Undergraduate tuition fees, then, are to rise with inflation – according to Steve Swinford and Nicola Woolcock in The Times.
We are looking, apparently, at a 13.5 per cent rise over the next five years: at which point the fee for a full time undergraduate year will stand at £10,500. This is a live conversation, with a decision likely to dovetail with Treasury thinking ahead of April’s spending review.
To be clear this is all based on your traditional “Whitehall source” – who also hints at the return of some form of maintenance grants to help students who can least afford the practical day-to-day costs of studying.
A policy change?
Back in June Kate Ogden and Ben Waltmann spelled out some of the options available to an incoming government on higher education finance. The report makes it very clear that a fee cap of £10,500 by 2029-30 was, in fact, existing government policy. After a fashion.
The Conservative administration froze the fee cap through to 2024-25, and as we went into the election we had no idea what arrangements would look like for 2025-26. We still don’t.
Despite being expected by absolutely nobody, the default was a return to what is set out in the Higher Education and Research Act, Schedule 2. By default, the Secretary of State has the ability to increase the “higher amount” (what is, in the most part, the default level of tuition fees in the popular imagination) in order to maintain its value in real terms – going above that we need an affirmative statutory instrument (secondary legislation approved by both House of Parliament).
The IFS default projection was that this would happen (and that RPIX would be 2.1 per cent), taking the fee cap to £9,450 for 2025-26 and onwards to £10,500 by 2029-30. In messy reality, and as is well known in the sector, the fee cap has risen with inflation a grand total of once (to £9,250 in 2017-18) under these powers – reinstating the increase that was the original intention of HERA would honestly feel like a policy change.
The politics and economics of tuition fees
The language of “tuition fees” suggests that these are an individual fee charged in order to pay for university tuition. It’s a simple concept, but one that almost entirely fails to capture the complexities of the funding system. Fees are charged by the government, not universities. Fees are payable via an income-contingent loan capped in terms of total amount, and beyond the term of the loan the cost is forgiven. And tuition fees do not, in the majority of mainstream universities, cover the cost of tuition.
However the headline fee cap, sometimes described as the “sticker price”, has a great deal more salience among the public than the terms of the loan – which have recently been altered to the severe detriment of all but the richest graduates, cutting the cost of the system to government dramatically, all while using language that suggested that the changes would benefit struggling students.
So this return to a pattern set out in legislation back in 2017 will be perceived as an attack on young people, and cited as evidence that students are being asked to carry the can for whatever you happen to enjoy believing the reason the government doesn’t have any money and universities are struggling is.
In reality, repayments for graduates earning over the threshold remain at 9 per cent of salary, interest continues to accrue based on RPIX, and the remainder left unpaid after 40 years is written off. Only the best paid graduates will end up paying more if fees rise.
Moral hazard
You’ll have heard it said that 40 per cent of universities are facing a deficit this coming financial year. Broadly speaking, this is due to the costs of doing business rising with or above inflation: against income either failing to rise with inflation (home fees), set at levels that do not cover costs (home fees, much research income), curtailed by government policy interventions (international fee income), or subject to the same uncertainty and precarity as the rest of the economy (other commercial income).
Sixty per cent of universities, however, are not facing a deficit. Some are doing very well indeed. These tend to be providers with historic financial strength (including, in some cases, bequests and land ownership going back to the middle ages), large enough (and with the ability to grow as required) to access economies of scale, and prestigious enough to charge higher fees to postgraduate and international students – or to reclaim more of the full economic costs of research.
The majority of state funding currently goes to these universities. The majority of additional government spending in the form of these potential home undergraduate fee increases will go to these universities. Indeed, these universities have spent the majority of the 2024 UCAS cycle hoovering up all the home students they are able to, much to the detriment of other providers elsewhere.
Local risks
One of the most compelling arguments for the government to intervene in university finances is the potential local impact of a provider becoming insolvent. There are many parts of the UK where the local university is a major local employer, a major source of skills and cultural capital for local residents, and a key component of future (devolved) skills planning.
Longer term, providers like this see more of the tuition fee loans offered to their students written off by the government. In the main, this is because graduates live and work local to the university, often in very deprived areas where salaries tend to be low. So a rise in fees would be progressive in the long term, but regressive in the short term, if we are thinking about government investment in providers.
Let’s be clear. Parts of the sector are struggling existentially, any injection of funding can only be good for the nation (if you happen to think having a world class skills and innovation infrastructure is good for the nation). And sometimes pragmatism and speed win out.
But the contours of a fee rise under HERA powers, and the impact this will have, are a glimpse of a wider debate about the purpose and funding of higher education that we probably need to have long before fees reach £10,500 in 2024
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