Augar’s tuition fee cut would devastate research, thinktank warns chancellor

Days before the government’s spending review, the Higher Education Policy Institute issues a warning about research funding

Cutting tuition fees would have a damaging effect on UK higher education research, an influential thinktank has warned the chancellor, days before he is set to deliver his first budget.

In a report for the Higher Education Policy Institute, the thinktank’s director Nick Hillman warned chancellor Rishi Sunak that the Augar report’s proposed cut to tuition fees poses a threat to research at English universities.

The Post-18 Review of Education and Funding, chaired by Phillip Augar, was commissioned in February 2018 by then prime minister Theresa May, and published its findings to government in May 2019 after a short delay.

Nearly a year since the report was made public, the government is finally set to respond to its recommendations, which include reducing the cap on tuition fees to £7,500.

Mandating Augar’s central proposal on tuition fees would have a detrimental impact on the amount of money spent on research at UK universities, because most cross-subsidise their costly research with surplus funds derived from student’s fees, Mr Hillman warned in his report, published today.

There is no guarantee that international students, whose higher tuition fees help replenish depleted university coffers, would be attracted in significant enough numbers to offset the money lost, Mr Hillman continued.

We need to redouble our efforts to ensure a better understanding of the interdependencies between teaching and research in the face of the latest Whitehall changes, which mean we now have one Minister for Universities and a different Minister for Science
– Nick Hillman, Hepi

What costs are universities struggling to cover?

The report uses data taken from a costing system adapted to help universities understand the cost of their teaching, research and other activities – the Transparent Approach to Costing (TRAC) is used by government bodies, like the Office for Students, UK Research and Innovation and funding councils in Scotland and Northern Ireland.

TRAC data shows that universities recoup more of the cost of teaching students than they do the cost of research.

University research is underfunded against its true costs and the latest figures show a gap amounting to £4.3 billion across the UK and £3.7 billion in England and Northern Ireland.

Depending on how the government chooses to respond to the Augar report, Hepi estimates the impact on this shortfall could increase by between £0.7bn and £2.3bn within one financial year. If the status quo was maintained, the deficit could expect to grow by £0.2bn by 2021, the report’s figures predict.

The report’s data analysis indicates that 98.3% of the teaching costs for home and EU students were covered by tuition fees and 139.3% for international students. Cost recovery for research ranged between 16.8% for institutions’ own-funded research to 77.7% for industry-sponsored research, with around 69.4% of all research expenses reclaimed on average.

“Despite the importance of university research in futhering knowledge, tackling the world’s greatest challenges and stimulating economic activity, it is the only major class of activity that universities undertake which loses significant sums of money,” the report explains.

These deficits are expected to grow if tuition fees are reduced by the government in its spending review. The figures show that, at present, teaching domestic students nearly breaks even, but a tuition fee cut would likely make teaching domestic students a loss-making activity.

International students, on average, paid £5,100 than it costs to teach them and around £4,250 of that is spent on topping up research funding pots. It would be difficult to recruit enough international students to cover the costs of both research and domestic students, the report warns.

The figures also suggest universities are finding it harder to cover costs than a few years ago. Overall institutional cost recovery has fallen from 96.7% in 2014/15 to 95.7% in 2017/18. For research alone, the figures are starker still: cost recovery peaked at 77.8% in 2010/11 but has since fallen to 69.4%.

What would Augar mean for research?

In the best-case scenario, in which the reduction of fees is entirely made up with extra funding from the Treasury, would mean a real terms reduction of 8% between 2019/20 and 2022/23.

Although Augar suggests reducing tuition fees to £7,500, its independent panel did not specify a particular model. Hepi suggests there are four models the government could choose to enact.

Model 1: Tuition income for each student remains at its 2019/20 value in real terms (increasing with inflation) and stays worth £9,161 for each home student until 2022/23. This maintains the status quo.

Model 2: Tuition income for each student remains at the 2019/20 level in cash terms but this equates to a gradual fall in real value due to inflation to £8,428 by 2022/23. Would lead to a teaching budget shortfall of £0.7bn.

Model 3: Tuition income for each student falls to £7,500 from 2020/21 but thereafter rises in line with inflation, maintaining its real value at £7,500 until 2022/23. Would lead to a teaching budget shortfall of £1.7bn.

Model 4: Tuition income for each student falls to £7,500 from 2020/21 and in real terms to £6,900 by 2022/23. Would lead to a teaching budget shortfall of £2.3bn.

Read more: Augar: students ‘unconvinced’ by drop in tuition fees

What would universities do to balance the books?

The report warns that universities might have to:

  • Improve teaching productivity: the report says this is harder said than done, because a more diverse student population makes standardisation harder.
  • Spend less on teaching: the report warns that there would be a significant deterioration in student experience, which the Office for Students would be sure to challenge
  • End cross-subsidies: universities may have to focus on student experience, leading to significantly lower levels of research output

The AdvanceHE/Hepi Student Academic Experience Survey 2019 asked over 14,000 students what they wanted their tuition fees spent on. Of those polled, 60% said teaching facilities and 58% said student support services, but only 45% said research facilities and only 29% said research staff.

Apart from Augar, what else might impact research?

The report warns that the future for research in universities is under threat from several directions.

  • Private sector funding: government can’t bank on industry making up the research shortfalls, because evidence suggests it’s dictated by the health of the economy
  • Brexit: there is little detail on the future of the UK’s involvement with EU research funds
  • Politics: with flooding, coronavirus and ‘levelling up’, the report warns research might drop off the government’s radar
  • Split ministers: unlike her predecessors, David Willetts, Jo Johnson, Sam Gyimah and Chris Skidmore, universities minister Michelle Donelan does not have responsibility for science and innovation. Splitting the roles might mean research takes a back seat.

University Business approached the Department for Business, Energy and Industrial Strategy (BEIS) for its views on the Augar report’s impact on research, but has not received a response.

Mr Hillman, the report’s author, said: “If the UK university sector is to continue thriving, then it is crucial that the chancellor recognises the interdependencies between teaching and research in the budget and subsequent spending review.

“Universities roughly break even on teaching home students but make a big loss on research. They fill in part of that gap from the surplus on teaching international students. But they now face a looming large loss on teaching home students, for example because of tweaks to tuition fees in England. If that happens, they will have to use international student fees to subsidise home students and there will be less money for covering gaps in research funding.

“We need to redouble our efforts to ensure a better understanding of the interdependencies between teaching and research in the face of the latest Whitehall changes, which mean we now have one Minister for Universities and a different Minister for Science.”

In a foreword to the report, Prof Robert Van de Noort, vice-chancellor of the University of Reading, said the impact on research funding “seems to go against the Government’s wish to strengthen research in these and other areas”.

Last year, a report by the House of Lords science and technology select committee concluded “the Augar review did not take a holistic approach to the funding of universities and made no attempt to address the potential impact of its recommends reductions in student fees on the funding of research”.

The report said the UK will not reach its target of investing 2.4% of GDP in research and development by 2027 unless government heeds the warning.

The committee chaired by Lord Patel said that, due to a freeze in Quality Related (QR) funding since 2010, universities were cross-subsidising research funding from other revenue streams. It recommended the government ensure any loss of income incurred by a cut in tuition fees be guaranteed by new grants to ensure the sector was not negatively affected.

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