Spending review – are there any acceptable cuts?
We are only a week away from George Osborne’s mini spending review where he is expected to announce cuts in spending of around £13.5 billion for the year 2015-16. If we are lucky we may also get an indication of headline budgets in the years that follow although that is likely to come after the next election. Nevertheless we are still in the market for ideas both in the short term (the BIS spending settlement is going to the wire) and for the years (and the savings) that will clearly follow.
Departments and lobbying groups have submitted their plans and most are just trying and hoping to limit the damage. External submissions are typically peripheral to a process dominated by departmental and ministerial wrangling across Whitehall. It’s been pretty bloody by all accounts and even those ministers keen to cut in 2010 have found themselves in very different positions this time around. Inevitably most external submissions tend to look to defend existing budgets and to even set out the case for additional investment. They usually have little effect on the Treasury/Whitehall process. Not least because they offer up nothing to cut.
So what actually happens and what is happening this time? HM Treasury obviously take the lead – with the small departmental teams they will have already identified possible savings when the Chancellor announced the headline spending reductions at the Budget in April. Secretaries of State get the opportunity to see the headlines and the areas for saving and then to respond. A ‘National Union of Ministers’ have paraded their cases across the media from defence to culture.
Alongside, they also – theoretically at least – get the opportunity to bid for new resources to support new activities. This is where the politics come in – what announcements might be made? Can resources be reallocated to more pressing or more politically appealing announcements? This is where changes like Heseltine’s single pot come to the fore or reallocated activities to support interventions like sector based industrial strategies.
This is the ‘rabbit in the hat’ move – always find something to giveaway or to announce that will take a headline and please the party loyalists and backbenchers. Gordon Brown always liked to do this especially in Budgets – and spending reviews aren’t that different as big political set pieces.
Keep the science ringfence, maintain student numbers, widening participation and specialist funding – has largely been the collective refrain from HE. Similar submissions have been received from FE and from adult learning – where many colleges are terrified by the implications of a ring-fenced schools budget within DFE and science budget in BIS. That’s all well and good but BIS is still looking at finding cuts of somewhere around £1billion. And none of these laudable priorities point to as much as a penny in savings.
But are there any opportunities for saving money that we might find palatable?
The big wheeze this time has been the proposed hiving off of medical research to the Department of Health. Why? It all comes down to the pre 2010 election promise of not cutting the NHS budget. By reallocating a few hundred million to the DoH it can make cuts to the same amount in the NHS budget without it being presented as a cut in the overall budget. A political promise kept.
But what does it do to BIS? Firstly it fragments research budgets – a ringfence will never quite mean the same again. Secondly and perhaps worse, it takes control away from HE and out of BIS. Bang goes their pretence to any kind of active industrial strategy in this key sector of the economy. You can see the tumbleweed blowing through the Office for Life Sciences… Less a rabbit in hat and more a rabbit packed away in a cage and donated to medical science.
So what might be some better options for making savings? Painful yes, but manageable? If I was still working at the Treasury or in BIS and having to make the call, here are ten areas I’d like to think about both now and into the next Parliament.
1) Almost everyone wants to protect student numbers and it should be possible to do that as well as to save money. By incentivising greater diversity in study options including part time, higher level apprenticeships (where employers substitute student support costs with a weekly wage) we might extend choice and save money. This could be introduced after 2015 in a model similar to the ‘Core and Margin’ policy (see innovation and efficiencies blog). In time this could be a mechanism that expands human capital and can be achieved without jeopardising the level of individual university income.
2) The Student Loan book and the RAB charge are inevitably an area for discussion – and there are some heroic assumptions about what might be saved (and more importantly in accounting terms, when it might be saved). The biggest ‘savings’ seem to stem from reducing the repayment threshold or varying the interest rate. Both have been in the headlines but both look politically untenable. However freezing the repayment threshold at £21k (by then some five years after the Browne Review) and the maximum tuition fee at £9k will make both short and longer term savings. For example, London Economics have estimated that this may be worth somewhere around £1 billion on its own. This is the closest to painless ‘cuts’ and it might be argued, represents the same idea as imposing an efficiency saving on universities. And let’s face it, we all expect it to happen anyway. Nevertheless we should be clear that this does represent significant saving and not let Treasury ‘bank’ it without acknowledging the value.
3) Like student numbers the lobbying to protect research and innovation funding has been as strong as it was in 2010. It looks likely to succeed but at the possible cost of losing control of health research. This only makes sense as a short term political or accounting manoeuvre to get around the artificial construct of ring fenced health funding.
4) What about Open Access costs for subsidising academic publishers – are these ‘payments’ absolutely necessary? I don’t think so. Back office and efficiency savings in research management yes. Better focusing of R&D tax credit on more catapult centres? Yes please. Some savings? Quite possibly.
5) There may also have to be some rationalisation and/ or savings from HE and FE sector bodies, councils and agencies – there are certainly overlaps and less effective activities that aren’t as high a priority as others. In FE there are still significant savings to be made from rationalising the Skills Funding Agency, the National Apprenticeships Service and other skills bodies and in HE we will need to rely less on HEFCE subsidy for some activities. But in doing so we – in both sectors – should decide where and how such savings should be made. Set us efficiency targets on both targets and we can decide.
6) Another area to look at are the hidden costs of examination or awarding bodies – especially in FE. This is a big sum – annually in the hundreds of millions of pounds. The new FE Guild (now named the Education and Training Foundation) should be charged with a target and procurement muscle to save big sums from awarding bodies. And policy should help them – high performing colleges should get the same curriculum freedoms and flexibilities as schools have. There is also a role for universities to help by helping to provide and/ or develop new awards. This relationship already exists from institutional collaborations over UTCs and through validation of HE programmes. So more savings and more desirable policy outcomes?
7) In HE as in FE and in every other spending department there will almost certainly be an efficiency assumption. Gordon Brown used to regularly expect 1-2% efficiency gains – from smarter use of technology, better procurement, cheap borrowing and so on. No one wants to do this but most people will see the persuasiveness of the argument. Despite inflationary pressure this is one reduction that should share the pain fairly and equally. It also builds on Ian Diamond’s work with expectations and plans for ‘efficiency savings’ from key activities.
8) The National Scholarship Programme (NSP) won’t get cut because the Coalition and particularly the Lib Dems see it as an important policy. But it isn’t and we should use the money to maintain a reasonable level of widening participation funding. Cutting the requirements for institutional match funding would also help at an institutional level – and would allow better targeting in access agreements.
9) Apprenticeships need rethinking. There has been a massive expansion under the Coalition. Some programmes including those at levels 3 and 4 need more support. Other areas don’t and should be reduced whatever the political scripts suggest. Lower quality and/or lower priority apprenticeships should be scaled back – those that are too short, and/or focused on existing rather than new employees, delivering minimal learning that is of little value. Cut them and save the brand as well as the money.
10) Lastly, enrolment numbers (and their relative decline) also matter – we have fewer students in the system than we thought – and even though some of the gap will be filled this year and hopefully next, the overall numbers will be short of 2010 and 2011 and less than initially modelled. Whatever those numbers end up being in the medium term they are likely to represent a saving – both to the loan book and to teaching funding that would have sat alongside. Some would have been in higher cost funding bands and so there are additional savings to the HEFCE budget. Less postgraduates, less part timers all contribute to the same savings. This isn’t imaginary money – it’s real resource and subsidy that isn’t being spent so let’s factor in these savings too.
How much might these measures save? Several are variable – that is they could be driven by the amount of saving required – from measures to broaden choice and diversity to the amounts deliverable from FE and HE sector bodies – but they could be significant. Overall it could be enough for the Treasury and George Osborne – but not enough to cause serious damage to BIS, to HE or FE.