Tuesday, December 16, 2003

The debate on differential tuition fees for higher education has hit the headlines once again, with over 150 Labour MPs signing an early day motion suggesting that they are likely to vote against the government. This would be unfortunate indeed.

Since the early 1990s, funding per undergraduate student in the UK has declined from £8000 to £5000. Multiply this by the number of students in the system, and it is clear that, in comparison with the recent past, total income from this source is at least £6 billion less than it might have been. This funding gap is adversely affecting the fabric of our higher education institutions; it is adversely affecting the conditions under which our students study; and it is severely challenging the ability of our best universities to compete with the best universities worldwide. Nobody seriously doubts that the universities need more cash. The problem is: from where?

Taxing in order to improve the finance of higher education is not an option. Closing the funding gap would put 3 percentage points onto the basic rate of income tax. That is politically infeasible. In any event, it would be inequitable to impose taxes on those who do not benefit from higher education in order to fund the univerisites; it would be wrong to expect road sweepers to pay for the investment made in people who later in life get high earnings on the back of their education. The debate about this ended with the introduction of flat rate tuition fees.

At stake now is the matter of differential tuition fees. Different students study different courses, have different abilities, and have different needs. It is absurd to pretend that all benefit, and that all should therefore pay, equally for the higher education they receive. Some benefit more than others. So some should pay more than others. That is only fair.

Some people object to differential fees on the grounds that their introduction will create a two-tier system of universities. This is hogwash. Higher education institutions already charge differential fees to all postgraduates. They also already charge differential fees to all undergraduates domiciled outside the EU. Universities already receive incomes from their students that vary according to how much the market will let them charge. Courses with a strong reputation charge more than those without. What is new?

The proposals before parliament could certainly benefit from some refinement and clarification. In particular, the bursaries system that has been mooted should be administered (and in my view largely financed) by the government - only the government has a mandate to redistribute income in this way. And we need to be sure that, unlike the existing fees, the new fees should not be a stealth tax - when the government introduced tuition fees at a level of £1000 in 1999, it reduced its own funding for each undergraduate student by an almost identical amount.

Notwithstanding this, the principle of differential tuition fees is a good one. It is not right that students on courses that will benefit them relatively little should pay as much for those courses as other students on courses that will benefit them a lot. The proposals currently before parliament will remove that horrible inequity. Those MPs who are considering rebellion should consider that.
The recent decline of the US dollar has been dramatic. The stimulus for this has been the huge current account deficits faced by the US. That these deficits should emerge at a time when the American economy has not been growing strongly is a concern - as the US economy expands, more imports are likely to be sucked in, and the current account deficit will increase further. To mitigate this, the weakening dollar should at least make American goods cheaper for consumers in other countries to buy.

The flip side of the weakening dollar is the strengthening of other currencies (such as the pound or the euro) against the US currency. This makes it harder for these countries to sell goods in the US, and so will make it more difficult for the European economies to pull their way out of the recent period of sluggish growth. A strong recovery in the US is, more than ever, what Europe needs in order to stimulate growth on this side of the pond.
My work on A level curricula and subsequent labour market earnings has been generating some media interest in the last couple of days. Essentially this work takes issue with earlier studies that suggest that maths is the only A level subject that positively influences subsequent earnings.

I disagree with this earlier work because, in my view, it does not make sense to examine the labour market impact of each subject separately. Students take a curriculum - a whole set of subjects - at A level, and they do so because they expect the interaction of these subjects to pack more of a punch than can a single subject. So taking chemistry alongside, say, physics can be more effective than taking either subject in isolation - because there are beneficial spillovers from one subject to the other.

The work that I have done uses a sophisticated statistical estimation method based on neural networks to analyse the impact of all possible combinations of subjects. The results suggest strongly that:

(i) maths is not the only subject that contributes to future earnings
(ii) it is not possible to say that a narrow curriculum is more productive than a broad curriculum or vice versa - subsequent earnings depend on the precise mix of subjects studied
(iii) again, it is not possible to claim that a curriculum dominated by sciences is more productive than one dominated by arts - for exactly the same reason; subsequent earnings depend on the precise mix of subjects studied.

The results are therefore quite complicated. But, of course, that is what we should expect. The interactions between different subjects are complex indeed.