Wednesday, October 13, 2010

The university as a revenue stream

There has been much said over Lord Browne's recent report and I will certainly say much more about it in the days and weeks ahead. One interesting aspect is that --- while it recommends that the cap on tuition fees should be lifted --- the report also recommends that universities which charge more than £6,000 should pay a certain percentage of this extra income back to the Treasury. This tariff rises to more than 50% for any fees set at £12,000.

There is something striking about this. In the past, British universities were in receipt of public subsidy and most income was normally received via a teaching grant directly from the state. Universities were a product of subsidy.

Now the recommendation is that public subsidies are to be cut dramatically --- some fear the teaching grant may be cut by 75% or even more --- with a university's income primarily sourced from student fees. There is a further twist. Several university heads are on record suggesting that their institutions may charge fees of £7,000-8,000 and only to stand still. If universities must charge such amounts, then universities will find themselves not only losing a significant income stream due to the likely cut in teaching grants but also paying a not insignificant amount of their new, primary income stream in what is essentially a tax on university fees. The fact that universities are very likely to charge fees because of the Government cuts that are within the threshold whereby a tariff is charged ensures that universities are no longer a product of subsidy. Now universities are a product of income for the Treasury.

This is quite a shift. Which do we want? One choice is the old programme of universities as a largely subsidized institution. The new choice is of universities as a revenue stream. While we may have reasons to abandon the former, it is far from clear that the latter is more preferable. Not only students will pay more in fees -- perhaps paying more in one year's fees as they might now over three years -- but students will pay more (indirectly) in tax at those universities charging £7,000 or more.

The Government tells us the Browne Report is fair and progressive. What is "progressive" about charging students a significant sum in what is essentially an extra tax? Let us hope this policy is changed swiftly.

APPENDIX: The levy for fees £1,000 or more above £6,000 in student university fees works as follows:

£6,000 = no levy
£7,000 = 40%
£8,000 = 45%
£9,000 = 50%
£10,000 = 55%
£11,000 = 65%
£12,000 = 75%

What will this mean in practice? Well, the Daily Telegraph estimates that fees of £10,000 (tariff 55%) will entail £8,100 going to the university (and, thus, £1,900 to the Treasury). Fees of £11,000 (tariff of 65%) will entail £8,470 of £11,000 going to the university (and, thus, £2,530 to the Treasury). Fees of £12,000 (tariff 75%) will entail £8,760 to the university (and, thus, £3,240 to the Treasury).

This post has been revised.

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