Oxford University Gazette

University Funding and Fees: from the Vice-Chancellor

The Prime Minister, the Secretary of State for Education, and the Minister of State with responsibility for Higher Education have all acknowledged publicly over the last few weeks that the funding of Higher Education is in a critical condition. The Transparency Review demonstrated that under-funding stands at about £1bn annually. All publicly funded activities in teaching and research in universities are paid for at below cost. Different universities have different mixes of activity and so are affected in different ways by this situation. However, this is a problem throughout universities, not just in a few of them or in a particular part of the sector.

If I limit myself here to the issue of the public funding of teaching, the current situation is clearly the result of the long decline of the unit of resource (the amount paid per head of student) in the block T-grant to universities. This declined by 38 per cent between 1988 and 2000 after a previous decline of 20 per cent since the mid-70s. In the meantime, universities have increased the numbers of students and absorbed the contracting resource by efficiencies and reductions (including a slow-down in pay for academics and support staff relative to both the private and the public sector). In other words, productivity has increased.

In the area of teaching, as in others, the under-funding is now critical. At Oxford, our most recent return to the Transparency Review (2001) reports a verified shortfall of £23.3m for the publicly funded teaching costs that fall on the central University. The colleges also have to cross-subsidize the publicly funded teaching costs that fall to them.

If this situation is not remedied, what will be the consequence? The threat is to the capacity of universities to continue to provide a first-rate learning and teaching experience delivered by excellent academic staff and supported by a robust infrastructure of libraries and accommodation. The threat is, therefore, to the quality of the student experience.

This is true of all universities, although there is certainly diversity among them in mission and focus. At Oxford, for example, we offer a very challenging teaching model for the most intellectually able, based upon a favourable staff-student ratio. We believe in the necessary connection between research and teaching and we demand that those who teach are active to a high level in research. We believe in undertaking both undergraduate and postgraduate education. We believe in high-quality teaching and research across a very broad waterfront. Our benchmark is the first rank of North American universities. We must be able to continue to put excellent students and excellent academics together, attracted by the opportunity to work together and by the quality of the academic context.

The funding situation points towards the relegation of universities in the quite short term, by whatever benchmark its various parts measure themselves. It is not just a matter of the attraction and productive power of significant parts of the American system. One can look, for example, at the enormous medium term potential of major Chinese universities, fuelled by extraordinary public investment. The status quo is not an option.

What, then, is to be done?

We can look to making efficiencies and reducing expenditure. In Oxford, we have found and will continue to seek economies. However, there is a frontier between efficiency that produces more effective activity and enforced economy that damages the integrity and health of the institution's undertaking. The latter is hardly in the interests of the academics or the students. There are increasing cases of it around the university sector.

We can replace home students by overseas students, since overseas fees are fixed at a level which does cover the teaching costs. We might thus emulate LSE where over 60 per cent of the students come from outside the United Kingdom. There is a danger in over-reliance on a potentially unstable overseas supply, but that is manageable. However, this would not be in the interests of British students nor indeed of a university which, I judge, does wish to remain a great national as well as international university.

We can turn to the public purse for increased allocation to the sector. Let me say at once that I do believe that higher education is a public good and that therefore it should be supported by the public purse. At the same time, it is undeniably a private good in that it delivers measurable benefit to numbers of individuals, who might be expected as a body to pay themselves back over time from higher earnings, even if they retain only 60 per cent of those earnings. This relationship and the modalities for implementing the relationship are, of course, at the centre of the current debate. Also at the centre of that debate must lie four fundamental principles: substantial new funding must come into the sector as soon as possible—any delay will make the problem worse; universities must have the resources and freedom to attract and retain the best staff and students; there must be no financial barriers—perceived or actual—to deter students from higher education; and universities must be given long-term security of funding so that they can plan and budget effectively. It is against these crucial criteria that any proposals must be judged.

First, can we expect the public purse to pay more now? I think that the realistic answer is no. There are already too many legitimate claims for additional public expenditure in areas such as health, transport, and primary and secondary education in which all taxpayers have a direct and individual interest. Furthermore, the objective of extending higher education to 50 per cent of those between 18 and 30 by 2010 already presents an additional activity which will demand significant additional funding without addressing the issue of maintaining existing excellence within the sector generally (not just in parts of it).

Can we use the public purse as a means of cycling money from individuals through to universities, that is to say a graduate tax? There are attractions to a graduate tax. It appears to answer the questions surrounding student fee payments by deferring payment by individuals until they have adequate income to support it and calibrating payment to a level that indicates the real financial benefit of university education to each individual. However, there are serious disadvantages. The lead-time for realistic income from a graduate tax is long and therefore universities would essentially be asking for a direct increased allocation now against deferred income to the public purse. Moreover, a hypothecated tax has never remained over a long period directly connected to its object (see taxation for the roads). From the universities' point of view, there is no guarantee that the yield of the tax will pass directly through to them nor that the income will not be used as a substitute for the maintenance of other public funding and thus cease to be additional. Finally, one may expect taxpayer resistance once it is felt that the demand has become somehow unreasonable in relation to an increasingly distant cost. From a government's point of view, one hypothecated tax validates others. It therefore undermines the principle of general taxation and presages an impossible fragmentation of the tax regime. Nonetheless, a taxation procedure might form one element of a combined solution, if a formula consistent with the principles I have outlined could be found.

What about an extension of self-paying fees? From the point of view of universities, the advantage of fees is that they contribute towards an under-funded cost of delivery of education at the point of delivery. The central problem is whether an extension of fees will deter those capable of university study from aspiring to do so or actually prevent them from entering the university of their choice. In other words, if there are fees, how should one continue to protect access?

It must be said first that the figures bandied around the press (£10,000, £15,000, £20,000) are quite unrealistic. If there is to be an extension of self-paying fees, the assumption must be that the Funding Council will continue to pay the block T-grant at its current value. In that case, universities do not need those sums; students should not expect to pay them. Indeed, it is reasonable to expect there to be a cap on any extension of the self-paying fee level.

Second, this University has stated several times in recent years its attachment to the principle that no-one who has the talent and the appropriate qualifications to enter it shall be prevented from doing so by consideration of costs. There is no reason to suppose that Oxford would modify that position. It would undo all the work that we have put in to attract more candidates from a broad variety of backgrounds and the bursary scheme that the colleges and the University have introduced in that context. Indeed, it is clear that there must be financial aid in the form of bursaries or types of remission. How this is to be funded across universities needs careful exploration, but a part of it at least is likely to come from within the fee income itself.

If the question is that the mere existence of fees will deter people, then it is up to universities and the government to campaign for a better understanding. If the proposition is that universities ought to be free, then the conversation is difficult to engage. Parliament can decide that the public return on universities is such that the individual return can be ignored or deemed reflected in higher tax (though not all higher taxpayers are graduates and not all graduates are higher taxpayers or spend a significant part of their earning life as such). For England, Parliament has already taken a decision that there shall be individual contributions.

Indeed, provided that appropriate safeguards can be found, there is no reason for fees to be a substantial deterrent. The most difficult issue is to identify those people who cannot pay. This is complicated because it is not simply a matter of parental income but of a range of personal circumstances including the number of family members at university. It is certainly difficult to devise a sensitive sector-wide mechanism, but difficulty should not prevent addressing the issue.

In reality, there is a strong argument for saying that the rise of student debt derives from the abolition of student maintenance grants rather than from fees which, outside individual inaccuracies of assessment, do not by and large bear heavily on those unable to pay. It is clear that the White Paper needs to address the issue of student finance.

In sum, I do not think that it is right to dismiss an extension of student fees out of hand. It is wiser to explore how those who can afford to pay do so to a reasonable degree without damaging those who cannot. One can think of numbers of combinations, such as a premium of up-front payment against a more expensive option of deferred payment, or some form of time-limited charge on national insurance related to maintenance support, or other ideas that will occur to others. It is unrealistic not to explore the possibilities. It may be that nothing can be found that everyone will agree is entirely fair to all. However, we must find a way of putting the funding back into our universities that will ensure that in future student experience is of the quality that those students rightly deserve.

Colin Lucas

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