Alternatives to 9k cap ‘would not cost more’, says report

Lowering tuition fees to £6,000 – a policy put forward by Labour - could cost the Treasury the same as the current £9,000 set-up, a study has claimed.

May 23, 2013

The report published on 23 May by million+, which represents post-1992 universities, and consultancy London Economics, suggests that additional places could also be created under such a regime at no extra cost.

This is because the system of graduate loan repayments could be tweaked under a £6,000 cap to cover the short-term cost of maintaining university income, says the report, titled Higher education funding in England: do the alternatives add up?

In addition, because tuition charges affect inflation, reducing the fee cap would cut government spending on inflation-linked welfare payments – an extra bonus to the Treasury. Government borrowing costs would also fall owing to lower inflation rates, it adds.

The report also says a new graduate tax system, in which no fees would be levied and graduates would simply contribute through paying a proportion of their earnings for a set period of time, would add no additional costs to the Treasury.

Both alternative proposals - lowering fees to £6,000 fee and introducing a higher education contribution or graduate tax system - would be financially viable and would cost no more than the 2012 system in real terms, the report says.

At its annual conference in 2011, Labour said it would lower fees to £6,000 if it was in power now, although it has not committed to such a policy for the next general election.

Pam Tatlow, chief executive of million+, said the study was undertaken amid concerns the current set-up is unsustainable due to the high proportion of student loans likely to go unpaid.

“The modelling shows that these two alternatives could be introduced at no additional cost to the Treasury while also preserving the unit of resource in universities,” Ms Tatlow said.

Under both proposed systems, students would graduate with lower levels of debt, but would not necessarily pay less toward the costs of their higher education since the rate and extent of their contribution would be determined by government, the report says.

Accounting changes would be needed at the Treasury to enable the graduate tax option as it would appear to increase departmental spending on universities, the report also says.

“Alternative systems of funding could be introduced at no additional economic cost but current Treasury accounting rules mean that a graduate tax option would appear to cost more even though it is cost neutral for the Exchequer compared with the 2012 system,” said Gavan Conlon, partner at London Economics.

“There is a strong case for transparency so that taxpayers get a more accurate picture of the comparative costs of different higher education funding systems.”

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