Where does 2.8% fee inflation come from?

So we know that the government intend – certainly for English universities – to permit undergraduate fees for Home/EU students to grow to £9,250 for new and continuing students in 2017-18. This was set out in the BIS report ‘Teaching Excellence Framework: Provisional list of eligible providers – Year One’ published on 7 July 2016 and confirmed by Jo Johnson, Minister for Universities and Science, in a written statement to parliament on 21 July 2016:

For all new students and eligible continuing students who started their full-time courses on or after 1 September 2012 and are undertaking courses at publicly funded higher education providers that have achieved a TEF rating of Meets Expectations, maximum tuition fee caps will be increased by forecast inflation (2.8%) in 2017/18. 

The TEF rating relates to the new regime set out in the Higher Education and Research Bill, under which providers who meet certain standards of teaching excellence will be allowed to charge higher fees. The Bill is midway through its parliamentary journey, and my expectation is that at some point it will become a matter of controversy. But for now I want to focus on a different question. What is the basis for the forecast of 2.8% inflation in 2017-18? 

The Bank of England

The Bank of England is responsible for managing inflation in the UK, and in its most recent inflation report (table 5B on page 31) forecasts CPI of 1.5% in the second quarter 2017 (ie April-June 2017) and 2.0% in the second quarter 2018 (ie April-June 2018). The Bank’s model gives probability estimates for inflation differing from this forecast. For Q2 2017 the Bank places a probability of 10% that the actual rate of CPI is between 2.5% and 3.0%; for Q2 2018 the equivalent probability is 12%. (These data come from the excel file available to download from the Bank of England). So we can see that the Bank of England is not forecasting inflation of 2.8% for 2017-18.

The Bank also reports other forecasts of inflation (page 44 of the report), from over twenty other forecasters. The average of these was 1.6% for Q2 2017 and 2.0% for Q2 2018 – not a great deal different from the Bank of England’s own forecast. The key point – other forecasters are not forecasting inflation of 2.8% in 2017-18.

Is the government separately forecasting this rate of inflation? The Office for Budgetary Responsibility publishes an ‘Economic and Fiscal outlook’, the most recent of which was March 2016 (to co-incide with the budget). This reports CPI forecasts of 1.6% for 2017 and 2.0% for 2018 (page 12, table 1.1). So, the government does not forecast inflation of 2.8% for 2017-18.

This is a bit of a puzzle. Is the government using a forecast other than CPI? I don’t think that any other policy area has a separate calculation and forecast of inflation. Universities UK maintained an inflation series – the Higher Education Pay and Prices Index – but this was discontinued a few years ago. Most of the (positive) difference in HE inflation related to pay costs, and it would seem odd for the government to publicly acknowledge that a sector was likely to have higher pay than inflation. So I think we can discount the idea that the government has a separate HE cost inflator.

This leaves another possibility. Perhaps the amount of the increase - £250 – was agreed on, and then the inflation forecast adjusted to match. Universities have in the past been effective lobbyists of government, and both Universities UK and the mission groups are well connected. £250 is fractionally less than 2.8% of £9,000. So maybe that’s where the 2.8% forecast came from.

Is there another explanation? I’d like there to be one, and perhaps a more learned reader can supply it. Until then, I think I’ve got a bit more cynical about HE policy-making.

Widening participation - what do the data really say?

Earlier this month HEFCE published a monitoring report on the Student Opportunity Allocation and National Scholarship Programme for 2014-15, which contained some fascinating data on spend on widening participation by English universities and HEIs. Included was a table and graph showing how annual spend on WP had increased between 2010-11 and 2014-15 by over £150m: a good news story, surely.

Here’s the data that HEFCE presented: I’ve put it in a table rather than the graph on page 11 of the report, to make it easier to compare. It’s separated into categories; these have changed over time, with some categories added, and a miscellaneous category lost – they are the cells in the table with nothing in them. Note also that the early years’ don’t add up, and by more than just rounding errors. Consistent data collection on WP was in its infancy at this point, so some errors aren’t too surprising.

	2010-11	2011-12	2012-13	2013-14	2014-15
Outreach work with Schools and young people	82.7	67.2	108.1	122.2	124.7
Outreach work with communities and adults	31.2	28.9	32.3	34.4	35.5
Outreach work with disabled students			4.2	5.7	6.3
Strategic partnerships with schools					8.1
Support for current students (academic and pastoral)	435.2	444.2	425.1	434.2	447.0
Support for disabled students	40.5	49.9	47.5	48.4	55.6
Support for progression into employment or pg study	17.1	19	40.9	59.2	68.9
Support for progression of disabled students				4.9	5.2
WP staffing and administration	78.8	70.5	84.1	93.4	90.8
Other	2.9	0.9	0.8
Total	690.7	681.6	743.0	802.5	842.2

So it looks like, across the board, universities are spending more on widening participation. Hooray!

But hang on a minute, what about inflation? The data HEFCE report look like they are cash sums. What is it in real terms?

I calculated inflation to match University reporting years using ONS CPI data. Although inflation isn’t much now, it was higher in this period – 4.0% in 2010-11, 3.6% the following year, for instance. When the data is presented at 2010-11 constant prices, this is what the table looks like:

	2010-11	2011-12	2012-13	2013-14	2014-15
Outreach work with Schools and young people	82.7	64.9	101.6	112.7	114.6
Outreach work with communities and adults	31.2	27.9	30.4	31.7	32.6
Outreach work with disabled students			3.9	5.3	5.8
Strategic partnerships with schools					7.4
Support for current students (academic and pastoral)	435.2	428.8	399.5	400.5	410.6
Support for disabled students	40.5	48.2	44.6	44.6	51.1
Support for progression into employment or pg study	17.1	18.3	38.4	54.6	63.3
Support for progression of disabled students				4.5	4.8
WP staffing and administration	78.8	68.1	79.0	86.1	83.4
Other	2.9	0.9	0.8
Total	690.7	657.9	698.3	740.2	773.7

Now some real patterns start to emerge.

Three of the categories have seen real increases: outreach work with schools and young people; support for disabled students; and support for progression from HE into employment or postgraduate study.  Spend on outreach work with communities and adults, and WP staffing costs, have stayed pretty constant. And spend on academic and pastoral support for current students has fallen.

It seems to me that spending on support for current students – academic and pastoral – is also related to the number of students. Over the period the HE sector has grown. It’s possible to identify the total number of UK-domiciled undergraduates at English universities, so that spend per student can be calculated.

Support for current students	2010-11	2011-12	2012-13	2013-14	2014-15
Spend in 2010-11 prices (£m)	£435.2m	£428.8m	£399.5m	£400.5m	£410.6m
UK domiciled students	873,910	919,990	915,710	928,365	929,200
Spend per student, 2010-11 prices (£)	£498	£483	£464	£468	£481

The data shows that per student, spend on academic and pastoral support has reduced from £498 in 2010-11 to £481 in 2014-15.

So in conclusion, we see that rather than spend increasing in all categories, there’s actually been a focus on outreach with schools, support for students with disabilities and with post-HE progression. These are things which make a big difference to life-chances, and that’s what it’s all about.

Does this mean that HEFCE wasn’t being accurate?  I think that would be going too far, but it’s always worth looking at data carefully to see what it really means, and what it really says. If spend per student on actual support is really declining, not increasing, isn’t that worth knowing? 

Brexit - bad news for conservatoires

A lot of people within the HE sector are shocked by the Brexit vote, and the impact is beginning to be felt. Individually, people on both sides of the issue will take time to adjust, but it’s important for institutional leaders to get quickly beyond the shock and think about how Brexit will affect them.

One obvious concern relates to students from other EU countries. Presently, such students are able to access student loans company funding, and are treated the same as students in the home nation for fees purposes. (This latter point gives some curious results: Scottish universities charge zero fees to Scottish domiciled students, and £9k for students from England, Wales and Northern Ireland. Students from other EU countries are treated the same as Scottish students, paying zero fees.)

There’s obviously big uncertainty about what happens in the future. In the short term, current EU students, and those who start in 2016-17, will continue on the same terms and conditions. Beyond this, there isn’t certainty yet. And so universities need to start contingency planning. (It’s all in the negotiations. An EEA-type outcome may include special dispensation for students, but that is simply an unknown.)

At some point it seems possible that EU students will be treated the same as any other overseas student. If that were to happen, we could expect EU student numbers to decline. Universities will need to respond, and there are fundamentally two choices – replace the ‘lost’ EU students with others, or admit fewer students. So what is the scale of the challenge, and who is most affected?

EU undergraduates comprise over 5% of the current (2014-15 HESA data) Home/EU undergraduate population. Scotland has the highest proportion – perhaps unsurprisingly as EU students pay no tuition fees – but London is not far behind.

It is reasonable to assume that some universities at least will try to make up the shortfall with UK students, and that means greater competition. Universities with stronger recruitment profiles will admit students who may have gone elsewhere, and universities which recruit less strongly will have to admit students they otherwise would not have, if they wish to remain the same size. This may not always be possible. In London this competition will possibly be intense – the number of EU students in the region - almost 17000 - is larger than most universities’ total student intakes.

It’s also useful to look at the impact on individual universities. In absolute terms, the ten universities with the most EU undergraduates are:

The three Scottish universities are unsurprising, and the differences in Scottish university finance probably mean that in purely financial terms the loss will be less significant for them than if they were in England. But the English universities in the list vary in character, some being very strong recruiters, others less so.

In proportionate terms, another issues arises. Here’s the ten institutions with the greatest percentage reduction, if EU students are lost:

This list includes the four London conservatoires – specialist music institutions – and the broader performing arts conservatoire which is the Conservatoire for Dance and Drama. These institutions don’t have a normal recruitment pattern. To gain admittance you have to already be a very capable musical performer. The number of lost students is greater than the total intake at two of these institutions. It is hard to see how the conservatoires could remain at their current size without EU students. And they probably aren't big enough to easily survive such large changes in tuition fee income.

Here is, I suspect, the first unanticipated and unintended consequence of Brexit: there’ll be fewer conservatoires. To avoid this, increased governmental support will be needed. Which won’t be straightforward in the more straitened times we face.