Tuition fees have surged back towards the top of the political agenda. There has been mounting criticism of Chancellor Rachel Reeves’s decision to freeze the repayment threshold for “Plan 2” student loans, which aims to raise over £7 billion in extra cash from graduates by 2030-31. Last week, the BBC’s Question Time debated whether student loans will be “the next mis-selling scandal”. This weekend, it was reported that disillusioned young Britons are increasingly opting for apprenticeships thanks to the cost of university. Sensing which way the wind is going, Health Secretary Wes Streeting has called for a “national debate” about the system.

It’s impossible to defend tuition fees and student loans as they are. Both are full of arbitrary decisions which lack any rational sense. Why did the cap on tuition fees treble in one year rather than being gradually uprated? Why are interest payments linked to RPI (Retail Prices Index), a broken system of inflation measurement, which is being phased out by the Government in almost all other areas? Why is the UK charging full fees in areas such as engineering or medicine where there are worker shortages?

While tuition fees and loans are obviously broken, they are merely a symptom of an unsustainable system of higher education. In 1999, when Tony Blair announced a target of half of 18 to 30-year-olds participating in higher education, the country was spending 1% of GDP on the sector. Now it is spending close to 2% of GDP — equivalent to the annual budget of the Ministry of Defence.

This was all based on the idea that the UK would be a “knowledge economy”, earning its way through intangible services and research. Workers in this knowledge economy would pay for the system through the repayment loans. Extra tax revenue from higher-skilled jobs would allow for more investment in R&D to keep the UK at a technological frontier. All the while, the skills revolution would fuel higher levels of economic growth so that everyone would benefit. It was a huge gamble, and one that has simply not paid off.

In January, a report from the Centre for Social Justice found 700,000 graduates are now claiming benefits, with 400,000 currently out of work. According to the Organisation for Economic Co-operation and Development (OECD), 37% of graduates in England are overqualified for their jobs, one and half times the average for developed economies. Despite tampering with the thresholds to increase repayments, the Government is still making a loss on the cost of providing the loans.

Is it worth spending £27 billion, the equivalent of putting 3p on income tax, to end tuition fees for this system? The answer is clearly no. The UK could just spend a few billion to simply reduce repayments or waive the debt for those who have already gone through the system. However, this will do nothing to address the problem that the British higher education system is not fit for purpose.

Ideally, universities and colleges fulfil two purposes. There is an ethical purpose to spread knowledge for its own sake and an economic purpose to develop new ideas and technology alongside providing people with the skills they need. The UK is doing neither well.

Learning for its own sake has been deprioritised in the fee-paying system. It would be relatively cheap to fund institutions for people who wish to learn, not because they want a degree for work but just for the joy of learning. From the Working Men’s Colleges to the Open University, the Government should expand these institutions to provide flexible learning for anyone who wants it.

A bigger issue is redesigning universities to meet Britain’s economic needs. The higher education sector’s income has grown by 56% in the past decade, which is unsustainable. Inevitably, this will mean closing many universities and courses that are not meeting an ethical or economic purpose. We also need to think about the hundreds of thousands of graduates that are loaded with debt and low-value degrees. The Government should consider writing off loans for those who offer to retrain in priority sectors.

What the country cannot afford to do is to keep squeezing graduates for fees and subsidising a system for a world that never existed. Muddling through, the classic British response to a crisis, is not an option.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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