Des McNulty: Denial is no way forward on higher education fees

The SNP government has delivered a very favourable budget settlement for Scottish universities. Last year’s 10% cut in teaching grant has been restored, research funding has been maintained and there will be a modest targeted increase in student places. Having paid off staff through voluntary severance, Universities now find themselves in a much better financial situation than they anticipated.

Indicative spending commitments for the next two years show Funding Council grants being increased by £135.4 Million by 2014-15, significantly improving on the settlement in the last spending review period. These additional resources go a considerable distance towards closing the gap with universities in England where the coalition government’s policy of allowing tuition fees up to £9000 threatened to create an uneven playing field between Scottish and English universities. In the short term, universities in Scotland have much greater certainty over their funding situation than most of their counterparts in England, where applications for entry next September have reduced by 8%, attributable in large part to the hike in fees.

But while the short-term outlook for Scottish universities is positive, there are grounds for concern about what might happen in the medium and longer term. At the last election the Scottish government made a political commitment not to introduce payment of any kind for Scottish students to attend Scottish universities. It was a popular policy, particularly amongst students and the parents of those young people intending to go to university. To cushion the universities, money was taken from other budgets, with further education college budgets being particularly hard-hit.

The impact of reductions in college budgets will affect young people who need vocational qualifications in order to improve their chances of finding work and people with learning difficulties who rely on colleges for specialist provision. The switch in resources disproportionately affects less affluent communities, where youth unemployment is highest and school leavers are much more likely to go to college rather than university.

This approach caused something of a furore among those aware of the direction of travel. Questions were raised about the logic of cutting back vocational education at a time of both high youth unemployment and skill shortages. So some extra money was found at the last minute to ease the pressure on Colleges next year. However College budgets are still falling by 8% next year, on top of this year’s 10% cut, with more cuts to come thereafter - clearly demonstrating that free university places are only being achieved by spending reductions elsewhere.

By the time of the next spending review a policy of ‘free’ higher education will face further challenges. In England, the introduction of variable tuition fees capped at £9000 is associated with year on year reductions in grant funding for universities, which gathers pace as students paying lower fees exit the system. This substantial reduction in teaching grant, 63% in real terms by 2014-15, will impact on the Scottish bloc which will be recalculated through the Barnett formula, and so make it much more difficult to maintain current funding levels.

In such a situation, dependence on government funding does not look a happy place to be for our universities. Although ‘marketisation’ in England is having a disincentive effect on total applications, demand for university entry from school leavers appears to be holding up. This gives English universities a diversity of sources of funding that will provide greater security and more autonomy, at least for those that are highly ranked and sought after. North of the border meantime, the recently published governance review gives the strong impression that Scottish Ministers want to call the tune in return for the money they have provided.

English research-intensive universities can be expected to continue to attract applicants and have the advantage of a reliable income stream from home-based students. And, if such top universities feel they can get away with charging even more, they will pressurise the Westminster government to lift the current cap. Even if the cap remains as it is, their greater dependence on government funding presents a significant risk for Scottish universities. In short, the medium term impact of changes south of the border may strengthen the competitive position of research-intensive institutions in England.

Many of our current and future competitor economies have been increasing investment in higher education during the recession, whether as part of a long term strategy to build intellectual capital and skills, as a short term stimulus package or as a combination of the two. The Scottish Government claims it is investing in higher education but the additional money provided is to underwrite the costs of student tuition. Arguably, had additional resources been directed instead towards strategic investments in the sector, whether in capital projects or redirection of research and teaching capacity, that would have benefitted the universities more by making them more competitive internationally and helped promote knowledge-led growth.

So that’s three challenges for our universities in the medium term: future impact on the Scottish bloc through the Barnett formula; greater diversification of funding for English as compared to Scottish universities; and limited strategic investment in favour of a no-fee policy. In addition, we have the uncertainty associated with possible separation from the rest of the UK.

Scotland’s research-intensive universities have done particularly well in competing for Research Council, central government, UK-based charity and industry funding. Scottish Universities win far more than they would get if this funding were to be sub-divided on a population share. That very success – three of them are in the QS top 100 globally - means we would have to find far more money than any other small country simply for research activity to stand still. It’s not just a matter of money however. Especially in scientific, technological and medical disciplines, researchers collaborate and specialise within national as well as international frameworks. Uncertainty about the continued involvement of Scottish universities within UK structures could be damaging long before independence itself became a reality.

Then we have the issue of losing current fee income. Projections made about the funding gap between Scottish universities and English universities following the introduction of higher fees included an estimate of income from students from the rest of the UK who would, unlike Scottish students, be charged fees. This, it was argued, would make up part of the shortfall with the balance made up by increased grant from the Scottish government. While Scotland remains part of the UK, our universities can impose these fees. But should Scotland become independent within the EU, English students would be entitled to be treated in the same way as Scottish students, just as students from other countries of the EU are at present.

The Scottish government has made no progress in its efforts to avoid having to pay for the tuition of EU students, whose numbers are increasing. The SNP estimated before the election that revenue of £62 million from rest of UK students would reduce the amount needed to close the funding gap with English Universities to £93 million by 2014. However, if English students are treated the same as students from elsewhere in the EU, the Scottish taxpayer would have to foot the whole bill. Taking into account inflationary increases in fee levels in England, the additional costs of closing the gap would exceed £200 million by 2014-2015, more than double the government’s projection.

So while the short term outlook is good, the longer-term position could be very difficult. Under the current arrangements, the bill for ‘free’ higher education will be increasingly hard to meet. Separation brings additional obligations to meet the costs of providing tuition and problems affecting research. It surely is time to get a debate going about how we ensure sustainability and excellence: at present both the Universities and the government seem to be in a state of denial.

• Des McNulty is a former Labour MSP and party spokesman on education