Fear over ‘lack of strategic focus’ in Treasury’s growing HE role

As spending review looms amid wrangles within government, question of what Treasury wants from universities is pressing

September 9, 2021
The role of the treasury on higher education. Chancellor of the Exchequer, Rishi Sunak poses with the Budget Box alongside Chief Secretary to the Treasury Steve Barclay, Exchequer Secretary to the Treasury Kemi Badenoch and other staff on staircase
Source: Getty

Take an overview of the current impasse in the battle over English higher education policy and you can see one of the various armies involved pulling the camouflage off its big guns: the Treasury.

Education secretary Gavin Williamson’s hopes to use the Augar review for a wholesale reshaping of higher and further education – cutting student numbers and/or funding in the former, channelling more students into the latter – are enmeshed with the Treasury’s comprehensive spending review, the outcome to be announced on 27 October, setting departmental budgets for the next three years.

Sector sources detect Treasury scepticism about the competence of Mr Williamson and his department to handle any major reforms and a reluctance to back new spending in further education, with the Treasury instead prioritising savings in the student loans system by increasing graduate repayments. But even if that option wins out, deep unease in the Treasury about aspects of the current higher education system will remain a pressing issue for the sector – while the Treasury has also been accused of “blocking the way” on planned lifelong loans by insisting on a rule preventing adult learners using those loans for non-science subjects.

All of which emphasises that following the shift to £9,000-plus fees and a loans-based system where graduate earnings and loan repayment rates have huge, complex implications for the public finances, the Treasury may now be the most powerful force in English higher education policy.

So, as the spending review looms, what does the Treasury want from higher education?

Justine Greening, a former Conservative education secretary and economic secretary to the Treasury, said the answer “can be probably summed up in three words…value for money”. That aim is right for any Treasury and government, but there also needs to be an emphasis on “strategy” and aspects such as links with further education, she argued.

The Treasury has a “concern about the demographic bulge of people coming through the education system and now, potentially, heading into higher education – which, they worry, will mean a lot of tuition fees paid out and not much loan paid back,” Ms Greening continued. “In my experience, unfortunately, their mindset didn’t go much more widely than that.”

For Ms Greening, who stepped down as an MP in November 2019 and has since co-founded the Social Mobility Pledge, a group of businesses “putting social mobility at the heart of their purpose”, the Treasury was “not concerned enough that in practice [higher education spending] is an investment in human capital; that if Britain is going to upskill to be a higher productivity country then that does mean more young people moving through further education, getting into higher education.

“In my view, whenever they [the Treasury] effectively said that they felt too many young people were going to university, my frustration was it was clear to me that they felt too many young people with grades that ‘weren’t good enough’ were going to university. I just felt that was…a view that would consign a lot of talent to the dustbin.”

The lack of strategic focus seen by Ms Greening is a common factor in the Treasury’s dealings with all departments, according to some.

Martin Wheatley, a former chief executive of the Financial Conduct Authority, who led the Institute for Government thinktank’s work on the Treasury, said: “The problem is that issues like, how can we deliver most effectively a good higher education system including ensuring the right balance between public funding and funding by students, don’t get approached as a strategic question; but it ends up being sorted out through a haggling process in spending reviews.”

Spending reviews are “focused on the short term, three to five years ahead, rather than a longer-term picture”, he added.

Another problem, continued Mr Wheatley, is that “the staffing on the spending side of the Treasury is incredibly unstable; it’s dominated by quite young, inexperienced people. There’s a tendency for people not to be around long enough and not to have the skills to build their own networks of people outside government from whom they could derive intelligence.”

The Treasury’s active involvement in higher education is partly explained by the fact it is ministry for both finance and economic strategy; equivalent departments in other countries “tend not to be combined” and so are “rather less powerful [and] all-seeing”, said Andy Westwood, professor of government practice at the University of Manchester, and a former Treasury adviser under Labour.

In the current English higher education funding model, he added, the Treasury is “really the lead on its long-run costs, returns and overall design”, both “at an overall cost level but also because they support mass higher education because of its impact on the economy, wages and productivity. It is doubly in their interests therefore to have the system working as well as it can – because then it costs less and delivers more.”

This can all present challenges for universities, because the Treasury doesn’t start from the same place they do, does not “start from what is the best way to fund colleges, universities or what is the best tertiary system”, continued Professor Westwood. “Even if they [the Treasury] agree with DfE on the priorities and evidence base – and I’m not sure they do – there are big questions about how much, when and what delivers most economic impact in the short and longer term.”

Aside from visions of trimming the Treasury’s power to create a more strategic approach in government – Mr Wheatley has advocated “bringing together the spending side of the Treasury with an enhanced Cabinet Office” to “move away from this jousting between the Treasury and individual departments” – perhaps its concern about higher education would ultimately be best reduced by creating a more stable funding system. Ms Greening has advocated a graduate contribution combined with a “skills levy” on employers, which would do away with tuition fee price tags, loans and notions of “debt”.

In her time in the DfE, she said, “the debate we were starting with Treasury was the need to have a much more fundamental rethink about a fairer, more progressive way to fund higher education…They [the Treasury] were not in a position to engage in that debate.

“This is the challenge with Treasury, I think: too much short-term focus, too little strategic mindset and an insufficient ability to value investment in people and wide human capital in a century where it is all going to be about talent.”

More immediately, Ms Greening argued that the current impasse on policy has arisen because Number 10’s “engagement in this process hasn’t been sufficient to unblock the argument between the DfE and Number 11”, as its “bandwidth” has been constrained by dealing with issues such as Afghanistan and social care funding. But on Augar and options to cut higher education funding or student numbers, “I think Number 10, maybe, can see how it pulls you in an anti-levelling-up direction,” she added.

Ultimately, in the absence of a reliable general in the DfE, universities may need to tunnel over to the Treasury lines bearing ideas for creative, longer-term funding solutions.


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Reader's comments (1)

Employers already pay a "skills Levy" by way of the Apprenticeship Levy, which is not sufficiently flexible to meet their needs as the leaders of Tesco have indicated this week. Given the massive underspend by employers of their payments, unused funds go back to the Treasury and are not necessarily spent in the education sector. I believe the Treasury are right to want to restrict spending on Universities. The nation is not getting good value for money from either the amount spent teaching students or the amount spent on research. This is made worse by the heavy capital spending on buildings, maintenance and equipment - much of which is unused during several months of the year. From a return on capital investment angle, there is massive underutilisation of available capacity. If the Treasury really want efficiency savings they should start by insisting an undergraduate degree must be completed in 24 months not 36. Some Universities already do this and the Apprenticeship Degrees are much better value for money as they deliver both professional and academic qualifications. If greater use were made of the Open University to deliver degrees, unit costs would also fall. Degree delivery via FE Colleges for both basic degrees and honours degrees also costs less. Sensible use of blended learning also has the potential to save money in degree delivery.