Nick Clegg in Bath - "It will prove to be a fairer system"

"Social engineering?" Clegg dismissed claims that higher fees would make university the preserve of a privileged few. "It will prove to be a fairer system." But for whom? Students will have a much higher debt and will be paying off the debt for most of their working lives. Is that fair? In the last of my three posts on the student fee issue, like Woodward and Bernstein, I will be following the money and trying to bring down the government, or, more likely, just discussing who really benefits from the increase in student fees. 

In answering the question, we need to look at the assumptions underpinning the increase. The UK has the sixth largest economy in the world and it may surprise you, but the UK is also the sixth biggest manufacturing economy in the world. However, that position looks decidedly precarious. Russia, S Korea and Brazil are all closing in on poor little UK Ltd. Unfortunately, while those upstarts continue to grow, our manufacturing sector has shrunk considerably. Furthermore it is struggling to regain lost markets despite the collapse in the value of the pound making it far cheaper to export. According to the Institute of Fiscal Research this could be part of a structural decline rather than a temporary blip. 

What are the reasons for this? The IFS highlight a historical decline in manufacturing investment. Investors have been drawn to the 'higher' returns from the City to the detriment of our manufacturing base. Roughly 75% of UK GDP is accounted for by financial services and service industries. Just over 22% is manufacturing. Another reason, according to the OECD, is that we are slipping down the league tables of productivity. Central to this is having an well-educated workforce. We rank only 19th for the percentage of 'young' workers, 18 to 34 year olds, who have got a degree. We have been overtaken by a number of countries during the last few years, including S Korea and Ireland (although Ireland might slip back again given its own problems). 

The Coalition, and Clegg in particular, are talking up the importance of re-balancing the economy, so we have less reliance on the City and financial services. I think we can all agree that less reliance on the City would be a good idea. A healthier manufacturing base would also allow for a re-balancing of the country. Rather than drawing increasing numbers to the South-east it would provide opportunities across the country and regenerate the regions. How far have we got to go? To put it into context our role-models, the Germans, currently account for 30% of GDP from manufacturing.

The Germans

 

The argument, therefore, is that the UK's competitive edge can only be maintained in technical, high value sectors requiring a very well educated workforce. So, you would expect our school-swot German neighbours, with their healthy manufacturing and balanced economy to have a much greater number of graduates than the forlorn UK. In fact, they have a much smaller proportion, 23% to the UK's 38%. Despite this, German productivity is 11.8% higher.  

Yet, the Government insists that the UK needs to produce even more graduates. However, given the present economic constraints, who pays? They think the answer to that question is whoever benefits.   

At the meeting in Bath, Clegg stated that graduates earn, on average, £100000 more during their lifetime than non-graduates. According to the IFS, a woman with a degree can expect to earn 25-27% more and a man with a degree can expect to earn 18%- 21% more. The students personally benefit and therefore they should pay. On this basis it seems a reasonable assumption.

However, there is a social benefit as well as private benefit to higher education. Unfortunately, the social returns to higher education are very difficult to quantify, especially if you want to raise fees. Social returns can measure the effect of university education upon general productivity, the ability to adopt new technology quickly or even create new technology. Finally, there are a whole raft of benefits associated with having a better educated population that provide savings to the state: better health, a reduction in crime, social cohesion, less drug abuse and teenage pregnancies.

Quantifying the value of social returns is proving to be extremely controversial amongst academics. Methodology and conclusions are criticised.  Richard Venniker, from Tilburgen University in Holland, in a review of the work done on this subject, concluded that social returns are higher than private returns and may even be worth double. According to Venniker, the strongest evidence of social returns were not linked directly to economic output but rather in indirect benefits like reduced crime and social problems. 

If society is benefitting to the levels suggested by many academics, then this is clearly at odds with the Government's assumptions. As I noted yesterday, there are also concerns that students' private returns may have been wildly over-estimated. That would also agree with Venniker's conclusions. There are a lot of provisos attached to the research so it is difficult to draw any firm conclusions. However, it is surprising, given that public policy is being driven by assumptions of private benefit that there is so little research on the subject. I suspect that won't remain the case.

Even before we consider the broader benefits of education to creating a just state, such as social mobility, there is a strong argument that the students contribution will be too high. Overall, the research suggests that there is a benefit to society for providing higher education which, at the very least, is comparable to the private benefit. According to the IFS, the new fees will mean that students will pick up 60% of the cost, an increase from 24% under the present fees. From a conservative interpretation of the data available it seems reasonable to conclude that the new fee regime will overcharge students by anywhere between, 10 and 25%. Using the Government's own logic it appears society will be getting a free ride on the back of our students.

Meanwhile, graduate unemployment has risen by 25% to 8.9%, its highest level for 17 years according to the Higher Education Careers Services Unit. Yet, politicians continue to fuel this higher education boom. Why? Well the answer is probably down to universities proving to be very good at absorbing large amounts of young people for relatively little cost. Dr Bahram Bekradnia from the Higher Education Policy Institute, argues,

"The government's entire strategy is based around reducing public borrowing. Borrowing to give grants to universities counts as public borrowing. Borrowing in order to make loans to students does not count as public borrowing, to the extent that the government can show a stream of income to offset the loans."

With youth unemployment running at nearly 18%, you have to admire a government policy that gets young people off the unemployment statistics and at the same time gets them to foot the bill.

Nick Clegg in Bath - "more progressive"

"It will prove to be a fairer system". Nick Clegg assured the tame Lib Dems and slightly less house-trained students that the reform to student fees is "more progressive. More people will pay nothing back at all and a large proportion will never have to pay the fees off." With fees increasing almost 300% can the system really be fairer? As you have probably realised, student fees are a complicated business. However, whether you are a young person about to enter university or a parent with children who want to attend university, this issue is going to come back and bite you. 

The Browne Review, initiated under the Labour Government, reported in October 2010. It was asked to develop proposals to tackle the following issues: widening university participation, affordability of higher education for students and the taxpayer, how to simplify the current system of support and, given the current economic circumstances, how to ensure the financial sustainability of the system. Browne recommended that the Government should allow universities to charge whatever fees they liked, ensure all students have access to a maintenance loan and charge a 2.2% rate on loans, and start repayment after students start earning. 

As we now know the Government has made changes to the Browne recommendations. With grants from central government to universities being cut by 80%, widening university participation means making students pay higher fees. However, not setting a fee 'cap' would have been politically untenable at the moment, although I suspect it will come, so universities will be able to set fees up to £9000. Affordability was addressed by means-tested rather than the recommended universal maintenance loans and grants for students from poorer households. 

In order not to discourage students from deprived backgrounds, the children from 'free school meals' households will get scholarships that will pay the final year tuition fees and if universities charge over £6000, they will have to provide a scholarship for the first year's fees. In terms of repayment the government has introduced a sliding scale of interest charges on loans. 0% on earnings of less than £21,000 and 3% over £41,000. 

So is the system more progressive? According to the IFS, yes(ish). Compared to both Browne's proposal and the current system, the Government's proposals are more progressive when looking at repayments across graduate lifetime earnings. So the more you earn, the higher rate of interest you pay and the more you will pay back. In fact, the top 10% earners will pay back more than they borrowed.  However, because of the rather complicated system of maintenance grants the highest burden will fall on those from the middle income families because they qualify for the highest loans but without benefiting from the scholarships so their debt will be higher. 

Also, because of the increased repayment threshold of £21000 per annum, up from £15000, Clegg is correct to say that more of the lowest earners will not pay anything at all. Although, it should be noted that the threshold figure - the income level at which graduates will have to start repaying debts - due to be increased annually in line with earnings growth, not inflation, will not be increased until 2016, making it less generous in real terms.  Students will pay for 30 years and then have the remaining debt written off. The Government have assumed that 23% of the debt will be written off. Roughly the same amount as is written off now, however, the total debt will be much higher. 

The Higher Education Funding Institute have argued that this could be the sting in the tail. Based on historical data, the Government has projected graduate income to increase to an average of £100,000 per year over 30 years. HEFI suggest that because the number of graduates is increasing so fast the historical trend is not a good indicator of future pay growth and, also, because loans are being opened to part-time students, who have a higher drop out rate, then the 'government is more likely to lose over 50%. HEFI concludes that the reforms cannot be expected to save money in the long term and that the Treasury is likely to demand changes which may include raising loan interest rates, reducing student numbers or a further fees hike.

Another possible problem is that universities charging over £6000 will have to fund pupils from 'free school meal' households for their first year. Clearly a disincentive to accept those pupils. Clegg has been insistent the Office of Fair Access will ensure the top universities actually take a higher proportion of these students. We await the outcome of their efforts to impose 'quotas', but there is already signs that they wil face strong opposition. Also, as the IFS have pointed out, an increase in fees reduces the level of applicants at double the rate a corresponding increase in finance through grant or loans encourages applications. Quite simply putting fees up discourages applicants. Inevitably, poorer students will be the most disadvantaged. 

In effect, the changes mean students will be paying a 9% 'graduate tax'. The majority will not pay off the debt, and will pay 9% of their income over the £21000 threshold for the full 30 year term. A pretty hefty reduction. The Institute for Fiscal Studies concludes that under the proposed system, the average cost to each student will increase by £9500 and 78% of students will be worse off. Most of them significantly worse off. In this context, although Clegg is largely correct when he says the system is more progressive, that many students will never pay off their loan and that there will be a huge proportion who never pay their debt off. But, does that tell the full story? Clegg may be speaking the truth but does that make it a fairer system? Much higher debts and 30 years of repayments suggests not.


Are they putting up the fees to the University of Life? 

Nick Clegg in Bath - "I am a human being"

Frost Vs Nixon

What sort of man is Nick Clegg? First, you had Frost Vs Nixon, then came Chris Evans and Sean Ryder and now: the rumble in the World Heritage Site, the thriller in a small city in Somerset. Yes, Clegg Vs Me. Using all the influence at the disposal of Things Can Only Get Better?, a tip off from my local Lib Dem MP, Don Foster - hasn't he read the blog? And, the remarkable power of waiting outside for quite a long time, I was able gain access to the Deputy Prime Minister for a whole hour of Q&A. Well, me and 200 largely tame Lib Dems. 

Given the 20,000 or so students who live in Bath and the anger across the country at the rise in tuition fees, it was not unreasonable to expect a show of force from the local NUS. But Friday night in Bath, clearly has greater attractions for students than political demonstrations. Any sense of tension was dissipated early on when it became apparent that the demonstrators were outnumbered by the police, roughly eight to one. They were probably outnumbered by the BBC news crew as well. Inside was a similar story, with at least two thirds of the audience made up of loyal Lib Dems. 

Clegg looked tired after a whole day criss-crossing the Southwest, and he introduced himself by reminding the audience "I am a human being". Yes, Nick Clegg has feelings too. He was met with a few boos as he entered the room but it all felt more pantomime rather than gladiatorial. Only the issue of student fees provoked any strong dissent from the floor. Clegg argued that the reforms, "will prove to be a fairer system. The new structure is more progressive. More people will pay nothing back at all and a large proportion will never have to pay the fees off." "Liar" was the response from a small pocket of students. Clegg was not impressed. 

Is he a liar? Did he lie about tuition fees during the election campaign? Clegg argues the Lib Dems proposed to scrap fees if they won the election - but, unfortunately, they didn't win - and as far as he is concerned that means that all bets were off when it came to student fees. They were in the business of forming a coalition and so something had to give. But how serious were they about the student fee issue?

The Liberal Democrats say that scrapping student fees was never a priority. They point to their four key aims which appeared on the front of their election manifesto: 'Fair taxes, A Fair Chance, a Fair Deal and A Fair Future,' and argue that all of these were agreed in the coalition agreement. I would have thought student fees could have fitted neatly into any of those categories. 'A Fair Future' promised 'honesty about the tough choices needed to cut the deficit'. How hard did they press the Tories on student fees? Given the likelihood of a hung parliament how 'honest' was their manifesto promise? 

In November 2010 on ITV1's Daybreak programme, Clegg admitted that:

"I should have been more careful perhaps in signing that pledge at the time. At the time I thought we could do it." 

Did he really think he could do it? Back in September 2009 there was already speculation that Clegg wanted to scrap the party’s policy of abolishing tuition fees. He told the Party Conference that he had to be “realistic” about whether it is affordable given the country’s mountain of debt. 

"Ending tuition fees would cost billions of pounds every year. We need to be certain we can afford it before we make any promises. But I can make this pledge – at the next election we will have the best, most progressive package for students of any mainstream party.” 

With two million student votes waiting to be won and both Labour and Conservatives indicating that fees would rise, all doubts about costs were resolved. It was certainly the most progressive policy because Clegg retained his promise to scrap tuition fees and they subsequently won 15 of their 57 seats in university cities. So it is fair to say that the pledge won a lot of student votes.

However, back in March, before the election, they were already recommending that the policy should be jettisoned. The Liberals had no chance of winning the election outright, but there was a very strong possibility of there being a hung parliament. A leaked memo preparing the party for future coalition discussions by Danny Alexander, Clegg's Chief of Staff, suggested that student fees were not a high priority:

"On tuition fees, we should seek agreement on part-time students and leave the rest. We will have clear yellow water with the other [parties] on raising the tuition fee cap, so let us not cause ourselves more headaches."

"More headaches". Oh, Danny, how wrong you were. I suppose, given the recent history of student lethargy in the political arena, it was a reasonable assumption that they could ride out any criticism. A reasonable assumption, yes, but a cynical one. While planning for a coalition they were selling a pipe dream. Isn't that what all parties do? Yes, but the trouble for Clegg is that their election strategy sold an image of a new kind of politics. 'Believe the Liberal Democrats because we are different to the other parties.'  Public pledges were signed by MPs and party political broadcasts sold the tagline: "No more broken promises."

Not surprisingly the whole thing has blown up in Clegg's face. During the meeting he seemed to be confused by the inability of the students to get to grips with the detail of the reforms. In fact, they simply aren't interested in the details. They feel they have been lied to and they are very angry. After the meeting I had a chat with some Liberal supporters who were very keen to point out that, in government,  Labour had also gone back on its own election promise not to introduce fees. Sadly true. But, it is pretty desperate when your defence is that you are as bad as the other guys.

Unfortunately, for Clegg, Facebook and Twitter have not just changed the political landscape in North Africa. Who would have expected 50,000 students on the streets, rioting and attacking Millbank? Clearly, the new social media has once again put political protest, anywhere but Bath, back in vogue. That may change if it actually is in Vogue. The truth is - sorry to use that word - I simply don't think the Lib Dems quite understand the indignation.

As anyone who has worked with Liberal Democrats in local government knows - they are just as ruthless as either of the other parties. No better or worse. Liberal Democrats know this themselves. During the meeting when Clegg exclaimed, "I am a democrat",  he was not alluding to the election broadcast image of gleaming right and darkest wrong, but a world of grubby compromise. Clegg's message to the students at the meeting was basically: grow-up, what do you expect from politics? Ah, the truth!

The problem for Clegg is that I don't think that is a lesson the Liberal Democrats could afford to teach.