The funding of higher education in Scotland: implications of further devolution and/or independence

Professor David Bell

ESRC Research Fellow

University of Stirling

1

INTRODUCTION

2

Constitutional Options for Scotland

• Status Quo

• Devo +

• Devo More

• Full Fiscal Autonomy

• Independence

3

The Status Quo - Scottish Budget 2013-14

4

Scottish Further and Higher Education Funding Council

2012-13 Budget £m

2013-14 Draft

Budget £m

2014-15 Plans £m

Scottish Funding Council FE Programme 506.9 511.7 470.7

Scottish Funding Council HE Programme 1,002.2 1,041.6 1,061.8

Scottish Funding Council FE/HE Capital 60.7 45.9 56.4

Scottish Funding Council Administration 7.9 7.9 7.9

Total Level 2 1,577.7 1,607.1 1,596.8 of which:

DEL Resource 1,517.0 1,561.2 1,540.4

DEL Capital 60.7 45.9 56.4

SG Spending Limits — Cash Terms 2010-11 £m

2011-12 £m

2012-13 £m

2013-14 £m

2014-15 £m

Revenue DEL 27,259 26,270 25,896 25,429 24,961

Capital DEL 3,462 2,837 2,707 2,319 2,320

Total 30,721 29,107 28,603 27,748 27,281 Real-Terms Change – year on year -5.3% -1.7% -3.0% -1.7%

Real-Terms Change – cumulative -5.3% -6.9% -9.7% -11.2%

The Status Quo - Scottish Budget 2013-14

Higher Education Student Support

Level 3

2012-13 Budget £m

2013-14 Draft

Budget £m

2014-15 Plans £m

DEL

Student Support and Tuition Fee Payments 325.9 302.4 307.0

Student Loan Company Administration Costs 5.0 5.0 5.0

Student Loan Interest Subsidy to Bank 4.5 4.5 4.5

Cost of Providing Student Loans (RAB Charge) (Non-Cash)

88.4 134.0 181.6

Student Awards Agency for Scotland Operating Costs 8.4 8.7 8.7

AME

Net Student Loans Advanced 241.3 408.3 468.3

Capitalised Interest (47.0) (50.0) (52.0)

Student Loans Fair Value Adjustment (69.0) (69.0) (69.0)

Student Loan Sale Subsidy Impairment Adjustments 0.5 0.5 0.5

Total Level 2 558.0 744.4 854.6

of which:

DEL Resource 431.8 454.2 506.4

DEL Capital 0.4 0.4 0.4

AME 125.8 289.8 347.8

5

Alternatives to independence • Devo plus and devo more

– No obvious implications for HE sector relative to status quo.

• Fiscal autonomy – research councils part of “shared services”? “A payment from Edinburgh to London would be required to cover common UK public goods and services (i.e. “shared services”). The range of services included in this basket of “shared services”, how they would be paid for, and the authority the Scottish Parliament would have over such policies, would be subject to negotiation at the time of any revised settlement” (Fiscal Autonomy in Scotland, Scottish Government 2009) Would the research councils form part of these shared services?

6

Independence and Higher Education

• Key questions for Scottish Government – Would an independent Scotland want to increase/decrease

level of support for HE

– Could it afford increased support?

• Existing structures and relationships – Student demography – stocks and flows

– University funding

• The tuition fee issue – A proposed solution

7

DESIRABILITY AND AFFORDABILITY OF POST-INDEPENDENCE HE SUPPORT

8

Graduates make up an increasing share of the Scottish workforce

9

0.00

0.50

1.00

1.50

2.00

2.50

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Nu

mb

er

of

em

plo

yee

s (m

illio

ns)

Graduate

Non-graduate

Graduate premium declining slightly

10

40%

50%

60%

70%

80%

90%

100%G

rad

uat

e P

rem

ium

(%

)

rUK

Scotland

Graduate premium = Graduate wage/non-graduate wage – 1 Source: Labour Force Survey

Spending on HE in UK low, but effective

11

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Iceland UnitedKingdom

Norway Ireland Sweden Denmark Finland Korea UnitedStates

Spe

nd

ing

on

HE

as S

har

e o

f G

DP

29 of the world top 200 universities in the UK

Scottish HE Institutions 2012 – Significant Income Generation

12

£0m

£100m

£200m

£300m

£400m

£500m

£600m

£700m

£800m

£900m

£1,000m

FundingCouncil grants

Tuition fees Researchgrants andcontracts

Other income Endowmentand

investmentincome

Scottish Growth Sectors Have Strong Links to HE • Oil and Gas

• Food and Drink

• Technology and Engineering

• Renewable Energy

• Life Sciences

• Tourism

• Creative Industries

• Financial and Business Services

• Chemical Sciences

• Construction

• Forest and Timber Technologies

• Textiles

13

Unlikely to change immediately post-independence

HE as an export earner in an independent Scotland?

• Issues

– Migration/visa policy

• Implications for border arrangements?

– Co-operative/competitive outcomes among institutions

– Technological challenges

– Product differentiation

• What makes a Scottish HE course better?

– Policies to attract best scholars

• Salaries, working conditions etc

14

STUDENT DEMOGRAPHICS

15

Potential student numbers in Scotland static, growing in England

16

60

70

80

90

100

110

120

181716151413121110 9 8 7 6 5 4 3 2 1 0

Ind

ex 2

01

3 =

10

0

Current Age

Scotland

Wales

NI

England

Scottish Higher Education Initial Participation Rate (HEIPR) static

17

0%

10%

20%

30%

40%

50%

60%

2006-07 2007-08 2008-09 2009-10 2010-11

Cu

mu

lati

ve H

EIP

R

Other HE

HNC/HND

First Degree

Share of Students studying in HEIs in the UK by domicile and country of institution: 2009-10

18

72.4%

84.5%

58.0%

92.1%

12.6%

2.6%

25.5%

2.4% 17.9% 17.3% 18.2%

11.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Scotland England Wales Northern Ireland

Pe

rcen

tage

sh

are

of stu

de

nt p

op

ula

tion

in e

ach

co

un

try

(%)

Country of Institution

InternationalstudentsOther Uk students

Home students

RUK students share varies by institution

19

0% 10% 20% 30% 40% 50% 60%

Bell College

The University of West of Scotland

UHI Millennium Institute

Scottish Agricultural College

The Rober Gordon University

The University of Strathclyde

Glasgow Caledonian

Edinburgh Napier

University of Abertay

The Univerisity of Dundee

The University of Stirling

The University of Glasgow

Queen Margaret University

The University of Aberdeen

Heriot-Watt University

The Royal Scottish Academy of Music

Edinburgh College of Art

Glasgow School of Art

The University of Edinburgh

The University of St Andrews

Proportion of RUK Students in Undergraduate Intake

These data are calculated from HESA microdata and provided by Marta Odendal

Significant post-graduation cross-border flows

20

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Scottish Studentsat ScottishInstitutions

RUK Students atScottish

Institutions

Scottish Studentsat RUK

Institutions

First Career Destination of Students Entering University 2003-2006

First Career Destination World

First Career Destination EU

First Career Destination RUK

First Career DestinationScotland

These data are calculated from HESA microdata and provided by Marta Odendal

FUNDING

22

Spending relative to population on HE is high in Scotland

23

0%

20%

40%

60%

80%

100%

120%

140%

England Wales NorthernIreland

Scotland

Public Spending

Higher Education

Income by Institution 2011-12

24

£m £100m £200m £300m £400m £500m £600m £700m £800m

Royal Conservatoire of Scotland

Glasgow School of Art

University of Abertay Dundee

Queen Margaret University, Edinburgh

SRUC

University of the Highlands and Islands

The Robert Gordon University

The University of the West of Scotland

The University of Stirling

Edinburgh Napier University

Glasgow Caledonian University

Heriot-Watt University

The University of St Andrews

The University of Aberdeen

The University of Dundee

The University of Strathclyde

The University of Glasgow

The University of Edinburgh

The Funding Status Quo

• No tuition fees charged for higher education in Scotland

• Fees of up to £9000 per annum payable in rest of UK. Those charging fees above £6,000 have to allocate some funding to widening access initiatives.

• But according to the NUS, even with tuition fees in England, “Scotland has the worst record on widening access in the whole of the UK”

25

Income from tuition fees and education contracts by country of HE institution 2011/12

26

0% 20% 40% 60% 80% 100%

England

Wales

Scotland

Northern Ireland

Full-time undergraduate

Full-time postgraduate

Part-time undergraduate

Part-time postgraduate

Non-EU domicile students

Non-Scottish domiciled students in higher education in Scottish HEIs and colleges by domicile: 2000-01 to 2009-10

28

25

,84

5

26

,73

0

26

,87

0

26

,23

5

25

,95

5

26

,70

0

27

,27

0

28

,29

0

28,5

20

29

,83

0

7,8

50

7,9

85

8,3

70

9,1

95

9,8

70

10

,87

5

12

,07

0

12

,67

0

13

,85

0

16

,07

5

10

,83

0

12

,75

0

15

,37

0

16

,91

5

18

,23

0

19,4

75

23

,08

5

22

,44

5

25

,15

5

25

,99

5

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

No

n-S

co

ttis

h d

om

icile

d s

tud

en

ts

Academic Year

Rest ofUK

EU

Non-EU

Increased flows from rUK during “noughties” – fee effect?

29

-0.1%

22.1%

22.9%

-19.0%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10%

Change s

ince 2

000

-01

Academic Year

% Change in student numbers in Scottish HEIs and colleges from UK countries since 2000-01

Scotland

England

Wales

NorthernIreland

The zero line

represents no

change since 2000-01.

POST-INDEPENDENCE - SOLVING THE TUITION FEE ISSUE

31

Post-independence – must treat rUK students as EU

• EU citizens are automatically entitled to study in other EU member states: they should not be paying higher tuition fees and they should be able to receive a residence permit (in order to obtain financial sustain as any other national student) – after 5 years

• Hence, substantial increase in inflows post-independence from rUK?

• Studying in Scotland would not be free – living costs incurred

• Recent NUS estimates of living costs = £12,056 per annum (£4,834 for rent, £1,956 for food, £316 for household goods, £42 for insurance, £2,074 for personal items, £1,524 for travel and £1,310 for leisure).

32

Floodgates?

• Are living costs higher/lower in Scotland than elsewhere?

• Depends partly on place of domicile

• Paying no fees would reduce costs from £21,000 to £12,000 per annum – 42 per cent (31 per cent if comparing 4year with 3 year course)

• How responsive is student demand to changes in fees?

• Recent estimates from Germany – the imposition of any fees reduces enrollment by 2.7 per cent (Hubner 2012)

33

Floodgates?

• Suppose 1 per cent of qualified rUK students seeking to enter a full-time undergraduate course respond to lower course costs in Scotland by applying to Scottish institution.

• Increase in rUK applications = 3,900

• Equivalent to 12 per cent of Scottish annual intake.

34

A Welsh Solution?

• Allow universities to charge (conditional) fees

• Use conditionality to support initiatives such as widening access/STEM etc

• Offer Scottish tuition fee grants and loans to all Scottish domiciled students

• Could be universal or means-tested

• Means supporting the approximately £12,000 Scottish domiciled students studying in rUK – approx. cost = £120m

35

It won’t work!!!

• EU students must be offered the same fee support and grants as home students.

• The only cash they can’t access are maintenance grants which can be offered to home students only.

• Spillover effects of large neighbour applying marginal cost pricing to merit goods when borders are porous. No obvious solution for small country wishing to subsidise these goods.

36

References

• Hübner, M. (2012). Do tuition fees affect enrollment behavior? Evidence from a “natural experiment” in Germany. Economics of Education Review.

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