British Government Fails Maths, Economics

By Neuroskeptic | March 28, 2011 7:28 pm

The British government has decided to change the way English universities are funded. They say that this will improve teaching quality; I doubt it. Worse, however, is that the new scheme, the stated justification for which was to save money, is now seriously at risk of being too expensive. From next year universities will be allowed to charge up to £9,000 per year for undergraduate courses, up from the current limit of just over £3,000. However the government is also cutting their basic funding allowance by 80% to compensate. So government pays less and students pay more – eventually; the government will pay all the money up front in the form of a loan to the students.

The government’s cost projections assumed that the mean fee at English universities, and hence the mean size of their loans, would be £7,500 per year. Why, no-one seems to know. Sources are unanimous that this was what they assumed, but no-one links to any kind of report explaining why. Maybe they gazed into a magic crystal ball. Parliament, performing a separate analysis, also worked under the assumption of £7,500, and their reason was that

we have assumed that… this fee covers the 80% reduction in [central government funding]. The average fee… is assumed to be £7,500 per annum for an undergraduate degree.

However, this is just silly. For averagefees to be £7,500, anyone charging some amount more than that, would have to be balanced out by someone charging the same amount less. That’s what an average is.

However, no-one can afford to charge less, even if they wanted to, because they need to charge £7,500 to pay for their teaching and break even. £7,500 is the minimum not the average. But plenty will want to charge more. Oxford and Cambridge, for instance, were blatantly going to charge the top amount, because they’re “top” universities. As a result, every other university which aspires to be elite will have to charge £9k, to keep up with Oxbridge.

Hence a domino effect goes down the line: every university will want to charge as much as the ones immediately ahead of them, so as not to look cheap. (The alternative, that they’d try to undercut them in price, makes no sense when you consider the amounts of money involved; the savings to the students would be minimal but the message – “we are cheap, therefore not very good” – would be loud and clear.)

I’ve whipped up a little plot showing all the universities which have currently announced their fees along with their position in the latest university rankings. A few small institutions are unranked and so don’t appear.

The rankings go up to 115 so if the universities ranked over 58 charge over £7.5k, the others would have to charge less to cancel them out. I’ll try to update this chart when fees are announced, but I think it’s a forgone conclusion that this won’t happen. Last updated 06/04/2011 10 am. See also here for a frequently-updated expert analysis.

The government is now seriously talking about having to cut what little direct university funding remains, in order to avoid losing money – from a policy which was supposed to save money. Yet this was always going to happen given what I said above. Indeed this policy, which was sold to the country as a cost-cutting measure, was always going to, at best, break even until the graduates repay their loans, and they won’t even start doing that until the first batch graduate, in 2015 which is the next election year.

So there seem to be only two possible options. Maybe they knew it wouldn’t save money, but in that case, why did they do it? It’s not winning them any votes, so there must be a long-term plan, but what? The other possibility is that they genuinely thought it would save money. So it’s a question of bungling incompetence vs. mysterious scheme. I’m not sure which is worse.

CATEGORIZED UNDER: graphs, media, politics
  • http://www.blogger.com/profile/00926204336056169207 Disgruntled PhD

    While i hate to engage in reflexive tory-bashing (fun and all as it is), it seems to me that the increase in fees is more of an ideological commitment than a practical one.

    Given the assumption that the main beneficiaries of university are the students themselves (which is not an assumption which holds up when one considers the health and tax benefits) then it makes sense to charge them the majority of the cost of the university education.

    Nevermind that some services are better provided centrally, this does not fit the dogma and is therefore ignored.

    To summate: its policy, not pragmatism.

  • Anonymous

    And here I thought the Tea Party revolution in the States was bad! But I fear we will be following our brothers and sisters across the pond all too soon!

  • veri

    Your new PM is corrupt. I was shocked with what happened in the UK. I think the whole world was. Students are not bank customers. My guess is the new strategist behind the scheme is a banking executive well rehearsed with kick backs and long term revenue collection, with little sobriety towards the system of education. Back in the 70s university education used to be free for most Western countries, it still is in most Scandinavian countries. Universities can survive without the meagre millions from students. They already receive endowments in the millions per week and billions for some universities.

    This elitist punch to raise fees will only hurt students as well as the reputation of universities. At this rate they may as well be looking forward to redundancy or a brain drain. This is exactly what happened to Kenyan universities, raised the fees substantially and the brainless rich dominated the culture. Education is what used to separate the classes in society but now your brains won't do. How many illegal immigrants or international students are excluded from university because now it's unaffordable for them to go to university? There are no loans, they get demanded 3 times as much money up front. Obviously they targeted a specific group to keep that elitist culture in check.

    Take for example me, I was seriously looking to the UK for further study but I can't now. Even if they did make it affordable I won't now. The damage is done. My principles won't allow it and personally I don't want anything to do with universities including staff, academics and so on from the UK until they fix up their act by being kinder to students. I've even sent a memo around. It's atrocious and distasteful how they allowed the govt to do that to students. Shame on them! Shame! Shame! Shame! The world should boycott educational bilateral relations with the UK until they sober up.

    Anon, I don't think the USA is as fervent on the right wing trend as is sweeping the UK and Europe at the moment. The last thing they need is a brain drain at the cost of curbing migration influx.

    http://www.bbc.co.uk/news/uk-politics-12371994

    State multiculturalism has failed, says David Cameron

    I bet those hajibs used to piss him off as a freshman.. it's probably what motivated him to extend his ignorence towards the academia.

  • http://profile.typepad.com/6p00e54eeec9d38833 William Cullerne Bown

    Three things from a mobile phone.
    1. The 7500 was given by BIS to the OBR so that it could forecast the national debt. There's a link somewhere on my blog.
    2. You are missing some of the data points / announcements. See http://exquisitelife.researchresearch.com/exquisite_life/2011/03/leeds-met-and-st-marys-suggest-average-tuition-fees-will-hit-8600.html
    3. Your forecast is close to mine at the location above.

  • http://www.blogger.com/profile/06647064768789308157 Neuroskeptic

    Thanks for the comment. Re: 2), Bishop Grosseteste and St Mary's don't appear on the ranking system I'm using, and I couldn't find rankings on Wikipedia either.

    Re: 1), I knew that this was what the BIS said, but I've been unable to find any statement of why they went for that estimate; Parliament's reason was that it's “breaking even”, which of course doesn't follow, because universities don't want to break even they want to get more money.

  • http://www.blogger.com/profile/08895211852908290470 dave

    Given the apparent state of affairs at the moment, it is tempting to suggest that this is nothing more than incompetence.

    However, it is worth considering the neo-liberal perspective of those runnning the show. Simply put – market competition is an a priori good and state interference is bad. Currently, there is no competition in the student loans market because the only way to get one is to use the Student Loan Company (a non-departmental government body). A cynic would suggest that the current loan problem outlined has been deliberately manufactured so that the SLC shows a massive deficit and then needs to be dissolved, allowing private loan companies room to step in.

    Phase 2 of this hypothetical scenario is to cut some red tape: enable student loans with market rates of interest and allow the loans to be collected against, like any other. The SLC is not nearly as profitable as it can be, what with cancelling loans after 25 years and only taking what people can afford to pay. We can't have that – there's profit to be had off people trying to get an education.

  • http://www.blogger.com/profile/17800046325761945966 Stormlilly

    Actually there is no chance of breaking even because
    1) This scheme will cost more to run as we will have to chase student loan defaulters harder as less able to stand a write off.
    2) the calculations ignore the time value of money, it is assumed that the interest paid will account for the decrease in the value of the loan (due to inflation) however as the government is borrowing the money and therefore paying cash interest this is double counting

    In addition there is clear evidence of financial incompetence by this government; note the abolition of the audit cOmmission without a plan b. Also reliance on Market prices without considering the effect of flooding the Market.

  • http://www.blogger.com/profile/14332338989220212494 Graham K. Brown

    You rightly note that the government will get the money back 'eventually' because they are still paying up front in loans. But of course, they were getting the money back 'eventually' anyway through the higher taxes that graduates generally pay because they have higher incomes. Of course, with a tax-based regime, some people might abscond (leave the country, refuse to work etc.) But the 'averages' don't work out at this end either. This way, students can only pay less than (or exactly) what they borrowed. So the government is underestimating the cost of education at the point of delivery and overestimating the amount repaid.
    Why is the government paying all the money up front only to subsidise later rather than at the start? Surely it must be more than just a trick of accounting and it's just coincidence that a 'loan' doesn't count towards the deficit while a subsidy does…

  • http://www.blogger.com/profile/06647064768789308157 Neuroskeptic

    With yesterday's announcement that Liverpool John Moores (ranked 102) is to charge £9,000, it's looking like £9,000 will be the norm across the board, and only a few places will charge less. And they'll switch to £9,000 when they realize they're outliers.

  • http://www.blogger.com/profile/06647064768789308157 Neuroskeptic

    No major new announcements although another un-ranked, very new university (University Campus Suffolk) has gone for £8,000. It's looking as though £7,500 will be the bare minimum with £8,000 “cheap” and £9,000 dominating the field.

  • http://www.blogger.com/profile/06647064768789308157 Neuroskeptic

    London South Bank, the second lowest ranked, has gone for £8,390 and many other high and mid ranked ones have gone for £9,000. No surprises.

  • mcfly2309

    here in chile, higher education has worked like this since the 80's i think… so i am very interested what people in the UK think about this. students here protest every year against this kind of system, but it seems our arguments are never good enough to be taken seriously by politicians… the smartest students could say something but they usually don't care about these issues or benefit from them… many come from expensive high schools and are better prepared for the university. ultimately, the combination of their money and their intellect are the perfect advantage to be successful in the professional and academic market, making economic inequality larger

    in the summer holidays the cities are filled with marketing from universities… many have opened programs for which there is an excess of professionals in order to keep getting money and compete with other unis… these students then have no jobs to pay their university debt, the assumption that the beneficiaries are the students is more like a convenient justification

    the most expensive private unis are winning the race in the long run, they started with brainless students with money and poor quality classes, but they have improved by recruiting better teachers from traditional unis and investing in good labs and such, so now they have a nice mix of brainless and smart students both with lots of money

    in summation, better education for those who can afford it and universities now are more about how to finance themselves than how to educate and contribute to society

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Neuroskeptic

No brain. No gain.

About Neuroskeptic

Neuroskeptic is a British neuroscientist who takes a skeptical look at his own field, and beyond. His blog offers a look at the latest developments in neuroscience, psychiatry and psychology through a critical lens.

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