Lord Browne of Madingley, the former chief executive of BP, has been conducting a review of higher education and its funding in England. The report was published on Tuesday 12 October. At present, student fees are capped at £3290 per year. From the academic year 2012/13 Browne recommends that the cap be removed, allowing universities to charge what they like (or what the market will bear). It is anticipated that, under these circumstances, universities would typically charge around £7000 per year, but some universities could charge much more – perhaps more than £12,000 for courses in high demand at prestigious universities. Universities would receive reduced funding from the government, through a new Higher Education Council, and the funding would vary by subject, with ‘priority’ subjects, such as science, technology and medicine, being given more. It is anticipated that total government funding for teaching to universities in England would be only just over 20% of the current level.
Browne recommends that universities that charge more than £6000 a year would have to pay a proportion of the extra income to the government as a levy for supporting poorer students. Those that charge more than £7000 would have to demonstrate that they were widening access.
Students would not need to pay any of the fees upfront (although they could do if they chose). Instead, they would receive a loan to cover the full fee. They would also be eligible for an annual loan of £3750 to cover living expenses. In addition, students from households with incomes below £25,000 would be eligible for a cost-of-living grant of £3250 on top of the loan. with household incomes above £25,000 the size of this grant would diminish, and disappear with household incomes above £60,000.
Students would begin paying back their loan after they graduate and are earning more then £21,000 per year (the current figure is £15,000). The amount that graduates would be required to pay back would rise sharply as earnings increase. For example, with an income of £30,000 per year, the graduate would be required to pay back £68 per month; with an income of £60,000 the monthly payment would be £293. Interest would accumulate on the unpaid balance at a rate equal to inflation plus 2.2%. For those earning below £21,000 threshold, it would accumulate at the rate of inflation only.
Not surprisingly, there have been mixed reactions to the recommendations from universities. Some universities have argued that competition will mean that they would not be allowed to charge the approximately £7000 fee that would be necessary to make up for the reduction in direct government funding. Predictions of closures of university departments or closures or mergers of whole universities are being made. Other universities have welcomed the ability to charge significantly higher fees to help their financial position.
The reactions from prospective students have been less mixed. With students starting in 2012 set to graduate with debts in excess of £30,000 and many with much higher debts, the Browne Review report makes bleak reading.
So who are the gainers and losers and what will be the benefits to higher education? The following articles look at the issues.
Note that the government has subsequently decided not to follow Browne’s recommendations fully. Annual fees will be capped at £9000 and the government expects that fees will typically be £6000.
Articles
Lord of the market: let competition and choice drive quality Times Higher Education, Simon Baker (14/10/10)
In the shake-up to come, no guarantees for anyone Times Higher Education (14/10/10)
Browne review: Universities must set their own tuition fees Guardian, Jeevan Vasagar and Jessica Shepherd (12/10/10)
Cable ‘endorses’ tuition fee increase plan BBC News (12/10/10)
Browne review at a glance Guardian, Jessica Shepherd (12/10/10)
Foolish, risky, lazy, complacent and dangerous NUS news, Aaron Porter (12/10/10)
Student debt: the £40k question for Lord Browne (includes two videos) Channel 4 News, Aaron Porter (8/10/10)
Blind spots in education proposals Financial Times letters, Philip Wales (14/10/10)
Tuition fees: securing a future for elitism Guardian, comment is free, Carole Leathwood (13/10/10)
NUS Scotland president Liam Burns condemns English tuition fee plans Courier (13/10/10)
Lord Browne review: round-up of reaction Telegraph (12/10/10)
University of Leeds responds to Lord Browne’s review of university funding Academia News (12/10/10)
Browne Review: Scrap university fees cap Chemistry World (12/10/10)
Invisible hand of market takes hold Financial Times (12/10/10)
A personal perspective on the Browne Review Progress Online, David Hall (12/10/10)
Tuition fee increases will be capped, says Nick Clegg BBC News (24/10/10)
Webcasts and podcasts
Students to face ‘unlimited fees’ BBC News, Nick Robinson (12/10/10)
Lord Browne interviewed by Nick Robinson BBC News (12/10/10)
Aaron Porter and Steve Smith on university funding and fees BBC Daily Politics (12/10/10)
University proposals create ‘two-tier system’ BBC Today Programme, Professors Roger Brown and Nicholas Barr (13/10/10)
The report and the NUS and IFS responses
Securing a sustainable future for higher education Independent Review (12/10/10)
Browne Review home page Independent Review
Initial Response to the Report of the Independent Review of Higher Education Funding and Student Finance (the Browne Review) NUS, Aaron Porter (10/10/10)
Graduates and universities share burden of Browne recommendations Institute for Fiscal Studies (12/10/10)
Questions
- To what extent will the proposals in the Browne review result in a free market in university courses?
- To what extent will competition between universities drive up teaching quality?
- Identify any market failures that might prevent an efficient allocation of university resources?
- To what extent will Browne’s proposals result in a fair allocation of resources between graduates and non-graduates, and between those who graduate under the new system and those who graduated in the past?
- Identify any externalities involved in university education. In what ways might these externalities be ‘internalised’?
Anyone who lives in the South West can argue that they get a raw deal. Not only are the average salaries in this region lower than in the rest of the United Kingdom, but their water bills are 40% higher than those elsewhere in England and Wales. South West Water is the only provider of water in the South West and hence there are no other competitors that households or businesses can switch to, despite the extortionate prices.
Many households and businesses in the region are struggling to cope with the unfair bills, as people are forced to sacrifice other things in order to find the money. Furthermore, it can be argued that these higher bills are actually used for the benefit of everyone else in the United Kingdom. Since privatisation, South West Water are responsible for cleaning and maintaining over one third of the UK’s beaches and the prices they are charged by SW Water reflect this £2 billion cost. Moreover, with a relatively low population, this large cost cannot be spread across many people. Instead, the small population has to pay larger bills. A hairdresser, who does use a lot of water, is finding herself crippled by water bills of some £2,500. And this bill will pay to clean the beaches in the South West so that people living elsewhere can benefit from the beautiful surroundings.
There is now wide recognition of how unfair this scenario is and proposals have been suggested, ranging from a government grant (hardly likely given the state of public finances) to a levy on other regions’ bills to compensate SW Water for their clean-up costs. However, no decision has been made about how to progress and so for now, residents of the region must just simply grin and bear it, while sacrificing expenditure on other areas and seeing residents from across the UK benefit from their sacrifice.
P.S. If you hadn’t guessed it, yes I do live in the South West!
Why is water so expensive in the South West? BBC News (13/7/10)
North Devon MP Nick Harvey tackles unfair South West Water charges Barnstaple People (14/7/10)
Questions
- What is privatisation? Assess the advantages and disadvantages of the privatisation of water some 20 years ago.
- Does South West Water have a monopoly?
- Which of the 3 proposals is the most beneficial to those a) living in the South West, b) businesses in the South West c) the government and d) the rest of the country?
- Which proposal would you recommend and why?
- Is it fair that those in the South West should pay disproportionately more to clean and maintain beaches, which are used by everyone?
- Is the concept of market failure relevant in this case? Explain your answer.
In October 2004, the USA lodged a complaint with the WTO. The claim was that the EU was paying illegal subsidies to Airbus to develop new aircraft, such as the superjumbo, the A380. This provoked a counter-complaint by Airbus, claiming unfair subsidies for Boeing by the US government since 1992. In July 2005, two panels were set up to deal with the two sets of allegations.
A ruling on the US claim was published on 30 June 2010. The WTO found Airbus guilty of using some illegal subsidies to win contracts through predatory pricing. For example, some of the ‘launch aid’ (LA) for research and development was given at below market rates and hence violated WTO rules. Also the provision of infrastructure and infrastructure grants for runways, factories, etc. also violated the rules. However, the WTO dismissed some of Boeing’s claims, as many of the subsidies were reimbursable at commercial rates of interest.
We still await a ruling on the EU’s complaint against US support for Boeing. This is due later in July.
Articles
WTO backs Boeing in Airbus dispute Financial Times, Joshua Chaffin and Jeremy Lemer (30/6/10)
FACTBOX-Subsidies and the WTO – issue at heart of Airbus case Reuters (30/6/10)
Q&A-What next in the Airbus dispute? Reuters (30/6/10)
TIMELINE-Key dates in Airbus subsidy dispute Reuters (30/6/10)
EU Airbus subsidies illegal, says WTO BBC News (30/6/10)
Boeing and Airbus row ruling to be made public BBC News, Richard Scott (30/6/10)
European loan rates to Airbus illegally low, says WTO Europolitics, Chiade O’Shea (30/6/10)
Airbus Subsidies From Europe Are Ruled Improper New York Times, Christopher Drew (30/6/10)
Airbus-Boeing Rivals May Benefit From Spat Aviation Week, Madhu Unnikrishnan (28/6/10)
WTO ruling
WTO issues panel report on Airbus dispute WTO (30/6/10)
Data on orders and deliveries
Competition between Airbus and Boeing (orders and deliveries) Wikipedia
Questions
- What is meant by ‘predatory pricing’?
- Which subsidies were found to be illegal by the WTO? What was it about them that violated WTO rules?
- What is Airbus’s complaint against Boeing?
- How might strategic trade theory be used to justify subsidies given to Airbus?
- In what ways might the disputes between Boeing and Airbus benefit other aircraft manufacturers?
I hardly need to say that the title is no reflection on England’s World Cup performance – or lack thereof. Instead, it relates to the opportunity for more people to watch the Premier League, which I’m sure most of you’ll agree is good news!
In 2007, BT, Virgin, Top up TV and Setanta complained about Sky’s dominance within the pay-TV industry. We considered Sky’s dominance and the subsequent investigation by Ofcom in a posting in March: Is the sky falling in?. Ofcom ruled that Sky would have to reduce the price it charged to other broadcasters to show its premium sports channels.
In more recent developments, there has now been a deal signed between Sky and BT, which will allow BT Vision customers to view Sky Sports 1 and Sky Sports 2 from August 1st 2010 (just in time for the start of the new football season, for those that are interested!) There are still ongoing debates about how much BT will charge for these new channels and it will depend largely on the outcome of the Sky’s appeal against Ofcom’s decision about the prices Sky has set. Although this may be good news to BT Vision viewers (excluding the fact that the deal does not include Sky Sports 3 and 4), there are many who agree on just one point: the regulator got it wrong. The Premier League could lose millions due to a loss of exclusivity and BSkyB argues that Ofcom didn’t even have the right to make the ruling.
These mini disputes are likely to go on for some time, but at least we can be certain about one thing: Ofcom’s decision can’t be any worse than Capello’s decisions in South Africa! Bring on the Premier League!!
Articles
Sky Sports 1 and 2 available to BT vision customers BBC News (28/6/10)
BT to offer Sky Sports in time for soccer season Reuters (28/6/10)
BT signs BSkyB deal to show Sky Sports channels BusinessWeek, Simon Thiel (28/6/10)
Sky forced to cut price of sports channels Telegraph (31/3/10)
New ruling lets fans see Premier League on TV for just £15 a month London Evening Standard, Jonathan Prynn (31/3/10)
Virgin media cuts Sky Channels prices Digital Spy, Andrew Laughlin (11/6/10)
BSkyB, BT and FAPL join Ofcom appeal Broadband TV News (11/6/10)
Sky wrongfoots rival BT by raising prices Guardian, Richard Wray (30/6/10)
BT charges £16.99 for Sports 1 and 2 BBC News (1/7/10)
BT launches cheap package to view Sky Sports Guardian, Lisa Bachelor (1/7/10)
BT Wades Into Pay-TV Sports Market Sky News, Nick Phipps and Emma Rowley (1/7/10)
Sky Sports broadcast costs set to rise BBC News, John Moylan (1/7/10)
Ofcom report
Delivering consumer benefits in Pay TV Ofcom Press Release (31/3/10)
Questions
- Ofcom’s initial ruling forced Sky to reduce prices. What will be the impact on a demand curve? How might this affect consumer choice?
- Sky has 85% of the market. Would you class it as a monopoly? Explain your answer. Is this agreement between Sky and BT likely to reduce or increase Sky’s market power?
- How might other Pay-TV providers be affected by this decision?
- What are the disputes surrounding Ofcom’s decision? Why might the Premier League lose so much revenue?
On the 24th May the new collation government released details of its plan to make £6.2 billion of savings (see HM Treasury press release). As part of this package, The Department for Business, Innovation and Skills (BIS) – headed by Business Secretary, Vince Cable – will make savings of £836 million, equivalent to 3.9% of its budget. One of the areas identified by BIS for ‘savings’ is the higher education budget, which will lose £200 million. Also targeted are the Regional Development Agencies (RDAs) in England. These are the strategic drivers of economic development in the English regions. They will lose £74 million from BIS as well as a further £196 million from other government departments.
So what is the Department for Business, Innovation and Skills charged with doing? Well, according to the BIS website it is charged with
…building a dynamic and competitive UK economy by: creating the conditions for business success; promoting innovation, enterprise and science; and giving everyone the skills and opportunities to succeed. To achieve this it will foster world-class universities and promote an open global economy.
In describing what BIS does, BIS states that it
…brings all of the levers of the economy together in one place. Our policy areas – from skills and higher education to innovation and science to business and trade – can all help to drive growth.
In other words, the BIS is intended to be a key player in affecting the UK’s long-term rate of economic growth. Since 1948 the average annual rate of growth of the UK economy, as measured by constant-price GDP (real GDP), is 2.4%. Of course, a key question is how we might do better. But, there is a significant disagreement amongst economists about the role that government should play in advancing long-term economic growth. This debate largely centres both on how activist a government should be and on the types of policy that a government should pursue.
The ’case for industrial activism’ is made in the leading article of The Independent on 25 May. It nicely encapsulates some of the policy issues surrounding long-term growth and, in reflecting on the cuts to BIS, identifies the role it believes BIS should play.
…we need to think clearly about the proper role for the state in the private sector. There is no future in a return to the heavy-handed statism of the 1970s or the discredited policy of trying to “pick winners”. The guiding principle as far as industrial policy is concerned is that government should do what the free market will not, or cannot. The function of the DBIS should be to increase Britain’s long-term growth potential.
This means supporting industries that cannot get funding from the capital markets and funding important research that would otherwise go unperformed. Most of all, it means education. Britain cannot compete successfully with the rising economic powers of China and India, which have access to a vast pool of cheap workers, on labour costs. Our only hope for advantage lies in our human capital. That makes the case for intensive vocational and advanced skills training.
Therefore, industrial activism, as envisaged by The Independent is about correcting for market failures and ensuring that there is sufficient investment in education and training.
The Confederation of British Industry, which describes itself as the ‘UK’s top business lobbying organisation’, in its press release of 19 May identified the following as ‘essential’ for delivering growth:
• Establishing competitive business taxes
• Developing a strong banking system
• Skilling students for the future and strengthening apprenticeships
• Attracting and cultivating enterprise and industry
• Prioritising energy security
• Working towards a low-carbon economy
• Developing the infrastructure for economic growth
The CBI too identifies the significance of skills. But, it believes that in the previous decade growth was driven too much by government spending (as well as by unsustainable growth in the financial sector). It argues that the private sector, along with trade, needs to be ‘the growth engine for the future’.
What is interesting about the proposed cuts to BIS is that they very visibly draw attention to the differences that exist among commentators, industrialists and economists as to industrial policy. In particular, they ignite the debate about the most effective role that a government can play in promoting long-term growth. Don’t expect too much agreement any time soon!
Press Releases
Government announces £6.2 billion of savings in 2010-11 HM Treasury (24/5/10)
Private sector growth and public sector reform needed to restore economy CBI (19/5/10)
Articles
The case for industrial activism Independent (25/5/10)
Public sector deficit cuts: Higher education and RDAs hit hard in BIS efficiency savings plan eGov Monitor (25/5/10)
George Osborne outlines details of £6.2 billion spending cuts BBC News (24/5/10)
Government axes £836 billion from business budget Growing Business (24/5/10)
Department for Business, Innovation and Skills hit hard by spending cuts Training Journal, Martin Kornacki (24/5/10)
Business department hammered as Osborne swings the axe Management Today (24/5/10)
Big cuts signal end to activism Financial Times, Jean Eaglesham, Andrew Bounds and Clive Cookson (24/5/10)
Businesses take a pounding as coalition cuts hit home London Evening Standard, Hugo Duncan (24/5/10)
Vince Cable explains spending cuts u-turn Newsnight (24/5/10)
Questions
- What do you understand by long-term growth? How does this differ from short-run growth?
- Evaluate the argument advanced by The Independent for industrial activism? What sort of policies might fall under this description?
- In considering the CBI’s list of influences on long-term economic growth outline what role you think government could play and what policies it could enact.
- Do you think the savings being made by BIS signal a new policy approach to delivering long-term economic growth in the UK?