Balancing act is hard to follow

December 15, 1995

Far from a feel good factor, the expenditure cuts announced in the budget have in higher education provoked universal concern and despondency. Those affected - staff and students - are unlikely to be in the vanguard of any consumer boom, even at Christmas.

The analysis has focused on the size of the cuts in both revenue and capital over 1998/99. What is being set in train is a fundamental transformation of the provision of higher education. Arguably, the changes are an extension of earlier legislative reforms: universities and colleges have become more efficient and responsive to the needs of their stakeholders as a consequence of both the progressive reduction in funding and an increase in competition. What is new is the clear signal that privatisation of higher education is politically acceptable. It is also convenient in so far as it does not require legislation and lets the Government off the public expenditure hook.

Superficially, the logic is attractive. Government figures show there is already substantial private investment in universities (currently Pounds 1.6 billion), making it difficult to argue against the principle of privatisation. For universities, as for any other enterprise, diversifying sources of income and spreading risk makes sound financial sense. As for capital investment, it is difficult to sustain the argument for public funding of student accommodation. Where projects generate clear income streams, borrowing is feasible and desirable.

What are the problems associated with this approach? First, the cuts in capital and revenue will cause short-term problems for some institutions, alleviated but not resolved by safety nets. Second, income generation is more likely to be increased at the institutional rather than the sector level, since the playing field is far from level. A virtuous circle ensures that the more affluent institutions attract more substantial funding, a principle which underpins funding council methodology for both teaching and research. For the less affluent, the options and opportunities are limited. It is not surprising that the number of those institutions seeking to maximise income by acquisition (whatever the eductional rationale) is growing rapidly. Third, the decision to reduce capital funding seems primarily prompted by the Government's desire to demonstrate the success of its private finance initiative, as a means of shifting both the cost and risk of public investment to the private sector. Evidence suggests this is sleight of hand, not least because it increases significantly the cost of such investment. Further, essential investment in libraries and computer networks is easier to fund out of savings than external borrowing.

In the longer term, a shift in the balance of public and private financing of higher education seems inevitable. In so far as this reduces state control, it should be welcomed. Interestingly, on the controversial issue of students' financial contribution to the cost of their education, the Government remains silent. In the interim, the funding councils should seriously address historical funding anomalies. The policy of rewarding one institution by paying four times more than is paid to another for the same provision is indefensible. Equalising redistribution creates sounder financial bases and slows down stratification, analogous to the football league tables. If such stratification is the road ahead as we approach the millennium it is even more worrying than the technological nightmare prophesied by Bill Gates, inventor of Microsoft!

Diana Green is pro vice chancellor of the University of Central England.

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