Monday, 25 October 2010

And now, for something completely different...

I don't normally do work related stuff, here.  But a good friend on Twitter pointed me to this post, on Left Foot Forward, whose calculations in turn rely on this post on 2me2you. Neither of which I'd heard of before today, and both of which are flawed to a serious degree, but I can't possibly say why in 140 characters!  For those of you who want an early escape, this is about the Browne Review into HE funding.

So, first the calculations.  2me2you makes an interesting point, which would stack up an awful lot better if his/her understanding of the teaching funding method weren't somewhat awry.  To be fair, it's not a straightforward calculation, but even still... 2me2you has current teaching funding at roughly £7.5bn.  We'd take that, thank you very much.  In fact, if you look at HEFCE's announcement of the current year's recurrent funding, the total teaching grant (including targetted allocations) is £4.7bn, with core funding at £3.9bn - something slightly less than half of 2me2you's estimate.  But why use the facts when they undermine your argument, eh?  The basic problem is that in calculating funding, the author of 2me2you has forgotten to deduct the assumed fee - yes, in current funding, FTEs are multiplied by a weighting factor.  But then HEFCE deducts an assumed fee of - from memory - £3150 per FTE.  This is the basic Band D element of the grant.  My very rough back of the envelope calculation, assuming 2me2you's FTE numbers are right, makes core funding £2.6bn on this basis.  Closer to the real  £3.9bn than he/she quotes, but probably no banana to me, either.

2me2you also ignores the implication of removing that £3150 from each FTE in the remaining funding.  By abolishing the Band D funding altogether, each FTE's funding in bands A and B comes down by £3150 from the core calculation performed on this blog.  In fact, Browne states quite explicitly on page  47 (final para of section 6.2): "We envisage that the minimum level of investment will be consistent with the current premium paid by HEFCE on equivalent courses – ca. £700m per year".  So I'm going to take that as a statement of intent and not bother to re-do the calculations I've been doing all bloomin' week.  So, core funding goes from £3.9bn to £700m - that's a reduction of £3.2bn to core funding, or if you take the targetted allocations, too, then it's £4bn out.  Which, coincidentally, is what the big number touted for the CSR was...  I'm not even going to start on the fees calculations because it's late and there's a bottle of wine calling.  Suffice it to say that as one who does this kind of calculation day in, day out, the numbers look wrong.  Too big.  And the logic looks flawed.  If anyone reads this, then I'm sure someone will know how and be only too delighted to expound.

So, let's just say that 2me2you's numbers can't be relied on, ok?  I've proved half the equation.  If half the equation is wrong, then the result is wrong.  It cannot be otherwise.  And you'll notice that I haven't made a political judgement in any of this.  Though I might, later.

What of our friend Left Foot Forward, then?  He/she relies on 2me2you's unreliable calculations and uses them to make the emotional assertion: "Left Foot Forward has already highlighted the unfairness of the propsals [sic], which will result in bankers faring better than public servants such as teachers."

Now, I hate this kind of argument.  It really gets my goat.  If you're going to tug on the nation's political heartstrings, then have the grace to dress up like a 50s matinee idol and do the job properly.  This is a rational, adult, policy issue.  Please treat your readers as though there's the remotest chance they'd have the intelligence to follow a decent, sustained, rational argument.  Is that so much to ask?

Goats aside, what's wrong with this argument?  Well, let's go back to Browne, and his proposals for repayment.  On p.40, Browne argues:

" ... we will make the following changes to how the current system works to create the new SF Paying system:
• Students with higher earnings will pay a real interest rate. The interest rate will be equal to the Government’s cost of borrowing (inflation plus 2.2%).
• Students earning below the repayment threshold will pay no real interest rate. Their loan balance will increase only in line with inflation.
• Those earning marginally above the threshold whose payments do not cover the costs of the real interest will have the rest of the interest rebated to them by Government.
• The repayment threshold will be reviewed regularly and increased in line with average earnings. As the threshold has not been increased since 2005, there will be a one-off increase at the start of our new system from £15,000 to £21,000.
• Changing the threshold in line with earnings increases the costs of loans for Government. Some of that cost will be offset by increasing the maximum payment period from 25 to 30 years. After 30 years, any outstanding balance will be written off by Government."

So, your bankers (who earn more) will pay a higher rate of interest.  Your teachers on below £21,000 per year will not pay any interest rate - their loan balance only increases with inflation.  Teachers who earn above £21,000 will pay a real rate of interest, but if their earnings are only marginally above £21,000 the government will rebate their interest to them.  Seems to me, that leaves teachers better off than bankers, no?  And if teachers never earn more than £21,000 then after (an admittedly very long time) 30 years, the debt is written off.  Whereas bankers are unlikely to have that problem.  Teachers 2 - Bankers 0, I reckon.

Browne then goes on to outline *how much* people will pay back.  And here's the shocker.  Anyone earning up to £21,000 pays back nothing. If you earn £25,000 you repay £30 per month.  If you earn £30,000 you repay £68 per month.  Perhaps I'm just turning into a fat, old, capitalist pig-ette, but that doesn't seem like so very much to me.  It does get to be quite a hefty monthly payment if you earn £60,000 (hello, bankers!) at £293 per month.  But I reckon on 60k you can probably afford that.  Just about.  I have to admit, I'm not sure what teachers earn in what timescale, but it strikes me that at the very least we're on Teachers 3 - Bankers maybe 1/2.

What I really like about the repayment proposal is this: if you stop earning, you stop paying.  That means that if I take a maternity career break, I stop paying.  If I'm made redundant, I stop paying.... etc.  That, for me, is a really good feature.

So what do I think of Browne?  On balance, I think it's the very best we could have hoped for.  Yes, I'd prefer that everyone benefitted from the free education I had but if we accept that funds are limited, I'd rather free education was the protected preserve of the under 18s.  University students *do* get a tangible benefit from their education, and I don't really see that there's any harm in them putting back into the system as a result.  Student loans are now an established fact of life.  It seems utopian to hope that we could ever reverse that decision.

Universities do cost money, though, and I think the state should provide some of that.  Browne preserves that.  Not in an ideal way - given my own degree and my recent working background I'd like the importance of the Arts and Social Sciences to see more recognition than across the board 100% cuts - that does worry me.  But I like the idea that funding follows the students.  That seems intuitively ok.

I'm more worried about Compo and Clegg's plans to introduce a fee cap, rather than the soft Browne cap.  This seems to me to be ill thought through meddling for the sake of securing a political legacy rather than because there is a compelling argument to over-rule the Browne judgements.  Word in the corridors is that the fee cap will be between £10,000 and £12,000.  This strikes me as being much higher than any but Oxbridge would have set their fees in the pure Browne model.  This is perverse for two reasons:

First, if you set a cap, you get rid of the idea of levies.  The levy proposal was good, because it meant that if Universities set fees higher than £6,000, they had to surrender some of their ill gotten gains back to the central funding pot, to be recycled into student loans.  Seems like a pretty Solomon-like judgement, to me.  You want to charge extortionate amounts?  Fine.  You help fund it.  But the 'hard' fee cap proposal explicitly rules out levies.  No help with the funding there, then (and presumably 2me2you would approve of universities lightening the funding load).

Second, if you create a free market (dear god, I sound like a Tory: shoot me now!), the effect is counter-intuitive: it drives fees down.  Trust me. None of us (except perhaps Oxbridge and probably not even them) wants to be the most expensive.  It looks bad, don't you know, and we'd be paranoid about being under cut and losing students.  Browne said £7,000 would be what you'd need to charge to replace the cut HEFCE funding, and I reckon only a few brave, high ranking souls would've strayed far above that level.  But we saw after Dearing that if you introduce a cap, then there's a stampede to the level of the cap.  Everyone will make a judgement about whether they want to be top quartile, or top decile in the fee ranking.  Top quartile starts at £7,500 for a £10,000 cap or £9,000 for a £12,000 cap.  How many institutions charge lower than the highest possible fee rate, now?  Not many... Now scale that for a £12,000 fee cap.  Yes, introducing a hard cap will make tuition fees higher.  And that, combined with the removal of the levies, is just perverse.

What's really dangerous about Left Foot Forward's and 2me2you's arguments is that they feel so appealing.  Anyone who wants to present themselves as the last bastion of social inclusion, of truly egalitarian liberalism, or even (whisper) of socialism is going to agree with the argument because at a superficial level it stacks up.  And so people will retweet, or quote, or track back to the original without either really thinking about it, or without having understood the issues.

Worse, it seems to me, is the vast number of people who are quoting in an approving way without having read, or understood, the report.  It is not enough to read the Sunday supplements and form an opinion based on that and the ramblings of an ill informed blogger.  This debate is informing the future of Higher Education which is politically, morally - and perhaps least of all - economically important.  If we want to carry on being the intellectually rich culture we have been for so long then we at least deserve to think about this in an informed, meaningful way.

Now, I couldn't possibly have said all that in 140 characters.

And to get back on topic (for this blog, anyway)... I think one of the kids has nits.


  1. All very true! Worth adding though that the £68/month pay back on a £30K salary is LESS than graduates in the currant system pay back on that salary (£113/month). That combined with pay back starting at £21K instead of the current £16K threshold can only be seen as A GOOD THING!

    The folk who keep banging on about higher fees putting off (potential) students from working class families always seem to forget to mention that the fees are paid in retrospect in such a convenient and fair way (even fairer than the current payback rates, one should add).

    For the record - I am from a (very) working-class family myself - combined parental income when I went to uni was around £12K. I went to uni and supported myself via Student Loan and several jobs. Not a penny from my family (they couldn't afford it). I left £27,000 in debt to the Student Loans Company. I knew that debt would be there from the outset and did the prospect of being in debt put me off? Did it hell! Going to university is an investment, not just "something you do when you're 18". Not everyone HAS to go - indeed - too many kids are, in my opinion, who don't need to go and probably don't want to go.

    And another thing - re: the living costs etc thesedays. Compare a 1980s student and a 2010 student. Lentils have been replaced with lattes. Gone are the charity-shop clothing and the thriftyness - in are the designer clothes and expensive nights out. Fine if that's how you want to spend your student LOAN but you're the one paying it back. It's perfectly possible to save some of it in an ISA and get a bit of interest on it - if you're thrifty in other areas. Oh and how about getting a job? That's what we had to do! I worked part-time in term time in a bar and full-time in an office in the holidays with my bar job on top. This was the money I used to do Nice Things like having nights out/buying clothes - NOT my student loan. Student Loans are for BASIC LIVING EXPENSES - nowt else. You can easily spare yourself some post-uni debt by not using every penny of your loan each year.

    Here endeth this rant.

  2. Teachers start at between £21,000 & £27,000 depending on area, and rise over 6 years (subject to performance management) to between £31,000 and £36,000. After which one has the choice to go through threshold and go up to £45,000 (eventually). This ignores money for specific responsibilities (TLRs), deputy heads, heads etc etc.

    I'm coming to the conclusion that one should never rely on the papers for firm information. (Twitter's much better! Oh.)

  3. Hi Vicki,

    As the editor of Left Foot Forward I wanted to thank you for engaging with our piece yesterday. I think Andy who writes 2me2you may come back later with some further points but I wanted to make two of my own.

    1) The implementation of the Browne Review and the reduction in the teaching budget will lead to a transfer of funding for HE from Government to graduate without (assuming current cost pressures remain) any commensurate improvement in the quality of teaching. This is unfair even looking at the most conservative ratios of private to social rate of return from HE. Andy's blog interested us because it suggested that there was an upfront cost to this reform. Intuitively that makes sense since fee income is likely to double but the Government can't claw it back until repayments start to be made. You clearly have a good grasp of the numbers but haven't, I think, disproved his point. The £7.5bn he cited covered more than just the teaching budget. He reckons this falls from £7.5bn to £1.6bn (78%). You say £3.9bn to £0.7bn (82%) so you're actually in a similar ballpark. The point you don't address is the increase in fees maintenance (ie upfront fees contributions by the Government in lieu of clawback later through debt repayments). I'd suggest you do need to examine the other side of the equation to be clear that we are wrong.

    2) I carried out the <a href=">detailed analysis</a> which looked at the lifetime costs of paying back a £30k loan. They looked at a realistic model of a teacher or civil servant seeing their salary <em>increase</em> from a starting salary of £20k-25k to £50k-£60k as they become senior teachers and senior civil servants over the course of 30 years. There can be no doubt that the public servant in these circumstances will end up paying more over a 30 year period than a banker who is able to pay back the entire loan with a few years. I don't regard that as a fair payback system. Teachers 0 - Bankers 2!

    I am not a free education fanatic but do think that a time-limited graduate tax offers a better, fairer, and potentially more generous route to getting students to make a bigger contribution to HE funding.

    All the best,

    Will Straw

  4. Hi Vicki,

    I'm going to have side with Will on this one. The numbers used on 2me2you are directly sourced from HEFCE and other cited sources, especially the assumed fee income - which I have in front of me as £1280, and not £3150. Do you have any information on the contrary?

    A broader point, and overall thrust of the pieces on my blog and Left Foot Forward point to the fact that the outcome of the Browne review has been washed up in the cuts/deficit debate. Plainly illustrated, the Browne review with retrospective repayment in a timescale outside of this Parliament cannot be implemented to further the deficit reduction - as has been suggested by the government. The timescales do not overlap. It is not logical reasoning. I'm inclined to suggest it makes a mockery of Mr Osborne et al!

    The calculations on 2me2you assumed a figure of £6k, whether that is correct or not is debateable, but as Will kindly pointed out to me earlier - the press suggest the cap may be £7k. As the government makes it intentions clearer in this regard, the calculations can be amended. Yet I would suggest we are not a million miles away.

    Finally, we can debate whether retrospective payments are a fair way of increasing fees, but I fear we'd be here until the next Parliament!

    I shall certainly wait with interest as the governments intentions become clearer, as I no doubt you will too!

    Take care,

    Andy Harding