Though there was nothing in the budget itself, Wonkhe understands that higher education has not been forgotten as the government sets spending plans for the 2025-26 and beyond.
The coming month (indeed, it could be as soon as this week) will bring an announcement on tuition fees that will see caps rise by RPIX – returning fee limits to what was expected to be the normal real terms annual increases. While this is clearly good news for providers (though it merely halts the real terms drop in fee income rather than offers universities new spending power) it is unlikely to go down well politically.
This announcement is expected to be followed by a wider government strategy paper on post-16 education that could deliver other new policies on funding and finance as well as suggest the other areas of policy the government intends to review or take more immediate action on.
Why haven’t we seen fees rise by inflation so far?
On 11 January 2023 then-minister Robert Halfon announced the extension of a freeze in tuition fee caps to the 2023-24 and 2024-25 academic year.
This followed previous announcements extending back to the last time the fee cap rose, in 2017. Though it would be easy to see this as an active spending choice, the 2017 date coincides with the amendment of a key clause in the 2004 Higher Education Act (via measures in schedule two of the freshly minted 2017 Higher Education Research Act).
I’ve been in the weeds about this on previous occasions, but the upshot is that the minister lost the ability to increase fee caps to match inflation without a debate in both houses of parliament. This was a concession granted by then-minister Jo Johnson to opposition peers, who were greatly exercised about the ability of the minister to link fee rises to teaching excellence framework (TEF) results. While fee rises would clearly have been a very sensible idea, the government was not willing or able to take the matter to parliament for discussion.
(As a historical curiosity, I note that the (only, ever) 2017 fee cap rise was actually linked to TEF – the little known TEF1: which made an award based mostly on whether or not a provider had been reviewed by the QAA under the previous system of quality assurance.)
Where’s the money?
Student loan outlay comes from the Department for Education annual managed expenditure (AME – resource) – the nature of the beast means that it is impossible to predict amounts exactly as it is based on demand. For this reason it is difficult to read anything into the budget documents from the Treasury – we head instead for the Office for Budget Responsibility (OBR) forecasts.
As much as you may like to imagine Richard Hughes chewing on a pencil and coming up with convincing numbers, these are based on treasury and departmental submissions – ONS applies the various wider economic impacts of policy decisions to the data submitted by the government, which bakes in current and future policy. It’s from this that we got the baked in increase still standing from March 2024 forecasts, but obviously there’s been a change of government since then.
Table 6.9 in the aggregate detailed forecast tables offers a time series for gross cash spending on new student loans (the total amount of loans allocated). This is given as £21.2bn for England for the current financial year, and £22.1bn for 2025-26 – an 4.1 per cent increase. This is up slightly from the forecast made in November 2023, but only because gross cash spending in England was revised downwards by £0.3bn
When you consider that OBR RPIX projections are floating around 2 per cent for that period, this feels like a big increase in the size of the student loan pot (which, to be clear, contains all student loan outlay, not just tuition fees). There are various potential explanations we can discard straight away:
- The LLE outlay (fees and maintenance) now won’t start till 2027. I pity the poor DfE economist that has to forecast that!
- Demographic changes are not usually tracked by student numbers, but even if this is the assumption the rise is nothing like eleven per cent.
- This is student loan outlay – the gross cash paid out – so we can disregard any accounting effects (for instance or changes linked to fiscal rules.
This leaves us with two possible causes:
- A planned rise in one or more of existing student loan streams. By volume, this would most likely be undergraduate tuition fees and/or undergraduate maintenance loans.
- The introduction of a new, as yet unconsidered, student loan type – note that this would not include a grant as the line explicitly considers student loans.
Where’s the SI?
With no further announcements about fee freezes, we would expect fees to rise by inflation for 2025-26 unless we had been explicitly told otherwise. All it needs is at least one affirmative statutory instrument and a vote in both houses.
So how would a fee rise happen, and have there been any signs of it happening?
With HERA now in full force, schedule 2 s5 (2) applies to fee rises. This is a curious piece of drafting in that the text of the schedule suggests that an increase to fee caps “required to maintain the value of the amount in real terms” requires a bog-standard negative SI (can be annulled by both houses, in practice almost never is) – but this requirement is trumped by s119 (2) (i) of the main text of the bill, which requires an affirmative SI (“a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament”).
But what about the Lifelong Learning (Higher Education Fee Limit) Act, I hear you ask. Well, section 1 (which deals with the practice of setting the myriad by-credit fee limits) requires affirmative (both houses) SIs to do pretty much everything – but it hasn’t been enacted yet, so before we get those regulations we need yet another (negative) SI to be made.
As we now know the government shows signs proceeding with the lifelong learning entitlement (albeit delayed to 2027 entry) and defunding classroom based foundation years to the point that only the cheapest and nastiest are financially viable from 2025-26. An LL(HEFL) SI would be the easiest means of doing both of these things along with an inflationary rise across the board. However, the fact that DfE has not cracked on with commencing LL(HEFL) suggests that a final hurrah from the HERA process may also be on the cards.
Does PSNFL make a difference?
The shift to public sector net financial liabilities as means of setting government targets would appear to mean that the student loan book is “netted out” of considerations of national debt: spending on loan outlay is cancelled out by the value of the assets (the loan book) that have been purchased.
The OBR fiscal outlook clarifies (paragraph B19) that
Most financial assets are valued in the accounts at their market value or other methodologies that reflect the quality of the asset (such as at present value for student loans)
And present value for the student loan book includes a consideration of the amount of the loan that is not expected to be repaid (the RAB charge). Fans of the work of Andrew McGettigan will be delighted to note that OBR
explicitly estimate the probability of write offs and reduce the value of the loan book accordingly to minimise the potential illusion
So we are still in the post “fiscal illusion” world where we do have to consider repayment rates when contemplating the value of the loan book – and a high or rising non-repayment rate will have an impact on PSNFL as calculated by OBR, just as as it would on other measures of national debt. PSNFL is not an invitation to up the issuing of loans as a funding methodology in the expectation it stays off balance sheet.
