Analysis: 'Give green light to fees to stop rot,' report says

Academic salaries must rise and fees will have to go up to keep universities competitive, two major studies conclude this week. The THES reports

The government must allow universities to charge differential fees if the deterioration in student-to-staff ratios, pay and infrastructure is to be stopped, say the Nottingham economists who two years ago wrote a report for the Russell Group calling for students to pay more for tuition.

In an update of their report, David Greenaway and Michelle Haynes say:

"Differential fees allow individual universities to set fees that reflect their cost structures, their ambitions regarding support for students from less well-off families, their ambitions regarding staff recruitment and so on."

"In the past two years, it has become increasingly clear that government funding is not going to do the job. There is no obvious alternative to differential fees," Professor Greenaway said.

If universities were allowed to charge fees up to £4,000, this could bring in £3 billion to the sector, the paper says. But this would have to be accompanied by greater availability of income-contingent loans.

"On equity and efficiency grounds, the case for income-contingent loans covering fees as well as maintenance, collected through the Inland Revenue and fully securitised, is compelling," the paper says.

Loans should be charged at a real rate of interest (currently about 3 per cent a year) and the student loan sold - or securitised - to the private sector. Professor Greenaway and Dr Haynes argue that this could generate £4 billion a year.

"Thus £2 billion could be available to government for more effectively targeted expenditure (for example, in the form of needs-based scholarships) and £2 billion to universities," the paper says.

"Since 2000 we have more information on the impact of fees on students from different social groups," said Professor Greenaway. "It is quite clear from the evidence from New Zealand and Australia that fees backed by income-contingent loans do not hit access."

The paper notes that despite the dramatic increase in student numbers, the social mix in UK universities has barely altered over the past 25 years.

"The share of students from low-income backgrounds remained more or less unchanged from 1980 to 2001," it says.

In the paper it is argued that while the introduction of fees has not harmed access, it has not been sufficient to help university funding.

"Average class sizes in universities have doubled in the past 20 years. Not only has this led to ever larger lecture classes, but also to the disappearance of small group tutorials in many universities," the paper says.

"Taken together with recruitment and retention problems, deteriorating student-to-staff ratios have the potential to degrade the learning experience and threaten the quality of education."

Higher education salaries do not compete favourably and, for most grades in most staff groups, salaries are below wider market medians, the paper says.

Students, meanwhile, continue to benefit enormously from their higher education. The additional lifetime income earned by a graduate, over a non-graduate with two A levels, is about £400,000. And the paper points to recent figures from the Organisation for Economic Cooperation and Development that show private rates of return in the UK on expenditure on higher education to be the highest among countries in the OECD.

"I am keen to do some more modelling on what fees individual universities could charge," Professor Greenaway said. "It is quite clear that without them the position of UK universities will go on deteriorating."

The full paper will appear in the Economic Journal in January 2003.