Oral statement to Parliament

Universities UK Spring Conference 2011

Introduction I am grateful for this opportunity to address UUK today. You are steering your universities through choppy waters. I know it is…

Introduction

I am grateful for this opportunity to address UUK today. You are steering your universities through choppy waters. I know it is not easy, and I recognise the tough decisions you have to take. We will work with you to face these challenges.

What makes the effort worthwhile, of course, is the enormous value of our universities. When I was at the Bauman Moscow State Technical University earlier this week - one linked, incidentally, with De Montfort and Glyndwr - I was reminded just how much foreigners respect our universities, which is no doubt why so many young people from around the world want to come and study here.

Yesterday’s figures from HESA remind us again of the sheer scale of what our universities do. In 2009/10 there were around 2.5 million students in UK HEIs of which 1.9 million were undergraduates. Your institutions catered to 860,000 part-time students and 280,000 non-EU overseas students.

The Coalition believes in a big, strong and effective higher education sector. Our universities change people’s lives for the better - which makes what you do so important. We must never lose sight of that mission.

Broader vision for Higher Education

Let me start this morning with our broader vision for HE - it is a simpler, more flexible system which gives students better value and greater choice. That means a more diverse range of providers should be able to play a role. It means funding for teaching should follow the choices that students make. And it means empowering students to make their own choices based on better, more transparent information.

HEFCE is currently consulting on the Key Information Set. Each university will publish 17 pieces of standardised and accessible data. These will include indicators of student satisfaction on teaching, guidance and assessment, on library and IT facilities. Also included are the hours of contact time that students will get on each university course, as well as detailed information on costs and employment outcomes.

The publication last week of the report by the Student Charter Group was another important step in support of better information and clarity - for a system where universities and students work together on ensuring high-quality teaching and learning. I’m grateful to Janet Beer and Aaron Porter - whose input, as president of the NUS, to the HE reform agenda has always been thoughtful; I wish him well in the future.

It has been a consistent theme of the key enquiries into higher education that more funding should follow the decisions of learners. The Robbins report wanted fees to cover at least 20 per cent of current institutional expenditure, though some members of the Committee wanted the figure to be even higher. They included Robbins himself, who said as much in a public lecture the year after his report.

Thirty-four years later, the Dearing review called for “at least 60 per cent of total public funding to institutions [to occur] according to student choice by 2003.” But no Government has ever managed to make the system respond meaningfully in this way. At the time of Robbins, local authorities paid the entire fee for the vast majority of students, so it did not make any real difference what proportion was paid as fees. And, despite the reintroduction of tuition fees after Dearing, the control of student numbers has actually become tighter in recent years.

So we are putting the funding in the hands of students. And, as you know, they only begin to repay contributions as graduates once they earn more than £21,000 - not far off current median earnings. This is higher than the current £15,000 threshold - meaning that monthly repayments will be less than now.

For example, a graduate with income of £20,000 in 2016/17 will not make any contribution under the new system, while under the current system they would make an annual payment of £254. One earning £25,000 in 2016/17 will make a contribution of £360, about half of what he’d be paying currently.

It is not just students who will gain from this. Universities can gain as well because, over the period of the CSR, we are putting more money in total into students’ hands than the total amount of money available for teaching today. It is tempting for critics to oppose our plans for larger tuition loans, but it is these loans that have allowed us to boost the income going into our universities over the CSR period. Our settlement increases the investment in HEIs by around 10 per cent in cash terms by 2014-15 - and that is based on an assumption of average fees at £7,500, a point I’ll return to. When you consider the scale of the deficit, and the size of the necessary cuts we are making across Government, I believe this is a real achievement.

And it does not stop there. We have also bolstered research by protecting the £4.6 billion ring-fenced science and research budget for the next four years. And we have protected student numbers by delivering 10,000 extra student places for 2010/11, with a commitment to do the same in 2011/12.

I am grateful for the support we received from Vice Chancellors in explaining our proposals before the Parliamentary debate last Christmas. You took the view, under the brave leadership of Steve Smith and Nicola Dandridge that, given the difficult fiscal position, this approach was better than any likely alternative. I believe that was the right judgement, taken in the long-term interests of the sector.

Some people would have preferred the reforms to be less radical or phased in over time. But the reality is we have had to act quickly to address the fiscal deficit and to give universities time to prepare. It is still 2014-15 before the new system is fully implemented. Of course, in an ideal world we would have allowed for a lengthy consideration of the White Paper before making any financial changes. But Browne was set up on a cross-party basis and took evidence for a year. Sorting out the finances first is not unusual, in fact. Robbins came three years after Anderson - and it was the Anderson report which recommended the finance changes that really drove the growth of the sector.

Some talk as if the shift to student fees and loans means a loss of Exchequer support for our universities. That is wrong. You are not being left alone on Matthew Arnold’s Dover Beach with only the “long, withdrawing roar” of public financial support. Even after 2012, the contribution from the taxpayer to the higher education sector will be very substantial. It is made up of the remaining HEFCE teaching grant, estimated - under current assumptions - to be around £2 billion in 2014/15, and about £6.5 billion of tuition loans. On top of this, there will be some £2 billion in maintenance grants and scholarships and £3.5 billion in maintenance loans. Of the £10 billion we will be allocating in loans, around 30 per cent will have a long-term cost to the taxpayer.

In the Ron Dearing lecture last week, I set out the figures. For Band D students, universities currently receive a tuition fee of around £3,300 and a teaching grant of around £2,750, making around £6,000 in total. In 2012 prices, this would be more like £6,350. So a charge of £9,000 represents an increase of over £2,600 - more than 40 per cent - in teaching resource; it represents a 20 per cent increase for other courses.

Unless universities can prove that there will be a commensurate and very significant improvement in the education on offer, it is difficult to see how such an increase could ever be justified, let alone at a time of fiscal restraint. Institutions can clearly offer higher education at a price much less than £9,000.

There’s already price variation in postgraduate courses, in the fees charged to international students, and the broad range of fees charged in other countries like the United States.

Of course, academics approach these issues with great sophistication, and I have been warned that we face a dilemma from game theory in which the incentives for individual institutions are different from the interests of the sector as a whole. But it’s not the dilemma in its classic form, because this is not a one-off. You need to think of subsequent years - not just in terms of funding levels but also the challenges you will face from new competitors if you come in at such a high fee level. And you also need to think of the collective interests of students.

That’s why supply-side reform is so important. The Coalition is committed to it - and it’s something I’ll come back to later in the speech. We need to keep prices under control but would rather do so through greater transparency, by freeing up student number controls and by encouraging new entrants. Greater competition is surely preferable to further regulation or funding changes. On this specific point, our objective is to ensure the current system does not become clogged up because institutions are seeking to charge the highest possible figure they can.

We understand that one reason why some universities are considering high fees is the financial uncertainty they currently face. This is the argument that high fees are a kind of contingency reserve - an insurance policy in case a host of other decisions work against you.

I understand the reasoning. But it cannot be right to expect students and graduates to bear the full weight of that, as you put up your tuition charges to manage a variety of institutional risks. There is a paradox here. As I said in my Dearing speech, if the average of charges comes out higher than the £7,500 which we have used as a modelling assumption, we will have to consider the option of meeting that increased cost to the student finance budget by making offsetting reductions in the remaining HEFCE grant. So your own actions further increase your risk - and none of us want to see that happen.

We cannot resolve all your uncertainties, but we can work with you to reduce the need for such a large contingency margin.

Latest thinking

That is why I want to share with you today some of our latest thinking. This is information you urgently need to plan ahead with confidence. At the same time, we have decided to take more time on developing the White Paper - in part to test proposals more thoroughly among the sector, students and other experts; in part to learn from how price setting works this Spring.

So here goes, with some practical information to help you plan ahead.

We are working with the Student Loans Company so that students applying for a place in 2012 can apply in good time for their financial support. Our aim is for the SLC to start accepting applications in late 2011 or early 2012. Over the next few months, we will be making the necessary arrangements so that the SLC can fully operate the new system.

I know that the sector has also been looking for clarity on how we will treat those students who wish to “top-up” to an Honours Degree in 2012/13, immediately after completing, for example, a full-time Foundation Degree or HND in 2011/12. I can confirm that we will treat these students as continuing students in 2012/13, with fees and student support remaining under the existing system. We will confirm this in legislation in due course.

For institutions, HEFCE will be allocating funding for 2011/12 on March 16th - and it will be changing the way it allocates funding from 2012/13. In May, HEFCE will begin a consultation on how the remaining teaching grant should be allocated and will have final proposals by the Autumn. As we set out in the HEFCE grant letter, our priorities for funding are to support more costly subjects, institutions and students; and to protect those subjects that are strategically important and vulnerable.

We know that shifting the balance of funding towards student fees and away from the Teaching Grant raises questions about institutional cash-flow, because the fee payments that come through the SLC are paid later in the year and in fewer instalments than funding that comes from HEFCE. Again, we are working with HEFCE and the SLC to agree on a system of regular and timely payments so that HEIs do not experience problems during the transition towards a steady state. This would see the SLC making three payments rather than two, and bringing forward the first of those payments to the early part of the academic year in the Autumn.

Today I also want to assure you that we are working closely with other Government departments on funding decisions of significance to the HE sector.

The Schools White Paper last November stressed the importance of schools’ role in initial teacher training (ITT). But the Government recognises, of course, that universities play a vital role in much of the best teacher training and should continue to do so. We intend that any new funding arrangements result in closer partnerships between schools and high-quality teacher training in universities.

The Training and Development Agency for Schools has already confirmed universities’ and other providers’ place allocations for university-based initial teacher training for 2011-12. As part of its usual cycle, the TDA is planning to publish details of funding for ITT places for 2011/12 next month. The Department for Education, meanwhile, will publish plans for funding in 2012/13 in the spring - for discussion with the sector. It will confirm arrangements in the summer, in time for the start of recruitment for 2012/13.

Many HEIs receive considerable funding in relation to healthcare courses and the proposed NHS reforms will affect the contracts and funding for these courses. The Department of Health is currently consulting on the detail of the changes and will be able to provide clarity in the summer. The Department’s education and training budget will see a small increase of 2 per cent in 2011/12. Strategic Health Authorities are responsible for investing the budget, commissioning training places from their local HEIs. The Strategic Health Authorities will remain responsible for commissioning pre-registration courses until April 2012 and will be responsible for the safe transfer of contracts to new organisations after this date. BIS will continue to work with the Department of Health so that the impact on universities is addressed as proposals are developed.

In another area, the Government recognises university concerns about the outcome of the recent consultation on the student migration system. I am working closely with Damian Green at the Home Office; and I am very clear that our commitment to reduce net migration has to be implemented without putting at risk our higher education exports - a business which Vince Cable and I regard as a major British success story and testament to the international reputation of our institutions.

A key objective of this review is to get rid of abuse in the student migration system - dealing with those organisations that bring in individuals who are not genuine students but are only interested in getting into the UK. We want to ensure that in dealing with that abuse, we don’t inadvertently make the UK less attractive to genuine students wanting to come and study at reputable institutions.

There’s another issue too. We are looking within BIS - in light of changes to undergraduate funding and finance - at how we support postgraduate study in future. We have a successful postgraduate sector that has grown substantially over recent years and has done so with comparatively little Government funding or regulation. Many people have raised concerns about the impact that higher graduate contributions could have on participation in postgraduate study - and it would be clearly detrimental to this country if we saw a big fall in postgraduate numbers.

So I have asked Professor Sir Adrian Smith - who, as you know, produced a comprehensive report on postgraduate study in March of last year - to reconvene his review panel and consider this issue in light of the new funding environment.

On research funding, HEFCE has a four-year allocation and should announce institutional allocations for the 2011/12 QR Grant, indicative allocations for HEIF, and teaching allocations on March 16th. Together with other funding bodies, HEFCE will also announce shortly the way forward on the Research Excellence Framework and impact assessment.

Long-term ambitions

Let me turn now to longer-term ambitions. Perhaps the best way to appreciate the context for the HE White Paper is to consider it within the Coalition’s broader plans for reform of our public services - where our purpose is to modernise them in the interests of the people who use them.

I have worked on many different areas of the public sector over the past 30 years. The biggest lesson I have learned is that the most powerful driver of reform is to let new providers into the system. They do things differently in ways none can predict. They drive reform across the sector. Research by Caroline Hoxby shows that admitting new schools causes existing schools to raise their game. It’s the rising tide that lifts all boats - an insight which lies behind Michael Gove’s recent school reforms. It also lies behind Andrew Lansley’s proposals to empower GPs so they can choose providers in the best interests of patients.

The Government will publish its overarching public services White Paper shortly. The Coalition realises that universities are not part of the conventional public sector. It will not treat you as if you were. But we also want to make it easier for new and alternative providers to enter the new system - and there are clear ways in which we are doing so.

Currently, one of the main barriers to alternative providers is the teaching grant we pay to publicly-funded HEIs. This enables HEIs to charge fees at a level that private providers could not match, and so gives publicly-funded HEIs a significant advantage. Our funding reforms will remove this barrier, because all HEIs will - in future - receive most of their income from students via fees. This reform, of itself, opens up the system.

We will also allow alternative providers to access the generous system of student loans and grants, so their students will also be able to benefit from not having to pay upfront fees.

I look forward to new liberal arts colleges or specialist institutions. And the global higher education providers that operate in many countries from India to Spain to the USA need to know that we will be removing the barriers that stop them operating as universities here as part of our system - provided, of course, that they meet high standards which are a key feature of our higher education system.

Another barrier to open access and contestability is the automatic link between degree awarding powers and teaching. Over the past 50 years, we have created a regulatory system which says that teaching students and awarding degrees must be done by the same institution. And that is certainly one way of doing it, as represented by the institutions in this room. But it is not the only way. Quality standards have to focus on quality alone. They must not protect one way of delivering higher education at the expense of others.

Indeed the growth of higher education in England between 1850 and 1950 was based on a very different model. Degrees were awarded by the University of London for the South, and the original proposal was for Manchester to do the same for the North. New entities were able to set up as colleges teaching students for the external degrees of these institutions. That system had great merits. It meant that students at new institutions could obtain degrees or other qualifications from prestigious and well understood institutions. They did not have to set up a new degree to get public respect. It also provided a benchmark against which the quality of education could be measured.

We have reached the position where the regulatory system makes such a model pretty much impossible today. The external degrees of the University of London are now largely for foreign students. They should, once again, be widely available across Britain. I already have colleges coming to my office keen to educate their students locally to that standard and trying to navigate today’s elaborate financial and regulatory system to make that possible. It should be possible and we are engaged in the tricky and challenging work of making it easier for them without compromising our spending controls. So we will permit organisations to offer external degrees without necessarily teaching themselves - BTEC degrees are on their way, for example. And we will make it easier for new providers to come in as teaching institutions with their students getting loans without that institution having its own degree awarding powers. This is a crucial new freedom which will put the quality of teaching where it should be - at the heart of the system.

I have been approached, in recent weeks, by various existing education providers who are deeply-rooted in their local communities and have argued passionately for the right to offer externally-validated degrees to local people with limited existing access to higher education. The combination of a local FE college, regional employers and an awarding body could be an important embodiment of the Big Society. So these challenges have to be addressed to open up the system.

Freeing up student numbers, of course is a big prize and key to driving competition - as well as improving student choice. We are looking at ways this can be done. It is simply not possible to remove all controls at this stage because we need to manage Government spending.

But we can tackle the problem for individual institutions. We would like to make rapid progress in this area, including in 2012/13. We are determined to make more progress so that the most impressive traditional and alternative providers are encouraged - rather than punished - for delivering more places.

One option that has been proposed is a so-called core and margin model. Such a model would involve tricky judgements in deciding how such a margin would be re-allocated. We will discuss this with HEFCE, and welcome a debate. But the policy goals are clear: to support expansion of those providers which best offer students high-quality programmes at a price that represents good value.

There are also other potential options for freeing up the controls on numbers, which we want to debate with you and through the White Paper. What are the pros and cons of universities being able to recruit additional students off quota, at no cost to public funds, and can that be done in a needs-blind, socially progressive way? What about tariff based systems? The initial response to the model proposed in the Browne report was not favourable, but could there be some categories of students for whom a tariff approach could work?

I am sympathetic to the complaints expressed by the further education sector about the recent withdrawal of HE in FE places by some sponsoring universities. FE Colleges will, in some cases, be able to offer degrees at less than £6,000. They have a very important role to play in offering students greater choice and driving efficiency throughout the sector. A core-and-margin model for student numbers could allow this type of provider to bid for extra places. During the transition period before 2012/13 it would therefore be a backwards step if FE colleges were squeezed out of the market by HEIs clawing back their franchised places.

Our ambition is to make this framework as de-regulatory as we can. Freeing up student numbers will give institutions more flexibility. We are also looking at other ways of removing unnecessary burdens on institutions or reducing regulation over time. For example, this could mean a more risk-based approach to QAA review with less frequent reviews for HEIs with a good-track record. We will be working with the QAA and HEFCE on how this might work.

Transparency

The final issue I want to discuss today is transparency.

One prerequisite for putting students at the heart of the system is to improve radically the information on offer to prospective students. The new Key Information Set and existing initiatives like Unistats and the National Student Survey are important here. Student Charters will be a step forward. But we need to go much further. Our goal should be to make as much information available as we can about different courses, different institutions and different outcomes and to let whoever wants to use this data do so in innovative ways. The best way to encourage improvements in the quality of information is to start using it in more transparent ways.

There are few things that cost as much as higher education where the costs are so murky. When you receive your Council Tax bill, you often get a pie chart showing what you are getting for your money. Why shouldn’t prospective students be able to see similarly useful information about where their money is being spent?

We aren’t going to seek extra data. I want to see whether we can rationalise and improve the way data is collected from institutions, to reduce the burden this places on them. For example, we’re going to look at releasing TRAC(T) data in a more transparent and accessible way.

Conclusion

Clearly, there’s a lot going on, and we’re committed to working through it with you.

Let me offer one final thought. In Nottingham last week, I described the importance of the higher education sector for social mobility. One of the most pessimistic statistics about modern Britain is the lack of improvement in social mobility over recent decades, but one of the most optimistic facts is the way in which higher education can wipe out prior educational disadvantage. We are committed to improving social mobility and we recognise that better access to higher education is one of the most effective ways to do that.

That is just one of the many reasons why universities matter so much. I look forward to working with you as we reform and strengthen the sector in the years ahead.

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