Spend, spend, spend………… tax, tax, tax???

All government’s stand or fall on their ability to plan effectively and turn those plans into reality. The COVID-19 crisis is almost a year into its effects and planning has effectively stalled. It seems the government has yielded to a form of virus-led anarchy that relies on private enterprise and people acting with common sense. The government reacted too late to the pandemic and has been playing catch up ever since. This week was no different with another interim spending review announced on Wednesday. Unexpected was the omission of universities and Augar along with support for students, grants, and fees.

Reports that university finances are being reviewed behind closed doors by a former independent-schooled, unelected Lord with no university degree is concerning. Meanwhile, a crew of four, led by an unelected former minister are looking at the tricky problem of what to do, or not do, to universities that fall into financial difficulty. Called the ‘ Higher education restructuring regime (HERR) advisory board’, it will strike fear into the heart of many institutions in 2021. Yet numbers will not decline and young people will have little choice but to stay in education as unemployment rises fast next year. 

Education, education, education……… 

As always, education will play a key role in the future and will need very careful planning as student numbers increase from next year. Despite its major failings, it seems Ofqual is protected “after taking into account the permanent transfer of funding to deliver certain functions that are usually transferred in-year from the Department for Education”, whatever that means. Ploughing on with a further investment of £64 million next year in the Student Loan Company, and its digital transformation programme, indicates reliance on fees will be the central core, and perhaps the only, income for most universities. 

However, with zero on universities and students themselves, the ‘Spending Review 2020’ falls far short of what might be expected. There will be vital support possible indirectly for some universities through research income but nothing else is indicated. They look like they will be cut adrift to fend for themselves and may find they cannot support the least advantaged students. In contrast there are significant investments planned for Further Education Colleges that herald an expansion of this provision. It seems the mistakes of the past have been acknowledged. However, it will soon become obvious that the costs and burden of debt will fall entirely on students and their families. With some universities already indicating they will be setting lower entry standards in 2021, the government may be moving to a tighter restriction on entry grades and numbers. Along with lower fees, Augar suggested this last year but it was all shelved. There is no mention of Augar in the Spending Review. Instead, we can expect to see a damaging and brutal competition for students in the absence of a coherent plan. 

Spend, spend spend……. 

The central pillar of any government success is its spending plan. The plan must be strong enough to support the structure laid out in the manifesto that got the government elected. But the virus has collapsed both in a way that might have been foreseen. Instead, COVID-19 came as a total surprise when it emerged. The uncertainty of Brexit arrangements, and the additional economic impact, has simply overloaded the structure. 

In the normal cycle of events, the government should have rolled into another comprehensive spending period from last year. The previous one in 2015 confirmed austerity measures would continue. Brexit uncertainty meant this did not happen and an interim plan emerged to tide over the government. The main document ‘Spending Review 2020’ has indicators going on to 2025/26 but is only certain in its plans for the next 12 months. After temporary plans last year, and again in March of this year, we now have another interim twelve-month plan in play. On Wednesday, the Chancellor, Rishi Sunak, set out spending expectations that took account of COVID restrictions staying in place for several months to come. The spending structure involves making large investments to grow the economy supported by borrowing that looks almost insane. 

Tax, tax, tax………..The context of paying back loans. 

Paying back loans will take many years and the Resolution Foundation set out a very gloomy forecast this week for loss of pay averaging at £1200 per year for everyone up to at least 2025. In ‘Here today, gone tomorrow: Putting Spending Review 2020 into context’ we see that it will surely have much longer term effects as the burden of repayments stretches into the future. By analysing data from the ‘Office for Budget Responsibility Economic and fiscal outlook, November 2020’ they reach alarming conclusions on the impact on the economy and borrowing. Both documents are frightening. An earlier report by the Resolution Foundation on 11th November 2020, ‘Unhealthy finances: How to support the economy today and repair the public finances tomorrow’ will have also influenced the government. 

The spending review itself looks at the effect of spending decisions made since the Budget of March 2020. The figures are just as alarming. UK borrowing will reach £394bn this year and will continue over each of the next five years. It will be £164bn next year and remain at a projected £100bn each year to 2025/25. This assumes the pandemic will come under control next year, but even more borrowing may be needed if things go wrong. 

It is hard to see how repayments can be achieved through expansion of the economy at the slow rate predicted in a world recession. It is more likely the government has an alternative taxation plan in the wings, as predicted by the Institute for Fiscal Studies this week. As sure as night follows day, a future Labour administration will end up increasing taxes for a long time to come. It’s like 1970’s ‘déjà vu all over again’. 

‘Unprecedented in peacetime’. 

Many media outlets have deployed the term ‘unprecedented in peacetime’. This seems to provide some comfort to those who might think matters have been worse in the past. War is of course a human made disaster and nature is the foe now. 

But we must not forget the cost of World War II to the UK in defending Western Europe and the Far East. It should be a sobering thought that the Labour administration in the UK finally paid off billions in loans from the USA and Canada sixty one years later in 2006 ( BBC NEWS | UK | UK settles WWII debts to allies). 

The US loaned £2.2 billion to Britain, while Canada loaned £607 million. This was at a rate of 2% annual interest to be paid back in fifty annual instalments. This comes to around £122 billion in today’s spending and puts our current predicament in context (£100 in 1945 is equivalent in purchasing power to about £4,344.44 in 2020). 

Also, bear in mind the number of COVID-19 ‘casualties’ so far have been suppressed through the emergency measures taken since March 2020. The Prime Minister somewhat flippantly referred to ‘Squashing the sombrero’. This hid the brutal outlook that the virus could claim almost 400,000 lives by the time the UK population reached herd immunity naturally. Before the strict lockdown was announced last March, TEFS reported around 390,000 people could die in the UK if a ‘herd immunity strategy’ was pursued (see TEFS 13th March 2020 ‘Government warning: "Squashing the sombrero" will damage your health’). Even in the deadliest conflict in world history, World War II, the UK did not suffer such high attrition with 383,700 military personnel killed alongside 67,200 civilians. 

Omitting Higher Education is a deliberate ‘mistake’. 

The focus of education in the spending review appears to be in making significant investments in Further Education. This is welcome but will largely reverse the cuts of the last few years. Universities are conspicuous in their absence from the review. Instead, there are things happening out of sight that must be very concerning. At the start of the year, the then Higher Education Minister, Chris Skidmore, promised in parliament that the spending review later in 2020 would address the recommendations Augar that emerged a year earlier (see TEFS 20th January 2020 ‘Augar, Second Class Citizens and another review’). This has not happened and leaves all universities in a planning vacuum as more demands are placed on them. The spectre of restricting student numbers as the population rises (see TEFS 21st August 2020 ‘The perfect storm for Universities PART ONE: The demographic reality’) through setting higher entrance standards is looming. 

Treasury review of university finances. 

Meanwhile, Times Higher Education reported that unelected Lord Agnew was leading a Treasury inquiry into university finances (Times Higher Education 24th November 2020 ‘HE expansion critic ‘leads Treasury probe’ into university costs’). Independent schooled Agnew, with no university degree, was elevated to the Lords in 2017 and then Minister of State at the Cabinet Office and the Treasury in February of this year. He may have been planning something for some months, but it would be incendiary to show this now. He has been critical of university spending in the past and must be an ideal choice to start cutting back Universities. Yet he is unelected and not answerable to the people in any way. Could it be the government cannot find anyone elected willing to carry out the cuts? 

Agnew is very privileged and his wealth is hidden in a blind trust, even though he has considerable interests in firms that carry out work for the government and the Conservative Party. Many would question him being given undue influence over how our Higher Education is financed. One can only conclude that the political environment surrounding students and university provision is too hot to handle in public at this time. Instead a ‘stealth team’ is planning an attack in the dark. 

Unemployment looms.

The main focus of the review is to provide large amounts of funding for businesses and hope for more employment. However, the issue of unemployment will not go away. The Chancellor predicts this will be over 2.6 million unemployed in 2021. This will be especially the case for young people who will see their prospects galloping into the distance. 

However, there is some comfort for the unemployed and young people through allocation of £2.9 billion to a Restart programme and £2 billion to a Kickstart Scheme. But the scale of the problem means these are likely to be overwhelmed. 

Put into context, the economic strategy led by the Thatcher administration from 1979 led to over 3 million unemployed by 1983 (see overview ‘The Thatcher years in statistics’ BBC 2013) . The full extent of that disaster for working people was obscured by large numbers being diverted into sickness and other benefits. Those of us who entered the graduate job market at that time will shudder now at the prospect of it happening again for our current young people. Many people made redundant back then failed to gain employment again. Government engineered high interest rates resulted in the economy lurching away from manufacturing to services and hospitality. It is persistence of this imbalance since that makes the UK so vulnerable today. It will take monumental efforts by a new generation to put the UK back on the tracks that are inclined steeply upwards due to a world recession. 

Research bonus on the horizon? 

The review boasts “By 2023-24 the government will be investing £1.4 billion more per year in core funding for its world-leading research base”. However, it will not be plain sailing for the research intensive universities since the sting in the tail is that “UK Research and Innovation will next year open its grant competitions to the dispersed network of outstanding public sector labs across the country”. From a university perspective, the investment is not ‘more’ it is more likely to be less when accounting for the loss of income from EU research programmes. This move could hide actual cuts in universities if not viewed more critically in detail. 

The idea that the increase in spending will offset loss of research income arising from BREXIT is still up in the air since “Negotiations over the UK’s future relationship with the EU, including Horizon, are still ongoing”. Research funding from the EU has been a spectacular success for UK universities over many years. A review by the Royal Society in 2014 ’The UK and EU research funding | Royal Society’ concluded that “The UK is one of the largest recipients of research funding in the EU” and data from the Office of National Statistics (ONS) showed UK’s contribution to EU research and development was €5.4 billion (£ 4.6 billion at 2013 rates) from 2007 to 2013. However, over the same time, the UK received €8.8 billion (£7.5 billion) in direct EU funding for research, development, and innovation activities. This indicates the massive influence that the UK exerts within the EU. 

The government cannot say they are unaware of their actions. An excellent report from the House of Commons Library in September, ’EU funding in the UK - House of Commons Library‘, showed the scary details of what we are likely to lose. The current Horizon 2020 research programme is coming to an end but UK researchers are still able to access the last remaining funds for now. Current government guidance indicates “You can still apply for EU funding and will continue to get any funding you’ve been awarded”. Horizon 2020 ran from 2014 with a budget of €80 billion (£72 billion at current rates) and the UK has benefitted to the tune of €6.9 billion. (£6.2 billion). The UK may not be involved at all in the upcoming Horizon Europe €100 billion research and innovation programme that will succeed Horizon 2020 that was agreed in 2019. The current rate of 14% success of the UK research base in the whole Horizon 2020 programme indicates we are probably missing out on around £12.6 billion over the next six years and the UK government will have to pick up the whole tab. However, more worrying will be disengagement from input by researchers across the EU and loss of expertise and mobility. 

Don’t forget the students. 

There is no doubt the government is abandoning universities to a ‘market’ in students. They can expect little help other than attracting student fees in a competition. They cannot easily plan since the examination arrangements are uncertain for those entering university next year and an embargo may be put on them accepting students with lower grades. Research active universities will find themselves in a fierce fight to secure funds from government inspired research initiatives. It will cause a major upheaval and restructuring well beyond anything seen to date. Meanwhile, students will be first to endure a permanent swing towards online teaching provision. More will need financial support in a weak job market and may find they cannot continue. The 'competition' will favour the better off families and others may be left behind. 

It the middle of the chaos, it is worth considering what students are currently thinking. An episode of ‘You and Yours’ on BBC radio 4 today ‘Tuition Fees; Home Care Finances; Black Friday’ (from the start) offers a valuable insight. The complaints are coming in fast so be warned.

Mike Larkin, retired from Queen's University Belfast after 37 years teaching Microbiology, Biochemistry and Genetics. He has served on the Senate and Finance and planning committee of a Russell Group University.