The Browne report makes little economic sense

A right of passage, but for who...?

For just about everything the coalition wants to do, we are assured that it is all to do with “the current economic climate”, and with reducing the supposedly awe-inspiringly huge deficit. Without each and every act of Government policy, so we are told, the country would face instant bankruptcy, a Greece-style meltdown, riots and so on.

We know this isn’t true… but what if we could catch them at it? What if we could point at something and be clear that despite what they have told us, it will cost the country more money?

It seems unlikely, but the planned reforms of Higher Education funding could be just that chink in the coalition’s armour.

In a statement effectively accepting the recommendations of the Browne Review on Higher Education Finance, Vince Cable said:

“My own party consistently opposed graduate contributions, but in the current economic climate we accept that the policy is simply no longer feasible.” (Hansard, 12^th October)

In doing this in parliament he explicitly drew a link between changes to Higher Education and the coalition’s perennial obsession with reducing the deficit. He did so repeatedly in a number of news reports about the Browne Review, for example in the BBC, the Guardian and the Telegraph, and in a message to the Liberal Democrat Party.

Analysis

In short, the proposals set out a cut in core teaching resource, and a growth in fee income from students. Let’s look at them each in turn.

The cuts in HEFCE core funding have been widely trailed, and despite the strange lack of clarity in the Browne Review, we can assume that this cuts out the value of the “unit of resource “ (the value that HEFCE currently ascribes to each student studying a HE course, currently set at £3,947). HEFCE uses a set of multipliers modifying this resource to allocate additional funding to courses that incur extra cost, such as Medicine, Engineering and Laboratory Science. For some subjects, including the Arts and Humanities, no multiplier is applied[1].

Table 1: Core HEFCE teaching income to universities

Price group[2]	HEFCE-fundable FTEs[3]		current multiplier	current funding		“Browne” multiplier[4]
A	67,403		4	£937,980,148.00		3
B	303,877		1.7	£1,797,219,741.10		0.7
C	588,921		1.3	£2,663,513,006.70		0
D	597,710		1	£2,079,433,090.00		0
	3,290,065			£7,478,145,985.80
result		£ loss		%loss
£798,118,923.00		£139,861,225.00		14.91
£839,581,763.30		£957,637,977.80		53.28
£0.00		£2,663,513,006.70		100.00
£0.00		£2,079,433,090.00		100.00
£1,637,700,686		£5,840,445,300		78.10

(Please note that this is ONE table, it appears to be two for formatting reasons.)

You’ll note that this gives a 78% reduction in state funding, which was the reduction that was widely trailed.

Next, we will examine fee income. This is important because both the current model and the Browne review do not require the up-front payment of fees by students. Instead, students borrow (from the Government) the cost of their education, which is then paid back over a number of years after graduation. So fees are in fact government spending, which will not be recouped in any significant way for at least 5 years, and more likely 25-30 years.

The current level of fees is £3290, and I’m assuming that the average level of fees under Browne will be £6000. This assumption is drawn from what happened when top-up fees were introduced in 2004 – the overwhelming majority of fees were set at the maximum permissible. It is very unlikely that any Vice-Chancellor will be happy to do the same teaching as now for less money.

Table 2: Government spending on fee loans, annually.

students[5]	current fee/ year	total fees spend/ year
3,290,065	£3,290.00	£10,824,313,850.00
browne fee/ year	total fees spend/year	£ gain/year
£6,000	£19,740,390,000.00	£8,916,076,150.00

From these calculations, we can now clearly derive the government’s annual spending on higher education.

There is also additional spending around student support, and infrastructure costs. We can cancel support costs out on both sides of the equation, as the Browne Review states, regarding changes to student support: “all students would receive as much cash in hand as they do now”[6].  It is impossible to estimate the set-up costs regarding the Student Finance and Higher Education Council quangos, so we have not attempted to do this.

Table 3: Annual government spend on HE funding

	current	browne		notes
core funding	£7,478,145,985.80		£1,637,700,686	from table 1, above
fees	£10,824,313,850.00		£19,740,390,000.00	from table 2, aboveCancels out, as discussed in paragraph above.
maintenance
total (core + fees)	£18,302,459,835.80		£21,378,090,686
estimated additional cost to Govt. of Browne model, for each academic year: £3,075,630,850.50

So implementing Browne as set out in the Review would cost the Government £3b (three billion pounds) per year, per cohort.

Conclusions

In their analysis of the Browne Review, HEPI (http://www.hepi.ac.uk) a Higher Education Policy think tanks staffed largely by ex-HEFCE personnel, hold back from using specimen figures as we have done, but even so they  note:

Even with the most urgent implementation, the first cohort of graduates paying back loans for the new fees will not graduate until around 2015 or later. In cash terms, the package will increase public expenditure for years after then, certainly in the time the Government plans to pay off the deficit.[7]

This analysis makes a mockery of any argument that could be made that suggests that reform of Higher Education funding is necessary or required by a need to save money. It does not save money – it costs money, which could be spent more fairly on increasing the core teaching resource.

This analysis suggests that Vince Cable has lied to parliament, to the press and to his own party.

And this analysis casts doubt on the commitment of the coalition to their own stated aim of deficit reduction. This reform is clearly a purely ideological move, attempting to reform Higher Education along market-driven lines with no proven benefits and several clear issues, not least the additional costs to young people. And can we really afford it? Apparently so.

Apologies for the formatting issue with Table 1 – you can download a Word version of this post here – Analysis of financial impact of the Browne report recommendations.

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[1] For a fuller explanation of the current teaching funding method, see http://www.hefce.ac.uk/learning/faqs/heses09/HESES09affects_grant.PPT . You’ll note that I have simplified the model I have used to ignore low impact stuff like London Weighting.

[2] Broadly, group A is clinical medicine, group B is non clinical medicine, lab-based science and engineering, group C are subjects with a small amount of lab, studio or fieldwork like maths, psychology, media and geology, Group D is everything else.

[3] From a HEFCE analysis of teaching grant allocation for 2008-9, which can be found at: http://www.hefce.ac.uk/learning/funding/price/review.doc

[4] Removal of state funding for bands C&D and an equivalent reduction in band A&B funding.

[5] Using the same figures as in table 1, for comparability.

[6] Browne Review, p38

[7] Paragraph 29 of the full report, http://www.hepi.ac.uk/455-1860/The-Independent-Review-of-Higher-Education-Funding–an-analysis.html

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