Analysis: Blair passes milestone on rocky road

August 1, 2003

As Labour marks a record spell in power, Alan Thomson looks at its radical effect on HE

After six years and three months, the Blair government will on Saturday enter the record books as the most durable Labour administration in British history.

It may not be much compared with the previous 18 years of Conservative rule, but serving and former education ministers will be toasting the watershed knowing that in a third of the time the Conservatives stayed in power, they have effected radical and lasting changes to higher education funding.

Whatever personal opinions are on fees and top-up fees, there are three established truths about higher education. Expansion costs money, graduates generally earn more than non-graduates and higher education is optional.

About the only flexibility in this formula is the desirability of expansion. To Labour it is desirable, even necessary, for the economy.

According to the Conservatives' latest higher education policy, further expansion is not desirable, which obviates the need for tuition fees. The only other alternative, the Liberal Democrat policy, is to continue to fund higher education from taxation.

In purely financial terms, the Labour government has done little so far to improve the funding of universities' core business - teaching. The figures indicate, however, that funding is set to get better in future.

Between 1996-97 and the past academic year (2002-03), real-terms funding per higher education student, at 2001-02 prices and based on total publicly planned funding including tuition fees, fell from £5,200 to £5,020, about 3.5 per cent. The good news for the government is that real-terms spending per student is due to rise to £5,340 in 2005-06, a 2.7 per cent increase on 1996-97.

It is indicative of the problems faced by any society seeking to pay for higher education expansion that raising funding per student in real terms takes a lot of hard cash. For example, the actual amount of cash per student will be 30 per cent higher in 2005-06 than it was in 1996-97, all for a 2.7 per cent real-terms increase.

The introduction of top-up fees in 2006, and the government's commitment to retaining real-terms spending on teaching for the duration of the next parliament, ought to mean a significant cash boost and year-on-year rises in the amount per student.

Labour embarked on its path to fundamental funding reform in opposition, after the Tory government lifted the cap on student numbers in the 1980s.

The expansion occurred so rapidly that within five years the Tories reversed the change with disastrous consequences for university budgets.

Funding per student fell by nearly 40 per cent between 1989 and 2001.

It was about this time that modernisers working in and around the Labour Party started looking seriously at the expansion-funding conundrum. The Institute for Public Policy Research, a centre-left think-tank, held a series of seminars in 1991, some chaired by Baroness Blackstone, who would become the Blair government's first higher education minister.

Academics and political theorists, including David Miliband, who was an IPPR research fellow and is now schools minister, experienced a moment of enlightenment when economist David Finegold, then at the University of Southern California, argued that free higher education was economic madness.

David Robertson, professor of social policy at Liverpool John Moores University, was at those meetings. He said: "Finegold's argument was a breakthrough. Once he had explained it, it seemed so obvious."

Professor Finegold argued that higher education was dominated by the middle classes, so if the state paid, even the poorest taxpayers were subsidising the cost of higher education for the children of the wealthiest people in society. This was blatantly regressive.

Professor Robertson said: "I remember we put all of this to Tessa Blackstone and she almost fainted. But we broke the mould and although Labour lost the 1992 election, we won the battle of ideas within the party."

The economic logic in the new thinking may have been compelling but, in the aftermath of the 1992 election defeat, it was not about to become policy as the party's further and higher education spokesman Jeff Rooker discovered when he proposed fees in a 1993 consultation paper and was promptly sacked by the new leader John Smith.

The party wanted to keep this potentially explosive thinking under wraps, even though many senior people in the Parliamentary Labour Party had already been convinced.

Mr Smith's death in 1994 brought many of them to the fore. Publicly, new leader Tony Blair had to be careful. The safest ground was on the principle of student maintenance contributions, which the Tories established when they introduced loans.

The Labour Students organisation was playing its part in paving the way and at the 1996 National Union of Students conference, the then Labour Students' president Jim Murphy, now Labour MP for Eastwood, won a crucial motion in effect ending the union's historic support for free education.

Privately, according to those involved at the time, many in Labour Students accepted fees were necessary, but hoped they would be used to pay for some sort of grant for poorer students.

Neither the Labour Party nor the Conservatives wanted to write detailed higher education policy into their manifestoes for the 1997 election.

Education secretary Gillian Shephard set up the Dearing inquiry into higher education in 1996 with the agreement of shadow education secretary David Blunkett. Sir Ron (now Lord Dearing) would conveniently take some 14 months to pull together his report, meaning both parties could keep higher education out of their manifestoes for the forthcoming election.

Dearing's report arrived in July 1997, less than three months after Labour's landslide election victory, and it was the perfect Trojan horse, enabling the new government to get its long-standing, seldom mentioned, fees policy on to the political agenda.

Education secretary Mr Blunkett had to strike while the iron was hot and, on the same day as Dearing was published and against it's recommendations, said the £1,000 fees would be means-tested - a concession won by the NUS leadership - and maintenance grants would be replaced by income-contingent loans.

Michael Bichard, permanent secretary at the Department for Education and Employment from 1996 to 2001 and now director of the London Institute, said: "The new government either did it then, or not at all. The government's literacy, numeracy and standards programme in schools was the most ambitious programme of reform attempted in schools in the 20th century. It is one of the reasons Mr Blunkett wanted to introduce the (higher education) policy quickly."

Mr Blunkett realised that if he wanted the money for his education reforms, he would have to engage in a little horse-trading with the chancellor, Gordon Brown, who had pledged to stay within Conservative spending plans for the first few years of Labour's administration.

Sir Michael said: "Money would be coming into the exchequer from higher education (fees) that would not have come into the exchequer otherwise. Mr Blunkett is not naive and saw it as a way of getting more money out of the exchequer and to achieve a much better settlement for education, including higher education."

But by mid-term, it was becoming clear to officials such as Sir Michael that while student numbers were increasing, there was no corresponding increase in the proportion of people from poorer backgrounds. The government began to backtrack by introducing limited grants for groups such as mature students and younger students from poor backgrounds.

At the 1999 Labour Party conference, Mr Blair announced the 50 per cent target for higher education. Many critics said it was a figure plucked from the air. But Labour insiders now say that it was part of a bigger plan to refocus minds on the need to widen participation by the poor.

The big shock for Mr Blair came after the 2001 election campaign when it emerged, according to a report from the party's national policy forum in July that year, that one of the biggest concerns on the doorstep during the election campaign had been student hardship and debt.

At that year's party conference, Mr Blair surprised the higher education sector by announcing a review of student funding to be completed in the new year. The year came and went with no sign of the report. Insiders revealed that the cross-departmental team, led by education secretary Estelle Morris, who replaced Mr Blunkett in the 2001 summer reshuffle, realised that there was no quick fix for student funding that did not impact somewhere else on the higher education system. The review of student support had to be a review of higher education in its entirety, and it was not long before the review became a fully fledged higher education white paper.

The review had been grinding on for a year when Charles Clarke took over from Ms Morris last October. Much of the agonising was over the graduate repayment scheme. Many, including Mr Clarke, were known to favour a graduate tax initially. But the Treasury argued that a graduate tax was too expensive as it would take the best part of 20 years before returns would be sufficient to meet the increased Treasury outlay on fees. The potential electoral implications of using the word "tax" helped seal its fate.

The key point was a switch to a graduate repayment system. It meant fees could be deferred and raised significantly because people would repay them according to their future earnings. The argument for interest rates on loans was lost. Those who had argued for an end to the interest subsidy, including Nicholas Barr and Iain Crawford of the London School of Economics, and Wendy Piatt of the IPPR, felt the government missed a trick.

They said that failure to introduce an interest rate amounted to a state-subsidised loan to people who would later enjoy higher earnings.

Things were more straightforward on fees. By the time Mr Clarke arrived, top-up fees were a certainty, not least because No. 10 wanted them. The only remaining debate was at what level to cap the fee. Much of the evidence from economic experts inside and outside higher education indicated a figure of between £4,000 and £6,000 a year would give enough to produce a range of charges, allowing top universities to charge the full amount and others to in effect discount courses.

But fees of £6,000 a year could lead to debts of nearly £30,000 a year - approaching three times current student debt levels. Ministers felt they had to compromise and settled on £3,000.

The education and skills select committee's report last month on the white paper argues for a £5,000 cap. But it backs the government's decision to introduce higher tuition fees. Top-up fees are welcomed throughout higher education, not least because they reduce institutions' reliance on the vagaries of state funding. They are a step in the direction of privatisation.

The economic arguments for fees are sound, and now that the government has conceded a return to some form of grant support for the poor, it may begin to win hearts as well as minds.

Parliament could still reject top-up fee legislation if sufficient backbench Labour MPs vote against it. But, as many who have studied and advised the government on the economics of fees have warned, they must be convinced that they have an affordable and workable alternative.

The Labour Party, and latterly the Labour government, with support from some of the country's best economists, has agonised over higher education funding for the best part of 15 years. Those involved in the process insist that such an alternative has not been overlooked.

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