The Answers

March 21, 1997

In the run-up to the election Huw Richards analyses the higher education

Dearing was appointed, in tacit recognition that both main parties might have more to lose than gain, with the intention of taking higher education out of party politics until after the election. So far it has largely succeeded, although some Labour supporters argue that the party sacrificed a potentially fruitful area of attack in the process.

The Labour party

With the polls pointing to a Labour victory, David Blunkett and his team are likely to come under vigorous pressure about their intentions over the next few weeks. Labour has firmly ruled out any income tax increases during its first term of office, and accepted Conservative spending projections for the first two years. This does not rule out other possible changes listed in the potential revenue table, but memories of the furore caused by John Smith's shadow budget of 1992, blamed by some for losing that year's election, may also preclude the removal of the highly regressive national insurance ceiling.

Shadow teams have in any case been told that increased expenditure will have to be funded from savings elsewhere in their budgets. Memories of 1992 are making Labour cagey about numbers, but its priorities within education are clear. Any government has to provide school places for everyone between five and 16. That is not negotiable, making the real battle for resources between the non-statutory areas - nursery, further and higher education.

And there is little doubt that nurseries have won. Mr Blunkett said recently that, if given an extra Pounds 1 billion he would put it "into early family learning, into the pre-school and primary school sector". A look at the relative costs in the bottom box on page 6 shows one reason why, on top of the volume of research showing the immense social and educational benefits of nursery schooling.

Labour has answered the student contribution questions by declaring a preference for the national public service model, funded by repayment of maintenance costs, arguing that this balances equity with efficiency. Its worry is that the vice chancellors, and in particular Tessa Blackstone, a Labour front-bencher in the Lords, have questioned whether this model will provide enough money and continue to push for a tuition fee component.

Having explicitly ruled out institutional top-up fees at his last party conference, Mr Blunkett is a little less categorical on tuition repayments, saying he is still unconvinced. Further education colleges will be able to compete for money from the proposed privatised monopoly windfall tax.

But whatever the worries about balancing the books, Labour can at least claim to have put forward a coherent alternative model to the status quo. If any party is waiting for Dearing, it is the Conservatives.

The Conservative party

The Conservatives' problem is that having had 18 years to do something about the current system, they are rather obliged to argue that nothing is particularly wrong with it, although their odd reticence over increased access, which might be thought an achievement worthy of trumpeting, suggests a certain amount of discomfort.

So too did the recent Dearing submission from the Department for Education and Employment, which in the absence of a submission labelled explicitly as coming from the Conservative party has to be taken as the next best thing. Avoiding direct funding reform, it argued instead that expansion might have reached its limits, with demand for graduate-level jobs likely to peak in the near future. Further education faces continuing "efficiency gains".

In the absence of specific party proposals, the Conservatives are not short of individuals willing to propose greatly increased privatisation of funding, most recently the trio of former Strathclyde vice chancellor Graham Hills, economist Patrick Minford and former ministerial adviser Stuart Sexton.

But education is one area where the market is proceeding by accretion rather than dramatic shift, and the hopes of the privatisers will not be helped by John Major's known opposition to charging for tuition fees.

The Liberal Democrats

The Liberal Democrats have been frantically rejigging costings over the past few weeks to match the demands of their members. Plans to incorporate fee-charging into a funding scheme which the party's education team claimed could raise an extra Pounds 290 per student annually for institutions were voted down last year, leaving a 5 per cent financial hole in the manifesto formula.

Contributions from students had been a key factor in proposals to find additional resources for the sector and extend maintenance support to part-time students and those in further education.

The party's paper, The Key to Lifelong Learning, outlined a scheme which Don Foster, the Liberal Democrat education spokesman, said would allow the equivalent of an extra 750,000 full-time students to be supported through "learning accounts". Under the original proposals, students could borrow from their accounts to cover both an element of fees and maintenance, paying back over a long period once their income rose to a certain level. Mr Foster reckoned the average student would end up paying an extra Pounds 400 per year.

Paddy Ashdown, the Liberal Democrat leader, has restated a commitment to invest cash raised through an extra 1p in the pound on income tax into education. Some of this money would flow into further and higher education, along with funds raised through a 2 per cent remissable levy on company payrolls.

NUMBERS OF 18 YEAR OLDS

The participation target of one-third of 18-year-olds, promised for the millennium by the Government in the early 1990s, had almost been attained by the middle of the decade, when rising costs led to the recruitment freeze that still applies. Labour wants renewed expansion, but both Conservatives and Liberal Democrats are less convinced. But even to maintain existing participation rates will require more places, as the number of 18-year-olds rises again after hitting a low point in 1995. A one-thirds participation rate would require 60,000 more places in 2000 than it would now, with 95,000 extra places needed by 2007. A 40 per cent participation rate would require an extra 200,000 places by the end of the century and 250,000 by 2007.

THE LEARNING BOND

The Learning Bond advocated by the Association of University Teachers would be issued by a Learning Bank, formed to handle loans to students. The bond would mature at 20 years and have a low interest rate, possibly 2.5 per cent. It would be registered for security reasons, bank-restricted so banks could buy it only in their capacity as businesses liable to corporation tax, and could not be used as collateral for a loan. Businesses would be subject to an additional penny in the pound on corporation tax. This money, plus a penny in the pound from existing corporation tax revenue, would be used to buy the bonds in the name of the business being taxed. They would receive six-monthly interest payments, and the redemption value on maturity. The AUT says the scheme would raise about Pounds 1.8 billion a year.

FEES

One thing all parties dislike is any funding system that requires students to make direct up-front payments to universities.

Such fee-based models take two basic forms. One is the full free-market system under which institutions would be dependent for their income on fees, charging students for the whole cost of education. The other is the top-up model, under which institutions would continue to receive state funding, but would also impose an additional charge of their own. This might be applied either as a permanent mixed-economy approach to funding, or as a transition towards the full-cost model.

Top-up fees are rejected by all three parties, but have minority support among vice chancellors, some arguing that they would help free institutions from the state while others have been driven to desperation by the progressive attrition of public funding.

Fees would not require legislation. Universities have a legal right to set their own fees, which they use when charging for part-time and postgraduate courses. The debate now centres on whether undergraduate higher education can be free at the point of entry, and avoiding student debt and dependence on parental contributions.

The potential financial benefits, and costs to students, are hard to quantify. Universities contemplating top-up fees have been extremely wary about discussing details. But the levy discussed by the Committee of Vice Chancellors and Principals in 1996 would probably have been imposed at around Pounds 300 per new student, while more recent discussions have tended to point to Pounds 1,000 per student as the figure needed to plug the system's funding gap.

Full-cost fees, still a much less likely option, are easier to quantify. Asked how much he would have to charge if told that his institution would have to rely in future on fee income, Peter Knight, vice chancellor of the University of Central England, reckoned that around Pounds 5,000 per student per year would be needed, and that he would charge premium rates on some courses such as those at UCE's Conservatoire of Music to cross-subsidise others such as engineering.

Confronted with the same hypothetical question Mike Shattock, registrar of the University of Warwick, said he could not imagine charging full-cost home students fees any different from those already imposed on overseas students - either Pounds 6,210 or Pounds 7,905, varying according to the cost of the subject.

THE LEARNING BANK

Whether or not to create a Learning Bank as a means of policy is one of the key issues confronting the Dearing inquiry, which knows that Labour has already displayed a serious interest in the idea.

The precise form a Learning Bank would take has still to be defined. It would be created if the decision is taken to fund further and higher education via individual learning accounts. Payments could be made into accounts by the state, employers or individuals. Supporters of such a system argue that it would place resource allocation in the hands of students and allow them to plan their higher education as part of a commitment to lifelong learning.

A Learning Bank might subsume existing bodies such as the Student Loan Company and/or the funding councils. Its tasks would be to manage individual learning accounts, possibly in partnership with the financial services sector, to ensure the maintenance of quality, provision and fair access across the range of providers and to provide access to funds for capital programmes and research.

David Robertson, professor of education at Liverpool John Moores University and an adviser to the Dearing inquiry, says: "A system of ILAs, managed in partnership with the private sector through a Learning Bank, could be the most effective means of harnessing investment in lifelong learning to a fairer system of student and institutional funding. Individuals, employers and the state have a lot to gain from such a system."

Source: Office of Population, Census and Surveys

POTENTIAL REVENUE FROM PRIVATE SCHEMES

* Conversion of student maintenance into loans with income-related repayment scheme (Labour policy) Pounds 1.7 billion

* "Learning Bond" scheme (AUT proposal) Pounds 1.8 billion

* Tuition fee repayment scheme calculated at 20 per cent of unit of resource (Pounds 4,350) for 861,000 full-time home students: Pounds 750 million at 50 per cent: Pounds 1.875 billion at 100 per cent: Pounds 3.75 billion

POTENTIAL REVENUE FROM TAX AND EXCISE CHANGES

* Extra 1p on income tax (Lib Dem policy) Pounds 1.9 billion

* Top rate restored to pre-1989 rate of 60p Pounds 12 billion

* Personal allowances reduced to 23 per cent relief Pounds 1.5 billion

* Abolition of mortgage income tax relief scheme Pounds 3 billion

* Extra 1p on National Insurance Pounds 2.35 billion

* Removal of ceiling on Nation-al Insurance Pounds 3.5 billion

* Extra 1 per cent on VAT Pounds 2.8 billion

* Extra 1p on corporation tax Pounds 850 million

* 1p on pint of beer Pounds 125 million

* 5p on bottle of wine Pounds 40 million

* 5p on packet of cigarettes Pounds 185 million

* 1p on gallon of petrol Pounds 300 million

Source - Treasury Tax Ready Reckoner

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