King's College London

Professor Colin Riordan is Secretary General and Chief Executive of the Association of Commonwealth Universities, and former President and Vice-Chancellor of Cardiff University.

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Since education in Wales became a devolved power in 1999, the four nations have diverged significantly in the way that higher education is funded, and students supported.

The distinction between funding for universities and financial support for students is a critical one that is often elided or overlooked, but in fact it lies at the heart of the tensions that have beset UK universities in recent decades.

Those tensions became readily apparent in 2010, when the coalition government proposed, and subsequently implemented, a new approach to higher education funding based on the outcome of the review led by Lord Browne which had cross-party support and was published as planned after the general election of that year.

The recommendations of the Browne review were not accepted in their entirety, but after intense coalition negotiations it was accepted that university fees could be set in a band from £6,000 to £9,000, though in practice almost all universities opted for the top level of the band.

It came as a surprise to some members of the government (Nick Clegg in particular, who paid a very high political price for breaking the Liberal Democrats’ pledge to abolish fees) that it did not lie in the government’s power to set fees directly.

While the Higher Education Funding Council for Wales did have powers to restrict fees to a maximum of £6,000 (as did the Office for Fair Access in England), this was a blunt instrument and of little practical use.

Clegg and others discovered that in setting a maximum fee limit of £9,000 there was nothing that could be done in practice to stop universities from charging that higher amount. An initiative in Wales to encourage institutions to charge fees of £7,500 in 2013/14 only lasted a year, once the impact on universities’ income became clear.

The mass (and sometimes highly volatile) student demonstrations that took place in London against the policy likewise appeared to take the government by surprise. The pushback was also evident in the devolved nations, with Scotland in particular under First Minister Alex Salmond taking a very strong line in ruling out the possibility of university fees ever being introduced for Scottish students in Scotland.

In Wales the reaction was similar, the Welsh government rejecting the whole concept of a marketised system for Wales. To a degree this was rhetorical, because the cross-nation flows were and are very much greater as a result of the long, porous border, and in some universities – such as Cardiff and Swansea – English students greatly outnumber those from Wales as a result of the differential in population and the relative ease of travel.

There was a specific policy reaction in Wales too, however. The Welsh government of the day refused to accept the increase in fees for Welsh-domiciled students, which it did by instituting a fee-grant system. The effect of this was to hold fees at their original £3,000 level plus inflation so far as the Welsh-domiciled students were concerned, in that this was the amount of funding that would be supplied to universities by the Student Loans Company (SLC). The difference between this lower level would be made up directly to universities by Welsh government.

This meant that Welsh students would be less exposed to the ‘lifetime of debt’ that anti-fee campaigners said would be the consequence for graduates who had studied under this new financial regime. On the face of it, this was a neat solution to a difficult problem. Universities would still receive the new level of fee of £9,000, but students would only incur the same level of debt that they would have done without these changes.

In fact, this policy began to be increasingly deleterious to the finances of Welsh universities. The reason is that the total quantum of funding for the Welsh sector did not change, given the increasing demands on the health service and the fiscal requirements of other Welsh government priorities.

Wales receives lower per capita income than Scotland from the Barnett formula, which distributes UK government funding to the devolved administrations, despite greater socioeconomic needs, so the cost of the fee-grant system had to come from the existing funding envelope.[i] The inevitable result of this was that the funding available for universities suffered.

The cost of student support – in this case holding fees down for students – meant that the direct funding available for research and teaching at Welsh universities was constrained in proportion to the numbers of Welsh-domiciled and EU students that they collectively recruited. A perverse incentive was created to hold down the numbers of Welsh students, which did not happen, because of the strong sense of obligation which the Welsh universities rightly held towards Wales, and the EU students, which did happen, informally and organically.

According to European law, EU students had to be afforded the same rights and conditions as home students, which in this case meant Welsh-domiciled, and so it became less attractive to recruit them because of the effect their recruitment would have on the overall budget for universities in Wales.

These circumstances were clearly not sustainable, and to their great credit the Welsh government privately did accept the difficulties the system was engendering, although there was a feeling that universities were perhaps exaggerating the problem somewhat.

That said, it was agreed that (in a move rather similar to the Browne review) a commission would be set up to review the policy, with a brief to report after the next Welsh Assembly elections in 2016.

A commission was duly set up under the chairmanship of Professor Ian Diamond with representation from across the sector, from students, trades unions and others. After around two and a half years of evidence-gathering and deliberations, the commission published its report. The broad outcome was that the fee-grant system should be abolished, universities should be allowed to charge the full £9,000 fee which would be paid by the SLC and recovered from graduates as in England, but in return there would be a generous system of student support, including grants at the rate of the living wage for those students on the lowest income, and a progressive grant for living costs of at least £1,000 for all Welsh-domiciled students.

On the university funding side, there was a recommendation to increase substantially the grant available for research (so-called Quality Related or QR funding), and to ensure that high-cost subjects were adequately funded through the teaching grant.

The initial response of the Welsh government was positive. The findings were broadly accepted, subject to further analysis of affordability. A private warning was given that the transition period would be difficult, with two systems running at once as the old one ran out and the new one introduced over a period of years. Implementation was complicated by the fact that in 2015 the UK government announced the removal of the cap on student numbers that had been a feature of university finance for a generation.

From the academic year 2015/16, the Treasury would allow universities to recruit as many students as were available, with support from the SLC. This would have been the final death knell for the fee-grant system, had it continued, but it still imposed strains on the new system which came into force in Wales at the beginning of the academic year 2017/18.

Over time the result was rather similar to the previous circumstances. The quantum available for higher education as a whole was defined and any policy outcomes had to be achieved within that envelope. The funding eventually failed to keep pace with inflation, and priority was always given to student support. In many ways this was both right and necessary. Financial support for students is a doorstep issue, whereas financial support for universities is not, even though there are obvious knock-on effects for the student experience if university funding falls short. While the recommendations of the Diamond review in relation to student support were implemented, those relating to university funding and support for the sector were not, or at least only in a limited fashion.

This is not meant as criticism of the Welsh government. They almost always acted in a spirit of partnership and dialogue, but the demands on government funding are great, especially in the arena of health and other devolved powers.

Unfortunately, the effect is that a system that was meant to be a lasting settlement for decades has become a major constraint on the ability of Welsh universities to compete both within the UK and internationally. The problem was compounded by the pollical sensitivity of fees, and the policy of abolition introduced by Her Majesty’s Opposition when Jeremy Corbyn became the Labour leader. This meant that in the autumn of 2017 the Welsh government announced an inflationary increase in the £9,000 fee which was withdrawn within weeks. The increase to match the English level of £9,250 (still far below the original 2012/13 level in real terms) did not happen until 2024.

It is undoubtedly true that an important principle of university funding revolves around the proportion of private versus public funding. Indeed, then UK Universities Minister David Willetts recognised this back in 2010, arguing that the increase to £9,000 meant a reverse in the proportion from 60 per cent public/40 per cent private, to 60 per cent private/40 per cent public. The argument then becomes about the fairness of that distribution between the individual and the taxpayer. Yet the further dimension of the proportion devoted to directly funding university activities versus the financial support provided to students often goes under the radar.

The Welsh experience shows that in any higher education funding system, a frank and open, if private, discussion between the sector and the government would allow for an approach that is fairer, and more sustainable, to students as well as universities, and ultimately to the prospects of the country and the health, wealth and wellbeing of its population.

[i] Cheung, A. (2020, November 25). Barnett formula. Institute for Government. https://www.instituteforgovernment.org.uk/article/explainer/barnett-formula