ALISON WOLF In the past 20 years, Britain has stumbled into a system of mass higher education. It is enrolling larger percentages of young people than most other comparable countries without having thought clearly about how the new system should be structured or what its purpose is. The economic advantages are disputed and with an overwhelmingly middle-class student body the social mobility effects are, at best, unclear. Moreover, on the one hand, a mass system is said to be incompatible with having world-class universities and, on the other hand, it also seems to be an obstacle to developing the vocational and technical education that a lot of people, including business, want. There is no disagreement, however, that the system needs more money. Public funding per student has halved since 1980, and academic salaries have fallen sharply. Total UK public spending on tertiary education (1.1 per cent of GDP) is now well below the OECD average and less than half the US level. The big political question is: who pays for the continued expansion? In the past few months, there has been a shift towards the idea that students, who benefit from the higher incomes and better jobs that go with a degree, should pay more of the costs (the wealthiest 40 per cent now pay ?1,100 a year in England and Wales). But there are big differences on how they should pay-variable "top-up" fees, uniform fees, a graduate tax or hybrids, such as the Scottish system-and on how much money should continue to come from general taxation. What do you think?
NICHOLAS BARR How do we get more money? I think it should come from tuition fees. There is a lot of confusion over top-up fees because they throw up two questions, not one. First, should fees be the same for all universities, or should they be different? My answer is that they should be different. Second, should those fees be paid up front, or should they be deferred? My answer is that they should be deferred, which means higher education is free at the point of use but students pay their tuition fees through an income-related repayment. This is the Scottish trick. They haven't abolished fees, as they claim, they have abolished up-front fees-most students still have to pay ?2,000 per degree course, which they pay back after graduation, as they do with their maintenance allowance loans. Repayment-as in the rest of the UK with loans-is 9 per cent on earnings above ?10,000 each year until it's all paid back, so with a well-paid job you can pay it all off in under ten years.
WOLF Would the university get the money up front?
BARR Yes, the student loans company would squirt money into the student bank account for living costs and the university bank account for tuition fees.
SHIRLEY WILLIAMS I agree that underfunding now seriously affects both the quality of research and teaching. At the bottom end, there is a tail of colleges and universities which are not even second-rate. And at the top end, I doubt whether there are any internationally first-rate universities left in Britain; perhaps a few departments here and there. How do we deal with the underfunding problem? I agree that there should be a student contribution into a graduate endowment fund, as in Scotland. However, we have to face the fact that the flow of payments from graduates will take 15 years or so to grow into a significant income stream. To cover that gap, you need government funding. Up-front tuition fees are divisive; they will create a privileged tier in the system and will certainly not help to widen participation. But on participation we ought to look at the entire tertiary system together, not just the universities, because the weakest point of the British system is advanced technical qualifications. Industry is crying out for skills, and the courses that provide them could be financed in part by employers. I also think we want to bring back means-tested grants to benefit some of the least well-off students. That means that as well as the graduate fund, you almost certainly need a small increase in general taxation. I suggest 1 or 2 per cent on the higher 40 per cent rate. So an element of general taxation, a substantial element of graduate repayment, and some money up-front to bridge the gap.
STEVEN SCHWARTZ Universities are underfunded, but they are not efficient users of the money they get now. One of the main inefficiencies is the use of capital, especially buildings. We teach for 26 or 30 weeks a year; the buildings are empty the rest of the time. If we could convince academics to compress their teaching into one semester, we could easily run two universities in the same buildings. The new money we need should come through fees. And the only fair way of doing that is through a graduate repayment scheme, where graduates repay the loans they get from the government when they can afford to. I would add that if graduates never earn more than the average salary of non-graduates, then they shouldn't have to repay-I would set the repayment threshold at slightly above the average non-graduate salary. If we increase general taxation, as Shirley suggests, it will be a very regressive tax because many people paying it are far poorer than the average graduate.
WILLIAMS It's not so regressive if added to the top rate.
DAVID SOSKICE We can't go much further without talking about the structure of the system-how uniform or differentiated do we expect it to be. The American system is made up half of four-year universities and half of two-year community colleges. Community colleges are much cheaper to finance than four-year university courses. In the long term, that is what we should be aiming at-a bifurcated system. But the problem of whether we can maintain world-class universities is as much about research funding as fees.
WOLF How differentiated the system should be brings us back to how we pay for it. We seem to agree in this room about the value of diversity, and it's hard to see how that can be achieved without differential fees-even if these are deferred, as in Scotland and Australia. But many people don't like differential fees: they feel that access for poorer students is incompatible with allowing top universities to charge more. One alternative is to put extra money into the system through a general graduate tax, rather than university-linked fees. This would bring in money but it would mean continued central Treasury control, and how can we be sure that the government would spend all the new money on universities? It broke its word on that when fees were first introduced.
WILLIAMS I don't think one can argue that research universities should charge the same amount as non-research universities. But I think it matters much less whether universities charge differential fees than how those fees are met. The crucial principle is that entry must be need-blind-a student's means must not be taken into account in deciding whether or not they have a place. [general agreement] Well, you all say you agree, but those of you who want all the extra money to come from students via loans do not agree, because loans are harder for poor families to meet than for richer ones. That's why I think there has to be an extra element of government funding.
SCHWARTZ But for loans that are only repaid when graduates achieve certain income targets, then the income of the family of the student is irrelevant.
WILLIAMS No, people from poorer families are more risk averse and may have more obligations to meet. Alongside paying back his graduate tax, someone from a poorer background may have to look after his mother, care for his siblings and so on. In the US, there is a whole system of scholarships for people from low-income families. There are national merit awards; the endowment awards from the better-off universities. At Harvard, 40 per cent of all the students are completely paid for by one method or other. There are no funds here to make that possible.
BARR It is true that some students from poor backgrounds are not well informed about the benefits of university education, and might therefore be reluctant to take out loans. For them, scholarships are essential. But for most students, if you have loans with income-related repayments the system is exactly like paying for higher education out of taxation. The only difference from income tax is that loan repayments are paid only by people who have been to university, and they don't go on for ever. We are not talking about large loans with mortgage-type repayments that might cause debt aversion.
SCHWARTZ In Australia the introduction of fees paid through graduate taxes has not reduced the number of people from poor families. In fact, quite the contrary. It made more places available and more people from all parts of the spectrum have come in. So fees are the solution. But without deregulation, without making fees student-driven, we might make matters worse. Universities are one of the last nationalised industries in Britain.
SOSKICE There are, as Shirley says, substantial funds to support people from poor backgrounds in the US. But that's against a system of very high fees and without the type of student loan company we are talking about which enables repayment to be made contingent on income. If you can pitch the repayment so that it starts only when you earn an above average income, then the problem of poor students is solved.
BARR I sympathise with the idea of having a high threshold for repayments, but I don't think it is practical. If you start high, then either you do not get much by way of repayments, or you have to have a very high marginal rate of repayment.
WILLIAMS ?25,000 was the repayment threshold suggested by Scotland's Cubie commission but they couldn't make ends meet at that rate, so they had to drop it down to ?10,000, which is awfully low. That's why I think you need an element of income tax.
WOLF Britain has traditionally had a rather inequitable system whereby further education students have paid fees, part-timers have paid fees, and full-time young university students have not. If we move towards a more differentiated system, shouldn't the payment system relate to the whole post-school sector?
WILLIAMS Further education colleges are the Cinderellas of the system. I would like something like the credit accumulation system in the US, in which people could pick up credits from FE courses, technical qualifications, and then move on later to university.
WOLF But what would make the universities accept the credits? It is not true that all over America people are cashing in their credits and going to university.
WILLIAMS No, but it does work very well in some parts of the US, like Massachusetts.
WOLF I'm still not finished with the equity issue. I think that we are, on the one hand, too hung up on it and, on the other hand, too sanguine. For many reasons-information, social networks, aversion to loans-there is an access issue in every country I know of. A switch to loans doesn't seem to affect access in aggregate, but when you start unpacking things it looks less good. People feel they can get a degree, but they don't feel happy incurring the cost of one at St Andrews, so they stay close to home and go to Luton. And I do want to question the view that the best route to equity is means-blind admission. If rich people will pay extra, why not take them and use the money to support a poor kid?
SCHWARTZ Australian universities can create new places for people who are happy to pay the full cost.
BARR If all you do is have "free"-meaning taxpayer-funded-universities, as we have had, access is not widened. The proportion of students from lower socio-economic groups has not budged in 40 years: it was 25 per cent in 1960, it is 25 per cent today. Making higher education free at the point of use isn't enough. If you're serious about access, you need to address lack of money and lack of information about the benefits of higher education.
SOSKICE The problem we are faced with in any advanced capitalist country is a middle class which tends to dominate and colonise the education system and exploit its benefits. As you expand higher education, more and more middle-class children will go to university. The answer is to change the primary and secondary system. I think when we focus on equity at the point of entry into the university system, we are talking about a rather unimportant thing. And I do get rather irritated when I hear the middle classes going on about the equity issue in higher education, because it is a matter of self-interest for them. If we are really concerned about equity, we need to change the whole compulsory education system.
SCHWARTZ I think it is also a cultural thing. In the lower income quartile, participation rates in the US are about 50 per cent, in Australia they are about 30 per cent and here they are about 17 per cent. At Murdoch University in Perth we opened a branch campus at a place called Rockingham, which is mainly inhabited by working-class British migrants. It has the lowest participation rate in all of Australia for higher education. That attitude might be peculiar to Britain.
WOLF I don't think it is peculiar to Britain; we do better than most other European countries on this.
BARR That is why it is so important to get the loan scheme right. It provides a mechanism for the middle class to pay their way substantially, and thus frees resources to bring in those who may be alienated.
WOLF The only disagreement we seem to have on funding is how student loans should be repaid-and how much money should come from general tax. We also seem to agree that there should be different fees at different universities. We should perhaps recognise that this puts us at odds with many other European countries, which are committed in principle to equality of resources and status within the university sector. And our current government, after all, was making it clear, quite recently, that any university that increased fees above the current level would get its funding cut accordingly. So are we sure about this?
SCHWARTZ Equality has not worked well. At present, every university in Britain is given a quota of students, which is basically dependent on the government's budget for that particular year and the number of students it had the year before. Students apply to their first choice but eventually everybody gets in somewhere. There is no incentive for universities to compete, because each will get its students no matter how lousy their outcomes or their research. We need a system where the funding follows the student. Colleges and universities will either have to find students who want to study in their institutions, or go broke. Some will give up research altogether; others will teach only at night or at weekends. And I am not in favour of capping fees because that ruins the whole idea of getting proper price signals into the market.
BARR I broadly agree. But I don't think one should liberalise fees in a big bang-it would come unhinged politically, as it did in New Zealand. Yes, we want more competition, but that doesn't have to mean the law of the jungle-there is a role for the state to determine the optimal degree of competition.
WOLF But would deregulation give us the mix we want or would it mean a few elite universities and a lot of cheap and cheerful ones? Why not reverse the move to a unitary system and adopt a clearer distinction between universities and technically-based polytechnics, as in Germany, or between four-year college courses and community colleges, as in the US?
SOSKICE I think we are about the only major country that doesn't have what one might call intermediate qualifications. The Americans have it with the community colleges, the Germans have it at their Fachhochschulen, or polytechnics.
WOLF But this doesn't fit with letting the market rip; the state would have an important role.
SOSKICE But we have got the framework for doing this now, we have got these so-called foundation degrees. Foundation degrees are rather like City & Guilds technical qualifications. And universities which fail to attract undergraduates for three-year courses could move in the direction of technical two-year courses.
WOLF Why hasn't this happened already? We are always told by business that there are skill shortages. But what has been happening is a flight from technical courses: foundation degrees have not recruited well, Higher National Diploma numbers have been going down. One reason is that you have had this expanding university sector where you get a degree which is both higher status and cheaper than the alternatives. No wonder most young people opt for it. Deregulation is not going to help here, is it?
SCHWARTZ Well, one of the things you might expect is that these low prestige FE courses will be cheaper.
WOLF But they won't necessarily be cheaper; technical training is costly. Germany spends more per head on polytechnic students than on most university ones.
SOSKICE The point is that both the American community college qualifications and the German apprenticeships and technical qualifications are popular with employers and hence young people want to do them. The community college courses are quite cheap. We could just adopt a variant of the US system.
WOLF So how many should go to university?
SCHWARTZ Well, ideally, 100 per cent-I mean 100 per cent of those who would be accepted.
WOLF But anyone in your model would be accepted provided they're willing to take on a loan. And what's more, they won't necessarily have to pay it back because they might never get to the salary at which it cuts in. Don't we end up with a huge public sector bill that way?
SOSKICE I think the market will prevent that happening. Universities would obviously like eventually to charge higher fees. The ability to charge higher fees will depend on their ability to attract undergraduates, but undergraduates are going to be attracted by the quality of the undergraduates who are already there. So it would pay the university to keep out undergraduates who aren't up to it. There has been a big debate at Duke, my university in America, about sports players. Duke took the decision that you couldn't have dim footballers, because it would lower the tone of the university.
WOLF You have argued in government circles for the 50 per cent participation target on the grounds of the "generic skills" that students acquire. The idea is that the content of courses does not matter so much as the IT skills, the presentational skills and the people skills which are vital for the middle managers of the service economy. Some people, like Anthony Giddens, also argue that growth in the student population is a political and social good because students are more likely to participate in civic and political life and tend to be more tolerant. But we need evidence for the economic benefits of "generic skills," given that mass higher education will still require a lot of public money which could be going to schools or hospitals.
SOSKICE My thinking about generic skills is based on having a dual system-universities and community colleges. And there is a fair amount of hard evidence for the economic advantages of the general skills that community colleges teach. Indeed, employers snap people up, even if they have not finished their courses.
BARR We have no way of knowing what the right participation rate is-we need a system of rational prices plus active measures to make sure that students from poor backgrounds can get in. A lot of students will face an economic cost and that will give them pause for thought. The outcome, I guess, will be about 50 per cent participation-maybe higher.
WOLF So, 50 per cent and beyond?
BARR Not if we're talking about degrees in medieval French literature. You can't expand that much. But so long as we're prepared to agree that higher education is broader than we've thought of it up to now-that it includes vocational and community college type qualifications-then I'm happy. Incidentally, all institutions should be required to put on their websites the job destinations of recent students.
WOLF What about research? Steven argued that if universities are having to compete for students, many of them will stop trying to do research. But should funds for research also come out of fees or should that be funded separately? Should students who want to attend research universities pay more and so help to fund the research?
SOSKICE Teaching and research are, in principle, separate activities. The funding of teaching can, by and large, be done by market forces; the tuition fee relates to the quality of teaching. But funding research is ferociously difficult because research, by definition, is into new things, so there is uncertainty. So you need separate funding.
WOLF We have a rather complex system for the public funding of research (which hands out ?2.3 billion a year). Some money is competed for, and tied to projects-which in the case of science and engineering can be very expensive. That comes through the research councils. In addition, all universities are expected to do some research, and their core grant supports infrastructure and staff time to do it. But how much different universities get for this varies a lot: it is allocated by the Higher Education Funding Councils through the Research Assessment Exercise (RAE) on the basis of departments' records and most goes to top institutions.
SOSKICE But there is a problem at present with how the research councils work. A lot of it is done in an old boys club type atmosphere, and there is pressure from the government to spread out its grants across universities-so they are not very good at directing research grants to the most innovative work. I would like more external expertise, less state interference.
BARR There is no single model. You need diverse sources of research money-the state, private foundations, the private sector. You also need varied forms of distribution. There is the competitive stuff; small sums for junior researchers to give them a chance to establish a track record; tax funding via some sort of RAE for people like me who are not heavy research grant users, but need time to write books; plus a pot of public money for locally useful research.
WOLF But if you have all these incentives for a university to get public funding, and if we cling to the idea that nobody is a good academic unless they do research, then you are back into the politics of giving out large sums of public cash and endless committees. Wouldn't it be better to divide the universities up and say these are our community colleges which do no research; these are our universities which teach and do research, and these are our world-class organisations which more or less only do research? Which brings me to a last question which is seldom asked-why do we need expensive world-class research universities?
SCHWARTZ The reason we want to have world-class research universities is because we have them already. They're a national treasure. It's a bit like saying do you want to have St Paul's? We're famous for it and we make a contribution to the better conditions of life across the world by having world-class researchers. But I'm not sure I could make an economic case for it.
SOSKICE Another reason relates to science and technology. Few countries have got the range of institutions-mobile labour market, general education systems, appropriate financing-which are conducive to radical research in new technologies. The US is pre-eminent here, but Britain is second. Germany, northern Europe, France and Japan all operate in totally different ways: they're concerned with incremental research, primarily in well-established technologies.
WOLF But why can't we just do that instead?
SOSKICE Because we can't. Because those require quite different sets of institutions. They require an education system which is far more vocational. The German system in engineering, chemicals and life sciences has these long-term relations between excellent German research departments and long-term orientated companies. We have none of that.
BARR There is another point, which is that British higher education is a major export industry. In 1999-2000, foreign students spent ?640m on fees-5 per cent of total university income. Part of the reason is the English language, but the other is that we've always done higher education at the top end very well, and one of the reasons for this is that the teachers are research active. I can see in the eyes of my students the excitement they get, because in my teaching I can bring in stuff that I'm working on and that gives them the feeling that they're at the cutting edge. It's a two-way thing, too: it keeps me sharp.
WILLIAMS If a culture cannot hold within it its most interesting thinkers in science or the humanities it starts to lose faith in itself. First-class universities in Europe help to generate a lively climate of ideas and keep bright people this side of the Atlantic. It's also about blue sky research in things like astronomy and molecular biology which only later have spin-offs.
WOLF Some people argue that it doesn't matter if fewer of the brightest and best go into universities-it is said that a lot of the most interesting work that used to be done in universities, especially in the humanities, is now done in think tanks or higher journalism.
SOSKICE Think tanks and higher journalism are almost wholly parasitic on universities. More generally, if you want to educate an elite, you still have to have clever people to do it, and those people will only do it if they are decently paid and can do research.
WOLF The elite can go and get educated in America.
SOSKICE They can. But there's another point here. In the social sciences, in economics, in business, we are only just beginning to get to grips with understanding how businesses are run, how society works, how public policy should work.We have been rather amateur about this in the past. But there has been a real acceleration in the last 10 years in the thinking about a huge number of things about society. To drive that on depends on having top-class intellects working together in universities. You might say, why not send the best people to the US? But different countries have their own problems. It is frightening to imagine what it would be like if we didn't have top-class academics thinking about British problems. There is also the danger at some point in the future of American isolationism. At the moment, America pays for a vast amount of the basic research in the world. America can easily at some stage say, why are we doing this? We should not be over-dependent on the US.
BARR Yes. In natural science, answers are global-solve a problem in the US, and you have cracked it everywhere. But a lot of social science is country specific.
WOLF So there is no tension between world-class universities and a mass system?
SOSKICE Not in a heterogeneous system.
BARR We have a mass restaurant system in which the Michelin star flourishes.
WOLF So, finally, where are we heading? In terms of who pays and how, Nick Barr's long-standing arguments seem to be winning the day. Richard Sykes, the rector of Imperial, may have helped by demonstrating what degrees there actually cost. Compared to the ?15,000 a year sum he was waving around, students and parents might be quite relieved at the sight of some kind of deferred loan for a quarter of that. But I don't see any such emerging consensus on differential fees, on how far universities should be freed to compete, on the structure of tertiary education, or on how research should be funded. What this discussion has underlined is that the decisions we make about whether and how students pay have big repercussions for all these issues, and that they are all bound up with how far central government is ready to cede control. So there is still plenty for the vice-chancellors to play for-provided some of them can, for once, develop a coherent and consistent position.
ALISON WOLF (professor at the Institute of Education), NICHOLAS BARR (professor of public policy at the LSE), SHIRLEY WILLIAMS (former Labour secretary of state for education), STEVEN SCHWARTZ (vice-chancellor of Brunel University) and DAVID SOSKICE (professor of political science at Duke University in North Carolina and former research associate on education for the No 10 policy unit.)
