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’?
In his speech to the Conservative Party conference, the Chancellor of the Exchequer, George Osborne, announced that from 2013 child benefit would not be paid to any household where one or both parents had a high enough income to pay tax at the 40% rate. This means that if either parent earns over £43,875, they will receive no child benefit for any of their children. If, however, neither parent pays tax at 40%, then they will continue to receive it for all their children. Thus if both parents each earned, say, £43,870, giving a total household income of £87,740, they would continue to receive child benefit.
Not surprisingly, people have claimed that it is very unfair to penalise households where one person earns just over the threshold and the other does not work or earns very little and not penalise households where both parents earn just below the threshold. So what are the justifications for this change? What are the implications for income distribution? And what are the effects on incentives? Are there any people who would be put off working? The following articles look at these questions.
Articles
How benefit cuts could affect you Guardian, Patrick Collinson and Mark King (5/10/10)
Q&A: Child benefit measures will be messy Financial Times, Nicholas Timmins (5/10/10)
Cameron Defends Cut in Child Benefits for Stay-at-Home Mothers Bloomberg Businessweek, Thomas Penny and Kitty Donaldson (5/10/10)
Three million families hit by child benefit axe Telegraph, Myra Butterworth (5/10/10)
George Osborne’s child benefit plans are characterised by unfairness Telegraph letters (5/10/10)
Child benefit: case study Telegraph, Harry Wallop (5/10/10)
Child benefit cuts ‘tough but necessary’ say ministers BBC News (4/10/10)
Child Benefit Changes – Should Parents Take a Pay Cut? Suite101, John Oyston (5/10/10)
No such thing as an easy reform BBC News blogs: Stephanomics, Stephanie Flanders (5/10/10)
Child benefit saga: Lessons to be learned BBC News blogs: Stephanomics, Stephanie Flanders (6/10/10)
Speech
Higher rate taxpayers to lose child benefits from 2013: extracts from speech BBC News, Nick Robinson (5/10/10)
Our tough but fair approach to welfare Conservative Party Conference Speech, George Osborne (4/10/10)
Data and information
Child Benefit: portal HMRC
Child Benefit rates HMRC
Income Tax, rates and allowances HMRC
Questions
- Assess the fairness arguments for not paying child benefit to any household where at least one person pays tax at the 40% rate.
- For a family with three children, how much extra would a parent earning £1 below the threshold have to earn to restore their disposable income to the level they started with?
- What incentive effects would result from the proposals? How might ‘rational’ parents respond if one parent now stays at home and the other works full time and earns over £43,870, but where both parents have equal earning potential?
- What income and substitution effects are there of the proposed changes?
- Discuss other ways in which child benefit could be reformed to achieve greater fairness and save the same amount of money.
- What are the arguments for and against tapering the reduction in child benefit as parents earn more?
Most people, when asked, would like to earn more and many people are prepared to make sacrifices to do so. They may devote considerable time to obtaining qualifications; work much harder in order to gain promotion; work longer hours. What is more, when people do earn more, they take on extra commitments: a bigger house with a bigger mortgage; sending their kids to a private school; getting used to a more luxurious lifestyle. In fact, many people have to spend more on things such as home help, convenience foods and all sorts of labour-saving devices in order to cope with their longer hours.
Some people get so fed up with this pressurised lifestyle that they say ‘enough is enough; let me off this merry-go-round’. They may be happy to take a cut in income to live a simpler life and have more leisure time. Others, however, find that the merry-go-round just keeps going faster and faster and that they cannot get off; except, perhaps, if they make themselves ill, or worse still, die!
Now, if you are struggling as a student to make ends meet and find your debts are inexorably mounting, you may have little sympathy for people earning six-figure salaries! But are you in danger of trying to achieve this lifestyle for yourself? Do you see the main goal of your degree as getting you a better-paid job? What would count as ‘rational behaviour’ here and what would an economist advise you to do?
Then there is the question of whether the high paid are worth their high salaries. Are these salaries a reflection of the value of their output and the sacrifices they make? Or do they reflect economic power, custom and practice or asymmetry of information? And what do we mean by ‘worth’?
The following articles look at some of the highest paid people in the public sector. Some 38,000 public-sector employees earn more than £100,000. In the private sector the figures are much higher: some 545,000 people.
Articles
The perils of earning a £100,000 salary BBC News Magazine, Jon Kelly (22/9/10)
Ranking the pay packets of the public sector’s top dogs BBC Panorama programme, Vivian White (19/9/10)
Public Sector pay: The numbers BBC News (20/9/10)
Over 9,000 in public sector earn more than David Cameron, survey claims Guardian, Nicholas Watt (19/9/10)
On the inequality myth The Economist blogs (20/9/10)
Data
Portal to Annual survey of hours and earnings (ASHE) Office for national Statistics
Family Spending – A report on the 2008 Living Costs and Food Survey (see Chapter 3) Office for national Statistics
Income inequality Office for national Statistics (10/6/10)
The effects of taxes and benefits on household income, 2008/09 Statistical Bulletin (ONS) (10/6/10)
Data: The effects of taxes and benefits on household income, 2008/09 Office for national Statistics
Questions
- Use Gini coefficients to examine what has happened to income distribution in the UK in recent years.
- Are high-paid earners ‘worth’ what they are paid? How would set about establishing what they are worth?
- Is it rational to seek a higher paid job if it involves longer hours and more stress? Why may it be difficult to make a ‘rational’ decision?
- Should the Prime Minister be the highest paid public-sector employee? Explain your answer.
- What factors will you take into account when deciding what jobs to apply for?
- To what extent can imperfect information explain people’s choices about work-life balance?
- To what extent can marginal productivity explain the huge salaries and bonuses paid to top executives in both the public and the private sectors?
With the full impact of the fiscal austerity measures yet to come, the fall in unemployment revealed in the latest ONS labour market release is probably a lull before the storm. Nonetheless, in the three months to July unemployment fell by 8,000 to 2.467 million, while the rate of unemployment – the number of people unemployed expressed as a percentage of those economically active – fell from 7.9% from 7.8%. But, within the ONS release we again saw an increase in the number of people who are long-term unemployed.
The number of people aged 16 or over who have been unemployed for at least 12 months stood at 797,000 in the three months to July. This represents an increase of 15,000 over the previous 3 months. While the pace of increase appears to have slowed – the number had risen by 100,000 in the three months to April – the pool of people who can be described as long-term unemployed is undoubtedly of much concern. To put this number into perspective, it means that of the 2.467 million people unemployed 32.3% have been so for at least a year. In effect, one-third of the pool of unemployed can now be thought of as long-term unemployed.
Of the long-term unemployed, 547,000 or 69% are male. This is the highest number of males described as long-term unemployed since the three months to May 1997 – the month when the Labour government of Tony Blair came to power. But, the historical context for female long-term unemployment is even bleaker. A further increase of 4,000 over the 3 months to July means that the number of females who are long-term unemployed has risen to 250,000. The last time long-term female unemployment was higher than this was in the three months to September 1995.
An obvious concern with the expectation that the total unemployment figure will grow in the not too distant future is that the number of long-term unemployed people will carry on growing. Of course, this not only has unfortunate implications for these individuals but for society and the economy more generally. Consequently, it raises some important and very difficult economic and social policy questions. One important economic question, for instance, is how we tackle the erosion of human capital as more and more individuals are divorced for longer and longer from the labour market. An erosion of human capital affects individuals and society not only in the present, but in the future too.
Articles
UK unemployment falls by 0.1 pct to 7.8 pct Associated Press (16/9/10)
Wasteland: Europe stalked by spectre of mass unemployment Independent, Alistair Dawber (16/9/10)
Job fears despite employment rise Telegraph, Angela Monaghan (16/9/10)
Part-time jobs fuel record rise in employment Express, Macer Hall (16/9/10)
UK unemployment falls to 2.47 million BBC News (15/9/10)
Data
Latest on employment and unemployment Office for National Statistics (15/9/10)
Labour Market Statistics, September 2010 Office for National Statistics (15/9/10)
Labour market data Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission
Questions
- If the overall number of unemployed people is falling why is the number of long-term unemployed rising?
- The current unemployment rate is 7.8%. But, what do we mean by the unemployment rate?
- Draw up a list of the problems that you think arise out of long-term unemployment.
- Use your list to draw up a series of potential policies to tackle these problems.
- Why do some economists think the current fall in unemployment is a ‘lull before the storm’? What impact might this have on the number of people long-term unemployed?
UK unemployment now stands at 2.47 million, which is a fall of 34,000 people in the three months to May. Meanwhile, the claimant count, which measures the number of individuals claiming Jobseeker’s Allowance, fell by 20,800 between May and June to stand at 1.46 million.
The total number in employment increased by some 160,000 in the three months to May to reach 28.98 million. The increase in the number of individuals in work is largely due to an increase in the number of part-time workers, which now stands at some 27%. The development of the flexible firm has played a huge role in creating more and more part-time jobs.
Although declining unemployment is good news, and the jobless rate of 7.8% is now comparable with the EU and the US, there are suggestions that it may rise again next year. Indeed, unemployment is expected to peak at nearly 3 million in 2012 (10%) and an employer’s group has said that the UK may face serious job deficits for the next decade. As more and more jobs are lost in the public sector, estimates suggest that the economy must grow by 2.5% per year from now until 2015, in order to compensate these losses with extra jobs in the private sector.
As John Philpott, the Chief Economic Adviser at the CIPD said:
“A slightly milder growth outcome – which many would consider a decent recovery in output given the various strong headwinds at present facing the economy – is easily as imaginable as the OBR’s central forecast and would leave unemployment still close to 2.5 million by 2015, meaning Britain faces at least half a decade of serious prolonged jobs deficit.”
So, although the fall in the jobless rate is undoubtedly good news, the uncertain future for unemployment in the UK, will put a slight dampener on this news.
Articles
UK unemployment declines to 2.47m BBC News (14/7/10)
Economy Tracker BBC News (14/7/10)
Unemployment to peak at 3m by 2012 Telegraph (14/7/10)
Labour market report to show outlook for jobs worse than OBR projections Guardian, Katie Allen (14/7/10)
Part-time work boosts UK employment rate Sky News, Hazel Tyldesley (14/7/10)
Unemployment figures: what the experts say Guardian, Katie Allen (14/7/10)
Data
Labour market statistics latest: Employment ONS
Labour Market Statistical Bulletin – July 2010 ONS
Labour market statistics: portal page ONS
Questions
- How is unemployment measured in the UK? Which is the most accurate method?
- What is the flexible firm and how has it allowed more part-time jobs to be created?
- Why is unemployment expected to rise again in the next few years?
- The ONS has reported that wage growth has eased sharply. How will this, along with falling unemployment rates, affect household incomes and consumption? Will one effect offset the other?
- Brendan Barber in the Guardian article, ‘Unemployment figures – what the experts say’, wrote that unemployment lags behind the rest of the economy. Why is this?
- What type of unemployment are we experiencing in the UK? Illustrate this on a diagram.
- Consider the government’s plans in terms of spending cuts. How are they likely to affect the rate of unemployment in the UK?