Tuition fees to hit PFI, say lenders

Private investors will shun deals with universities under the Private Finance Initiative because of fears that tuition fees will drive students away from higher education, potential lenders claimed this week, writes Phil Baty.

Peter Williams, deputy director of the Council of Mortgage Lenders, said it was ironic that government expected private cash to offset cuts in higher education's public funds, but that under the new funding arrangements the essential private finance would not be forthcoming.

"The government can't just turn the tap on and off," he said. "We need a stable long-term framework," he said.

Mr Williams's warning came as speculation mounted over future student numbers, after early signs from the Universities and Colleges Admissions Service that 1998 applications would fall as students rejected paying tuition fees.

David Wood, manager of business finance at the Nationwide Building Society, said the society was already reluctant to seek PFI deals in higher education because there was no stable income stream. But the tuition fees scare would make things worse.

"We're not interested in student numbers themselves," he said. "But we are concerned about overall levels of funding and, if the relationship between student numbers and funding remains, the impact of tuition fees will be important. There are already early signs students are being put off by fees."

A DFEEspokesperson said there was "no evidence" of new concerns from potential PFI funders in higher education. "The government is not expecting a fall in student numbers," she said.

Margaret Deacon, finance director of Brighton University and a PFI expert, said it was too early to say how the government's controversial new funding plans would damage PFI deals. "This will lead to more uncertainty, but until we see detailed proposals and see how parents and students react to tuition fees, it is very unclear."

A Higher Education Funding Council for England spokesperson said that universities had already planned PFIdeals worth Pounds 130 million. "There may be speculation, but we have got no evidence of the private sector cooling off."