British students pay the price of market forces

Are UK graduates losing out to overseas ones because they don't earn universities as much money? Lucy Hodges reports. Julia Hinde in Australia looks at the student fee trouble there

How long will it be before the dam bursts in Britain and universities are allowed to charge students more for tuition? Nothing will happen this side of a general election, but the current situation cannot continue indefinitely.

After 2002, ministers may find themselves under intense pressure to relax Education Secretary David Blunkett's edict that universities charging more than the flat rate fee (pounds 1,025 this year) will end up being penalised.

Universities belonging to the elite Russell group - those with medical schools and the London School of Economics (LSE) - wonder constantly how they will find the money to maintain high-quality institutions that can compete with the best in the world. As it is, they are being pushed to recruit increasing numbers of overseas students who can be charged more.

In the 1980s, for example, more than 70 per cent of LSE students were from Britain or the EU; now they account for just over 50 per cent. The reason? It gains more than pounds 9,000 a year for an overseas student but only pounds 3,000-pounds 4,000 for a home-grown/EU one.

"The Government's financial mechanism is discriminating against British students," says Nick Barr, a senior lecturer in economics at the LSE. "Whatever the merits of existing arrangements, they don't achieve what either ministers or the better universities want to achieve, which is to have British undergraduates."

One of the reasons the LSE has gone down this road is that it teaches only social sciences which carry relatively low funding for home and EU students. It has no science or engineering and cannot attract finance from industry either.

Other universities with a high percentage of foreign students are Essex (42 per cent), UMIST (39 per cent) and Imperial College (33 per cent). Universities say they have no policy of recruiting overseas students but that it happens in some courses.

Susan Bassnett, the Pro-vice-chancellor of Warwick University, says it happens in manufacturing engineering. "I think there will be more of that as time goes on."

Top-up fees would only come if there were a change of education secretary, say experts, and if universities were unable, for example, to pay the salaries recommended in the Bett Report without help from the Government. Institutions may find the only way to recruit and retain high-quality staff is to charge more for tuition.

"How long can Oxford and Cambridge continue maintaining tutorial groups with funding that is being eroded?" asks Robert Pearce, the Deputy vice- chancellor of the University of Buckingham. "They could charge an extra pounds 2,000 a year to those who can afford to pay, and give scholarships to those who can't."

The British tuition-fee system owes a lot to the 10-year-old Australian model, which now allows differential fees - medical and law students are charged more. A leaked report to the Australian cabinet suggesting that universities could charge what they liked caused public uproar this autumn.

British universities thought likely to be able to charge top-up fees are Nottingham and Bristol, which have a high ratio of applicants to places, and are expected to break away as a group. And they will be careful about their rhetoric, arguing they don't want to introduce top- up fees, but that they have no alternative. Ministers will be careful, too - saying they don't really approve, but that they can't do anything about it.

Scotland appears to be going in the opposite direction. The Cubie Committee, set up by the Scottish executive to look at student finance as part of the Lib-Lab coalition deal, is coming under pressure to recommend the reintroduction of the student grant - and Scottish cabinet ministers are said to be in favour of bringing back grants for the poorest students.

Grants were abolished throughout the UK this year in favour of means- tested loans. But Cubie's interim consultation document found the reintroduction of grants had more support than abolishing fees. "We have heard from individual students, representative bodies, and from some universities and colleges that there are signs of students falling out because they can't sustain the living costs," says lawyer Andrew Cubie. The abolition of grants is also deterring some students from entering higher education, according to Cubie.

Graeme Davies, the Vice-chancellor of Glasgow University, believes Cubie will recommend that the poorest students should have access to some kind of bursary scheme. Whether bringing back grants in Scotland would be enough to appease the Scottish Liberal Democrats, who made abolition of fees a manifesto commitment, is debatable. Cubie is likely to report with his proposals by Christmas.

LH