Practice area: | Education and Labour Markets |
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Client: | University and College Union |
Published: | 10 May, 2024 |
Keywords: | economics of education higher education 2024 Public Policy |
London Economics were commissioned by the University and College Union to assess the impact on the Exchequer, students/graduates, and higher education institutions of introducing free tuition fees for undergraduate students across the UK. This involves the removal of fees for all UK domiciled students studying anywhere in the UK, and a corresponding increase in public Teaching Grants paid to higher education institutions to make up for the loss in fee income. In addition, we explore the impact of the potential introduction of an Employer Levy to generate additional Exchequer revenues to cover the required increase in Teaching Grants.
Key findings
- The removal of undergraduate tuition fees and a compensatory increase in Teaching Grants would increase the total Exchequer cost per cohort of UK domiciled students by approximately £11.23 billion. This represents an almost four-fold increase in the Exchequer cost per cohort.
- The fees and funding arrangements vary significantly across the Home Nations (depending on where students are from – and where they study):
- For England, the abolition of fees would result in an additional cost of £10.38 billion per cohort of English domiciled undergraduate students.
- In Scotland, as the fees charged to Scottish full-time students studying in Scotland are already covered by a full fee grant, the extension of free fees to Scottish domiciled students studying elsewhere in the UK (and to part-time students) adds only £0.06 billion per cohort to the total cost.
- In Wales, where the fee system is much more similar to England, abolishing fees would increase the Exchequer costs by £0.57 billion per cohort.
- In Northern Ireland, the removal of fees would increase the public cost by £0.21 billion per cohort.
- To compensate for these significant additional costs to the Exchequer, we modelled the size of a potential Employer Levy:
- As one option for this Levy, we modelled it to function in a similar way to employers’ National Insurance contributions and to only apply to organisations employing graduates. Focusing only the relevant cohort of students covered throughout the analysis here, the resulting required Levy for employers of English domiciled students in the cohort was estimated to be 1.13%. The corresponding Levy for employers of Scottish domiciled students/graduates was estimated at only 0.07%, with the estimates for Wales and Northern Ireland standing at 1.06% and 0.80%, respectively.
- Alternatively, the required additional funding could be raised through an approximately 3 percentage point increase in the Corporation Tax rate. This Corporation Tax increase would apply to the profits of all UK resident companies (irrespective of whether they employ graduates (or how many)).
The report can be found here.