Hey, Hey #6k (what does that get you today?)

Though we saw a decent amount of detail from the Labour policy announcement, which was – to the surprise of many – fully costed, there are still a number of loose ends that need to be tied up. The “zero based review” provided a decent summary of the already well-documented failings of the up to 9k fees model (and mentions RAB! hurrah!). What I’d love to have seen was a similar level of detail on the workings of the proposed new plan.

For those of you who haven’t been glued to Wonkhe’s superb live coverage the guts of the policy go something like this:

• Maximum fees, per year, that can charged by universities would be £6k – down from £9k
• Maintenance grants would rise by £400, so for students from families earning less than £25k this will go from about £3,400 now to £3,800. (This only applies to lower and middle income families, which are those eligible for grants anyway I think.)
• Loan repayments would be at a higher interest rate (4%) for graduates earning more than £41k/year. (otherwise at 3%)
• Plan is fully funded, so the £2.7bn drop in university funding from fee reductions is matched by £2.7bn raised by ending higher-rate tax relief on pensions.
• And all this is “cast iron”, non-negotiable in the event of a coalition, red line in the sand going to happen if Labour are in power.

Labour offer a short summary, and Emily Lupton at Wonhke expands on this.

This is all well and good. Actually, it is better than that: it’s a decent piece of public policy making – it’s costed, it’s based on real needs, it is revenue-neutral for universities and it makes sense long term for government finances.

But I’d be handing back my wonk-card in disgrace if I hadn’t spotted some issues that need to be addressed.

1. OFFA – currently universities are allowed to charge up to £6k/year in fees, unless they have a plan approved by OFFA which would allow the maximum to go up to £9k. (currently all English public universities have a plan approved by OFFA). With a reduction of this total price from £9k to £6k – would the non-OFFA approved limit be £3k fees charged to students? Or would the OFFA approval apply to the directly public-funded component of university funding? Which leads us to…

2. HEFCE – When funds are given by HEFCE they  apply their “financial memorandum” (from last year replaced by the “memorandum of assurance and accountability” which links to the register of providers and makes up for the regulatory wasteland that is the bequest of our current government) to it – which commits the receiving institutions to doing certain things (data returns, subscription payments…) if they want to have the money.

If the £2.7bn of direct public funding that replaces the lost fee income goes through HEFCE, this gives HEFCE a lot more power over what institutions do. Which is popular with people who like to see accountable spending of public funds, but would be less popular with people who run universities.

The VC-friendly option would be to use this £2.7bn to replace the borrowing that the government does on behalf of the Student Finance (England) in order that it can pay what has been loaned to students to institutions. So the Student Finance (England) would still pay £9k (ish) a year per students to institutions directly (as now), but with a chunk of this coming from tax income rather than borrowing.

Student Finance (England) don’t attach a financial memorandum to their payments to institutions, so the (less powerful) interim list-based arrangement would still suffice. Unless anyone in the next coalition manages to sort the HE Bill out and get it through parliament, something that David Willetts didn’t manage to do.

3. Martin Lewis – TV’s “Money Saving Expert” (TM)  still reckons that this is a regressive policy as it is only the best paid graduates that get the benefit of paying £6k rather than £9k – everyone else defaults when the cut-off point comes in. He’s *so* Money Supermarket.

Thing is – we all get the benefit because less people default and more people pay back their loans (this also makes them easier to sell…). And the extra interest rate for higher-earning graduates means that they pay back more money that they didn’t borrow.

[EDIT 28/02/15] The IFS briefing is interesting here too – especially given that the supposedly non-progressive nature (higher earning graduates benefiting the most) of the policy has been the main attack line from other parties.

But what is missing from the IFS calculation is the fact that higher earning graduates will be paying more tax (perhaps including Labour’s proposed 50p tax band, and most likely being affected by the end of higher-rate tax relief on pensions.) The actuarial modelling required here will go far beyond my capacity to come up with a sensible answer, but it is very likely that higher-earning graduates will be contributing more to HE funding through general taxation.]

4. Student number controls will there be any? We don’t know yet. If funding flows through HEFCE then this would be likely (HEFCE has number controls on the small amount of supplementary funding it currently controls).

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I’m sure more will emerge as more detail does,  but those are the big questions for me.