Hated £9,000 tuition fees might not save any money, says report

The trebling of university tuition fees to a maximum of £9,000 a year in England may not save taxpayers any money, an independent think-tank has warned.

The Institute for Fiscal Studies said the shake-up of higher education funding in 2012 could reduce the state’s contribution to each student by only five per cent, and warned that this saving could be wiped out if maximum fees were raised by £500 a year. Its research raises the prospect that the controversial hike in fees may not result in any financial gain for taxpayers despite the political pain – not least for Nick Clegg, who apologised for breaking the Liberal Democrats’ 2010 election promise not to raise fees.

University funding could become an issue at next year’s general election. The Conservatives have not ruled out a further rise in fees, but Mr Clegg insists there is no need to increase them. Labour will fight the election on a pledge to reduce fees to at least £6,000 a year and could opt for a lower figure.

The IFS report said another rise in fees would raise the cost of student loans in the long run. George Osborne’s surprise decision last December to lift the cap on student numbers, which will result in another 60,000 people going to university each year, could add another £1.7 billion to the taxpayers’ bill for the loans, which are cheaper for students than the cost at which the Government can borrow.

If ministers wanted to cut the loan subsidy, the IFS said, they could increase the repayment rate when graduates get jobs; reduce the £21,000-a-year earnings threshold at which repayments start or extend the repayment period beyond the current 30 years, after which unpaid loans are written off.

The IFS warned that the Government would not know for decades whether its 2012 reforms would save money as it originally hoped. The outlook was “highly uncertain” because it depended on graduates’ earnings.

When teaching grants for universities and maintenance grants to students are included, the state’s subsidy per student is £7,600 a year, more than the £6,000 it spends on a secondary school pupil, said the report.

Rowena Crawford, a senior research economist at the IFS and an author of the report, said: “The Government’s changes to the higher education finance system have not reduced the total taxpayer contribution per student substantially. The net effect on the public finances is primarily an increase in uncertainty, with the certain cost of teaching grants replaced by the uncertain costs of providing student loans. If future graduate repayments come in lower than expected, then a future government will have to accept higher-than-expected levels of public sector debt, or offset this by increasing taxes or cutting spending either on higher education or elsewhere.”

The Department for Business, Innovation and Skills said: "As a result of our reforms, a greater proportion of students from disadvantaged backgrounds are going to university than ever before. Our universities are well funded for the long term and now receive around 25 per cent more funding per student for teaching. These figures for repayments are estimates and based on a prediction of economic circumstances some 35 years in the future. They will continue to fluctuate and do not present an immediate pressure on the system."