That sinkhole feeling

The absence of regulation and spiralling RAB costs threaten to undermine a growing sense of stability in the sector

November 28, 2013

Since the funding reforms, the higher education system has sometimes felt like a house built not just on shaky foundations but on one of those sinkholes that occasionally swallow buildings in Florida.

The mood in the sector has been buoyed of late by the rebound in applications. However, any sense of stability will have been shaken by reports indicating that threats to the system’s sustainability are clear and present dangers.

According to reports based on leaked documents (which have not been seen by Times Higher Education), the Department for Business, Innovation and Skills has been ordered to find emergency savings of more than £570 million next year and £860 million the year after that. This, it is claimed, is partly because BIS underestimated the number of students eligible for subsidised loans who would enrol with private providers. The documents apparently state that student support and quality-related research are in the firing line.

Sir Steve Smith recently joked that the problem with the RAB charge is that only three people understand it - and two of them are mad

This week, we reveal where unexpected levels of recruitment have occurred, particularly in qualifications such as higher national diplomas offered by private colleges and validated by the private company Pearson.

One vice-chancellor sought to downplay the significance of the BIS leaks, asking whether there is “anything new” in the cuts discussed. Difficult discussions with the Treasury are par for the course ahead of the Autumn Statement. But the double whammy we report of private validation and private provision raises questions about checks and balances, and highlights yet again the need for regulation.

There was an irony, in light of these developments, to the chancellor’s insistence this week that the government would step in to cap the costs of payday loans as a champion of “properly regulated” markets.

“Ultimately government has to lead,” George Osborne said on BBC Radio 4.

“We believe in regulated markets that work for people, and that’s what this government is doing…stepping in to create the rules of the market.”

If the lack of regulation in the higher education ‘market’ is one problem, another is the spiralling cost of the resource accounting and budgeting (RAB) charge – the proportion of student loans that won’t be repaid. Sir Steve Smith, the University of Exeter’s vice-chancellor, a man who prides himself on his grasp of sector finances, recently joked that the problem with the charge is that only three people understand it – and two of them are mad.

The RAB charge has risen because of the economy’s poor performance in recent years. Graduates are earning less – and repaying less – than BIS forecast.

The higher education analyst Andrew McGettigan (who is not mad) explains the implications in detail on his blog, but the gist is that the budget allocated to BIS includes an element to cover the RAB charge, because that liability has to be recorded now.

As the sum handed out in loans is higher than expected, and because the RAB charge is higher, too, that budget is no longer sufficient, hence the need to make savings.

It is complicated and the vice-chancellor’s warning against scaremongering is noted. But McGettigan reaches a pithy conclusion about the sinkhole currently undermining the funding system: “In accounting terms, it was RAB what done it.”

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