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

Professor David Bell ESRC Research Fellow of Stirling

1 INTRODUCTION

2 Constitutional Options for Scotland • Status Quo

• Devo +

• Devo More

• Full Fiscal Autonomy

• Independence

3 The Status Quo - Scottish Budget 2013-14

SG Spending Limits — Cash Terms 2010-11 2011-12 2012-13 2013-14 2014-15 £m £m £m £m £m Revenue DEL 27,259 26,270 25,896 25,429 24,961 Capital DEL 3,462 2,837 2,707 2,319 2,320 Total 30,721 29,107 28,603 27,748 27,281 Real-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%

2012-13 2013-14 2014-15 Budget Draft Plans Scottish Further and Higher Education Funding Budget Council £m £m £m

Scottish Funding Council FE Programme 506.9 511.7 470.7 Scottish Funding Council HE Programme 1,002.2 1,041.6 1,061.8 Scottish Funding Council FE/HE Capital 60.7 45.9 56.4 Scottish Funding Council Administration 7.9 7.9 7.9 Total Level 2 1,577.7 1,607.1 1,596.8 of which: DEL Resource 1,517.0 1,561.2 1,540.4 DEL Capital 60.7 45.9 56.4

4 The Status Quo - Scottish Budget 2013-14

Higher Education Student Support 2012-13 2013-14 2014-15 Budget Draft Plans Budget Level 3 £m £m £m DEL Student Support and Tuition Fee Payments 325.9 302.4 307.0 Student Loan Company Administration Costs 5.0 5.0 5.0 Student Loan Interest Subsidy to Bank 4.5 4.5 4.5 Cost of Providing Student Loans (RAB Charge) (Non- 88.4 134.0 181.6 Cash) Student Awards Agency for Scotland Operating Costs 8.4 8.7 8.7 AME Net Student Loans Advanced 241.3 408.3 468.3 Capitalised 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 0.5 Total Level 2 558.0 744.4 854.6 of which: DEL Resource 431.8 454.2 506.4 DEL Capital 0.4 0.4 0.4 AME 125.8 289.8 347.8

5 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 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 would have over such policies, would be subject to negotiation at the time of any revised settlement” (Fiscal Autonomy in Scotland, 2009)

Would the research councils form part of these shared services?

6 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

7 DESIRABILITY AND AFFORDABILITY OF POST-INDEPENDENCE HE SUPPORT

8 Graduates make up an increasing share of the Scottish workforce

2.50

2.00

1.50 Graduate 1.00 Non-graduate

0.50 Number of employees (millions) employees of Number

0.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

9 Graduate premium declining slightly

100%

90%

80%

70% rUK Scotland

60% Graduate (%) Premium Graduate 50%

40%

Graduate premium = Graduate wage/non-graduate wage – 1 Source: Labour Force Survey 10 Spending on HE in UK low, but effective

3.0

2.5

2.0

1.5

1.0 Spending on HE Spendingon HE as ofShareGDP

0.5

0.0 Iceland United Norway Ireland Sweden Denmark Finland Korea United Kingdom States

29 of the world top 200 in the UK

11 Scottish HE Institutions 2012 – Significant Income Generation

£1,000m £900m £800m £700m £600m £500m £400m £300m £200m £100m £0m Funding Tuition fees Research Other income Endowment Council grants grants and and contracts investment income

12 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

13 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

14 STUDENT DEMOGRAPHICS

15 Potential student numbers in Scotland static, growing in England

120

110

100 Scotland 90 Wales 80 NI Index 2013 = 100 = 2013 Index England 70

60 181716151413121110 9 8 7 6 5 4 3 2 1 0 Current Age

16 Scottish Higher Education Initial Participation Rate (HEIPR) static

60%

50%

40% Other HE 30% HNC/HND First Degree

20% Cumulative HEIPR Cumulative

10%

0% 2006-07 2007-08 2008-09 2009-10 2010-11

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

100% 11.5% 90% 17.9% 17.3% 18.2% 2.4% 2.6% 80% 12.6% 70% 25.5% International students 60% Other Uk students

50% Home students 92.1% 40% 84.5%

(%) 72.4% 30% 58.0%

20%

10%

0% Scotland England Wales Northern Ireland

Country of Institution Percentage share of student population in each country eachcountry population in student ofshare Percentage

18 RUK students share varies by institution

Proportion of RUK Students in Undergraduate Intake

The The Edinburgh of Art The Royal Scottish Academy of Music Heriot-Watt University The Queen Margaret University The The The Univerisity of Dundee University of Abertay Edinburgh Napier Glasgow Caledonian The University of Strathclyde The Rober Gordon University Scottish Agricultural College UHI Millennium Institute The University of West of Scotland Bell College

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

These data are calculated from HESA microdata and provided by Marta Odendal 19 Significant post-graduation cross-border flows

First Career Destination of Students Entering University 2003-2006 100% 90% 80% 70% First Career Destination World 60% 50% First Career Destination EU 40% 30% First Career Destination RUK 20% 10% First Career Destination 0% Scotland Scottish Students RUK Students at Scottish Students at Scottish Scottish at RUK Institutions Institutions Institutions

These data are calculated from HESA microdata and provided by Marta Odendal 20 FUNDING

22 Spending relative to population on HE is high in Scotland

140%

120%

100%

80% Public Spending 60% Higher Education

40%

20%

0% England Wales Northern Scotland Ireland

23 Income by Institution 2011-12

The University of Edinburgh The University of Glasgow The University of Strathclyde The The University of Aberdeen The University of St Andrews Heriot-Watt University Glasgow Caledonian University Edinburgh Napier University The University of Stirling The University of the West of Scotland The University of the Highlands and Islands SRUC Queen Margaret University, Edinburgh University of Abertay Dundee Glasgow School of Art Royal Conservatoire of Scotland

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

24 The Funding Status Quo • No tuition fees charged for higher • 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”

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

Northern Ireland

Scotland Full-time undergraduate Full-time postgraduate Part-time undergraduate Part-time postgraduate Wales Non-EU domicile students

England

0% 20% 40% 60% 80% 100%

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

35,000

30,000

29,830

28,520 28,290

25,000

27,270

26,870

26,730

26,700

26,235

25,995

25,845 25,955

25,155 Rest of

20,000 23,085 UK

22,445

EU

19,475

18,230

15,000

16,915 Non-EU

16,075

15,370

13,850

12,750

Scottish domiciled students domiciled Scottish 12,670

10,000

-

12,070

10,875

10,830

9,870

9,195

Non

8,370 7,985

5,000 7,850

0 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 01 02 03 04 Academic05 06 Year 07 08 09 10

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

% Change in student numbers in Scottish HEIs and colleges from UK countries since 2000-01 25% 22.1%

20%

22.9% 01 15%- 10%

5% Scotland -0.1% 0% England The zero line represents no-5% change since 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- Wales 2000-01. -10% % Change since2000 01 02 03 04 05 06 07 08 09 10 Northern -15% Ireland -20% -19.0% -25% Academic Year

29 POST-INDEPENDENCE - SOLVING THE TUITION FEE ISSUE

31 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).

32

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)

33

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.

34 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

35 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.

36 References

• Hübner, M. (2012). Do tuition fees affect enrollment behavior? Evidence from a “natural experiment” in Germany. Economics of Education Review.

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