Fairer Student Fees

Tony Blair, in Labour's election manifesto last year, gave a "historic commitment" to make a university education available to half of young people before they reach 30. He also pledged "increased investment to maintain academic standards" while ruling out top-up fees. Indeed, the government was so opposed that it had "legislated to prevent them". The trouble with making extravagant promises is that you get stuck with them and eventually somebody has to pay. When middle-class voters hear that ministers have a "financial gap", they are right to panic. For as sure as U-turns follow election pledges, it is their cash the government is after.

Nobody questions that universities are in trouble. At the start of the great expansion 40 years ago, only 5% of school-leavers went to university. A university, said Disraeli, should be a place of light, liberty and learning. Britain's universities were not too far away from that ideal. They won Nobel prizes – 11 in the sciences in 1960s, 13 in the 1970s. Now, when more than one in three school-leavers goes on to degree studies, their reputation is sinking. The flow of Nobels has slowed to a trickle; there were just two in the sciences in the 1990s. Money talks, even in academe. Student numbers have doubled in 20 years but funding per student has halved. America's Ivy League universities receive four times the income per student – much in direct fee payments – as their Oxbridge counterparts. The universities claim they are underfunded by £3 billion a year.

Britain's cut-price universities have changed the way they operate for the worse. In many, a rising student-teacher ratio means an end to one-to-one tutorials. These have been replaced by something more akin to class teaching. The ability of even good universities to attract the best staff has never been worse. In the next few years the generation of academics, that came with the expansion of the 1960s will be approaching retirement. There will be no queue of talent waiting to replace them. All this was known when Labour made its "historic commitment" and it did not need a degree to work it out. That commitment, giving half of young people a university education, is a millstone around the neck of the system and guarantees a further decline in standards. It has no economic or social logic and will devalue the worth of a degree. Already many graduates enter jobs that would have been for A-level school-leavers not so long ago and some employers insist on post-graduate qualifications. A sensible review of higher education would start by re-examining the 50% target.

However, that would still leave universities short of the funds they need to regain their position as world-class institutions. There are three ways of closing that gap. One is out of general taxation – but that fails on grounds of both equity and efficiency. Part of the bill would be picked up by those who gain no direct benefit from university and it would also add to an already rising tax burden. A graduate tax, favoured by Gordon Brown, the chancellor, would be a lifetime burden on those required to pay it. Its open-ended nature would mean, as our calculations today show, that people would pay tens of thousands of pounds over their working lives for their three years at university.

Far better to focus on the third option: refining and extending the present system of student loans. Under such an arrangement students would pay the higher fees that the universities want but they would do so on a deferred basis and over a longer period. This would not let the taxpayer off the hook – student loans are subsidised and there would have to be some form of bridging finance for the universities until the repayments come in. But, if applied across the board, it would be greatly preferable to the other options. At present fewer than 40% of students, or their parents, pay the full £ 1,100-a-year tuition fees. It is right that graduates should pay the system back for their degrees. But it is also vital that this should apply to the vast majority of students, not the minority paying fees at present. Unless ministers are prepared to adhere to this principle, they will have ducked the issue.