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Inquiry into ailing university finance system is launched

A new inquiry into university finance has been launched by the Higher Education Commission amid growing concerns that the current system is unsustainable.

The nine-month probe will investigate how the burden of funding higher education should be shared between government, students, employers and universities. It will also examine student fee levels and the extent to which they help to create a robust system.

A final report, due to be published at the end of the year, will make “clear recommendations” about what the best funding model is.

The Financial Sustainability of Higher Education inquiry is launched in the wake of concerns about the current funding system and its sustainability in the future, in light of Chancellor George Osborne’s announcement that the cap on student numbers will be lifted. Selling off the student loan book will only part fund the policy.

While some vice chancellors praised the move, many commentators have raised fears about how it will be paid for, particularly given the Government’s admission that the proportion of student loans expected to be written off as unpaid will be as high as 40 per cent.

One of the Commission’s members, Bahram Bekhradnia, the former director of the Higher Education Policy Institute, has already criticised the sell-off of the student loan book to pay for additional student numbers, likening it to a “Ponzi scheme”.

Bekhradnia warned that the knock-on effect on universities could be substantial – ushering in a “cheaper package” of maintenance grants turned in to loans, less generous repayment terms, cuts in teaching grants and raids on other parts of the HE budget.

His assessment of the current system in the HEPI annual lecture at the end of last year was stark: “Our flirtation with a market-based approach has led us into a terrible muddle, unmatched anywhere in the world,” he said. “The present arrangements are philosophically, economically and socially untenable, and will not persist.”

HE funding generally is being squeezed in the era of austerity. The Government’s grant letter to the Higher Education Funding Council for England (HEFCE) this month indicated a £125 million cut to the total higher education budget compared to the indicative amounts for 2014/15 given last year. The recurrent grant for teaching has been reduced by £946 million - from £2.861 billion in 2013/14 to £1.915 billion in 2014/15. It will further drop to £1.669 billion in 2015/16, according to this year’s indicative allocations.

Although research funding has been ring-fenced, senior civil servants have warned that research funding is likely to be hit in the government’s next comprehensive spending review.

It is against this backdrop that the Commission inquiry, co-chaired by Ruth Thompson, former director general of higher education at the Department for Innovation, Universities and Skills, and Lord Norton of Louth, professor of government at the University of Hull, will work.

Lord Norton said: “This new inquiry will provide clear recommendations for reform to the current financial foundations of higher education in England. We need to understand what a successful system of higher education should seek to deliver for our economy and society… 

“The absence of a higher education bill has left a worrying hole at the heart of parliamentary debate over the future of higher education in England. With the major parties still failing to engage the issue, this new inquiry by the Higher Education Commission becomes even more timely and important.”

It is the third inquiry by the Higher Education Commission, an independent body made up of members of the education sector, the business community and the three major political parties.