Once such a system is in place, rival ideas like loans repaid via the national insurance system will have to compete politically with established commercial systems backed by large banks and the technology they command. This is not pre-empting Dearing, but it is making it harder to implement ideas that he may propose.

Despite these reservations, the December 16 meeting of the Higher Education Funding Council for England will be a far less grim occasion than the equivalent gathering last year. So will the vice chancellors' meeting next week. There is new money, and the pain the sector is suffering will worsen somewhat more slowly than it might. By contrast, further education will continue to be subject to an efficiency gain of over 5 per cent a year as student numbers rise rapidly.

In a general election budget notable for the small scale of the bribes it offered to taxpayers, Mr Clarke offered education few reasons for altering voting behaviour either in his favour or away from it.

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