Martin McQuillan writes:

Any vice-chancellor wondering what to do with his or her most recent double-digit pay rise this Grand National weekend could try a flutter on the outcome of the next general election. Bookmakers are noted for seldom losing money and, in the opinion of both William Hill and Paddy Power, the most likely outcome of the May 2015 election is a Labour majority. The bookies are currently offering that result at 6/4 on, followed by a Conservative majority at 11/4 as the next most likely outcome. The odds on a Conservative majority have come in recently, pushing the possibility of a Labour-Liberal Democrat coalition out to 4/1 with Paddy Power and 7/2 with William Hill. The Irish bookmaker offers 7/1 on a Labour minority, 8/1 on a Conservative minority and 4/1 on a repeat of the Conservative-Lib Dem coupling. William Hill offers 5/1 on a Labour minority or any other result.

One of the skills of any successful vice-chancellor is the ability to back winners. It is curious then that Universities UK, their representative body, has set its face against the possibility of a future Labour government replacing the present student finance regime with a graduate tax. In March Nicola Dandridge, its chief executive, said that the current Labour policy proposal to lower fees to £6,000 would not “be helpful from the universities’ point of view” and that the organisation she leads is “not supportive of a graduate tax as a long-term solution”. Universities UK is often criticised for not being seen to stand up to government; however, it appears to have the confidence to oppose the proposed policies of, according to the bookmakers, the most likely future government.

How should observers understand the group’s current position? One of the reasons why, outside the corridors of the Department for Business, Innovation and Skills, it is now recognised pretty universally that the coalition’s student finance regime is unsustainable is because it was not subject to sufficient public scrutiny during its development. If, in Dandridge’s words, there is “a general acknowledgement that the long-term funding needs to be put on a more sustainable footing”, then surely it would be a mistake to repeat the strategy of closed discussions, tacit agreements and technocratic fixes that characterised the implementation of the £9,000 fees policy. Given the cost to the taxpayer and the importance of higher education to the economic and cultural life of the nation, surely it is correct that university fees and funding are subject to full, public debate before the election? Perhaps academics should welcome democratic oversight of universities and the opportunity to engage the electorate in an appreciation of their purpose and benefits, in preference to a funding deal struck between vice-chancellors and politicians.

In this context, what does the Labour party have to offer? In recent weeks Liam Byrne, shadow minister for universities, science and skills, has exploited coalition discomfort over the cost of the student finance package. As the cost to the taxpayer of forgiven student loan debts approaches 48.6 per cent of the sums lent, Labour has gone on the offensive, recognising that this is the threshold at which the new regime will cost more than the previous £3,000 tuition fee system.

Labour is currently making hay out of the cost to the taxpayer of the mispricing of the Royal Mail share offer: the National Audit Office puts that figure at £750 million. But this is dwarfed by the miscalculations around the student loan book. This year the Department for Business, Innovation and Skills asked the Treasury for an additional £5.46 billion to plug the hole in its finances arising from the shortfall in loan repayments. In the previous three financial years similar allocations were requested to a total of £7 billion. This is one reason why university funding and student finances really ought to be an election issue.

Ed Miliband, the Labour Party leader, has recently hinted at a “radical offer” on university funding and, on 1 April, Byrne made his most significant speech to date on higher education. Thin on specifics but big on rhetoric, it was trailed as a statement of the principles that would inform the Labour Party manifesto commitment on university funding.

Predictably at this stage his audience got the values but not the policy. The principles are in themselves worth noting. First there is the need to reduce the high levels of debt write-off that is making the present system unsustainable. Second and perhaps more risky for Labour, there was an attack on the cost to the loan book of private providers. In a response to a parliamentary question tabled by Byrne the government acknowledged that £1 billion of publicly funded loans and maintenance grants had flowed to private providers including those that seek to profit from their operations. The government admits that it has no information of the scale of the profits generated by such institutions. Byrne’s speech took aim at the coalition’s unwillingness to regulate private providers.

Several propositions are currently being considered by Labour Party manifesto writers. The official policy, stated by Ed Miliband at the party conference in Bournemouth in 2011, is that if the party were in power now it would have reduced the fees cap to £6,000. However Ed Balls, the shadow chancellor, has pledged to match coalition spending limits should the Labour Party win power in 2015, which casts doubt over whether this proposal would be financially possible. In 2011 the policy was to be paid for by a reversal to a cut in corporation tax and asking graduates who earned more than £65,000 to pay higher interest rates on their loans. Had the current fees regime proved sustainable, it would not be surprising if a future Labour government accepted it as a reality it could not afford to change. However recent revelations about the costs of debt forgiveness would seem to have emboldened Labour to rethink its position.

Then along comes John Denham, a former universities secretary and ex-parliamentary aide to Miliband, who has proposed to re-engineer the money currently spent on debt write-off into direct investment in universities. The Denham deal is not Labour Party policy and accordingly has not yet been subject to much scrutiny. It involves all sorts of caveats including making 30 per cent of degree programmes intensive two-year courses with a further 15 per cent of courses to be funded by employers. It also involves an increase in the interest rates on maintenance loans designed to encourage up to 60 per cent of students to study from home. Denham has submitted his plan to the Labour Party policy review, where it seems likely to remain unadopted despite his recent proximity to the party leader.

However neither official policy nor the Denham gambit could be squared with the Chancellor George Osborne’s pledge to remove student number controls. From the position of strength of government, the Conservatives are currently offering vice-chancellors the inducement of both uncosted expansion and the tease of a post-election fees rise. In contrast the Labour opposition, who wish to appear fiscally responsible, need to be seen to drain the bath water of the runaway cost of the loans system without throwing out the baby of basic higher education policy. A graduate tax might square that circle, returning university finance to the arena of direct taxation. It would allow a Labour government to make the “radical offer” of abolishing the loan system altogether while transforming student finance from what Byrne calls a “money pit” into a predictable revenue stream for the state. In such a system vice-chancellors would once again have to make their case for access to the public purse.

One criticism of a graduate tax is that, as a flat rate, it would not be as progressive as the subsidy offered to low-earning graduates by income-contingent repayment. However, finding an appropriate escalator is surely not beyond the wit of future Treasury mandarins. It would raise many questions including what becomes of the write-off of existing loan debt, some of which was sold by the former Labour government, and the possible inclusion of all historic graduates in the scheme. However, these could prove attractive policies for an electorate that is weary of years of austerity and the marketisation of the public realm.

Whatever the Labour Party decides, it is unlikely to unveil its plans until closer to May 2015. The party will not want to afford its opponents the opportunity to pick at the funding commitment it would involve nor would it wish to affect adversely this year’s recruitment. A pledge to abolish or halve fees within twelve months could lead to a rash of deferments from prospective students. The party also has other factors to consider. For example, how quickly could a Labour government introduce a higher education bill to initiate a new funding settlement and regulate private providers? Given all the other priorities, a Labour government would be likely to have only one shot at passing a universities bill through both houses of parliament. An immediate vote in the Commons could reduce the fees cap; a graduate tax would take longer.

Imagine a scenario in which Scotland votes for independence in September 2014 and a year of negotiations follows between London and Edinburgh. The government that was elected to Westminster in May 2015 with Scottish MPs would then probably have to face another election within the year for what remained of the UK. Under these circumstances, how big a priority would the student finance regime in England be for a Miliband government?

If Miliband has learned one thing as a leader in opposition, it is how to be a populist of the left within the financial envelope of the right. Accordingly, the pre-election offer on tuition fees may well be radical without resulting in any additional funding for universities. Vice-chancellors should place their bets now.

Martin McQuillan is dean of arts and social sciences at Kingston University.

This text first appeared as ‘Place your Bets’, for ‘The 8am Playbook on 06.04.14 for ‘HE: policy and markets in higher education’, published by ResearchResearch.com.  For details on how to subscribe to HE for free, for a limited time, visit their website here.