Can you reduce tuition fees by cutting bloated management salaries?

Andrew Adonis is right.  Through all the fun we’ve been having as he’s raised issues about higher education, there have been some key themes he’s returned to.  One is that fees are too high and that you could reduce them by cutting management salaries. As the summer has worn on we’ve had different versions of this formula, and many people have cruelly mocked his lordship’s maths.  Several of the best twitter spats were between Lord Adonis and Danny Blanchflower (Professor of Economics at Dartmouth College) who accused him of getting his sums wrong.

Here’s Lord Adonis interviewed in Cherwell:

However, Adonis argues that those who have challenged him on this point, such as economist Danny Blanchflower, “haven’t done the maths”. At Oxford, if the total pay of the 452 individuals earning over £100k was cut by 25%, every undergraduate could have their fees cut by £1000 next year. A change which would enormously benefit every student, and affect just 3% of its staff.

This is true.  Lord Adonis was right.

Oxford’s published financial statement shows the salary banding of staff above £100k (another of those OfS requirements that universities are already doing). There are 451 people listed there.

oxford

If you add up the 451 people (using an assumption for these purposes that they are all on the midpoint in these salary bands) they are paid a cool £65million.  A quarter of that would be £16.3million, which would easily be enough to reduce home & EU fees by £1000 (Oxford has a little over 10000 home & EU UG students).  There are a few caveats though.  Firstly Lord Adonis doesn’t want this trick to be done just once, he thinks they should reduce fees by £1000 for five years.  That can’t be done just by taking successive 25% slices off management salaries (in the last year they’d all have a negative salary).

Lord Adonis has also continued with his assumption that all 451 are part of a bloated management.   That can’t be right.  For a start, Oxford, as with other universities, splits out clinical staff where it makes payments on behalf of the NHS.  The Medical Sciences division is very large at Oxford – a third of those 451 are getting an NHS payment – that probably constrains the ability to cut those wages.  But, just as the 152 clinical staff highlights that there are doctors in the 451, so a large proportion of the remaining 299 are going to be professors rather than deputy directors of HR.  There’s a clue – the highest paid person in the university got £880,000.  That can only be because they got paid a royalty on some form of intellectual property in that year – why else would they get twice the pay of the VC?  Clearly this person, and many others of the 451, are highly transferable.  After all, Professor Blanchflower has been taunting Lord Adonis from his chair at an Ivy League college in New Hampshire.

So, sadly, if Lord Adonis was right about the maths, he’s hardly right about the data underlying the figures.  This is not a cadre of 451 administrators who’ll gladly take a 25% pay cut.  Even if this could be done, it’s a one-off, a windfall that could not be taken again.

But, although some policy makers and newspapers think that there are only two universities in England, this is not a game that you could easily play at other universities.  This is the version of that table from Oxford Brookes University.

brookes

A quarter of these salaries only raises £337500, which is only 0.4% of Brookes’ £77million Home & EU UG FT tuition fees.  Brookes has slightly more UG students than Oxford, so raiding its management salaries would see a fee reduction of £30 per student.  As an ex-poly, no doubt Lord Adonis has a different fate in mind for Brookes.

Here’s the problem.  ‘Doing the maths’ is superficial.  The assumptions made are staggering, especially those about the uniformity of the sector.  They also refuse to deal with the funding system as it is established.  If Oxford had a windfall £16million it would be well advised to leave its fees exactly where they are. Reducing the fee only really saves the Treasury money – if they had £1000 per student, they’d be much better advised to sink it into supporting students who need the money.

We’re promised a ‘major review’ of student finance and university funding.  It’s vital that it does not start from a naive assumption about costs, from management salaries to differential costs between courses.  Lord Adonis seems to think this Herculean task can be done quickly (he’s referencing the Augean stables now) and he’s wrong again – this won’t take a day or a month, but should take a year.  No more bodged attempts at this please.

 

 

 

 

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What’s Wrong with a Student Number Cap?

One the criticisms of plans to cut tuition fees is that it must lead to a cap on student numbers.  This is because any funding that supports teaching students would need to be estimated and agreed in a budget – too many students is an overspend.  Of course, there’s no cap on primary or secondary school places, the Government just funds all the places that are taken up.  It’s possible to agree that you could have a higher education funding system that works like sixth form places – the provider gets funded for the people they teach.

But, let’s assume there would be a cap.  What’s wrong with that?  Student number planning has been a feature through most of the post-war period.  UGC Quinquennial Plans or NAB agreements had shaped the size of institutions by 1992.  HEFCE did not have a planning function, it was a funding body.  It’s two immediate predecessor bodies (PCFC and UFC) had struggled with the issue of promoting growth in student numbers at a reduced unit of resource.   The universities had, in general, resisted growth on the reduced resources, whereas the polytechnics and colleges had embraced it.  In 1993 that period of growth ended, Government insisted that student numbers should remain as planned for.

HEFCE introduced a student number control; the Maximum Aggregate Students Number (MASN).   Institutions were now tied to their MASN; 1% over the target would result in a penalty, any shortfall would lead to holdback of funding.  Funding was now firmly tied to student numbers and the Higher Education Students Early Statistics (HESES) return a major event in the university’s year.  Each year could bring variations to the way the number was calculated, or, especially, the way that holdback was calculated or redistributed.

Looking at MASNs for 1996-1998, shows there was still a large amount of volatility with student numbers.  Particularly affected by mergers; universities were still growing and contracting despite student number controls, as the following examples of MASNs show.

 MASN

1996

1997

1998

De Montfort University

15295

15263

14840

Imperial College

3757

4693

4693

King’s College London

6016

6027

7321

Lancaster University

6702

5916

5924

Leeds Metropolitan University

9447

9557

10066

Liverpool John Moores University

10927

11133

11479

Sheffield Hallam University

13167

13151

13817

University College London

7101

7118

7569

University of Greenwich

10059

9278

9055

University of Leeds

13877

14113

14350

University of Lincolnshire & Humberside

9676

8758

8223

University of Southampton

7646

10046

9482

If student number planning was a control, it was also an incentive.  New Labour brought new priorities and institutions could formally bid for Additional Student Numbers (ASNs).   In October 1997 ASNs were offered, with the criteria:

Bids should address at least one of the following:
widening access for groups under-represented in higher education
innovation
regional needs
expanding sub-degree provision.

(HEFCE, 1997, 20/97 Additional Student Numbers and Funds 1998-99: Invitation to Bid)

ASNs became one of HEFCE’s chief incentives.  Problems could be addressed by the allocation of ASNs, mergers facilitated by ASNs, government policy delivered by ASNs.  From 1998, ASNs were linked to good teaching (as measured in TQA/Subject Review).  Growth in part-time numbers was particularly encouraged – with more PT numbers than FT being offered in both 1998 and 1999.     There was strong encouragement for FECs to bid, linking to a need for local provision.  After the development of foundation degrees, focused switched there, requiring HEIs to work with FECs:

Bids for sub-degree, degree or postgraduate places, including support for Graduate Apprenticeships, should refer to the institutions’ records on employability of their students, on student demand and on quality,

(HEFCE, 2000, 00/39 Additional student places and funds 2001-02: Invitation to bid)

The move to the new regime of a £9000 fee cap did not immediately remove student number controls.  It would be good to be able to evaluate who were the beneficiaries of the AAB+ and ABB+ rounds.  It did not produce some of the student number swings that some might have thought would have happened, but it certainly gave the impression that liberalising student number controls was to benefit well qualified candidates who were unable to get into the university of their choice.

It’s hard to reconcile the system of student number planning with the description that Vince Cable gave to the BIS Select Committee in 2014:

Indeed. It is no longer a Gosplan institution—the higher education system. We had what we called free universities, but the higher education system operated like the former Soviet Union. Universities were told exactly what they could do, exactly how many students they could have and exactly what they should study. We do not think that is appropriate in our kind of world. We want students to be able to choose; we want universities to have freedom to adapt their courses, so inevitably HEFCE, which is the intermediate body between Government and the sector, does not have the degree of control that Stalin would have liked under that kind of system. We are moving into a different world and it does involve loss of control.

This is silly.  Universities had the opportunity to determine how many students they wanted, or which subjects they would teach them in.   At times there were schemes to cap the numbers in a particular fee band (later the price group) or ASNs tied to particular bids, but these were not long-term constraints on institutional behaviour.

As an example, some of the 1960s universities (both the ‘new’ universities and the former CATS) were comparatively small when their MASNs were first set.  It is hard to make exact comparisons, but HESA data shows how many have more than doubled in size, mostly through the period of ‘Stalinist’ student number control.

1996
MASN

2011/12
UK & EU FT UG

2015/16
UK & EU FT UG

Aston University

3785

6200

8885

City University

2691

5860

6620

Keele University

4108

6255

6500

University of Bath

4428

8285

10360

University of Essex

3457

8540

8310

University of Surrey

3979

7640

8520

University of York

4262

9975

11245

Other universities made different choices – Oxford had 10025 UK & EU UG students in 2015/16, just over 150 students higher than its 1996 MASN.

green

Justine Greening Conservative Party Conference 2017

It’s clear that student number caps will feature in the battle over tuition fee policy.   The Conservatives have a clear line of criticism by comparing England to Scotland.  Justine Greening noted at the party’s conference that the Scots have no tuition fees but do have a cap on funded places.  She said ‘It leads to a cap on university places. Which is a cap on opportunity’.

As we are now having a review, then it would do well to make a proper comparison as there are many more differences between England and Scotland to ascribe a difference in participation in universities than to a student number cap.  Similarly, the relaxation of student number caps is unlikely to be the main cause of increased participation in England.

HEFCE has been a funding body, but student number controls gave it a way into planning.  Bidding for student numbers meant it could entice universities to deliver government priorities, say on foundation degrees, which would apply to those who wanted to engage but weren’t compulsory.   The Office for Students (OfS) won’t have that lever, all it can do is heap more and more requirements on registration.   Although MASN was a headache, it managed growth in the sector.  Opponents of reducing tuition fees need to find a better argument than student number controls.

Variable Tuition Fees: why the English don’t have them

The £9000 question is coming back to bite the sector.  There’s something about the uniformity of English undergraduate tuition fees being nearly universally set at £9250 that upsets people, particularly policy makers.   Is this because it shows the failure of a market on the basis of price?  Or simply because it offends an English sense of hierarchy that the fees are so similar?

The costs of higher education certainly used to be variable – the founding of the 19th century civic universities was very much about making affordable education available (although it was the costs outside tuition that dominated).  This continued into the 20th century, with Oxbridge being considerably more expensive than provincial universities.

Undergraduate education, especially in its full-time mode, has become highly regulated. In England, the funding council evolved a series of measures to fund courses on a similar basis.  Any additional cost could not be passed onto the student and would not be met by HEFCE.  Some universities have sufficient endowments to allow them to spend more, but these are rare.  As graduate contributions have been introduced, the ‘fee’ has been highly regulated.  In effect the state funds university teaching by sending a sum of up to £9250 for each student, with premiums and top-ups for some subjects.  This is unlike other forms of fee, more like a voucher, but it would be sophistry to try and state that it’s not actually a fee.

I remember well the discussions had in universities when the government allowed a variable fee cap; at first £3000 but later £9000.  Each university worked out its own position (no cartel) and applied the same logic.  No doubt each went through the same logical steps, and it’s worth noting that a large number of different positions were reached – especially in the first year.  Although variation on the ‘sticker price’ was limited, there was, and still is, a huge variation in the actual price with bursaries and fee waivers.

When the cap was raised to £3000, not all universities went to the maximum.  Leeds Metropolitan opted for £2000 – Simon Lee announcing:

“This university has never been afraid to stand out from the crowd. We are now pioneering low fees.”

Times Higher Education 17/12/04

When the fee cap rose to £3070, the bulk of Universities charged that as their fee.  For Leeds Met, the ‘low charging, high impact’ approach survived for four intakes, but fee went to the maximum  very soon after Lee’s departure.

With £9000, there seemed more scope for variation, and the Government imagined that universities would settle for the lower £6000 cap.  Vince Cable answered Simon Hughes on this in the Commons:

That is a highly pertinent question in the light of the experience of the last Government, who had a two-tier system. There was a migration of all universities to the top of the range. They operated, in effect, like a cartel, and that must be stopped. It must not happen again, and there are several means by which that will happen. First, any university that wants to go beyond £6,000 will have to satisfy very demanding tests of access for low-income families, including through the introduction of the scholarship scheme. Newer institutions, particularly further education colleges providing accredited courses, will drive down the cost of high quality basic teaching. If universities defy the principle of operating on a competitive cost basis, it may well be necessary to introduce additional measures …

Hansard 10 December 2010

But Vince was wrong.  It was not a cartel that drove fees to £9000, but the logic of the system.

Helpfully David Willetts now understands this. At the fees debate held at the Resolution Foundation, he summed up the arguments that each university went through in 2010/11 before emerging with their fee proposals.  Fees don’t vary because it is illogical to do so. Why turn away funds for courses? That makes no sense and it additionally looks bad to applicants (who really wants a cheap degree?).

As Leeds Met tried with the £3000 cap, London Met tried with £9000, with a range of variable fees, from £4500 upwards, but anticipated to average at £6850.  This approach lasted for three cohorts, but for 2015 the university concluded it would raise fees to £9000.  Perhaps a university in a more robust financial state might have held out longer.  But, you can’t say they didn’t try; even down to the advertising campaign on ‘affordable quality education’.


What logical basis could there be for varying fees inside the regulated system?  Universities tend to vary fees for non-regulated students on cost; Oxford, for example, has banding for international students.  Here are the first four undergraduate courses:

Ancient & Modern History £15,755
Archaeology & Anthropology £15,755
Biological Sciences £23,190
Biomedical Sciences £18,080

There’s much focus on whether ‘cheap’ courses should attract a lower fee.  Complex (especially with combined courses) this comes back to trying to cost the course as opposed to funding the university.  No one likes overheads, but a degree doesn’t just cost what it takes to put a lecturer in a classroom.

No doubt there will be more focus on the return on investment argument, but past averaged earnings is a lousy way of guesstimating what the initial charge should be.  The repayment system takes that into account – why try take the average of recent English graduates, say, and turn that into an up-front price?  It’s highly arbitrary and within the regulated fee system hard to justify.  Should a subject such as economics, whose students might, on average, earn more than those in biological sciences, charge more? Should the fees from economics then be used in part to pay for higher cost courses?  The biggest concern, of course, is causation.  His degree in Countryside Management is not the cause of the wealth of the Duke of Westminster.  Should all fees in the North East be lower because graduates who stay there are paid lower on average than those in London?

The week that the idea of forcing variability of fees was floated in the Sunday Times, they had a MBA guide among the many sections.  This shows that universities are very happy to vary fees outside the regulated system.  MBAs come in all sorts of varieties and all sorts of prices.  No doubt there are all sorts of differences between the 12 month FT MBA at Kingston and the 21 month FT MBA at London Business School – but the difference in price is £64,450.

Conformity in fee level is the result of the regulated fee system.  If the goal is really to have variable fees, then government and parliament would need to let go.  This is highly unlikely – the basis of undergraduate fees is written into primary and secondary legislation.  Even a measure such as relaxing the rules for accelerated degrees has been put into statute (which will constrain options for universities).  Moving the ‘sticker price’ will have to be matched by those fee waivers and bursaries – will bursaries for poor students go down if the fee is forced down?

As we hear more of plans for any forced variation, remember that it’s the regulation that diminishes variation – not a cartel.