Willetts proposes plan to enshrine £9K system

Former minister’s policy pamphlet outlines possible cost-saving approach

June 17, 2015

David Willetts has proposed a “substantial shift from maintenance grant to loans” for students, alongside steps to make graduates repay more of their loans.

The former universities and science minister outlines a potential approach for the current government to make savings in a policy pamphlet on higher education funding, launched today.

Current ministers will be seeking cuts to the higher education budget over the current Parliament. A switch from maintenance grant to loans is viewed as a potential target.

The pamphlet is Mr Willetts’ defence of the £9,000 fee system he helped introduce in 2012 – which he says delivered increased cash for universities at a time of austerity – and a vision for how it might be enshrined in the long term.

He criticises the “absurdities” of the debate around the government’s rising estimates of the portion of loans that will never be repaid by graduates, known as the Resource Accounting and Budgeting (RAB) charge – a move likely to be viewed with scepticism by his critics.

Mr Willetts proposes switching maintenance grant to loans, freezing the repayment threshold for graduates at £21,000 earnings for the current Parliament and basing estimates on the cost of student loans on a “more sensible” figure for how much it costs the government to raise the funds.

In the longer term, Mr Willetts proposes a system of five-yearly reviews, held at the start of each Parliament, to set the key figures on what graduates repay towards their loans.

He argues that these measures combined would “put an end to a sterile and confused debate” about the RAB charge, by showing that the current system is “flexible and sustainable”.

He adds: “The main threat to the system now is a mistaken belief that somehow it is unsustainable because of low forecast graduate repayments when these estimates are dependent on some very specific assumptions.”

The pamphlet, titled "Issues and ideas on higher education: Who benefits? Who pays?" is to be launched by Mr Willetts at an event at the Policy Institute at King’s College London, where he is a visiting professor.

The proposal for a freeze in the repayment threshold at £21,000 echoes this week’s report from the Student Funding Panel set up by Universities UK.

Mr Willetts suggests that “at the start of each Parliament the government should assess the latest evidence on the costs and benefits of education and set the key figures for the graduate contribution scheme. This could be done within government or by an outside panel of experts and interested parties or some combination.”

On steps for the current government, Mr Willetts says that “there is a case” for an increase in students’ “total maintenance support so they have more cash to live on. But within that there should be a substantial shift from maintenance grant to loans so that there is also a saving in public spending.”

He adds that the £9,000 fee “cannot be frozen indefinitely”. So “one can see the outlines of a deal in which it is agreed that it increases with the rate of inflation in return for universities agreeing to publish clearer accounts of where the money goes”, he continues.

Mr Willetts cites an Institute for Fiscal Studies report to say that freezing the repayment threshold “together with correcting the discount rate” (the figure for the cost of government borrowing used in calculating the RAB charge) would lower the RAB charge to “about 15 per cent”. The government’s most recent public estimate on the RAB charge is 45 per cent.


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