Tag: funding

The Winning Move Is Not To Play: Game theory and the Willetts funding model.

The opinions expressed within this blog post are my own, and not those of my employer, or of projects or programmes I am responsible for. This post is available under a Creative Commons Zero (public domain) license.

The very little I know about the application of game theory on educational policy I learnt from my inspirational former colleague, Professor David Turner at the University of Glamorgan. The bits that I have got wrong are, however, entirely my own fault.

During a speech at the Universities UK Spring Conference, David Willetts (UK Secretary of State for Universities) reiterated his warnings about the high potential cost to the taxpayer of universities electing to charge fees reflecting the full range of that which is permitted to them. It is now an open secret that the new funding model for universities is certain to cost the taxpayer more within this parliament, and is very likely never to cost any less than the current model. Bearing this in mind, Willetts has warned senior university staff that money may be taken from other university income streams (for instance the research budget) in order to be able to fund the additional loans that would be required to meet these fees.

Tough talk. But it unfortunately betrays an inability to understand his own policies around competition and an “open market”.

The table above outlines my analysis of the situation. The only chance that institutions have of even maintaining their existing funding is to charge above £7,500 and hope that enough of their competitors choose not to in order to avoid triggering the threatened cuts in research funding. Were the expected lower levels a revenue neutral (including inflation and additional costs incurred for the move to the new system) situation, it may be rational to broker a sector-wide compact (or cartel, if you prefer) to ensure that no-one steps over whatever line the government has drawn in the sand.

But the minimum (and even the implied “normal” maximum) mean that institutions would lose money as against the current system. When you combine this with the decade of incentives encouraging the sector to compete, we are very likely to see a rush to the top. Based on my analysis, above, this is the only rational choice for institutional managers looking to maintain or increase income.

This is a “non-zero-sum” game, as there is no way to maintain a position. Institutions will either win or lose – and a lower price than the rest of the sector means that they will lose heavily. The same goes for private institutions, incidentally. What motive have they got not to seek the maximum possible income?

I’ve said it before (many times), I’ll say it again. This model of university funding is unworkable.

You could make your own game theory analysis of the two models of HE. On one side you have the new model, where students, institutions and the tax-payer all lose out. On the other the current model, where they don’t.

February 25, 2011
HE Funding… another thread unravels.

The opinions expressed within this blog post are my own, and not those of my employer, or of projects or programmes I am responsible for. This post is available under a Creative Commons Zero (public domain) license.

So, as you do on a cold Thursday evening in February, there I was reading the HEFCE Model Financial Memorandum (as updated July 2010). And it struck me… with HEFCE funding becoming an increasingly rarefied component of institutional funding, how far can HEFCE actually mandate that institutions do stuff?

The main lever that they’ve had so far is the (partial) withdrawal of funding – they’ve also got the right to request changes in governance structures and personnel. And with these levers, they make institutions do some fairly interesting things. But what I spotted that did surprise me was that:

It is a condition of grant for an institution in receipt of HEFCE funding to subscribe to the Higher Education Statistics Agency (HESA)
It is a condition of grant for an institution in receipt of HEFCE funding to subscribe to the Quality Assurance Agency (QAA).

No-one ever mentions HESA, which is a shame as it is pretty awesome (and will be more so when they start getting in to releasing more open data). They collect information about the HE sector, which informs HEFCE funding and central planning. But it did merit a passing allocation of new work in the Browne Review, working with OFFA (another quango in a similarly interesting situation). Of course the QAA (who do a damn good job too) was enthusiastically (and implausibly, given that it is a UK wide organisation) mashed into HEFCE by Browne at that point.

Neither body is unduly expensive – the QAA costs the UK about £12m (£7m from funding councils – mainly HEFCE, £4m from institutions), HESA costs HEFCE around 200k (yes, really!) with institutional subscriptions and data purchase contributing the most of rest of the charitable body’s £4.3m annual income.

But the point is that both of these organisations are bodies with statutory responsibilities given to them by HEFCE – they are doing jobs that actually need to be done to run HE in the UK. They have to be paid somehow. But with decreasing HEFCE grants (many institutions losing more than 90% of their funding) it will become increasingly difficult to insist that universities and colleges subscribe as a condition of grant – they could just not take the grant, or ignore HEFCE and take the (proportionally tiny) cut. You could make it a condition of fee receipt, but I can’t see BIS insisting that these new private bodies subscribe to the QAA (or jump through any other hoops). And have “Student Finance England” really got the infrastructure or legal clout to do this?

Given that the overall level of funding coming in to HEFCE is dropping so substantially, it seems unlikely that HEFCE will be able to support the full costs of these bodies directly. Indeed this would mean top-slicing what remains of institutional grants, something unlikely to be politically popular.

How else can they be supported? BIS are currently doing everything they can not to end up spending more on HE support than they are currently – to the extent of threatening to cut research funding and student number allocation (wasn’t the whole point of Browne not to put limits on institutional growth?) if tuition fees tend too high (can they even do this legally?).

The limited appeal of the Browne model and Cable-Willetts adaptions comes only when you consider direct tuition costs as the only requirement of funding. The model ignores indirect costs such as infrastructure on a national and institutional level. Rather than engaging with the ongoing TRAC debate, Browne chose to ignore it and have all funding follow students directly and explicity, with the expectation that other costs would somehow sort themselves out. Already we are seeing discussions about students “paying” for £9,000 worth of services – how do you convince a student that using some of their fees to pay for the QAA, or HESA or another institutional subscription is worthwhile?

QAA and HESA are not going to disappear, they are too important. Other subscription-supported organisations may be in more trouble. But a new model of funding that appears to forget that any of these organisations need to be actually funded in order to do any good is a worrying development.

February 18, 2011
Declawing OFFA

The opinions expressed within this blog post are my own, and not those of my employer, or of projects or programmes I am responsible for. This post is available under a Creative Commons Zero (public domain) license.

Today sees the much trailed publication of the “guidance letter” to the Office of Fair Access regarding institutional access agreements and the right to charge amounts above the basic level of fees. In this post I am comparing this new guidance to the initial guidance offered in October 2004. I’m ignoring the draft letter of last year, and David Lammy’s letter of 2009.

Many ministers, in particular David Willets, have previously described the process of getting agreement for higher fees as becoming more arduous, with the expectation that the full £9,000 fee will be charged only in exceptional circumstances. In his ministerial statement, today, he says:

“The guidance to the Director sets out significantly increased expectations for the priority that institutions should be giving to fair access and widening participation, focusing more sharply on the outcomes of outreach and other activities, and less on the inputs and processes. In particular the government believes that progress over the last few years in securing fair access to the most selective universities has been inadequate, and that much more determined action now needs to be taken“

(If you love irony, here he is talking about this document the morning before it was released)

It is important to remember that the acceptance of an Access Agreement is, and always has been, analogue not digital. By this I mean that either an institution has an approved agreement and can charge up to the higher level of fees (soon to be £9,000), or it does not and can charge only the basic amount (£6,000). There is no middle ground where an institution can only charge up to £7,500 for a less impressive agreement. It’s all or nothing.

So how are OFFA to keep fees away from the maximum?

(para 1.7, 2011) “We have consistently said that we believe graduate contributions of £9,000 should apply only in exceptional circumstances. Institutions would need to charge considerably less than this to offset reductions in HEFCE funding, and higher charges impose higher costs for the public purse because of generous subsidies in the loan system. […] It is of course not within your legal powers to impose any quota for how many institutions charge what level of graduate contribution […] But if the sector as a whole appear to be clustering their charges at the upper end of what is legally possible […] we will have to reconsider what powers are available, including changes to legislation, to ensure there is a differentiation in charges. We intend to keep this under very close review for 2012/13.”

That’s it. If every institution (as they do currently) successfully has their access agreement approved, there is no way they can be prevented from charging the maximum fee level. And the government has said nothing beyond keeping things under review. This is shameful.

(incidentally – institutions would need to charge about £8,000 to replicate their governmental income with respect to student tuition. This includes the current HEFCE grant and current fees. Lovely little slight of hand there.)

So given this, you would expect a substantially beefier set of requirements for access agreement approval.

The 2004 letter handily offers a set of minimum requirements for an access agreement:

(para 5.1, 2004)

The 2011 letter explicitly does not:

(para 5.1, 2011)

“Judgements on the details of these requirements in individual circumstances are for you to make as Director of Fair Access. At this stage, and in accordance with current arrangements, we are not proposing any minimum requirement in this area”

(in accordance with current arrangements they say… hmmm….)

Okay, so maybe it’s all about the big stick. Surely this new guidance will beef up the sanctions that OFFA can make for institutions that don’t play by the rules (whatever the rules turn out to be). From a 2004 starting point:

So, we’ve got a refusal to renew (which would mean that they couldn’t, legally, charge higher fees without some comeback), suspension of the relevant part of the main HEFCE grant, and a small punative fine. For a beefed up measure you would want to maybe look at degree awarding power suspension rather than grant suspension (especially given the grant cut) and a larger fine. You’d also expect that there would be something in the 2011 letter to cover institutions no longer in receipt (or never in receipt) of HEFCE grants.

But instead:

(2011, para 7.1) “The major sanction available to you is not to approve or renew an Access Agreement, when it is reviewed each year. This would remove the institution’s right to charge its students above the basic level. You also have available to you sanctions should an institution breach or fail to deliver its access agreement, viz:

to impose a fine (via the funding body) of a maximum of £500,000

to require restitution if students have been disadvantaged or commitments have not been honoured.”

At best, this is the same deal as currently – except that they seemingly no longer have the option to reduce a grant from HEFCE. And the non-approval of an Access Agreement… how would this affect a HE degree-awarding institution that is not in receipt of HEFCE funding, for example an entirely private institution, or an arts college? Such a situation has not been considered in this document, surprisingly as this was one of the hopes around the expansion of the availability of degree awarding powers.

And has the maximum fine been adjusted for inflation since 2004 – no it has not.

You’ve probably guessed by now that this isn’t the document we were hoping for, and it isn’t the document we were promised. But it is worse than that – this document has actually taken away the minimum access standards set out in 2004, and has not updated the sanctions available to OFFA to suit a new model of Higher Education funding.

Questions should be asked.

This is not a document about widening access, it is a document about cutting state funding for Higher Education. And it doesn’t even do that very well.

February 10, 2011
How to read a funding council grant letter (and how to constrain government financial exposure)

This post represents my personal opinions, and not those of current or former employers, projects, or programmes I am or have been responsible for. This post is available under a CC-BY-SA license.

“There will, of course, be an overriding need to manage within public expenditure constraints, given that the student finance regime will continue to be subsidised from public funds. This will require developing a new approach to constraining Government financial exposure at the sector level, without restricting student choice of institutions. Lord Browne offered one imaginative solution; we are considering other possibilities and will say more in the White Paper. Meanwhile, we would welcome the Council’s active engagement and ideas for how our policy goal can be achieved in 2012/13 and beyond.”

(Paragraph 16, Grant Letter from BIS to HEFCE, December 2010)

When I first went to work at HEFCE in 2003, my Dad sent me an amazing present: The Complete “Yes, Minister”. I still would (and do) recommend this to anyone working in policy in whatever field or whatever level.

Many of you will have spotted why I thought of Yes Minister when reading the above paragraph of the recent HEFCE grant letter, and may be wondering precisely how far Lord Browne’s stock must have sunk to have an idea described as “imaginative” in a public document! At least they didn’t say “courageous”…

Anyway, for both Sir Humphrey and HEFCE, all the power is in the drafting. I don’t think anyone outside the organisation appreciates quite how much drafting goes on; but in order to understand any of what is published it is vitally important that you understand what isn’t. Something like a funding circular will have at least 10 drafts behind it before it sees the light of day, if you are looking at a policy document, at the very least double that. It’s a very “old school” civil service way of working, and it leads to very strange documents indeed.

I’m increasingly beginning to believe that such documents are not written to be read; rather, they are written to have been written. When you read a HEFCE document, the sound of the words in your head is not important. Imagine it instead as a series of quotes in a news item.

“HEFCE have said that…”

“HEFCE maintain that…”

“HEFCE are in favour of…”

and so on. Thought of like this, every word and phrase count because they can all be used in a variety of contexts. Like an x factor finalist, HEFCE are almost touchingly aware of their own media profile. The individual words and phrases in a funding council document are far more important than the overall sense of the document.

So why am I writing about HEFCE documents in a post about a letter they got from BIS? Well, it’s a pretty open secret that HEFCE will have seen this document a long time before any of us did. They’ve been involved in the drafting of the letter for weeks, if not months. So every word, every phrase, every inference of the letter is in there very, very deliberately. And some of the odder things may be evidence of discussion and compromise between BIS and HEFCE.

Let’s take an example, from paragraph 16, note “we are considering other possibilities and will say more in the White Paper. Meanwhile, we would welcome the Council’s active engagement […]” and compare:

paragraph 3: “We will set out our overall thinking and plans for HE in more detail in a White Paper, and will value your advice in preparing it.”

paragraph 18 “We will say more in the White Paper about our priorities for targeted funding and would welcome the Council’s advice“

At first glance, these three quotes seem to be saying the same thing. BIS are writing a White Paper, they would like HEFCE’s input. But if you look deeper, there is more in there.

Paragraphs 3 and 18 use the “we will say more in the White Paper” construction. This implies that HEFCE will be told more about the governments plans for those particular areas of policy in the White Paper, and that in the meantime they will be asked for advice when needed. Given that we are expecting a White Paper in January you would hope that BIS have already sought all or most of the advice they need from HEFCE by this point. But the words are important – BIS are actively “setting out their thinking”, HEFCE are passively giving “advice”.

In paragraph 16 both participants are actively engaged, HEFCE emphatically so! This is the paragraph regarding how to constrain the overall government cash exposure to a market-based system. Clearly, BIS are much keener to get advice here, quite possibly because they haven’t got a clue how they are going to do it. So, this particular hot potato has landed in HEFCE’s court, as Jim Hacker may have said.

But Government departments don’t ask quangos for advice unless they are pretty sure what they want to hear. What other clues are in paragraph 16?

“There will, of course, be an overriding need to manage within public expenditure constraints, given that the student finance regime will continue to be subsidised from public funds. This will require developing a new approach to constraining Government financial exposure at the sector level, without restricting student choice of institutions”

Notice what is not being said here: student numbers. The government can’t afford to be seen to be calling for constraints on student numbers – the whole idea of the market system is to let the market decide the size and shape of the sector. So we get the euphemistic “constraining Government financial exposure”, with a little extra tag on the end making sure we know that this isn’t restricting student choice (I’ll come back to “of institutions” presently).

There would only really be one way of doing this… setting an upper limit to the total government cash commitment to HE, and bringing in some kind of a system to keep spending under this cap.

Here’s one way of constructing such a system (which won’t work): allocate funding to institutions in respect of students sequentially from the cheapest to the most expensive, firstly for “core” numbers (based on current intake) and then for “additional” numbers (new intake)

So if you charge lower fees you are more likely to get all the students that you want to enroll, if you have more expensive courses may be subject to not getting all of the students they’d like. The positive side effect of this is that it would drive prices down, the negative would be the perception that the most able students (applying to “the best”/most expensive) universities) would be less likely to get places than students with less good A-level grades. It’s pretty rough, but you could sort it out into something tidier fairly easily, maybe adding regional or subject elements.

[I’ll work this out further in future blog posts if anyone would be interested. If HEFCE are interested, I’ll work this out in a research report for £50,000 :-)]

But “of institutions” is the killer – one of the most out-of-place aspects of the Browne Report was the idea that no institution should go out of business… even though everything else in the report seems designed to make exactly this happen. HEFCE even got the promise of a small budget to prevent this from happening (“The Council will have powers to provide targeted funding to prevent institutional failure from taking place“, Browne, p47) which greatly upset the poor darlings as they felt they were doing an excellent job of this anyway (they are, as it happens). So HEFCE, is here, for the first time, instructed to work against the effects of the shiny new market – not to support wider subject choice, or a choice of mode of delivery, but to protect actual institutions.

At least some heartening news for an increasingly bleak midwinder.

[This is my last post this year, I’d like to end by saying thanks all for reading, commenting, retweeting and disagreeing, so:

“I wonder if I might crave your momentary indulgence in order to discharge a by no means disagreeable obligation which has, over the years, become more or less established practice in government service as we approach the terminal period of the year — calendar, of course, not financial — in fact, not to put too fine a point on it, Week Fifty-One — and submit to you, with all appropriate deference, for your consideration at a convenient juncture, a sincere and sanguine expectation — indeed confidence — indeed one might go so far as to say hope — that the aforementioned period may be, at the end of the day, when all relevant factors have been taken into consideration, susceptible to being deemed to be such as to merit a final verdict of having been by no means unsatisfactory in its overall outcome and, in the final analysis, to give grounds for being judged, on mature reflection, to have been conducive to generating a degree of gratification which will be seen in retrospect to have been significantly higher than the general average.”

Thanks, Sir Humphrey]

December 21, 2010
My favourite part of the HEFCE teaching funding method, and how screwed we are if we lose it

This post represents my personal opinions only, and not those of my employer, or of programmes or projects I am responsible for. It is made available under a CC0 (Public Domain) license.

The current HEFCE funding model has a number of quite marvellous features which I would be happy to expound upon at great length, but my personal favourite must be the “tolerance band”.

This is technically defined as an allowance for the difference between the standard resource (the funding available for the number of students enrolled on particular courses that the institution has indicated to HEFCE each year) and the assumed resource (which is the funding available for the students that have actually enrolled on particular courses each year). Because HEFCE is wise and noble it allows a 5% difference either way between these amounts before it starts either clawing back funds or reducing student numbers for the following year.

This 10% band of tolerance is the thing that keeps institutions stable. It allows for fluctuations in student numbers, and permits an institution to receive an expected amount of funding every year, allowing for an accurate budget and long term planning.

Under the new funding model, the majority of the financial support (80%+) that used to come from HEFCE will come from a new organisation, Student Finance. This allocates funds based directly on student choice, and – crucially – does not include a compensatory function. So the stability of funding levels, year-on-year, is lost.

The graph above shows what would happen if the fluctuations in student number are uncompensated, assuming the rate of fluctuation linked to student choice remains similar to what we see currently. Already, you can see that a reliable level of funding is not possible, and that an institution must take a lower level of funding as it’s basis for budgeting.

But, of course, other factors come in to play in a purer market, the most significant of these being the enhanced importance of marketing and communications for institutions. Though marketing can offer great recruitment gains if done well, it must be remembered that there are multiple actors in the market, all of which will be engineering their own enhancements. You could imagine one-year-only cut-price deals, collusion and horse-trading, marketing “blitzes” on priority areas. (There’s a whole other post coming on how cool it is going to be to work in university marketing over the next few years.)

So something with much higher peaks and deeper troughs would be expected, meaning that the “base” level of institutional resource is substantially lower, and that the institution must be capable of quickly scaling particular courses substantially up or down depending on recruitment.

This is a similar scenario to seasonal changes for demand in manufacturing, and manufacturing companies have responded to these pressures in one main way.

The casualisation of labour.

Rather than keep enough staff permanently on their books to meet peak demand, it is more likely that a factory would keep only the staff that they would need for periods of low demand, and draw on a pool of casualised (short-term contract, hourly pay, semi-skilled or unskilled) labour to cope with peaks.

Universities are already starting to do the same thing. Staff on “atypical contracts” (a lovely HESA euphemism) already make up more than a third of university staff – and return accuracy for this category of staff is notably poor – it is likely to be far, far higher.

The new model of funding only makes this situation for staff more likely. It may be that the age of the “career academic”, of tenure and of teaching plus research contracts is dead.

It is possible that this is simply an unintended consequence of a policy that has been notoriously poorly conceived and understood. But (and I am moving into tin foil hat territory here) we have already seen how the new model costs the taxpayer more than it saves, adds a significant extra burden to students, and (at best) offers institutions a similar amount of funding to what they get currently. So what is it for?

Is it this? A straight-ahead attack on the academic profession? A new world of casual, teaching-only, HE tutors, juggling multiple short-term contracts just to stay afloat? I dunno. But if it quacks like a duck…

December 16, 2010
An open letter to David Cameron.

The views expressed below are either my own, or exaggerated for the purpose of my argument. They are not the views of my employer, or of any projects or programmes I have responsibility for. This text is available under a CC0 (Public Domain) license.

>Dear David,

You may wonder why I’m writing to you, why I’m not bothering Nick Clegg like every other student and academic in the country seems to be. Surely I don’t think I can appeal to your better nature, or sense of social justice?

Well the thing is, I can kind of understand where you are coming from. Primarily, you want to save money to reduce the deficit. It’s likely you also want to bribe the vice-chancellors of famous universities to take the fee increase and not care about anything else, and let the private sector compete directly with publicly funded provision. You pretty obviously couldn’t care less about lecturers or students – I comprehend that position, even though I (obviously) disagree with you.

>With Nick – bless him and his little hangdog face and the dead eyes – I don’t know what he wants, other than (apparently) to lose his seat in 2015. So I can’t make a cogent argument to him and have any idea of how he’ll respond to it. He’s not making any sense at the moment, so I can’t use sense to argue with him.

Anyway, David, this reform of the funding of Higher Education thing. You’ve always been keen to link it to deficit and debt reduction. On 11 November 2010, in China, you said (during an interview on student fees where you condemned students doing to CCHQ what the Bullingdon Club have done to countless Oxfordshire restaurants):

“I think the will of the public was expressed at the time of the election when they rejected debt and deficit and putting off these difficult decisions under Labour, and they chose a new approach and we’ve got to be true to that and stick to that“

I want to hold you to that promise. To work to reduce the deficit. I’d like you to comment on my new proposal for higher education funding that will save you at least £5bn within this parliament on what you are currently proposing. Remembering the commitment of your Chancellor to “eliminate the bulk of the structural current budget deficit over a parliament” (24 Feb 2010).

The proposal is this: leave things exactly how they are. Don’t change anything.

And that’s at least an extra £5bn in the coffers, helping you hit your deficit target. It also has the pleasing side effects of keeping students and academic staff happy, making the university sector more sustainable, offering them fiancial stability and ending nearly a month of civil unrest. But forget about all that hoodie-hugging liberal stuff (you already have? excellent.) – it saves the country money. Keep hold of that idea.

You’ve linked the new proposals to the deficit so often you may be in danger of starting to believe your own spin. But in retreating from your policy you would be following the advice of the independent Office for Budgetary Responsibility, who note:

“For the November forecast the OBR has scrutinised and certified estimates of the additional loans [the loans in respect of increased student fees] that have been produced by the Department for Business, Innovation and Skills (BIS) for England. As the table shows, the impact on the CGNCR [Central Government Net Cash Requirement] is estimated to reach £5.6 billion by 2015-16, cumulatively adding £13 billion to PSND [Public Sector Net Debt] over the forecast period.” (pp123-124, in “Box 4.3”)

The Higher Education Policy Institute (HEPI) agree that:

“We do not need any sophisticated modeling to work out that in cash terms, the proposals will increase public expenditure through this Parliament and into the next.” (para 11)

And the Institute of Fiscal Studies add, using your own assumptions and figures, that:

“The main loser of the Government’s proposed system is the taxpayer: the reduction in maintenance grants is more than outweighed by the cost of not imposing a levy. At higher fee levels, this becomes an increasingly important factor: if all universities charged £9,000 a year, we calculate that total the taxpayer burden of higher education would only be slightly lower than it is at the moment (by around £770 per graduate)” (November 2010 IFS Observation)

HEPI sound a note of caution regarding the assumptions used by BIS (and the OBR and the IFS) around future graduate income. Apparently, in trying to balance the proposal you have decided (there really is no other word) that:

“the average graduate earning for men is assumed to increase to £99,500 pa (in real terms, at 2016 prices) by the end of the repayment period” (para 13)

This is clearly nonsense. That’s more than an MP earns. It’s more than you got as Leader of the Opposition.

Turning to the question of whether this new funding model will save any money at all, HEPI (after a great deal of analysis) conclude:

“So the answer to the question, “will the proposals decrease the public contribution to HE” is, “it’s too close to call, but they could actually easily lead to a small increase in the public contribution” (para 15)

Not only will the current proposals not save any money when you need it (this parliament), it is very likely that they will never save any money at all. And, before you start with that “playing the man not the ball” stuff you usually do in that charming Eton-and-Oxford way, HEPI are unimpeachably neutral, and probably know more about English HE funding than anyone outside of HEFCE.

So David – my message to you is this: Ditch the proposals and cut the deficit, or go with your ideology and drive the UK deeper in to debt.

I hope you’ll make the difficult decision that the country needs at this time of crisis. I await your response with interest.

Best wishes

David

P.S: I have drawn some elements of this mail from Andrew Harding’s post at LeftFootForward. You can follow Andrew on Twitter @2me2you2me