The Government doesn’t quite know what it wants to do with the core and margin policy next year. At the moment their instinct is to run it again on more or less the same terms. Ministers don’t see either AAB or core and margin as permanent features of the system but they are mightily constrained by the short and longer term costs of the student loan book. Furthermore, there are no guarantees that the places top sliced and allocated through the core and margin will definitely be filled – UCAS application data shows that the biggest falls have been from older population groups and those perhaps already in work – both more common in the FE sector that has won most of the places.

So what should ministers do in 2013? At its heart, core and margin is essentially about driving down costs and driving up competition. The initial model enabled those charging a maximum tuition fee of £7,500 to compete for existing numbers top sliced from their and others’ allocations. This provides a saving of at least £1.5k per student (down from £9k to £7.5k or from £14k to £12.5k if you include student support). Competition between existing and new providers – largely FE at this point – is another aspect of reform that the coalition is keen to see. But it hasn’t worked quite as well as they might have hoped. Many universities didn’t bid and those that did have largely stood still in terms of numbers. Overall the costs to the loan book haven’t come down very much and there are concerns about demand for the places that have been allocated. The incentives haven’t quite stacked up and the competition that should drive efficiency, innovation and choice hasn’t quite materialised.

The economic and social (if not necessarily the media or public) arguments for mass higher education remain strong – in terms of returns at the individual, firm and national level. Many aspects could be done better of course – skills utilisation, demand side reforms, product and service market changes and so on, but the essential value of a well-educated workforce in a global, knowledge based economy remains clear. The Treasury still ‘buys’ that at least. But less convincing to them is our reliance on full time study away from home as the dominant model – and it’s expensive whether delivered through direct funding or via the loan book. Ultimately it means that mass higher education at the levels of many other OECD countries is unaffordable. Certainly it is hard to see any growth in numbers in the current system.

So how might we expand higher education and deliver a competitive mechanism in an affordable and productive way? There are lots of options out there – higher level apprenticeships, more part time and/or local study, shorter more intensive degrees? There is the idea of introducing off quota students – those that pay up front or as they go – whether through employers or from their own resources. And this doesn’t have to be just an option for the rich. Some might choose to offer courses with complete employer funding or maybe a co-funded model that might take the loan book cost down to just £4-5k per year? They might combine with an FE partner and deliver a cheaper 2+1 degree where the last year could still be £14k but the first two cheaper and home based or part time? They might offer higher fees but reduce support costs through brokered part time work and or paid sandwich years? Employers and LEPs or new city mayors might take a lead and offer funding or resources to partner with higher education?

What about a pot of extra numbers – top sliced and new – that offers institutions the chance to bid for places based on demand but at a minimum of £1.5-2k below total loan book liability? This could be weighted according to the costs of subjects and might create more and better incentives for institutions to both vary supply and to bring down costs. Such a fund would still be competitive but depending on the margin of saving, the number of places on offer could actually increase across the sector, increasing participation overall. This should be an explicit aim of the policy and provide important further incentives to institutions. So the Government could say that up to 40,000 places are available and only need to top slice 20,000 or less. Universities might then have a greater incentive to drive down costs – though at present many are thinking of increasing fees because little or no growth in numbers won’t bring additional income. The incentives are all wrong – as economists in the Treasury might say.

Crucially, such a competition would more easily open up additional income and investment. All sorts of innovative things might happen but the winners would be the Treasury (on grounds of cost), the student (on grounds of choice and expanded numbers), the economy (with more graduates potentially better linked into local economies and workforces) and the universities themselves that might diversify supply, develop innovative provision and grow as a result. Better overall is that universities can play to their strengths and to the needs of employers, local economies and not just through a narrow, cumbersome core and margin process which provides no extra numbers, greater uncertainty and doesn’t obviously follow any kind of demand other than the Treasury’s need to save money.

Andy Westwood – CEO

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