December 2, 2019

Higher education is big business. Over half of UK young people now attend university, meaning the target first set by Tony Blair 20 years ago has finally been reached. And according to a 2017 report for Universities UK, once you count the (mostly borrowed) money students spend on subsistence, tertiary education generates some £95 billion for the British economy, more than the entire legal sector, the advertising and marketing sector and air and spacecraft manufacturing combined. 

This is true across the country, but its impact is especially noticeable in post-industrial regions. According to a 2017 report, the University of Liverpool alone contributed £652m in gross value added to the Liverpool city region in 2015/16, and supported one in 57 jobs in the region.

Some 11,000 jobs are either directly funded or supported by spending associated with the university — and the University of Liverpool is only one of 5 or more institutions (depending how much of the area you count) offering graduate and post-graduate courses in the Liverpool area, meaning the total sum is even greater.

As well as generating jobs and supporting whole industries catering to student life — from nightclubs and cafes to housing rentals – higher education is shaping the very landscape of the cities in which it thrives. As this 2015 report from UCL’s Urban Laboratory shows, universities are increasingly actors in urban development:

“Driven by competition (for reputation, staff and students) in an international marketplace, and released from financial constraints by the lifting of the cap on student fees, [universities] produce locally embedded variants of global higher education models. These assume physical and spatial form within the parameters of distinct, but increasingly similar, city planning and urban regeneration contexts defined by an ‘assemblage of expertise and resources from elsewhere’.”

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Some of the money that flows into and through universities and out into local economies of course comes from overseas students, endowments and the like. But to a great extent, these dependent industries, revamped urban landscapes, former factories converted to student accommodation, ancillary services and so on are funded either directly — via government subsidies to higher education — or indirectly, via government-backed student loans.

Though academic research is still heavily subsidised by government via the UK Research and Innovation body, the proportion of direct funding to students has shrunk even as that taken on by students as loans has grown. A January 2019 research briefing from the House of Commons Library stated that the cash value of higher education loans is estimated to be around £20bn by 2023-24. The report also acknowledged that only about half of the money borrowed will ever be repaid, estimating that “The ultimate cost to the public sector is currently thought to be around 47% of the face value of these loans”.

The total cost to the public sector, the report continues, is roughly the same as it was before the funding model changed to scrap maintenance grants and increase tuition fees. That is to say, as the proportion of direct government funding to higher education has been reduced, there has been a corresponding rise in the amount of student debt that will never be repaid and which the government will eventually have to cover.

This money is in all but name a form of government subsidy, funded by government borrowing. But it is counted differently. The briefing notes in passing that “This subsidy element of loans is not currently included in the Government’s main measure of public spending on services and hence does not count towards the fiscal deficit.”

That is to say, billions of pounds are being borrowed by government for disbursement in the higher education sector, and the government already knows much of this will never be paid back. But the money is no longer counted toward the fiscal deficit, as it has been nominally privatised in the form of loans to individual young people.

One might argue that this is unimportant provided the higher education sector is delivering value to those who are nominally its customers — the students. But in 2018, the ONS reported that only 57% of young graduates were in high-skilled employment, a decline over the decade since the 2008 crash of 4.3 percentage points.  The ONS speculates that this could reflect “the limited number of high-skilled employment opportunities available to younger individuals and the potential difficulties they face matching into relevant jobs early in their careers”.

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Nay-sayers pointed out, when Blair first introduced the tuition fees and the 50% graduate target, that the law of supply and demand suggests employers’ willingness to pay a “graduate premium” in wages as graduates become more plentiful. In 1950 only 17,500 youung people graduated from university; but when 1.4 million of them do so, as reported by the House of Commons this year, can they really hope for the same graduate premium?

Results so far suggest that many of them cannot. In a hard-hitting article last August in the New Statesman, Harry Lambert spelled out further the way in which the marketisation of higher education under the Blair rubric has also incentivised grade inflation.

Cui bono, then? Arguably less the students, graduating in ever greater numbers with ever less valuable degrees, than the cities in which they live for three or four years to study, and which have in many cases experienced a renaissance due in large part to the post-Blair expansion of higher education.

In 1981, after the Toxteth riots, Lord Howe advised Margaret Thatcher to abandon the entire city to “managed decline”. In a letter only made available to the National Archives in 2011, following the 30-year rule, Howe wrote:

“We do not want to find ourselves concentrating all the limited cash that may have to be made available into Liverpool and having nothing left for possibly more promising areas such as the West Midlands or, even, the North East. […] I cannot help feeling that the option of managed decline is one which we should not forget altogether.”

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Today, Howe’s words remain only as a bitter memory: the regenerated Liverpool city centre hums with tourists, students and shoppers. The Albert Dock area, reimagined from shipping and warehouses to office buildings, shops and leisure, is beautiful, vibrant and popular.

Much of this regeneration has come via the higher education boom. In Liverpool and elsewhere, successive governments have used the higher education sector more or less explicitly as an instrument of regeneration. In effect, government-backed student loans have become part of this: an off the books subsidy for depressed post-industrial areas, that have thus been partially rescued from the threat of Thatcherite “managed decline” and reinvented as hubs of the “knowledge economy”, all funded by government debt.

But a conflict of interest lurks beneath this picture. If we work on the assumption that the main beneficiaries of the higher education industry are supposed to be students, then it follows that institutions delivering shoddy teaching and useless degrees should be allowed to fail, as word spreads and students go elsewhere. But what if the main beneficiaries of this industry are in fact the cities regenerated with the borrowed money those students spend there?

In that case, from a policy perspective, the quality of the courses delivered will be less important than that the students continuing to arrive in their thousands, bringing their borrowed money to the region and spending it on accommodation, lattes, printer paper, fancy dress hire and all the other essentials of student life.

If the aim were indeed less the introduction of market forces than the use of students as a covert form of subsidy, we would surely see market distortions. In order to head off the threat of young people abandoning poor quality higher education, and entice them into shouldering their allotted portion of off-the-books government borrowing, the “graduate premium” would have to be maintained.

And indeed, since Blair’s student attendance target was first introduced, we can see that instead of using market forces to drive up quality the government has conspired with employers to cartelise the world of work. A growing number of roles that were once accessible via on-the-job training have — by government fiat if necessary — been rendered degree-only. Nursing is the classic example, but in 2016 this was even expanded to include the police,  a move so unwelcome in the force that this year Lincolnshire Police Force launched a judicial review against the policy. 

The victims in this situation are the students, who have come of age at a time when to have any hope of snagging a job they are more or less forced to leave their families and shoulder an enormous debt burden — over £50,000 each on average according to the IFS.  They must do so to acquire a degree whose value for money is declining, but which they cannot do without in a cartelised employment climate in which higher education is obligatory even as the grades it confers count for ever less. 

Not only is the government paying for today’s elderly care (and banker bailouts) with borrowing that will fall on tomorrow’s taxpayers, but young people are also being forced to take on huge personal loans to fund degrees; degrees that are less useful as preparations for adult life than as a conduit for indirect subsidies for regional regeneration.

To make matters worse, the government knows that much of this borrowing will never be repaid, which will leave tomorrow’s taxpayer on the hook for yet more billions. It is an accounting fiddle on a gigantic scale, which penalises young people by first saddling them with loans, then devaluing their education, and finally by hiding government borrowing that future taxpayers will somehow have to meet.

Young people already live with the suspicion that overall public sector borrowing is running up a tab today that will be their burden tomorrow. The situation is far worse than they think.