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Early warning: IFS lays out chilling scenarios for sector ¨C but is it a ¡®lobbying¡¯ exercise?

Universities and their students face cuts to remaining direct funding, maintenance grants or places after the next election, according to a report that maps out the consequences of the current trajectory of government austerity.

The prediction is made in a report by the Institute for Fiscal Studies, which looks at ÖйúAƬ funding up to 2017-18 and has been seen as an early attempt to lobby against the continued ring-fencing of NHS, schools and overseas aid budgets.

Cuts to other departments are set to continue until 2017-18, but after 2014-15 it is unclear exactly where the axe will fall.

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The IFS models five scenarios for the Department for Business, Innovation and Skills budget (which funds ÖйúAƬ) from 2015-16 to 2017-18.

The best-case scenario is a 7.9?per cent cut if all departments suffer equally. But if the NHS, schools and overseas aid budgets continue to be protected, cuts to BIS over the period measured would range from 11.1?per cent to 24.7?per cent, depending on how the government calculates the level of austerity already suffered by the department.

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Even in the most favourable case, BIS would find it ¡°challenging¡± to reduce other areas of its budget (such as further education) enough to preserve university places, teaching grants and student maintenance grants, and to continue to protect the science and technology budget in cash terms.

¡°Cuts to science and research or even ÖйúAƬ spending might be required in order to ease the pain in other areas of BIS spending,¡± The Outlook for ÖйúAƬ Spending by the Department for Business, Innovation and Skills, funded by Universities UK and released on 7 November, says.

It starkly presents three ways to?achieve these savings: reduce student numbers by 3 per cent a year from 2014-15; abolish the remaining teaching grant for high-cost subjects such as medicine; or award maintenance grants only to students whose parents earn under ?35,000 a year (the existing threshold is ?42,600).

According to David Palfreyman, director of the Oxford Centre for ÖйúAƬ Policy Studies, the calculations are designed to warn the government that ¡°unless you input some new money you¡¯ve got some nasty decisions to make¡±.

It was an ¡°early lobbying¡± exercise against the existing budget ring-fences, he argued.

But Professor Palfreyman was sceptical that ÖйúAƬ would become enough of an electoral issue to avoid cuts, as ¡°people don¡¯t die¡± as a result of such retrenchment, but do if accident and emergency services are closed.

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Which areas would be cut depended on the outcome of the 2015 general election, he said. But other drastic options also existed: for example, removing research funding to all but 20 universities, or charging US-level tuition fees for medical students, he added.

¡®Higher levels of debt¡¯

The IFS calculations are used in a separate UUK report, released on the same day, which calls for an increase in student numbers, citing ¡°significant future demand¡± for graduate skills among employers.

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The Funding Challenge for Universities also contemplates the controversial prospect of allowing private funders to offer loans with rates determined by the likelihood of repayment, potentially based on where and what students study.

If such a ¡°public-private¡± model went ahead, the report says, public money might be needed to make lending attractive ¡°where the profile of the student or nature of the course presents an increased level of repayment risk to investors¡±.

But it also warns that private lending could expose students to?¡°higher levels of debt and instability¡±.

Julie Tam, head of policy and data analysis at UUK and the report¡¯s author, stressed that the body was not recommending any specific policy, but added: ¡°We need to think about when is it attractive for investors to get into this market.¡±

Andrew McGettigan, a writer on ÖйúAƬ, said that ¡°despite some caveats¡±, The Funding Challenge for Universities ¡°hints at dissolving undergraduate recruitment constraints and fee caps through an increase in private investment, using bonds to fund additional students or higher fees¡±.

But this was ¡°likely to lead to further inequality in the resourcing of the sector and risk an unfamiliar form of financial fragility¡±, he warned.

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A spokeswoman for BIS said that higher tuition fees had increased the amount of money going into universities, adding that the ?9,000 fee cap ¡°allows institutions to continue to deliver high-quality teaching¡±.

david.matthews@tsleducation.com