Taxpayer savings from England’s high-fees system ‘only small’

Last year’s move to ease burden on graduates means system is almost back to where it was before fees hike, IFS report suggests

September 17, 2018
Piggy bank and money on a see-saw
Source: Source: iStock/Pogonici

England’s current university funding system is not far off costing the taxpayer what it did before fees were tripled, when upfront public subsidy was much higher, a new analysis suggests.

The Institute for Fiscal Studies has said in a new paper that last year’s decision to raise the salary threshold at which graduates start to pay off to loans to £25,000 means that the eventual cost to the public purse is only about £800 million lower than before the 2012 reforms.

In its 2018 Annual Report on Education Spending in England, the IFS compares the various tweaks to funding that have happened since the move to increase fees to £9,000 and drastically cut direct grants for teaching.

It estimates that the total long-run cost of providing higher education for students who began their studies in 2017 will be £17.3 billion, split between an £8.5 billion bill for the taxpayer and £8.8 billion contributed by graduates repaying loans. The cost to the taxpayer includes the eventual estimated cost of unpaid student loans that are written off after 30 years.

This compares with a £9.3 billion long-run cost to the taxpayer if 2017’s cohort had been studying under the pre-2012 system, when fees were a maximum of £3,375 a year, split between £6.8 billion in direct funding and £2.5 billion in unpaid loans.

The IFS paper says that “apparently minor changes to the repayment parameters can have significant impacts on the long-run cost” of the system. Therefore, the decision in 2016 to freeze the repayment threshold at £21,000 and scrap maintenance grants lowered the long-run taxpayer cost by about £2 billion.

“However, the announcement the following year to increase the threshold to £25,000 and reintroduce the earnings link more than reversed this change and increased the expected government cost by around £2.3 billion per cohort,” the report adds.

“The combined effect of the reforms over the last seven years has been a small reduction in the expected long-run government cost of providing HE for the cohort of students who started university in 2017. However, this has been the result of a radical shift in the way HE is financed.”

Sally Hunt, general secretary of the University and College Union, said the time had come “for an urgent overhaul of how our universities are funded and who foots the bill. Students are now racking up massive debt through loans to cover their fees and living costs, but the changes have done little to ease the real burden on the public purse.”

England’s set-up is currently the subject of a major government review of post-18 education funding being led by Philip Augar. The IFS paper goes over some of the potential ramifications of changes that could emerge from the review, such as reintroducing maintenance grants or changing the interest rate on loans.

It also considers the cost of Labour’s policy to abolish fees, which it says would cost an extra £5 billion in the long run.

Elsewhere the report highlights how England’s fees and loans system means per-student funding is 60 per cent higher than in 1997-98. It contrasts this with funding for 16 to 18-year-olds, which it says fell 8 per cent between 2010-11 and 2017-18 for further education students and 20 per cent for those in sixth form.

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