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Universities, students, and the Budget 2021

There was a buzz of anticipation in the air on Wednesday as one of the most important budgets in decades was unfurled. Yes, it had leaked profusely in advance, but we all expected more in the way of surprises. In the end, it was disappointment and increasing anxiety for those needing social support into the future. Any impact on students and universities will be indirect as they are left to fend on their own. The strategy is one of support for business first with “investment led recovery”. The least well off will be hit hard by rising tax pressures while the social safety net will be lowered as furlough and universal credit subsidies are removed. The effects of Brexit are played down but the real costs will be a major additional burden.

Hovering over the keyboard yesterday, it soon became clear there seemed to be very little to report on students and universities. What was not included was of greater significance. This is because ‘The ‘Budget 2021 Protecting the jobs and livelihoods of the British people’ was unashamedly skewed towards helping business as the core strategy. As far as the most disadvantaged students and universities are concerned, the ‘devil can take the hindmost’. Most of the controversy will be about pay in the NHS that will not match rising inflation. The anger might not be so much about money, but about a realisation that they are exhausted and not cared about enough. They are not alone and join others in the public sector, such as teachers and lecturers, heading back into the front line with similar doubts. 

Tax rises are inevitable, but businesses will be relieved to wait until corporation tax increases come into play in 2023. With an election following soon after, it may be that there is no rise in this tax at that time. Unemployment is held back for now with an extension of the furlough scheme. There is also help for homeowners with mortgages but not for those who rent their homes. The whole thing looks like it is designed to protect the Conservative voter base in the middle ground. But ignoring universities and students could turn out to be a bad move. The old assumption that universities are mostly inhabited by the ‘middle class’, and that families will always support their student offspring, is dissipating and a new order is emerging from the smoke.

Reactions.

There were varied reactions to the proposals this week. The Office for Budget Responsibility (OBR) as usual provided a comprehensive analysis and forecast in ‘Economic and fiscal outlook – March 2021’. It is generally positive and endorses the “Generous tax incentives for business investment” that stokes the "recovery over the next two years as the COVID crisis recedes". However, there is a clear caveat that “risks remain from the virus, legacy costs for public services, and future interest rates”. These fears are fuelling anxiety amongst most of the population. 

The Institute for Fiscal Studies (IFS) ‘Budget 2021’ analysis focuses on the increased tax impact by offering odds. The idea that increased corporation tax will be done “without additional concessions” is seen as “50-50 at best”. The idea of delivering “17 billion of spending cuts relative to March 2020 plans" is seen as “10 to 1 against that happening”. The Resolution Foundation digs into the consequences for most people with its analysis, ‘Spending fast, taxing slow’. They observe that “There was much less by way of lasting support for households in the recovery” and “with unemployment set to rise later this year and the Chancellor deciding to end the £20 uplift to UC at exactly that point leaving the poorest households facing a 7 per cent fall in income in the second half of 2021-22”. The conclusion is that, in protecting household incomes and public services, “More policy measures may well be needed, particularly if the economy turns out weaker than hoped”. This is a sensible conclusion.

The Joseph Rowntree Foundation (JRF) was much more hard hitting on behalf of the increasing numbers of disadvantaged. Their ‘JRF Spring Budget 2021 analysis’ pulls few punches from the outset with “ultimately, more people will be swept into poverty in the face of continued economic uncertainty and inadequate support”. They reserve most criticism for government silence on “support for the 700,000 households already in rent arrears” and the “Local Housing Allowance will be frozen from April”. These pile “further costs onto renters on low incomes as the link between local rents and support on offer is broken again”. It is a disaster for many low-income families. Those reaching out for better times might find a stamp duty holiday and a “new 95% mortgage guarantee scheme” attractive. But these will simply drive up house prices and feed the coffers of property developers. Perhaps this illustrates best the whole point of putting business first. Young people working to improve their situation will probably not notice the changes that will affect them into the future. They are too busy coping with the present crisis for them and their families. But in time they will come to realise the roots of their situation and react badly.

Universities and students.

Most commentators and opposition politicians concluded that there was nothing for students and universities included. But there were important changes that revealed some knock-on implications that might turn out to be significant.

The overt inclusion of an ‘Investment led recovery’ theme is a good example. A review of “tax support for research and development” would stimulate business investment in research with university partners. This would yield better jobs for graduates but would have to be carefully managed to succeed. It will be backed by a “Future Fund: Breakthrough to support the scale up of the most innovative, R&D-intensive businesses” that could have a far reaching impact on university strategies and plans. However, in an affirmation of the government’s trust in business to deliver (sarcastic) they have introduced very low caps on support for small companies “in order to deter abuse”. Thus, small university spin-out companies will find they are not going to see much by way of subsidy. Big business is trusted more.

The research-intensive universities will still be hovering to see what they can get from the promised £800 million to set up “a unique and independent funding body for advanced research, modelled on the US’ Advanced Research Projects Agency (ARPA)" However, it was not included in the budget and there is some doubt about when it will emerge (Policy paper UK Research and Development Roadmap 21st January 2021.

University viability: costs and pensions.

The main day to day cost for a university is staff pay. This remains the case regardless of online teaching or not. Hidden from the students is the cost of supporting online resources. Also hidden is the time load and stress on their lecturers. While pay remains largely static, the costs of supporting pensions are set to rise again to a level that will not be sustainable. It is no coincidence that the main university pension fund, USS, set out its financial position on Wednesday with ‘USS: pension contributions will need to rise sharply if existing benefits are to be maintained’. The fund’s deficit last March was estimated to be between £14.9bn to £17.9bn. This could mean contributions rising from the already high 30.7% of pay to an eyewatering 56.2%. Neither staff nor universities can afford this with income remaining static. Fee paying students would not understand.

The deficit is mostly caused by government pension rules demanding very conservative projections that define the safest fall-back position based mostly on safer low yielding bonds. This is exacerbated by low interest rates. In reality, the fund is doing much better in the investments market. Looking more closely at the budget, the role of pensions can be uncovered. Firstly, there is a proposal to review the current pension scheme “charge cap” (this is currently capped at 0.75% and is the highest possible fee that can be levied on employer pension schemes). The assumption is that the cap affects “pension schemes’ ability to invest in a broader range of assets” The aim would be to “ensure pension schemes are not discouraged from such investments and are able to offer the highest possible returns for savers”. The logical outcome would be to lift the cap as an incentive for fund managers. Elsewhere, there is mention of “reforming pension rules on investment and reviewing rules for equity offerings”. This has the potential of releasing pressure on pensions such as USS. However, equally it could be a high-risk boost for the fund managers and businesses who become the only winners. This is yet more evidence of a business first agenda. But as an aside, the freezing of the of pension lifetime allowance before tax until 2026 affects the most well off. This tax charge will affect university VC pensions. No doubt the best paid ones will be taking their tax advisors to lunch at the Athenaeum Club to seek out a way to avoid the tax.

University viability: income stasis.

On the income side there is stasis. The balancing income from students is only noted in the context of loans rising slowly to 2025/26. For universities, this means a static income in the face of inflation, But only for those universities that can maintain their student numbers. The expectation is that high unemployment will drive more young people into education. Higher education will then be financed by the debt they incur. But the situation is precarious as reported by TEFS last May in How precarious are universities in the UK?’ and then by the IFS last July year with ’Will universities need a bailout to survive the COVID-19 crisis?’. Some could find they are insolvent in time and succumb. The uncertainty will make it harder for them to secure loans and this may be heightened by interest rate increases and inflation. The first casualties will be students needing the support that the government is reluctant to recognise. (see TEFS 5th February 2021 ‘Why a student support task force is needed’)

Driving a wedge into social mobility.

The budget ensures that those with resources and capital will find themselves better equipped to rise from the economic rubble of the COVID crisis. There is little doubt the government has been careful to protect its voter base in this budget. While homeowners are helped, those renting will find things tough as their income remains restricted or worse, lost. The OBR analysis highlights increasing numbers being left behind with the “UK has experienced one of the largest economic contractions among the major advanced economies. Despite government interventions, unemployment will still rise to at least 2.2 million by the end of this year”.

Labour MP Paul Blomfield, who chairs the All Party Parliamentary Group on Students (APPG Students), led the charge for students in the Daily Express with “The government had the opportunity to level the playing field for students – but failed”. The strategy of the government appears to be deliberate in this respect. There is a tacit assumption that ‘middle class’ families will support students. They can afford to have high aspirations of well-paid degree employment. Those without such support are expected to take another route and this oozes from the budget employment strategy. It intentionally drives a social wedge between the advantaged and disadvantaged in a way they will reverberate for a generation.

Employment for young people.

While increased support for young unemployed people will be welcome, it must be seen in the light of support for business. The Kickstart (£2billion) and Restart (2.9 billion) schemes may be big but they effectively subsidise well over one million living wage employees for employers. Initiatives such as “Payments for employers who hire new apprentices” and “High quality traineeships for young people” will certainly make it cheaper for employers to take on less experienced workers. Those that cannot find work will have to take “targeted high value Level 2 and 3 courses”. These schemes all point to diverting the less advantaged away from university and into lower paid vocational jobs and training.

Brexit impact and costs.

These are underplayed in the budget and the true impact could be much greater. However, communities across the UK can expect some mitigation of their loss of income from the EU. The government plans a “£220 million UK Community Renewal Fund” designed to “support communities across the UK in 2021-22”. This is only preliminary and will allow some areas to fund “pilot programmes” for new approaches as the government moves away from EU Structural Funds to ‘The UK Shared Prosperity Fund’. However, there is projected to be a large shortfall. Although not confirmed in the budget, the £1.5 billion per year planned last year is less than the average amount that the UK received from the structural funds from 2014 to 2020 that came to £2.1 billion per year on average.

The £4.8 billion ‘Levelling Up Fund’ will also go a long way to mitigating loss of EU funding but there is some debate about who will benefit most. The jury is out on how these funds will be deployed. However, on studying the form, I would put my money on business first people second.

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.

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