Why the Augar report on student funding is a step backwards

The Toyota Camry looks like a nice family car to buy, with 2019 models coming in at around £29,000.

Now anybody who knows me will realise that I have no interest in cars at all. But I’m thinking about this virtue-signalling hybrid because its price is approximately what it currently costs in fees for a three-year undergraduate degree.

Imagine if the government regulated the car industry in the way in which it regulates higher education.

There’d only be one price, so forget about driving your kids around in a cheap and cheerful Volkswagen Polo at £13,000 – or, for that matter, something more high-end, say the Mercedes AMG C63 Estate at £65,000 or so. You could get the standard state-approved car in different colours, perhaps, but they would all conform to a standard type.

You could buy one outright – but this would be regarded as a bit unfair as only rich people can afford to do this. Instead most of you would have to take out a loan from a monopoly supplier, a loan structured in a bizarre way to make successful people pay more, while eventually, after half a lifetime, cancelling the debt of less successful car-buyers.

This week, a panel led by a former banker called Philip Augar has effectively called for the price of cars to be slashed by nearly 20%. The government should compensate the car-producers for this, but in return it will have a bigger say in how cars are made. Meanwhile, despite the price cut, buyers will have their loan period extended. Interest rates will be changed: some will end up paying more over time, while others pay less. Poorer car-buyers will receive a petrol subsidy.

I don’t think I want to pursue this analogy much further, but I’m just drawing your attention to the very odd way we have of funding university education.

It’s certainly in need of reform.

However the proposals in Mr Augar’s report for the Prime Minister on student funding do not seem to me to be intellectually coherent. Perhaps it’s his brief. Mrs May seems to have been rattled by the Labour Party’s proposal to scrap all student fees. As a Conservative politician she aimed, perhaps over-optimistically, to win back some student votes. But as a Conservative Prime Minister she was aware that scrapping all fees would be hugely expensive. So we end up with a compromise.

The proposed reduction of fees to £7,500 a year will have no immediate impact on students, except for those lucky enough to be able to pay upfront. The proposal to re-badge student loans as the ‘Student Contribution System’ is a laughable attempt to relieve the psychological burden of student debt. I doubt very much whether one student vote will be won as a consequence. Perhaps the proposed partial return of the maintenance grant will be more popular, though this will be expensive, will have little effect on the already very high student participation rate, and will only benefit a minority of students.

The fee reduction will turn back the clock to make universities once more dependent on the whims of government for their funding. No doubt each new higher education minister (and how many have we had in the last decade?) will want to use this enhanced leverage to promote whatever new wheeze their SPADs can dream up. And vice-chancellors will have to pretend to believe in these ideas in order to access funding. Independent higher education initiatives will be stifled as universities follow orders.

These proposals come at just the wrong time, with a Conservative leadership race in full swing. It seems unlikely that any candidates will want to disavow them even if privately they have doubts. So we may end up with being lumbered with them.

Which means it is less likely that genuinely radical ideas about student funding will get a hearing. One such is Peter Ainsworth’s scheme to link graduates’ loan repayments directly to their university’s funding via an income-sharing contract. Students would not pay fees upfront, but would sign a contract giving the university a claim to a proportion of their future income. Universities which produced unemployable graduates would lose out. This would motivate them to choose candidates more carefully, to develop courses which employers value, and to offer continuing support to graduates in the early stages of their careers.

By contrast, the Augar proposals just seem same old, same old. Rather than a step into the future they are a step backwards – back to lower fees, back to direct government funding of teaching, back to old-style maintenance grants.

It’s as if car manufacturers were told to forget the developments of recent years and go back to the Reliant Robin.


Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

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