The funding of higher education in Scotland: implications of further devolution and/or independence Professor David Bell ESRC Research Fellow University.

1

The funding of higher education in Scotland: implications of further devolution and/or independence

Professor David BellESRC Research FellowUniversity of Stirling

2

INTRODUCTION

3

Constitutional Options for Scotland• Status Quo

• Devo +

• Devo More

• Full Fiscal Autonomy

• Independence

4

The Status Quo - Scottish Budget 2013-14

Scottish Further and Higher Education Funding Council

2012-13 Budget

£m

2013-14 Draft

Budget £m

2014-15 Plans

£m

Scottish Funding Council FE Programme 506.9 511.7 470.7Scottish Funding Council HE Programme 1,002.2 1,041.6 1,061.8Scottish Funding Council FE/HE Capital 60.7 45.9 56.4Scottish Funding Council Administration 7.9 7.9 7.9Total Level 2 1,577.7 1,607.1 1,596.8of which:

DEL Resource 1,517.0 1,561.2 1,540.4DEL Capital 60.7 45.9 56.4

SG Spending Limits — Cash Terms 2010-11£m

2011-12£m

2012-13£m

2013-14£m

2014-15£m

Revenue DEL 27,259 26,270 25,896 25,429 24,961Capital DEL 3,462 2,837 2,707 2,319 2,320Total 30,721 29,107 28,603 27,748 27,281Real-Terms Change – year on year -5.3% -1.7% -3.0% -1.7%Real-Terms Change – cumulative -5.3% -6.9% -9.7% -11.2%

5

The Status Quo - Scottish Budget 2013-14Higher Education Student Support

Level 3

2012-13 Budget

£m

2013-14 Draft

Budget £m

2014-15 Plans

£mDELStudent Support and Tuition Fee Payments 325.9 302.4 307.0Student Loan Company Administration Costs 5.0 5.0 5.0Student Loan Interest Subsidy to Bank 4.5 4.5 4.5Cost of Providing Student Loans (RAB Charge) (Non-Cash) 88.4 134.0 181.6Student Awards Agency for Scotland Operating Costs 8.4 8.7 8.7AMENet Student Loans Advanced 241.3 408.3 468.3Capitalised Interest (47.0) (50.0) (52.0)Student Loans Fair Value Adjustment (69.0) (69.0) (69.0)Student Loan Sale Subsidy Impairment Adjustments 0.5 0.5 0.5Total Level 2 558.0 744.4 854.6of which:

DEL Resource 431.8 454.2 506.4DEL Capital 0.4 0.4 0.4AME 125.8 289.8 347.8

6

Alternatives to independence

• Devo plus and devo more– No obvious implications for HE sector relative to status quo.

• Fiscal autonomy – research councils part of “shared services”?

“A payment from Edinburgh to London would be required to cover common UK public goods and services (i.e. “shared services”). The range of services included in this basket of “shared services”, how they would be paid for, and the authority the Scottish Parliament would have over such policies, would be subject to negotiation at the time of any revised settlement” (Fiscal Autonomy in Scotland, Scottish Government 2009)

Would the research councils form part of these shared services?

7

Independence and Higher Education• Key questions for Scottish Government

– Would an independent Scotland want to increase/decrease level of support for HE

– Could it afford increased support?

• Existing structures and relationships – Student demography – stocks and flows– University funding

• The tuition fee issue– A proposed solution

8

DESIRABILITY AND AFFORDABILITY OF POST-INDEPENDENCE HE SUPPORT

9

Graduates make up an increasing share of the Scottish workforce

20012002

20032004

20052006

20072008

20092010

20112012

0.00

0.50

1.00

1.50

2.00

2.50

GraduateNon-graduate

Num

ber o

f em

ploy

ees

(mill

ions

)

10

Graduate premium declining slightly

20012002

20032004

20052006

20072008

20092010

20112012

40%

50%

60%

70%

80%

90%

100%

rUKScotland

Grad

uate

Pre

miu

m (%

)

Graduate premium = Graduate wage/non-graduate wage – 1Source: Labour Force Survey

11

Spending on HE in UK low, but effective

Iceland United Kingdom

Norway Ireland Sweden Denmark Finland Korea United States

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Spen

ding

on

HE a

s Sha

re o

f GDP

29 of the world top 200 universities in the UK

12

Scottish HE Institutions 2012 – Significant Income Generation

Funding C

ouncil gr

ants

Tuition fe

es

Researc

h gran

ts an

d contra

cts

Other inco

me

Endowmen

t and in

vestm

ent in

come

£0m£100m£200m£300m£400m£500m£600m£700m£800m£900m

£1,000m

13

Scottish Growth Sectors Have Strong Links to HE• Oil and Gas• Food and Drink• Technology and Engineering• Renewable Energy• Life Sciences• Tourism• Creative Industries• Financial and Business Services• Chemical Sciences• Construction• Forest and Timber Technologies• Textiles

Unlikely to change immediately post-independence

14

HE as an export earner in an independent Scotland?• Issues

– Migration/visa policy• Implications for border arrangements?

– Co-operative/competitive outcomes among institutions– Technological challenges– Product differentiation

• What makes a Scottish HE course better?

– Policies to attract best scholars• Salaries, working conditions etc

15

STUDENT DEMOGRAPHICS

16

Potential student numbers in Scotland static, growing in England

18 16 14 12 10 8 6 4 2 060

70

80

90

100

110

120

ScotlandWalesNIEngland

Current Age

Inde

x 20

13 =

100

17

Scottish Higher Education Initial Participation Rate (HEIPR) static

2006-07

2007-08

2008-09

2009-10

2010-11

0%

10%

20%

30%

40%

50%

60%

Other HEHNC/HNDFirst Degree

Cum

ulati

ve H

EIPR

18

Share of Students studying in HEIs in the UK by domicile and country of institution: 2009-10

Scotland England Wales Northern Ireland0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

72.4%84.5%

58.0%

92.1%

12.6%

2.6%

25.5%

2.4%17.9% 17.3% 18.2%

11.5%

International students

Other Uk students

Home students

Country of InstitutionPe

rce

nta

ge

sh

are

of s

tud

en

t po

pu

latio

n in

ea

ch c

ou

ntr

y (%

)

19

RUK students share varies by institution

Bell CollegeThe University of West of Scotland

UHI Millennium InstituteScottish Agricultural College

The Rober Gordon UniversityThe University of Strathclyde

Glasgow CaledonianEdinburgh Napier

University of AbertayThe Univerisity of Dundee

The University of StirlingThe University of Glasgow

Queen Margaret UniversityThe University of Aberdeen

Heriot-Watt UniversityThe Royal Scottish Academy of Music

Edinburgh College of ArtGlasgow School of Art

The University of EdinburghThe University of St Andrews

0% 10% 20% 30% 40% 50% 60%

Proportion of RUK Students in Undergraduate Intake

These data are calculated from HESA microdata and provided by Marta Odendal

20

Significant post-graduation cross-border flows

0%20%40%60%80%

100%

First Career Destination of Students Entering University 2003-2006

First Career Destination WorldFirst Career Destination EUFirst Career Destination RUKFirst Career Destination Scot-land

These data are calculated from HESA microdata and provided by Marta Odendal

21

More rUK students come to Scotland

2003 2004 2005 20060.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Ratio of student flow rUK-> Scotland to Scot-land -> rUK

These data are calculated from HESA microdata and provided by Marta Odendal

22

FUNDING

23

Spending relative to population on HE is high in Scotland

England Wales Northern Ireland

Scotland0%

20%

40%

60%

80%

100%

120%

140%

Public SpendingHigher Education

24

Income by Institution 2011-12

Royal Conservatoire of Scotland

Glasgow School of Art

University of Abertay Dundee

Queen Margaret University, Edinburgh

SRUC

University of the Highlands and Islands

The Robert Gordon University

The University of the West of Scotland

The University of Stirling

Edinburgh Napier University

Glasgow Caledonian University

Heriot-Watt University

The University of St Andrews

The University of Aberdeen

The University of Dundee

The University of Strathclyde

The University of Glasgow

The University of Edinburgh

£m £100m £200m £300m £400m £500m £600m £700m £800m

25

The Funding Status Quo• No tuition fees charged for higher education in

Scotland• Fees of up to £9000 per annum payable in rest of

UK. Those charging fees above £6,000 have to allocate some funding to widening access initiatives.

• But according to the NUS, even with tuition fees in England, “Scotland has the worst record on widening access in the whole of the UK”

26

Income from tuition fees and education contracts by country of HE institution 2011/12

England

Wales

Scotland

Northern Ireland

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Full-time undergraduate Full-time postgraduatePart-time undergraduatePart-time postgraduateNon-EU domicile students

27

SFC support varies by institutional size and makeup

Royal S

cotti

sh Aca

demy o

f Music

and Drama

Edinburgh

College

of Art

(*)

Glasgow Sc

hool of A

rt

Queen M

argaret

Univers

ity, E

dinburgh

Abertay

Dundee, U

niversi

ty of

Highlan

ds and Is

lands,

University

of the (

**)

Stirlin

g, Unive

rsity

of

Heriot-W

att U

niversi

ty

Robert Gord

on Unive

rsity

St Andrew

s, Unive

rsity

of

Edinburgh

Napier

Unive

rsity

Wes

t of S

cotla

nd, Unive

rsity

of the

Glasgow Cale

donian U

niversity

Dundee, U

niversity

of

Aberdeen

, Unive

rsity

of

Strath

clyde,

Universi

ty of

Glasgow, U

niversi

ty of

Edinburgh

, Unive

rsity of

(*)£0

£20,000,000

£40,000,000

£60,000,000

£80,000,000

£100,000,000

£120,000,000

£140,000,000

£160,000,000

ResearchPostgraduateGrantResearchExcellenceGrantTeachingGrant

SFC

Gra

nt V

alue

28

Non-Scottish domiciled students in higher education in Scottish HEIs and colleges by domicile: 2000-01 to 2009-10

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0

5,000

10,000

15,000

20,000

25,000

30,000

35,0002

5,8

45

26

,73

0

26

,87

0

26

,23

5

25

,95

5

26

,70

0

27

,27

0

28

,29

0

28

,52

0

29

,83

0

7,8

50

7,9

85

8,3

70

9,1

95

9,8

70

10

,87

5

12

,07

0

12

,67

0

13

,85

0

16

,07

5

10

,83

0

12

,75

0

15

,37

0

16

,91

5

18

,23

0

19

,47

5 23

,08

5

22

,44

5

25

,15

5

25

,99

5

Rest of UK

EU

Non-EU

Academic Year

No

n-S

cotti

sh d

om

icile

d s

tud

en

ts

29

Increased flows from rUK during “noughties” – fee effect?

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

-30%

-20%

-10%

0%

10%

20%

30%

-0.1%

22.1%

22.9%

-19.0%

% Change in student numbers in Scottish HEIs and colleges from UK countries since 2000-01

Scotland

England

Wales

Northern Ireland

Academic Year

% C

ha

ng

e s

ince

20

00

-01

The zero line represents no change since 2000-01.

30

Scottish Domiciled Students in English HE Institutions

1999-00

2000-01

2001-02

2002-03

2003-04

2005-06

2006-07

2007-08

2008-09

2009-10

0

2000

4000

6000

8000

10000

12000

14000

Other HEUndergraduatePostgraduate

31

POST-INDEPENDENCE -SOLVING THE TUITION FEE ISSUE

32

Post-independence – must treat rUK students as EU• EU citizens are automatically entitled to study in other EU member

states: they should not be paying higher tuition fees and they should be able to receive a residence permit (in order to obtain financial sustain as any other national student) – after 5 years

• Hence, substantial increase in inflows post-independence from rUK?

• Studying in Scotland would not be free – living costs incurred

• Recent NUS estimates of living costs = £12,056 per annum (£4,834 for rent, £1,956 for food, £316 for household goods, £42 for insurance, £2,074 for personal items, £1,524 for travel and £1,310 for leisure).

33

Floodgates?• Are living costs higher/lower in Scotland than elsewhere?

• Depends partly on place of domicile

• Paying no fees would reduce costs from £21,000 to £12,000 per annum – 42 per cent (31 per cent if comparing 4year with 3 year course)

• How responsive is student demand to changes in fees?

• Recent estimates from Germany – the imposition of any fees reduces enrollment by 2.7 per cent (Hubner 2012)

34

Floodgates?• Suppose 1 per cent of qualified rUK students

seeking to enter a full-time undergraduate course respond to lower course costs in Scotland by applying to Scottish institution.

• Increase in rUK applications = 3,900

• Equivalent to 12 per cent of Scottish annual intake.

35

A Welsh Solution? • Allow universities to charge (conditional) fees• Use conditionality to support initiatives such as

widening access/STEM etc• Offer Scottish tuition fee grants and loans to all

Scottish domiciled students• Could be universal or means-tested• Means supporting the approximately £12,000

Scottish domiciled students studying in rUK – approx. cost = £120m

36

It won’t work!!!

• EU students must be offered the same fee support and grants as home students.

• The only cash they can’t access are maintenance grants which can be offered to home students only.

• Spillover effects of large neighbour applying marginal cost pricing to merit goods when borders are porous. No obvious solution for small country wishing to subsidise these goods.

37

References• Hübner, M. (2012). Do tuition fees affect enrollment behavior? Evidence from a

“natural experiment” in Germany. Economics of Education Review.

Textbox