Lobby calls for fees and VAT rethink

Removing the VAT burden on universities and transferring the job of paying student tuition fees from local education authorities to funding councils could generate savings of up to Pounds 60 million a year for higher education, according to university finance directors.

In a submission to the Dearing inquiry into higher education, the British Universities Finance Directors Group says the "artificial split" between the funding councils' provision of teaching grants and local authorities paying for tuition fees "seems to be the single most wasteful use of resources within the sector and its funding bodies".

The group also wants to see the funding of student maintenance from LEAs and the Student Loans Company rationalised. It estimates Pounds 30 million a year could be saved by making funding councils solely responsible for farming out all teaching funds and by creating a single, national system for distributing students' maintenance.

Miles Hedges, head of the group, says: "The bulk of the savings will be made by LEAs and a transfer of central government funding would be necessary to ensure universities benefit from the changes. What cannot be disputed is that the current system is a horrendous nightmare. There is too much red tape and duplication - it is utterly inefficient."

The group has also told the Dearing inquiry that the VAT status of educational establishments means that outside contractors have to be around 25 per cent more efficient than labour directly employed by universities. This is because institutions cannot reclaim VAT charged by outside suppliers, putting a brake on private sector involvement in higher education.

Mr Hedges says the VAT regime is expensive and that universities and Customs and Excise spend a lot of time on "boundary disputes", trying to figure out what is exempt from VAT and what is not. By zero rating universities, institutions and funding bodies could benefit by more than Pounds 30 million a year.

The group is also concerned about lack of funds for maintaining university laboratories and says research funders, particularly research councils, are not paying full indirect costs of projects undertaken for them. It adds that charities, like private industry, should pay the full cost of work undertaken on their behalf.