The Future of Higher Education

Written evidence from the Department for Business, Innovation and Skills

1. Introduction

1.1 Our universities are recognised internationally for excellence. UK universities are in the top flight – and to remain competitive they need sustainable funding. Our higher education system has seen student numbers increase over 200% in the space of three decades but we need to maintain the supply of people with high level skills to be able to compete internationally with those nations who are rapidly increasing their skill levels.

1.2 The economic context for HE funding has never been tougher – the Government has had no choice but to deliver a huge deficit reduction programme. Over the longer term, this means that the present HE funding system is unsustainable and unaffordable. The Government has sought to develop proposals that maintained the high standards of our universities, were fair for students, that put more power in the hands of students and that were affordable for the nation.

1.3 Lord Browne’s Independent Review recommended that graduates should contribute more to the costs of their higher education. This is because graduates gain a range of benefits from going to university – notably the higher salaries they earn. This increase in contributions has to be balanced against the need to ensure that students get a fair deal. We agreed with the broad thrust of Lord Browne’s recommendations, and developed our proposals to rebalance the costs of HE.

1.4 Funding is not the only issue affecting HE. Institutional and structural issues also need to be considered. A higher education White Paper will be published later this year to address the wider issues raised by Lord Browne's report.

1.5 The White Paper will set out major reform of the English HE system. The Government is taking the time to engage comprehensively with stakeholders and to test proposals more thoroughly among higher education institutions, students, employers and other experts; and also to learn from how universities’ price setting works this spring.

1.6 The White Paper should, parliamentary time permitting, be followed by a Higher Education Bill in the 2012/13 parliamentary session. These reforms will build on the reforms to HE funding that we have already announced, which will be examined in the paragraphs below.

2. A sustainable funding system

2.1 Lord Browne produced a range of proposals to change the way HE is funded. Inter alia, he proposed that there should be no upfront payment of tuition charges for students; that the cap on tuition charges should be removed altogether; and that a tuition charge levy should be put in place to fund activities to widen participation. He also recommended that access to student finance should be extended to part-time students.

2.2 The Government endorsed Lord Browne’s rejection of a graduate tax. Several factors prompted this rejection. This includes the lack of connection between what students pay, what they study, and where they study. A graduate tax gives universities no incentive to improve teaching quality and could not be collected from EU residents, who would therefore be entitled to come to the UK and be educated for free. Universities would also see their dependence on the state increased, thereby reducing their responsiveness to students.

2. 3 On other important point s, however, the Go vernment’s proposals differed from Lord Browne’s. H e recommended that the cap on tuition charges should be removed , creating an effective cap of £15,000 . Having considered this carefully, the Government decided to retain the caps, and allow universities to increase their charges to £6,000, with an upper limit of £9,000 in exceptional circumstances. This was because of the concern that uncapped costs would deter some applicants, particularly those from low income families.

2.4 The Government believe that the two caps achieve the right balance and make up the right package to support our HE system and students. It was felt that a single flat rate would be too restrictive on some institutions and courses. The basic threshold of £6,000 per annum is the amount above which institutions will have to commit to much tougher action to promote fair access and widening participation as designated by the Director of Fair Access.

2.5 Some universities and colleges may charge less than £6,000. Given that these institutions will need to make substantial efficiencies to do so, we do not believe in imposing additional requirements on them. An upper limit of £9,000 will allow those that offer excellent undergraduate teaching to increase overall income to improve quality by investing more in their teaching and courses. But we expect charges of £9,000 to be exceptional.

2.6 It is not for Government to determine what each university charges. But we do expect universities to work as efficiently as possible. If universities cluster around £9,000 and the Government funds these tuition costs upfront, savings will need to be made in the HE budget.

2.7 The Government has not yet responded to Lord Browne’s proposals on student number controls. This is a critical issue, with the student population growing to 2.1 million in 2009/10. Universities must be allowed the freedom to expand if they are capable of adequately meeting extra student demand. Ideally perhaps number controls would be left to universities and students without undue Government interference. But we must think carefully about the difficulties of balancing institutional expansion with the need to ensure stability in the student finance system. We will consider this in the White Paper, but we expect our reforms to allow student numbers to be broadly maintained.

2.8 It is also necessary to consider changing the way that HEFCE allocates grant money between universities given the new funding framework. This will be the subject of future discussion and consultation with the sector. The Government expects that the funding system will continue to take account of the different costs of teaching different subjects. It may also need to incentivise universities and colleges with competitive charge levels. But the precise details of how funding will be allocated is and will remain a matter for HEFCE.

2.9 HEFCE's current system to smooth grant funding flows will necessarily need to change as the balance of funding shifts towards student fees and away from the Teaching Grant. 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, and will set out more details of our plans in the White Paper.

2.10 Universities will, as a result of our changes, have a future of sustainable funding. But in return for allowing them to increase their charges to students, we will expect more. We want to encourage excellence in areas like quality, the information provided to students and widening participation. But we do also expect universities to operate as efficiently as possible and to focus their extra revenue on improving the student experience.

3. Efficient and effective institutions

3.1 The sector will continue to receive substantial direct public funding via HEFCE, both for teaching and research. Putting together HEFCE teaching and research funding and the BIS upfront costs of graduate contributions (but excluding capital funding), it could be that total BIS investment in HEIs in England will rise from around £9bn in 2010-11 to around £10bn in 2014-15. This is an increase of nearly 10% in cash terms and broadly maintains existing levels of participation.

3.2 We are seeking out ways that we can continue to diversify funding streams for universities. At present for every £5 of university revenue, £3 comes from various public sector sources. In particular, the Government is keen to encourage business sponsorship and several companies are now putting forward imaginative schemes. We also want to think about how philanthropic giving could make up a larger share of income. The importance of philanthropic giving was recognised in Lord Browne’s review – as was the idea of supporting a more widespread culture of giving in HE. The Government wants to reflect on his ideas and respond in the White Paper. The Cabinet Office's Giving White Paper to be published this Spring will set out our proposals to encourage philanthropic giving across charitable sectors.

3.3 The Government has welcomed the fact that voluntary giving has reached record levels in HE. Donor numbers increased by 12% in one year to 163,000 in 2008-09. Overall cash giving to universities reached a record level of £0.5bn in 2008-09, with universities receiving more gifts in excess of £1 million in 2008-09 than any other sector in the UK (overtaking charitable trusts and foundations for the first time).   

3.4 At the present time, public money remains the main funding stream for our universities. But we expect lower levels of predictable public funding to promote a greater interest in, and reliance on, income that follows student choice. This will mean much better outcomes for students. But to ensure value for money for students, we also expect universities to become more efficient. We are encouraging universities and professional bodies to consider the optimal length of course required.

3.5 Lord Browne felt that £6,000 was a manageable charge which would instil a focus on efficiency throughout the system. Any charge above £6,000 would not all be additional income – universities would need to charge around £7,000 on average to recoup lost teaching grant. So alongside the requirement to invest a proportion of additional income in access measures, there are strong incentives for efficiency in the system. We do expect universities to bear down on all of their costs – including on pay and pensions.

3.6 Over time, HEIs will adapt their business models and focus on the areas that they do well. This may include a concentration on high quality teaching. High quality and popular institutions will be able to expand, as students make informed choices about the learning that meets their needs. Where possible, we will look to reduce regulatory burdens on the sector so that they have more freedom to do this.

3.7 The Government expects that there will be much stronger competitive pressures and efficiencies for universities due to variability in course costs. We also expect these pressures because we will make it easier for alternative providers, including FE colleges, to compete on a level playing field, thus introducing greater competition into the system.   

4. Supply side reform

4.1 Diversity is one of the strengths of the current HE system and one which has made it successful and relatively efficient. In the future, we expect there to be more choice available. Students will become more discerning customers and universities will need to convince students of the long-term benefits of the courses they offer.

4.2 Each university makes a unique contribution. Universities will need to play to their strengths and focus on what they do well: for some this may mean focusing more on high-quality teaching; for others it may mean concentrating on employment-based learning. Ministers have also said that they want to see more flexible modes of learning, with more part-time courses, more two-year degrees and more distance learning. Our increased support for part-time students shows our commitment to the fastest growing cohort of students. Part-time student participation has increased by 108% in ten years .

4.3 To ensure a vibrant sector, the Government wants to make it easier for new providers, including local FE colleges and alternative providers, to enter the system on a fair basis. We believe that competition is a great driver of improvement and more providers in the system will mean more and better choice for students and better value for money through new and potentially innovative and lower cost approaches to teaching.

4.4 Ministers believe that opening up the system will improve teaching quality in higher education. All providers that access public funding or student support will have to meet certain conditions around quality, access, information and financial reporting to protect the interests of students and the public. However, we will look to make this framework as deregulatory as possible and will publish details in the forthcoming White Paper.

5. Students at the heart of the system

5.1 We want to ensure that all students have a high quality experience. In the future more university funding will be in the hands of students, so their choices will shape HE. Universities will be much more reliant on attracting students to maintain their income.

5.2 It will therefore be in every university’s interest to persuade prospective students that its teaching arrangements, facilities and undergraduate support are worth the investment. They will need to be more responsive to students and focus on improving teaching quality.

5.3 The HE sector is working on measures to improve existing quality assurance systems. It will be introducing from 2011/12 a revised institutional review system which will be more transparent and student-centred.

5.4 All universities and colleges, whatever contribution they decide to charge, will be expected to publish a standard set of information about their courses. This should include the information that prospective students say they want, for example about contact hours, teaching patterns and employment outcomes. HEFCE are working with the sector on proposals for all HEIs to publish, on a course by course basis, a standard set of 17 key information items for prospective students.

5.5 We also want them to publish student charters which set out clear expectations of the support that the HEI will provide; what is expected of students in return; and what to do if these expectations are not met. This will help to ensure value for money and real choice for learners.

5.6 It will, of course, also be important that universities set out clearly any financial help available to its students. This is an important part of our strategy to widen access.

6. Widening participation

6.1 This Government is committed to social mobility. Ministers have been clear that they will focus on helping those from disadvantaged backgrounds. No eligible student will be asked to pay upfront costs. There will be more generous maintenance support for poorer students. We have ended the systematic exclusion of part-time students from student support, and have extended loans to part-time students studying at 25% intensity or more. And after graduation there will be a progressive, income-related graduate repayment system.

6.2 I n exchange for universities being able to charge more than £6,000, the Government has issued new and strengthened guidance to the Dir ector of Fair Access on access a greements. Universities and colleges that want to charge above £6,000 for any of their courses will first have to agree tough access commitments with OFFA. Agreements will be renewed annually, rather than every five years.

6.3 Access agreements will include a requirement for universities to invest some of their additional income in access. They will have to show progress against appropriate benchmarks to demonstrate that they are taking their obligations to widening participation seriously. These benchmarks could be those published by HESA or an institution’s own, dependent on what that has been agreed with OFFA. However, p articipation in the new National Scholarship Programme is mandatory for universities wishing to charge over £6,000.

6.4 We are reserving the right in the future to allow OFFA to specify how much of a university’s additional tuition fee income should be invested in access. We will consider using this right if universities are not making sufficient progress. But we are not introducing quotas . T hey would be not only undesirable, but also illegal.

6. 5 Separately, details of the new £150m National Scholarship Programme (NSP) were also published. Available for students entering higher education from autumn 2012, the NSP is designed to help students from families with low incomes (below £25,000 a year). It will, however, be for HE institutions to decide who to help from this broad group according to their own priorities. HE institutions will also be responsible for making individual awards to students and will publicise their NSP awards schemes on their websites.

6.6 The Government will contribute £50m to the NSP in the financial year 2012-13, with a £100m contribution in 2013-14, and £150m in 2014-15. Institutions charging above £6,000 will have to match fund any Government contribution at a rate of at least 1:1. Those charging less than £6,000 will match fund at a minimum of 50% of this level. In the first year, we have agreed that the Director of Fair Access can apply discretion in the level of match funding required where the match funding pressures would be very high and the effect would be that the institution would be unable to invest effectively in outreach activities.

6.7 We have also appointed Simon Hughes MP as the Government’s Advocate for Access to Education . He will work with the Government to ensure that its goal of increasing participation in further and higher education by those from the most disadvantaged backgrounds is met. 

7. Sustaining excellence in research

7.1 Alongside the teaching-focused reforms set out above, we have also considered carefully how best to sustain and strengthen the excellence of our research base.

7.2 An effective science and research base is vital to the UK’s international competiveness and economic recovery. Despite growing international competition, the UK research base is second in the world to the USA for excellence and the UK is the most productive country for research in the G8. The UK remains first or second in the world at research in most disciplines overall.

7.3 In December 2010, alongside the publication of the funding allocations to the Research Councils, David Willetts made a Written Ministerial Statement confirming the Government’s commitment to the Haldane Principle. The Haldane Principle means that decisions on individual research proposals are best taken by researchers themselves through peer review.  Ministers need to take a strategic view on the overall level of funding to science and research, and have a legitimate role in decisions that involve long term and large scale commitments of national significance, but prioritisation of an individual Research Council’s spending, or of HEFCE's detailed research funding decisions, are not for Ministers. The Coalition Government supports this principle as vital for the protection of academic independence and excellence.

7.4 The Spending Review explicitly recognised the critical contribution of the research base to UK economic development. As a result of the Government’s desire to maximise the economic impact of the research base, science and research programme spending has been protected at £4.6bn pa with a flat-cash, ring-fenced settlement for 2011-15.

7.5 To ensure the UK maintains an internationally competitive research base, funding allocations will support the very best research by further concentrating resources on research centres of proven excellence and with the critical mass and multi-disciplinary capacity to address national challenges and compete internationally.

7.6 Research Councils and Funding Councils will focus their contribution on promoting impact through excellent research, supporting the growth agenda. They will provide strong incentives and rewards for universities to improve further their relationships with business and deliver even more impact to the economy and society. Incentives will include - 20% of the assessment in the new Research Excellence Framework (REF) will be based on the social, economic or cultural impacts from excellent university research.  Reforms to Higher Education Innovation Funding (HEIF) allocations will incentivise HEIs to increase their interaction with business and other users of research.     

8. Conclusion

8 .1 In the future, it is clear that public funding will still have a prominent role in our university sector. Whether it is to fund teaching, student support, research, measures to widen access, or to promote quality – an important role will remain for Government. That said, t he current success of the UK higher education system owes much to the historic ability of institutions to determine their own mission, free from interference from the state. W e will consult on the reform s our W hite P aper will aim to introduce , to ensure that the sector has an opportu nity to comment on them .

8 .2 We believe that p ublic accountability for quality and standards is essential but that requirement needs to be balanced by a simple regulatory framework which does not infringe autonomy and an institution’s governance arrangements. T h ese considerations will continue to be central to our thinking as we develop our W hite P aper, and as we implement its conclusion s . We believe that this is the best way to ensure a future of sustainable funding for our world-class sector, to ensure fair access for students, and to ensure a fair deal for the nation.

14 March 2011