British Government Fails Maths, Economics

The British government has decided to change the way English universities are funded. They say that this will improve teaching quality; I doubt it. Worse, however, is that the new scheme, the stated justification for which was to save money, is now seriously at risk of being too expensive. From next year universities will be allowed to charge up to £9,000 per year for undergraduate courses, up from the current limit of just over £3,000. However the government is also cutting their basic funding allowance by 80% to compensate. So government pays less and students pay more - eventually; the government will pay all the money up front in the form of a loan to the students.

The government's cost projections assumed that the mean fee at English universities, and hence the mean size of their loans, would be £7,500 per year. Why, no-one seems to know. Sources are unanimous that this was what they assumed, but no-one links to any kind of report explaining why. Maybe they gazed into a magic crystal ball. Parliament, performing a separate analysis, also worked under the assumption of £7,500, and their reason was that

we have assumed that... this fee covers the 80% reduction in [central government funding]. The average fee... is assumed to be £7,500 per annum for an undergraduate degree.

However, this is just silly. For averagefees to be £7,500, anyone charging some amount more than that, would have to be balanced out by someone charging the same amount less. That's what an average is.

However, no-one can afford to charge less, even if they wanted to, because they need to charge £7,500 to pay for their teaching and break even. £7,500 is the minimum not the average. But plenty will want to charge more. Oxford and Cambridge, for instance, were blatantly going to charge the top amount, because they're "top" universities. As a result, every other university which aspires to be elite will have to charge £9k, to keep up with Oxbridge.

Hence a domino effect goes down the line: every university will want to charge as much as the ones immediately ahead of them, so as not to look cheap. (The alternative, that they'd try to undercut them in price, makes no sense when you consider the amounts of money involved; the savings to the students would be minimal but the message - "we are cheap, therefore not very good" - would be loud and clear.)

I've whipped up a little plot showing all the universities which have currently announced their fees along with their position in the latest university rankings. A few small institutions are unranked and so don't appear.

The rankings go up to 115 so if the universities ranked over 58 charge over £7.5k, the others would have to charge less to cancel them out. I'll try to update this chart when fees are announced, but I think it's a forgone conclusion that this won't happen. Last updated 06/04/2011 10 am. See also here for a frequently-updated expert analysis.

The government is now seriously talking about having to cut what little direct university funding remains, in order to avoid losing money - from a policy which was supposed to save money. Yet this was always going to happen given what I said above. Indeed this policy, which was sold to the country as a cost-cutting measure, was always going to, at best, break even until the graduates repay their loans, and they won't even start doing that until the first batch graduate, in 2015 which is the next election year.

So there seem to be only two possible options. Maybe they knew it wouldn't save money, but in that case, why did they do it? It's not winning them any votes, so there must be a long-term plan, but what? The other possibility is that they genuinely thought it would save money. So it's a question of bungling incompetence vs. mysterious scheme. I'm not sure which is worse.