The government is using inflation to take back control of English HE

After ceding control of English higher education to market forces, the government wants it back – and last week’s Augar response means it is well on its way to getting it.

When the government trebled tuition fees in 2012, and then lifted student number caps entirely in 2015-16, it gave away an enormous amount of control over how higher education functions in England. Suddenly, any student could study whatever they wanted, wherever they wanted, as long as a university would give them a place.

Student numbers rose. Universities expanded – and with notable gains in access. While the new higher fees were meant to make the market more competitive, the envisaged price competition did not materialise, and almost every university was quickly charging the maximum £9,000 a year.

But all was not well in the Treasury – especially after the Office for National Statistics recategorised how student debt was recorded, bringing it on to the current spending books. The size of public loan subsidies was now at the mercy of student choice and sector trends, and ministers had only a limited ability to say where those trends were headed.

The fee rise, remember, coincided with dramatic cuts in the teaching grant: £477 million in capital grant, and repeated cuts to the recurrent grant as well. The lost income was meant to be made up through fees, but while the government could previously decide where the teaching grant was allocated, students could take their loans wherever they wanted. As the Treasury’s proportion of the tuition bill increased – estimated at 53 per cent last year, or about £4,900 for every student – unease over the system grew as well.

The government’s interim Augar response, published in January 2021, made clear its desire to “keep the cost of higher education under control”. This could easily have been done by cutting the fee cap to £7,500 – as Augar had recommended – and offering additional grant only to those courses deemed to be high priority. It looked like this might have been the direction of travel around this time last year, when the Department for Education letter to the Office for Students recommended cutting the teaching grant for subjects such as archaeology, media studies and performing arts.

But this cut provoked an outcry from universities and the creative industries, and the then secretary of state, Gavin Williamson, eventually rowed back on cuts to archaeology courses. It is unsurprising, then, that a fee freeze has proven more attractive than a cut in the final Augar response. After all, why incur the political cost of cutting the fee when inflation will do the work for you?

Inflation has already reduced the real-terms value of the fee by 15 per cent since 2012. According to an OfS analysis in 2020, universities already face per-student deficits across all subjects, even the least expensive classroom-based ones. The OfS estimated that by 2023-24, the unit of resource per student will have gone back to what it was before the fee increase.

Which is where the Augar response’s announcement of £750 million in new teaching grants comes in. We know this will be spread over three years and that £450 million of it will be capital investment. If this funding follows last year’s trends – and we have every reason to believe it will – that’s another £300 million towards largely STEM and medical subjects, to complement the £85 million uplift they received last year after the cuts to media studies and the creative arts, as well as the scrapping of the London weighting. Combined with the diminishing value of the fee, this means that, in essence, we’re slowly winding back the clock to pre-2012.

In one sense, this might be something students are happy to hear; the IFS estimates that had the fee risen with inflation from 2020-21 levels, by next year it should be £10,500. But students might not like how this direction of travel affects what courses are on offer. As inflation continues to erode income from non-priority courses, before long many will become unsustainable for universities to maintain – which is, of course, the whole point.

The spectrum of provision will “tilt” – to use the Augar response’s terms – towards courses that provide “the best outcomes for students, society, and the economy”. From this perspective, the Augar response is a coup for the government: more control over which courses get adequate funding, alongside a smaller burden on the Exchequer as new finance measures mean students will have to pay back more of their debt.

But this raises fundamental questions about how the sector will accommodate future demand. With a demographic explosion on the horizon and demand from international students rising every year, how will universities decide what their future student body should look like? This may not sound like a question about student finances, but it is. To top up the diminishing unit of resource, universities could, for instance, recruit more international students, whose fees are not capped, and use the surplus to subsidise domestic teaching – but only to a point. Spaces at university aren’t infinitely expandable, and the current surplus from international students largely goes towards subsidising research – a model research-intensive universities in particular will be loath to deviate from.

Augar may be over, but the tough choices are only just beginning.

Alexis Brown is director of policy and advocacy at the Higher Education Policy Institute.